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IN THE HIGH COURT OF JUDICATURE AT MADRAS
N.KIRUBAKARAN, T.V.THAMILSELVI, JJ.
M/s. Leo Primecomp Private Limited Represented by its Authorized Signatory Mr. A. Balakumar - Petitioners
Vs.
State Bank of India Stressed Assets Management Branch - Respondents
W.P.No.17983 of 2019 and W.M.P.Nos.17394 & 17395 of 2019
Decided On : 04-08-2021
Insolvency and Bankruptcy Code, 2016 - Section 7, 29-A - Companies Act, 2013 - Section 2(60) – Constitution of India, 1950 - Article 19(1)(g) - Credit Facilities - Wilful Defaulters - First petitioner has availed credit facilities from first respondent and same has been renewed and enhanced from time to time - First petitioner was repaying loan diligently without any default - However, due to recession in power sector, first petitioner suffered a setback in business - Therefore, first petitioner was declared as NPA - Even after declaring first petitioner as NPA, first petitioner continued to pay loans by way of bank arrangement on receivables - First respondent served notice to first petitioner calling upon petitioner to show cause as to why first petitioner's name should not be included in list of wilful defaulters - Held, Court is of view that Article 19(1)(g) is attracted in facts of present case as moment a person is declared to be a wilful defaulter, impact on its fundamental right to carry on business is direct and immediate - Banks/financial institutions can even change management of wilful defaulter, and a promoter/director of a wilful defaulter cannot be made promoter or director of any other borrower company - From above, it is clear that decision of Identification Committee should be communicated to borrower whereas in this case, though Identification Committee gave a personal hearing to petitioner, decision of Identification Committee was not made known or served upon petitioner which violates principles of natural justice - Without serving decision to petitioner, decision was forwarded to Review Committee for approval and Review Committee approved decision of Identification Committee declaring petitioner as Wilful Defaulter - Even though it is contended that decision of both Committees have not been challenged and only communication by which Company was informed about decision of Identification Committee as well as Review Committee has been challenged, it is to be noted that it is specific case of petitioner that neither decision of Identification Committee nor decision of Review Committee has been informed to petitioners and only through impugned notice, it has been informed - Petition allowed.
ORDER :
N.KIRUBAKARAN, J.
The petitioners have challenged the first respondent's letter dated 13.03.2019 by which it is informed that the identification committee and the review committee meeting held on 29.11.2018 and on 04.01.2019 had declared the petitioners as wilful defaulter.
2. The case of the petitioners is that the first petitioner has availed credit facilities from the first respondent and the same has been renewed and enhanced from time to time. The first petitioner was repaying the loan diligently without any default. However, due to recession in the power sector, the first petitioner suffered a setback in the business. Therefore, the first petitioner was declared as NPA. Even after declaring the first petitioner as NPA, the first petitioner continued to pay the loans by way of bank arrangement on the receivables.
3. When things stand so, the first respondent served notice on 10.08.2017 to the first petitioner calling upon the petitioner to show cause as to why the first petitioner's name should not be included in the list of wilful defaulters as per clause 1.1.3(b), 2.2.1(a) and 2.2.1(d) of Master Circular of the second respondent alleging.
(1). The first petitioner purchased fixed assets worth Rs.27.56 Crores in the financial year 2011- 12 and Rs.33.27 Crores in the financial year 2012 - 13 without bringing in matching long term funds which is not in conformity with the terms of sanction.
(2). The proceeds from the sales of inventory and realisation of receivables were not fully routed through loan account, whereas the company was routing funds through current account with other banks, which is without the approval of the lender banks.
4. The first petitioner sent a reply on 08.09.2017 stating that there has been no routing of funds through other accounts. The Indian Bank account has been in operation since 2001 and the same has been operated with the purpose of getting duty drawback and other Government funds. The long term assets had been purchased using Fixed Deposit margin money by closing the Fixed Deposits.
5. Thereafter, on 29.05.2018, the first respondent issued a letter calling upon the first petitioner/Company to attend the personal hearing before the Wilful Defaulter Identification Committee which was replied through a communication dated 06.06.2018 and the Company sought for rescheduling of personal hearing to some other date. The first respondent issued another show cause notice dated 23.07.2018 to the Guarantors through letter dated 21.08.2018 and 22.11.2018. The Company explained as to why it should not be declared as Wilful defaulter. The petitioner nos.2 and 3 appeared before the Wilful Defaulter Identification Committee for personal hearing on 29.11.2018.
6. After personal hearing, the first respondent sent a notice dated 13.03.2019 which informed the Company that the Identification Committee and the Review Committee had meetings on 29.11.2018 and 04.01.2019 respectively which declared the Company as Wilful Defaulter. The said impugned letter is challenged before this Court on various grounds including violation of principles of natural justice for not giving opportunity to put forth the case of the petitioners.
7. Heard Mr.Satish Parasaran, learned Senior Counsel for the petitioners, Mr.Suresh, learned counsel for R1 and Mr.C.Mohan, learned counsel for R2.
8. The facts of the case would reveal that the first petitioner has availed loan from the first respondent and other petitioners are guarantors. Since there is a default in the repayment, the first petitioner was declared as NPA with effect from 14.03.2014. It is evident from the Counter Affidavit filed by the first respondent that the first respondent had already filed an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 against the first petitioner before the NCLT and the said petition was admitted and the IRP was appointed vide order dated 24.07.2019. In continuation to NCLT proceedings, the first respondent also filed recovery
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