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2022 DIGILAW 1821 (GUJ)

Satyakam Basu v. State Bank of India

2022-12-21

BHARGAV D.KARIA

body2022
JUDGMENT : 1. Heard learned advocate Mr. Tirth Nayak for the petitioners and learned advocate Ms. Mohini Bhavsar for learned advocate Mr. Bharat Jani for the respondent. 2. Rule returnable forthwith. Learned advocate Ms. Mohini Bhavsar waives service of notice of rule on behalf of respondent. 3. By this petition under Article 226 of the Constitution of India, the petitioners have challenged the order dated 15.02.2021 passed by respondent – State Bank of India, whereby the petitioners were informed that Willful Defaulter Identification Committee of respondent bank in its meeting dated 28.08.2020 has declared the petitioners as “Willful Defaulters” and the Willful Defaulters Review Committee of respondent - bank has confirmed the decision of Willful Defaulter Committee to declare the petitioners as “Willful Defaulters” and has further informed the petitioners to report their names to all Credit Information Companies and/or RBI. 4. Brief facts of the case are as under : 4.1) The petitioners were Directors in Samshi Pipe Industries Limited (For short “SPIL”) which is a company incorporated under the Companies Act, 1956. 4.2) SPIL was in the business of manufacturing spiral welded pipes and had availed various credit facilities from Canara bank, State Bank of India and IDBI bank. The respondent bank had sanctioned credit facilities aggregating to Rs.30 crores to SPIL wherein the petitioners were the Directors. The petitioner company has also availed credit facilities from other lenders, details of outstanding from the respective lenders including the respondent bank is as under : Bank Name Total outstanding (In crores approx) % of outstanding debt (approx) Canara Bank 32 49% SBI Bank 23 36% IDBI Bank 10 15% Total 65 100% 4.3) The respondent bank contributes only 36% of the outstanding credit facilities of the SPIL. 4.4) There were certain defaults in repayment of the said outstanding credit facilities and therefore, the account of SPIL was declared as Non-Performing Asset(NPA) with effect from 28.02.2008. 4.5) The respondent issued show cause notice dated 26.08.2016 to the petitioners to show cause why the name of the petitioner company should not be included in the list of Willful Defaulters as per the RBI Master circular dated 1.07.2015. 4.6) Petitioners replied to the show cause notice vide letter dated 12.09.2016 giving detailed and specific reasons to the allegations levelled against the petitioners. 4.6) Petitioners replied to the show cause notice vide letter dated 12.09.2016 giving detailed and specific reasons to the allegations levelled against the petitioners. 4.7) One Company Petition No. 10/2016 was filed against SPIL under section 433 read with section 434 of the Companies Act, 1956 wherein this Court vide order dated 7.04.2016 admitted the petition and appointed provisional Liquidator to take charge of assets of SPIL. 4.8) On 18.08.2020, the petitioners received an e-mail dated 7.08.2020 referring to the show cause notice dated 12.09.2016 and calling upon the petitioners to remain present for personal hearing at its office. 4.9) The petitioners addressed an e-mail dated 26.08.2020 to the respondent informing that due to the travel restrictions imposed due to Covid pandemic, the petitioners will be unable to travel and requested for another date. Petitioners also orally requested the respondent to permit the petitioners to present their case through video conferencing. 4.10) It is the case of the petitioners that the respondent neither replied to the said e-mail nor responded to the request of the petitioners and proceeded with the hearing on 28.08.2020. The Identification Committee of the respondent bank without hearing the petitioners concluded that events of willful default have occurred and passed the order dated 28.08.2020 declaring the petitioners as willful defaulters. 4.11) The petitioners were informed about the order dated 28.08.2020 passed by the respondent vide letter dated 14.09.2020. 4.12) On receiving such letter, the petitioners immediately addressed an e-mail dated 15.09.2020 informing the respondent that no e-mail/link was received by the petitioners pursuant to e-mail dated 26.08.2020 and requested the respondent to reconsider the case of the petitioners. 4.13) The respondent thereafter received a communication dated 15.02.2021 whereby the petitioners were informed that the Review Committee has confirmed the order dated 28.08.2020 passed by the Identification Committee in its meeting dated 24.11.2020 and that the names of the petitioners are being forwarded to the CIC for necessary action. 