Banks classified as private corporations are not subject to writ jurisdiction under Article 12 of the Constitution; compliance with RBI directives is necessary for classifying borrowers as 'willful defaulters'.

ORDER :

NAGESH BHEEMAPAKA, J.

Petitioners case is that Respondent No. 1 – IDBI Bank acted illegally, arbitrarily and in violation of the RBI Master Circulars dated 01.07.2013 and 01.07.2015 by classifying them as well as Respondent No. 2 company as ‘Willful Defaulters’. It is contended that the impugned action is contrary to the principles of natural justice as laid down by the Supreme Court in State Bank of India v. Jah Developers Pvt. Ltd. (Civil Appeal No. 47761 of 2019). Petitioners state that the orders dated 08.07.2021 (communicated on 12.07.2021) of the Identification Committee and the confirming order dated 27.08.2021 (communicated on 26.10.2021) of the Review Committee are fundamentally-illegal as they fail to comply with mandatory procedural safeguards, and therefore require interference.

1.1. Petitioners state that they were formerly the management of Respondent No. 2 company which is undergoing CIRP pursuant to orders of the NCLT, Hyderabad Bench in CP(IB) No. 645/HDB/2018. The NCLT admitted the company into CIRP on 05.06.2023. Due to deficiencies in public announcement and other procedural shortcomings, the NCLT restarted the CIRP process by order dated 21.02.2025. It is stated, Petitioners are part of the suspended management and that wrongful classification as willful defaulters affects their rights in the CIRP, including their eligibility to submit a Resolution Plan for the MSME under the statutory scheme.

1.2. Petitioners state that Respondent No. 2 company was engaged in the business of manufacturing hybrid seeds and is uniquely dependent on climatic conditions. In 2012-13, severe drought occurred which seriously affected agricultural output across several states. As a result, the company's seed production collapsed, resulting in heavy financial losses and severe liquidity crisis. It is maintained that default in repayment stemmed directly from this natural calamity, which was entirely beyond their control. At the critical time when the company was attempting to restructure and revive operations, the consortium banks, including Respondent No. 1, failed to release sanctioned working capital. They allege that the banks did not release the approved Pre-CDR PD amounts in 2012, caused delay in approval of the CDR package, delayed execution of Master Restructuring Agreement, and made only partial disbursement of funds even after approval. They contend that some banks did not participate in the PDR, and that banks refused to release Rs. 15 crores required for packing and placing seeds in the market in 2013 and 2014. This led to inability to place stock on time, high sales returns, significant inventory costs, cash flow deterioration, loss of manpower and eventual operational slowdown.

1.3. Petitioners state that these circumstances demonstrate that default was not willful. They assert that there was never any diversion of funds with dishonest intent or deliberate decision not to repay. For several years prior to drought, the Company had diligently serviced interest and repayments. It is pointed out that they made multiple presentations to Joint Lenders' Meetings, wrote letters to bank chairpersons and officials, approached state and central government ministries, and submitted financial information to lenders, showing their continuous efforts to revive the business. It is also contended, the mandatory safeguards prescribed under the RBI Master Circular were not followed. Show Cause Notice dated 29.06.2020 was issued by a Deputy General Manager, who was not a member of t