JUDGMENT : Anil S. Kilor, J. – 1. Rule. Rule is made returnable forthwith. Heard finally by consent of the parties. 2. In this petition, the petitioners are being declared as ‘wilful defaulter’, by the respondent Bank of Maharashtra, under Master Circular on ‘Wilful Defaulters’ issued by Reserved Bank of India, the same is under Challenge. 3. The brief facts which emerge from the present petition, are as under : The petitioners have availed following term loans, agricultural cash credit limit and other facilities from the respondent bank. i) Agriculture Term Loan of Rs. 56 Lakh (take over) ii) Agriculture Term Loan of Rs. 55 Lakh. iii) The Term Loan of Rs. 74.72 Lakh in the name of petitioner No. 1. iv) The Term Loan of Rs. 74.72 Lakh in the name of petitioner No. 2 v) Agricultural Cash Credit Limit of Rs. 7 lakh. 4. The respondent No. 3 on 12-4-2019 issued notice to the petitioners to show cause why they should not be declared as ‘wilful defaulter’ in terms of the Master Circular dated 1-7-2015 issued by the Reserve Bank of India (for short ‘the RBI Guidelines’), for alleged default made by them in making the repayment of aforesaid loan and cash credit facilities. 5. The petitioners on 25-4-2019 and 7-9-2019 submitted their reply in detail, denying alleged default. 6. Thereupon, the petitioners were called for personal hearing. Accordingly, the petitioners appeared before the Empowered Committee. 7. Consequently, a communication dated 25-11-2019 came to be issued, informing that the ‘wilful default’ has been established against the petitioners and the bank is proceeding with the process to declare them as ‘wilful defaulter’. 8. Thereafter, the respondents published the photographs of the petitioners as ‘wilful defaulter, in the newspapers which gave cause to the petitioners to approach this Court by way of the present writ petition. 9. We have heard the learned counsel for respective parties. 10. Shri Masood Sharif, learned counsel appearing for the petitioners submits that without issuing any reasoned order as stipulated under the RBI Guidelines, the petitioners have been declared as ‘wilful defaulter’. 11. It is submitted that the entire action against the petitioners declaring them as ‘wilful defaulter’ is contrary to the RBI Guidelines. 10. Shri Masood Sharif, learned counsel appearing for the petitioners submits that without issuing any reasoned order as stipulated under the RBI Guidelines, the petitioners have been declared as ‘wilful defaulter’. 11. It is submitted that the entire action against the petitioners declaring them as ‘wilful defaulter’ is contrary to the RBI Guidelines. He has placed reliance on the judgment of the Hon’ble Supreme Court of India in the case of State Bank of India vs. Jah Developers Private Limited and others, (2019) 6 SCC 787 . 12. Per contra, Shri Kolte, learned counsel for the respondent bank strongly opposed the present petition. 13. He would submit that the committee was satisfied on considering the material available on record that although, the petitioners had sufficient income to repay the dues, they defaulted the payment and that due process of law was followed in doing so, as a show cause notice dated 12-4-2019 was served to the petitioners and on filing reply the petitioners were heard before declaring them as ‘wilful defaulter’. 14. The learned counsel for the respondent bank further submits that the High Level Committee’s decision was approved, by the Review Committee. Thus, it is submitted that no fault can be found in the procedure adopted by the respondent bank in declaring the petitioners as ‘wilful defaulter’. 15. To appreciate and consider the rival contentions of the parties, we have perused the record and also gone through the relevant judgments. 16. In this matter, the whole controversy revolves around the procedure to be adopted in terms of the RBI Guidelines for declaration of a borrower as ‘wilful defaulter’. Hence, we are of the view that it would be appropriate to refer to the relevant provisions of Guidelines of RBI, which read thus : “2.1.3 Wilful Default : A ‘wilful default’ would be deemed to have occurred if any of the following events is noted : (a) The unit has defaulted in meeting its payment/repayment obligations to the lender even when it has the capacity to honour the said obligations. (b) The unit has defaulted in meeting its payment/repayment obligations to the lender and has not utilised the finance from the lender for the specific purposes for which finance was availed of but has diverted the funds for other purposes. (b) The unit has defaulted in meeting its payment/repayment obligations to the lender and has not utilised the finance from the lender for the specific purposes for which finance was availed of but has diverted the funds for other purposes. (c) The unit has defaulted in meeting its payment/repayment obligations to the lender and has siphoned off the funds so that the funds have not been utilised for the specific purpose for which finance was availed of, nor are the funds available with the unit in the form of other assets. (d) The unit has defaulted in meeting its payment/repayment obligations to the lender and has also disposed off or removed the movable fixed assets or immovable property given for the purpose of securing a term loan without the knowledge of the bank/lender. The identification of the wilful default should be made keeping in view the track record of the borrowers and should not be decided on the basis of isolated transactions/incidents. The default to be categorised as wilful must be intentional, deliberate and calculated. 