4.14) Being aggrieved by the aforesaid action of the respondent bank, the petitioners have preferred the present petition. 5. Learned advocate Mr. Tirth Nayak for the petitioners submitted that impugned orders dated 15.02.2021 and 28.08.2020 whereby the petitioners have been declared as willful defaulters are illegal, contrary to law and without jurisdiction and in violation of the fundamental rights of the petitioners guaranteed under Articles 14 and 19(1)(g) of the Constitution of India. 5. Learned advocate Mr. Tirth Nayak for the petitioners submitted that impugned orders dated 15.02.2021 and 28.08.2020 whereby the petitioners have been declared as willful defaulters are illegal, contrary to law and without jurisdiction and in violation of the fundamental rights of the petitioners guaranteed under Articles 14 and 19(1)(g) of the Constitution of India. 5.1) It was submitted that the action of the respondent to pass order dated 28.08.2020 without replying or considering the requests of the petitioners for video conferencing is in violation of principles of natural justice. 5.2) It was submitted that the respondent ought to have appreciated that the personal presence of the petitioners who are senior citizens suffering from significant comorbidities cannot be insisted upon in August, 2020 when the Covid-19 pandemic was at its peak and ought to have made arrangements to share video conferencing link and therefore, the action of respondent, not to even send a Video Conferencing link for hearing nor granting adjournment and proceeding to pass impugned order dated 28.08.2020 is contrary to law. 5.3) Learned advocate Mr. Nayak submitted that the impugned orders are arbitrary and unreasonable as the respondent has taken unreasonable time after issuance of the show cause notice and receipt of representation dated 12.09.2016 and therefore, action of the respondent is contrary to the principles of legitimate expectation. 5.4) It was submitted that the petitioners were being given to understand by the Identification Committee that they are satisfied with the response dated 12.09.2016 but thereafter respondent through a new Identification Committee has re-started the process to declare the petitioners as willful defaulters after four years of show cause notice being issued which is illegal and bad in law. 5.5) It was submitted that the Identification Committee in 2016 issued the show cause notice dated 26.08.2016 as the said committee had concluded that an event of willful default has occurred, however, the impugned order dated 28.08.2020 has been passed by a committee comprising of different members than the one who had initially concluded that an event of willful default has occurred and therefore, also the impugned order is required to be quashed and set aside as one committee formed an opinion and another committee passed the impugned order. 5.6) Learned advocate Mr. 5.6) Learned advocate Mr. Nayak submitted that as per Clause 3(a) of the Master Circular of RBI, the impugned show cause notice is required to be issued by the Identification Committee itself, however, the present show cause notice is issued by one Mr. Sunil Kumar Sharma who has no jurisdiction to issue the same. 5.7) It was submitted that the impugned order dated 28.08.2020 passed by the Identification Committee is a non speaking order which does not deal with the submissions made by the petitioners in reply dated 12.09.2016 and therefore, the proceedings have been undertaken without application of mind. 5.8) Relying upon the judgment of the Apex Court in case of State Bank of India v. Jah Developers Pvt. Ltd and Ors reported in (2019) 6 SCC 787 , it was submitted that the Review Committee was required to provide the copy of the order passed by the Review Committee whereas in the present case the petitioners were merely informed vide letter dated 15.02.2021 that the Review Committee has confirmed the order dated 28.08.2020 and therefore, the impugned orders being illegal and arbitrary are required to be quashed and set aside. 5.9) Learned advocate Mr. Nayak further on merits submitted that the petitioners in their representation dated 12.09.2016 have stated that the defaults have occurred due to the consortium banks of which the respondent was a part, taking almost two years to sanction the scheme for restructuring when the RBI guidelines were issued, however the impugned order dated 28.08.2020 was passed without considering this submission of the petitioners. 