Classification of corporate debtors as wilful defaulters requires adherence to RBI guidelines, and failure to establish procedural violations will not warrant judicial intervention.

ORDER :

NAGESH BHEEMAPAKA, J.

Petitioners state that show cause notice dated 22.01.2015 as well as subsequent notice dated 20.02.2016, are fundamentally-defective and illegal as they were not issued by the Identification Committee as mandated by the RBI Master Circular on Wilful Defaulters. According to them, these notices were issued by an officer who was not a member of the Identification Committee, and neither notice bears the signatures or approval of the Committee members. They further contend that the notices do not disclose any reasons, material particulars, or independent findings of the Committee. They assert that no deliberations of the Committee preceded the issuance of these notices, thereby demonstrating total non-application of mind and rendering the entire exercise contrary to the mandatory procedural framework prescribed by the RBI.

1.1. Petitioners state that they are members of the suspended management of Respondent No. 2 company, which has been admitted into Corporate Insolvency Resolution Process (CIRP) in CP(IB) No. 645/HDB/2018 by order dated 05.06.2023 of the NCLT, Hyderabad Bench. They further point out that due to deficiencies in the public announcement and other procedural aspects, the NCLT restarted the CIRP on 21.02.2025. The Petitioners contend that the branding of the suspended management as wilful defaulters directly affects their rights under the Insolvency and Bankruptcy Code, including their eligibility to submit a resolution plan for the MSME. They assert that such a classification has the effect of disqualifying them from participating in the resolution of the very company whose operations they managed, causing serious civil and commercial prejudice.

1.2. It is stated, the default in servicing loans occurred due to circumstances entirely beyond their control. Respondent No. 2 is a hybrid seed manufacturing company whose operations depend heavily on climatic conditions. During the agricultural year 2012-13, severe drought occurred, adversely affecting seed production and leading to steep financial losses and liquidity constraints. They assert that the drought caused a massive disruption in the entire seed industry and that company's inability to meet repayment obligations resulted directly from this natural calamity, not from any deliberate or wilful act on their part.

1.3. Petitioners further state that at the critical time when the company was attempting to revive and restructure operations, the consortium lenders, including Respondent No. 1, failed to release sanctioned and essential working capital. They allege that the consortium did not release the Pre-CDR PD amounts in 2012, delayed the approval of the CDR package, delayed execution of the Master Restructuring Agreement, and even after approval, sanctioned funds were only partially released. They also contend that some member banks did not participate in the PDR. They state that the banks refused to release Rs. 15 crores required for packing and placing seeds in the market during 2013 and 2014, which led to inability to place stocks on time, high sales returns, accumulation of inventory, severe cash flow deterioration, loss of manpower, and eventual disruption of operations.

1.4. Petitioners state that there was no dishonest intention, diversion of funds, or siphoning of money as alleged by the Bank. Prior to the drought, the company had consistently serviced its loan obligations. They further submit that group- company transactions referred to by the Bank were genuine commercial transactions involving other seed and biotechnology companies within their group, and these entities had substantial operations, dealer networks, and longstan