3. Mechanism for identification of Wilful Defaulters. — The mechanism referred to in paragraph 2.5 above should generally include the following : (a) The evidence of wilful 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 or equivalent and consisting of two other senior officers of the rank of GM/DGM. (b) If the Committee concludes that an event of wilful 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. (c) The Order of the Committee should be reviewed by another Committee headed by the Chairman/Chairman and Managing Director or the Managing Director and Chief Executive Officer/CEOs and consisting, in addition, to two independent directors/non-executive directors of the bank and the Order shall become final only after it is confirmed by the said Review Committee. (c) The Order of the Committee should be reviewed by another Committee headed by the Chairman/Chairman and Managing Director or the Managing Director and Chief Executive Officer/CEOs and consisting, in addition, to two independent directors/non-executive directors of the bank and the Order shall become final only after it is confirmed by the said Review Committee. However, if the Identification Committee does not pass an Order declaring a borrower as a wilful defaulter, then the Review Committee need not be set up to review such decisions.” 17. The definition of wilful default makes it clear that the wilful default would be deemed to have occurred if any of the following events, namely : A unit has defaulted in meeting its payment/repayment/obligations to the lender, a) even it has the capacity to honour the said obligation; b) and not utilized the finance from the lender for the specific purpose for which the finance was availed of but as diverted the funds for other purposes; c) and has siphoned off the funds so that the funds have not been utilised for the specific purpose for which finance was availed of, nor are the funds available with the unit in the form of other assets. d) and has disposed of or removed the movable fixed assets or immovable property given for the purpose of securing a term loan without the knowledge of the bank/lender. 18. However, there is a rider that the identification of the wilful default should be made keeping in view the track record of the borrowers and should not be decided on the basis of isolated transaction/instances. It is significant that the default to be categorized as ‘wilful’ must be intentional, deliberate and calculated. 19. 18. However, there is a rider that the identification of the wilful default should be made keeping in view the track record of the borrowers and should not be decided on the basis of isolated transaction/instances. It is significant that the default to be categorized as ‘wilful’ must be intentional, deliberate and calculated. 19. However, before commenting on paragraph 3 of the RBI Guidelines, at this juncture it is imperative to also take into consideration certain findings recorded in the case of State Bank of India vs. Jah Developers Private Limited and others (supra) by the Hon’ble Apex Court, which read thus : “24....This being so, and given the fact that paragraph 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 paragraph 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....” 20. Thus, on reading para 3 of the RBI Guidelines, coupled with aforesaid findings recorded by the Hon’ble Apex Court following steps emerge as the steps which must be followed by the banks, before declaring any borrower as ‘wilful defaulter’, namely : (I) A Committee should examine the evidence of wilful default. (II) If the committee concludes that an event of wilful default has occurred, (a) it shall issue a show cause notice to the concerned. (b) call for their submissions. (c) consider submissions. (d) grant personal hearing if such an opportunity is necessary. (e) issue an order recording; (i) the fact of wilful default; and (ii) the reasons for the same (iii) serve the order on the concerned borrower as soon as it is made. (b) call for their submissions. (c) consider submissions. (d) grant personal hearing if such an opportunity is necessary. (e) issue an order recording; (i) the fact of wilful default; and (ii) the reasons for the same (iii) serve the order on the concerned borrower as soon as it is made. (iv) the borrower may submit representation against such order within a period of 15 days to the Review Committee. (v) the Review Committee must pass a reasoned order on such representation. (vi) serve the order of the Review Committee to the borrower. 21. In the matter in hand, the show-cause notice was issued on 12-4-2019, to the petitioners informing that the Empowered Committee after considering all the facts, record and findings of the case, has arrived at a conclusion that the event of wilful default has occurred. 22. The petitioners thereupon, submitted their explanation/objection on 25-4-2019, denying the allegations of ‘wilful default’. 