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2025 Supreme(Online)(Mad) 61370
IN THE HIGH COURT OF JUDICATURE AT MADRAS
N. Anand Venkatesh, J
Dharani Sugars and Chemicals Limited – Appellant
Versus
Central Bank of India – Respondent
WP No. 11287 of 2025|WMP No. 12730 of 2025
For the Appellants/Petitioners: J.Manivannan
For the Respondents: Mr.M.L.Ganesh
Court emphasized the necessity of adhering to procedural guidelines before classifying borrowers as 'Wilful Defaulters', ensuring compliance with principles of natural justice.
Headnote:(A) Article 226 of the Constitution of India - Writ of Certiorarified Mandamus - Impugned order classifying petitioners as 'Wilful Defaulters' challenged for allegedly not following RBI Circular - Court reiterates the need for adherence to due process outlined in Master Circular dated 01.07.2015 and the Supreme Court's ruling in State Bank of India vs. Jah Developers Private Limited. (Paras 5, 6, 7)
(B) Natural Justice - Procedure required prior to classifying a party as 'Wilful Defaulter' was not followed, denying them an opportunity to represent their case. (Paras 6, 7)
Facts of the case:
The petitioners, directors of a borrowing company declared as 'NPA', challenge their classification as 'Wilful Defaulters', contesting the non-compliance with RBI guidelines and previous Supreme Court judgments.
Findings of Court:
The impugned order is set aside, affirming that due process must be followed in classifying borrowers.
Issues: Inclusively, whether the classification as 'Wilful Defaulters' adhered to procedural guidelines and justice principles.
Ratio Decidendi: The failure to comply with the Master Circular negates the basis for the classification, thus the order was quashed.
Result: Writ petition allowed.
| Table of Content |
|---|
| 1. writ petition challenges classification as wilful defaulters. (Para 1 , 2) |
| 2. financial challenges led to npa status. (Para 3 , 4) |
| 3. court evaluates adherence to rbi guidelines. (Para 5 , 6) |
| 4. classification lacks procedural compliance. (Para 7) |
| 5. writ petition is allowed. (Para 8) |
ORDER
This writ petition has been filed challenging the impugned proceedings of the 1st respondent dated 17.06.2021, declaring the petitioners as 'Wilful Defaulters'.
2.Heard Mr.J.Manivannan, learned counsel appearing on behalf of the petitioners and Mr.M.L.Ganesh, learned counsel appearing on behalf of the respondent.
3.The case of the petitioners is the 1st petitioner obtained credit facilities with Consortium of Banks including the respondent Bank. Due to financial challenges, the loan account of the 1st petitioner was classified as 'NPA'. Thereafter, the Consortium Lenders Meeting was held on 14.02.2020. A Forensic Auditor was appointed and the audit was completed and report was shared with the lenders. In the meantime, Corporate Insolvency Resolution Process was initiated against the 1st petitioner Company. Subsequently, the Consortium Banks transferred the loan amount to the National Asset Reconstruction Company Limited.
4.The petitioners were trying to find out the solution with potential investors to revive the Company. At that point of time, they became aware of the fact that they have been classified as 'Wilful Defaulters' by the respondent Bank. Aggrieved by the same, the present writ petition has been filed before this Court.
5.The main ground that has been taken by the petitioners is that the respondent Bank failed to follow the mandate under the Master Circular dated 01.07.2015 and also the judgement of the Apex Court in State Bank of India vs. Jah Developers Private Limited and others reported in2019 6 SCC 787
6.The Apex Court after considering the Master Circular issued by the Reserve Bank of India rendered the following findings at Paragraph No.24 of the judgement which is extracted hereunder:
Given these drastic consequences, it is clear that the Revised Circular, being in public interest, must be construed reasonably. This being so, and given the fact that Para 3 of the Master Circular dated 1-7-2013 permitted the borrower to make a representation within 15 days of the preliminary decision of the First Committee, we are of the view that first and foremost, the Committee comprising of the Executive Director and two other senior officials, being the First Committee, after following Para 3(b) of the Revised Circular dated 1-7-2015, must give its order to the borrower as soon as it is made. The borrower can then represent against such order within a period of 15 days to the Review Committee. Such written representation can be a full representation on facts and law (if any). The Review Committee must then pass a reasoned order on such representation which must then be served on the borrower. Given the fact that the earlier Master Circular dated 1-7-2013 itself considered such steps to be reasonable, we incorporate all these steps into the Revised Circular dated 1-7-2015. The impugned judgment is, therefore, set aside, and the appeals are allowed in terms of our judgment. We thank the learned Amicus Curiae Shri Parag Tripathi, for his valuable assistance to this Court.
7.In the case in hand, the procedure as contemplated under the Master Circular dated 01.07.2015 has not been followed. The petitioners themselves came to know that they have been classified as 'Wilful Defaulters' only at a later point of time. Therefore, the impugned order dated 17.06.2021, is liable to be interfered by this Court and the same is hereby, set aside. If ultimately, the respondent Bank wants to classify the petitioners as 'Wilful Defaulters', they have to follow the mandate under the Master Circular dated 01.07.2015 and also take note of the judgement of the Apex Court which mandated providing opportunity to the concerned persons.
8.In the result
