A declaration of wilful defaulters against non-executive directors requires specific allegations of involvement in the company's financial decisions; otherwise, it violates principles of natural justice and RBI procedural guidelines.

JUDGMENT :

Dr. S.K. Panigrahi, J.

1. The Petitioner through this Writ Petition has challenged the action of the Opposite Party Bank in declaring the Petitioners as “wilful defaulters” under the Reserve Bank of India’s Master Circular on Wilful Defaulters dated 01.07.2015.

I. FACTUAL MATRIX OF THE CASE

2. The concise yet comprehensive factual record of the case, pertaining to the matter at hand, is presented succinctly as follows:

3. The Petitioners have been constrained to approach this Court under Article 226 of the Constitution of India challenging the illegal, arbitrary and wrongful declaration of the Petitioners as Wilful Defaulters vide order dated 28.03.2023 passed by the Review Committee of the Opposite Party Bank which was communicated to the Petitioners vide communication dated 03.05.2023 issued by the Opposite Party Bank.

4. Clause 3 of the RBI Master Circular dated 01.07.2015 (’RBI Master Circular’) provides for a three-tier mechanism in order to declare any person as a wilful defaulter. The first stage is issuance of a show cause notice in accordance with law providing the basis on which a person is to be identified as a wilful defaulter along with the supporting documents relied upon by the bank.

5. The second stage is that of the "Committee for Identification of Wilful Defaulter(s)" who shall then pass an order after affording an opportunity of representation and personal hearing to the accused(s) and in the third stage, the order of the Committee is reviewed by a second committee known as the “Review Committee”.

6. This three stage mechanism is provided as a safeguard since the declaration of a person as a wilful defaulter has grave civil and penal consequences. Failure on the part of the Opposite Party Bank to provide relevant documents and raise specific allegations against the Petitioners has resulted in denial of a fair opportunity to the Petitioners to present their case before the Review Committee of the Opposite Party Bank which has caused severe prejudice to the Petitioners. The entire process has been done in utter violation of the principles of natural justice.

7. It is alleged that the impugned action of the Opposite Party Bank declaring the Petitioners as “wilful defaulters” is against the basic tenets of law and in gross violation of the provisions of the Reserve Bank of India’s Master Circular on Wilful Defaulters. The Opposite Party Bank has erred in not taking into consideration the representations of the Petitioners and inter alia the following:

(i) Petitioner Nos.1, 2 and 3 were merely working as Non-executive Directors of ’JMT Auto Ltd.’ (JAL). During their tenure with the company nor did they participate in the financial decision making of the company.

(ii) Petitioner No.4 was always acting as the Director in the Professional capacity only and was not involved in the financial decision making of the company in any manner.

(iii) The impugned order was only signed by the Chief General Manager, NPA Management Group. Thus, being in contravention of provision 3(c) of the RBI Master Circular on Wilful Defaulters, the e-voting of the Resolution Plan of JAL was concluded on 16.01.2023 and the Resolution Plan submitted by one Ramkrishna Forgings Limited was duly approved by 84.61% voting CoC members. Pursuant to this, the Resolution Professional of JAL filed an application [IA No.1067/2023 in CP(IB) No.1088/ND/2020] before the NCLT in accordance with Section 30 of the IBC for approval of the said Resolution Plan, which is pending approval and the next date of hearing in the said matter is 30.05.2023. It is pertinent to