23. Then, the petitioners were called for personal hearing and accordingly, the petitioners appeared before the Empowered Committee for hearing. 24. Whereupon, the respondents issued a communication dated 25-11-2019, inter alia communicating the petitioners that the act of wilful default on the part of the petitioners, has been established beyond doubt in terms of the RBI Guidelines and the bank is proceeding with the process of declaration of the petitioners as ‘wilful defaulter’. 25. Consequently, advertisement was published in various newspapers with photographs of the petitioners, informing to public at large that the petitioners have been declared as ‘wilful defaulter’. 26. However, the respondents have not produced any order issued by the first Committee, in consonance with paragraph 3 of the RBI Guidelines declaring the petitioners as ‘wilful defaulter’. 27. In light of the aforesaid fact, any man of ordinary prudence would come to the conclusion that in the instant case, the RBI Guidelines have not been complied with. 28. At this juncture, it is also necessary to consider the consequences of declaration of any borrower as a ‘wilful defaulter’, which reads thus : “i. A copy of the list of wilful defaulters will be forwarded to SEBI and CICs, RBI by bank in order to prevent access to the capital markets, including putting your name on Bank’s website as Wilful Defaulter. ii. No additional facilities will be granted by any Bank/FI. ii. No additional facilities will be granted by any Bank/FI. In addition, the entrepreneurs/promoters of unit will be debarred from institutional finance from all the scheduled commercial banks, Development Financial Institutions, Government owned NBFCs, investment institution etc for floating new ventures as long as they are included and shown as wilful defaulters and or a period of 5 years from the date of removal of their name from the list of wilful defaulters as published/disseminated by RBI/CICs. iii. Initiation of legal process for recovery of dues. iv. Wherever necessary initiation of Criminal action. v. Publishing of Photographs in the Newspaper/Public Domain.” 29. Thus, looking to the aforementioned consequences it is clear that it has cascading and far reaching adverse effects. Thus, in the case of State Bank of India vs. Jah Developers Private Limited and others (supra), the Hon’ble Apex Court has held that the moment a person is declared to be a ‘wilful defaulter’, the impact on its fundamental right to carry on business is direct and immediate and therefore, Article 19(1)(g) of the Constitution of India is attracted. 30. In catena of judgments of the Hon’ble Apex Court it has been held that the decision shall contain reasons, which is one of the fundamentals of the good administration. The affected party can know why the decision has gone wrong. Failure to give reasons especially when the Authority has a power to take punitive steps against the person after giving him a show-cause notice, lacks fairness and reasonableness in action. 31. Thus, before any such declaration as ‘wilful defaulter’, is made, the fairness and reasonableness demand that, the concerned borrower should be served with the order recording the fact of wilful default and the reasons for the same. It is also necessary in light of definition of ‘wilful default’ to get satisfied by the Bank that the default is an intentional, deliberate and calculated and such satisfaction must be reflected in the order. 32. In the case in hand, admittedly, no order of the first committee, has been produced by the respondent bank before this Court or served upon the petitioners, recording the fact of willful default and the reasons for the same and also holding the alleged default on the part of the petitioner as intentional, deliberate and calculated. 33. 32. In the case in hand, admittedly, no order of the first committee, has been produced by the respondent bank before this Court or served upon the petitioners, recording the fact of willful default and the reasons for the same and also holding the alleged default on the part of the petitioner as intentional, deliberate and calculated. 33. Thus, in absence of compliance of mandatory procedure to be followed before declaring any person as ‘wilful defaulter’ the impugned action can be termed as arbitrary, unreasonable and in contravention of the judgment of the Apex Court and RBI Guidelines. 34. In that view of the matter, we are of the considered opinion that the declaration of the petitioners as ‘wilful defaulter’ is arbitrary, illegal and not sustainable in the eye of law. 35. We accordingly pass the following order : i) The writ petition is allowed. ii) It is hereby declared that the action on the part of the respondent Bank, declaring the petitioners as ‘wilful defaulter’ is illegal. iii) The impugned communication dated 25-11-2019 and communication dated 24-6-2020 issued by the respondents and publication thereof in the local dailies, thereby declaring the petitioners as ‘wilful defaulter’, are hereby quashed and set aside. iv) It is made clear that the respondent bank may take decision afresh after following the steps as stipulated in the RBI Guidelines and noted in this judgment. 36. Rule is made absolute accordingly. No order as to costs.