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2017 DIGILAW 946 (CAL)

Prince Rice Mill Pvt. Ltd. v. State Bank of India

2017-12-04

DEBANGSU BASAK

body2017
JUDGMENT : 1. The Court : The petitioner challenges the action of State Bank of India in classifying the petitioner as a Wilful Defaulter purporting to act under the Master Circular dated July 1, 2014 as up-dated up to January 7, 2015 issued by the Reserve Bank of India. 2. Learned counsel appearing for the petitioner submits that, the State Bank of India has violated paragraph 2.5 of the Master Circular. The bank did not consider the question of declaration of Willful Default by the appropriate committee as envisaged under Clause (a). The Committee did not issue any show-cause notice to the petitioner. Although the petitioner was present before the committee for hearing, it’s results have not been published. The bank seeks to pass off a communication dated December 31, 2014 as the decision of such committee. The same is not permissible. In spite of affidavits, the decision of the committee has not been made available on record. He relies upon a Judgment and Order dated December 24, 2014 passed in WP No.942 of 2014 (Kingfisher Airlines Limited & Ors. versus Union of India &Ors.) in support of his contentions. The bank is represented. 3. Learned advocate for the bank submits that, the affidavit in opposition discloses the materials on the basis of which, the petitioner was sought to be proceeded against under the Master Circular of the Reserve Bank of India. He submits that, the Stressed Assets Management Committee (SAMCC) of the bank had considered the materials made available to such committee and as appearing page 16 onwards of the affidavit-in-opposition. On the basis of such materials, SAMCC had resolved to approve the proposal for inclusion of the petitioner in the list of Willful Defaulter. Although the committee did not issue a notice of hearing to the petitioner, none the less, it had heard the petitioner. The committee after affording the petitioner an opportunity of hearing had decided on September 18, 2014 to reject the appeal of the petitioner. Consequently, the petitioner is a Willful Defaulter and declared to be so after following the due process established by the Master Circular of the Reserve Bank of India. 4. I have considered the rival contentions of the parties and the materials made available on record. 5. The Reserve Bank of India had issued a Master Circular dated July 1, 2014 dealing with declaration of Willful Defaulter. 4. I have considered the rival contentions of the parties and the materials made available on record. 5. The Reserve Bank of India had issued a Master Circular dated July 1, 2014 dealing with declaration of Willful Defaulter. The same was subsequently modified. The modified version relevant to the facts of the present case is as follows: “(a) The evidence of willful default on the part of the borrowing company and its promoter/whole-time director at the relevant time should be examined by a Committee headed by an Executive Director and consisting of two other senior officers of the rank of GM/DGM. (b) If the Committee concludes that an event of willful default has occurred, it shall issue a Show Cause Notice to the concerned borrower and the promoter/whole-time director and call for their submissions and after considering their submissions issue an order recording the fact of wilful default and the reasons for the same. An opportunity should be given to the borrower and the promoter/whole-time director for a personal hearing if the Committee feels such an opportunity is necessary.” Under Clause (a) the evidence of Wilful Default on the part of a person is required to be examined by a committee headed by an Executive Director and consisting of two other senior officers of the rank of General Manager/Deputy General Manager. 6. In the present case, from the document made available in the affidavit in opposition, it appears that, the State Bank of India has a Stressed Assets Management Committee (SAMCC). Such SAMCC had held a meeting on July 4, 2014. The Chairman of the bank, as well as two General Managers and two Deputy General Managers were present in the meeting. Therefore, the committee consists of the persons contemplated under Clause (a) of the modified Master Circular. However, the Clause (a) requires the committee to examine the evidence of Wilful Default on the part of the borrower. The record made available to the Court does not show that the committee had applied its mind and had examined the case of Wilful Default on the part of the petitioner. The resolution is non-speaking. It is not possible to understand the basis on which the committee had approved the resolution for inclusion of the petitioner in the list of Wilful Defaulters declared on July 4, 2014. A non-speaking administrative decision affecting the rights of the parties is a nullity. 7. The resolution is non-speaking. It is not possible to understand the basis on which the committee had approved the resolution for inclusion of the petitioner in the list of Wilful Defaulters declared on July 4, 2014. A non-speaking administrative decision affecting the rights of the parties is a nullity. 7. Clause (b) of the amended Master Circular requires the committee to issue a show-cause notice to the concerned person and after considering the submissions made on behalf of the such person, pass an order regarding the fact of Wilful Default and reasons for the same. In the present case, there does not appear to be any material to suggest that, the committee had issued any notice to the petitioner. The petitioner was heard by the SAMCC. The decision of the SAMCC however has not been communicated to the petitioner in its entirety. What is sought to be done is that, the bank had communicated the decision of SAMCC under cover of a letter dated December 31, 2014. The same may or may not be the entirety of the decision of SAMCC. A person whose rights are being affected is entitled to know the decision and the reasons for it. The bank was afforded an opportunity to file affidavit. Despite such opportunity being granted, the bank did not produce the relevant minutes to the SAMCC by which such committee had resolved to reject the appeal of the petitioner in terms of Clause (b) of the amended Master Circular. The decision of SAMCC has not been produced on record. 8. There have been gross procedural irregularities in the process of declaring the petitioners as Wilful Defaulter, the same is required to be set aside. The decision of the bank taken in the meeting dated July 4, 2014 of SAMCC to continue with the inclusion of the petitioner in the list of Wilful Defaulters and the subsequent resolution of the SAMCC dated September 18, 2014 in relation to the petitioners are set aside. This order will, however, not prevent the bank from proceeding in accordance with law afresh for the purpose of declaring the petitioner, if it is so advised. WP No. 420 of 2015 is disposed of. There is no order as to costs.