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IN THE HIGH COURT OF KERALA AT ERNAKULAM
BECHU KURIAN THOMAS, J.
RAVIS EXPORTS – Petitioner
Versus
THE UNION OF INDIA – Respondent
WP (C) No. 2427 of 2020
Decided On : 18-05-2022
Constitution of India, 1950 - Article 226, 19(1)(g) - Extraordinary jurisdiction - Challenging validity of declaration - Whether Reserve Bank of India is vested with powers to confer banks with authority to declare a person as willful defaulter or not and whether those are reasonable restrictions are issues that are therefore kept open for consideration, in an appropriate case - Whether guarantors in instant case fell within category of guarantors who could be declared as willful defaulters - Petitioners have been declared as willful defaulters is perverse and contrary to Master Circular of Reserve Bank of India apart from conflicting with peremptory directions of Supreme Court. (Para 20)
Findings of the Court:
Court notices total lack of application of mind in order of COE - There is also a manifest failure to consider explanation offered by borrower/ guarantors. only reason mentioned under column 'latest developments' is a failure of firm to settle account and request for grant of additional working capital limits - COE had not considered reasons or explanation offered by petitioners or their representatives while arriving at decision in Ext.R4(d) - In communication issued, reasons for declaring petitioners as willful defaulters have not been specified, except by merely referring to grounds stated in show cause notice - Reply/ explanation submitted by petitioners has not been independently considered - Review Committee also failed to consider or assess order of COE independently and failed to appreciate failure to serve order of COE on petitioners - It is also surprising to note that even guarantors have been declared as willful defaulters without discerning distinction between borrower and guarantor and whether guarantors in instant case fell within category of guarantors who could be declared as willful defaulters - Thus, Ext.P19 and Ext.P21 are bad in law.
Result: Writ Petition is allowed.
JUDGMENT :
BECHU KURIAN THOMAS, J.
1. Petitioners have been declared as wilful defaulters by a Bank based on a Master Circular issued by the Reserve Bank of India. Challenging the validity of such a declaration, petitioners have invoked the extraordinary jurisdiction under Article 226 of the Constitution of India.
2. The first petitioner - a proprietory concern, had availed a credit facility of Rs.14.50 crores from the 4th respondent for the purpose of its cashew processing business. Petitioners 2 to 4 mortgaged several valuable properties for availing the said credit facility and thus became the guarantors to the credit facility availed by the 1st petitioner.
3. According to the petitioners, cashew industries in the State of Kerala are facing severe crisis and the 1st petitioner also fell into dire straits due to which it defaulted in repayment of the loan. The floods that inundated the State in the year 2018 also contributed to the default, resulting finally in the account of the 1st petitioner being declared as non-performing. Steps were therefore initiated by the bank under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short, the SARFAESI Act').
4. In the meantime, taking note of the precarious situation of the once thriving cashew industry, the Government initiated steps to explore the possibility of reviving the said industry and appointed a Committee. While the Committee appointed by the Government was considering the measures to revive the cashew industry, the 4th respondent issued a notice to the petitioners requiring them to show cause reasons as to why they should not be declared as wilful defaulters. Five instances were specified in the show cause notice dated 21.12.2018 as grounds of default and granted an opportunity to the petitioners to submit their explanation. The first petitioner submitted a detailed explanation on 16.07.2019 controverting the various grounds raised in the show cause notice and asserted that petitioners are not wilful defaulters and also requested for consideration of the proposal for revival including the grant of an additional credit limit to enable them to comply with the packing credit obligation and to regularise the loan account.
5. Later, petitioners were served with a communication dated 18.10.2019 issued by the Chief Manager of the 4th respondent intimating that the Committee of Executives on Wilful Defaulters (hereinafter referred to as 'COE') had decided to declare petitioners as wilful defaulters on the grounds mentioned in the show cause notice and that an opportunity is granted to them in terms of the Reserve Bank of India Guidelines to file a representation before the Review Committee on Wilful Defaulters (hereinafter referred to as 'Review Committee') within 15 days. A subsequent communication was also issued by the Chief Manager of the 4th respondent stating that the Review Committee in its Meeting held on 27.12.2019 confirmed the decision of the COE and decided to declare the petitioners as wilful defaulters. The communications intimating the decision of the Committee of Executives on Wilful Defaulters and the decision of the Review Committee produced as Ext.P19 and Ext.P21 are challenged in this writ petition.
6. A counter affidavit has been filed by the Chief Manager on behalf of the 4th respondent Bank, contending inter alia that the first petitioner had availed a credit facility totalling to Rs.14.50 crores. It was stated that 1st petitioner had diverted the funds and the stocks/ proceeds of the sale and had not even taken any serious efforts for completion of erection of mechanised cashew processing units, apart from violating exchange control regulations by not carrying out exports from the funds availed for the packing credit facility. The 4th respondent also asserted that though petitioners had gained huge profits from operating the unit, no amounts were remitted by them to the Bank reflecting their intention
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