5.10) It was submitted that the impugned show cause notice is contrary to the judgment of the Calcutta High Court in case of Atlantic Projects Ltd. v. Allahabad Bank and others reported in 2019 SCC Online Cal 611. It was therefore, submitted that the impugned orders being illegal, contrary to law, without jurisdiction, arbitrary and without application of mind, are required to be quashed and set aside. 6. On the other hand, the learned advocate Ms. Mohini Bhavsar for the respondent bank submitted that issuance of notice and passing of impugned orders declaring the petitioners as willful defaulters is strictly in accordance with the Master Circular dated 1.07.2015 issued by the RBI. 6. On the other hand, the learned advocate Ms. Mohini Bhavsar for the respondent bank submitted that issuance of notice and passing of impugned orders declaring the petitioners as willful defaulters is strictly in accordance with the Master Circular dated 1.07.2015 issued by the RBI. The purpose of the circular is to put in place a system to disseminate credit information pertaining to willful defaulters for cautioning banks and financial institutions so as to ensure that further bank finance is not made available to them. The said Master Circular on willful defaulters is issued by RBI pursuant to the instructions of Central Vigilance Commission for collection of information on willful defaulters of Rs. 25 lakhs and above. 6.1) It was submitted that on account of chronic defaults in repaying the dues committed by the petitioner company, its account was declared as Non Performing Asset (NPA) with effect from 28.02.2008. 6.2) It was submitted that respondent issued show cause notice dated 26.08.2016 through Sunil Kumar Sharma, Deputy General Manager as per orders and directions of the Willful Defaulters’ Identification Committee. It was submitted that due procedure was followed as per the mechanism for identification of willful defaulters and the petitioners were given opportunity of making submissions. It was submitted that the show cause notice was issued by Identification Committee as required under clause 3(b) of the RBI circular and not by Mr. Sunil Kumar Sharma, Deputy General Manager in his personal capacity. 6.3) Learned advocate Ms. Bhavsar submitted that the petitioners were never orally informed and given understanding that their response was found to be satisfactory and on the contrary the reply to show cause notice given by the petitioner company was vague, uncertain and bereft of required information as sought for. 6.4) It was submitted that Company Petition No.10/2016 was filed by unsecured creditor Mr. Parmanand Vijaykumar against SPIL and winding up order was passed on 9.6.2016 and the Official Liquidator attached to the Court was appointed to take steps to collect the assets. Accordingly, the Official Liquidator took the physical possession of the factory, land and building on 12.10.2017. On 6.05.2019 this Court passed the order directing the Official Liquidator to handover the possession of the assets of the company (In Liquidation) to the financial creditors. Accordingly, the Official Liquidator took the physical possession of the factory, land and building on 12.10.2017. On 6.05.2019 this Court passed the order directing the Official Liquidator to handover the possession of the assets of the company (In Liquidation) to the financial creditors. On 26.11.2019, physical possession of the assets of the said company (In Liquidation) was taken over by Canara Bank from the Official Liquidator and the same was sold through auction dated 13.03.2020 for Rs. 28.90 crores. It was submitted that OA No.65/2017 has also been filed before Debts Recovery Tribunal-II, Ahmedabad to recover an amount of Rs. 107.36 crores by the Canara bank being the lead bank and other consortium members including the respondent bank, which OA is pending for final hearing before the Tribunal. It was submitted that total dues to be recovered by the respondent is Rs. 45.79 crores as on 31.03.2021. 6.5) Learned advocate Ms. Bhavsar submitted that on 7.08.2020 notice was issued to the petitioner company and its directors for personal hearing wherein it was clearly stated that petitioners may make submissions through video conferencing arranged at Stressed Assets Management Branch, Ahmedabad on 28.08.2020 and in the event of the petitioners failing to avail the opportunity of personal hearing, it will be presumed that the petitioners have nothing to submit before the Committee. It was further submitted that on 28.08.2020 nobody appeared before the Willful Defaulters’ Identification Committee and no request was made for video conferencing in e-mail dated 26.08.2020 and therefore, the Committee considering the submissions of the petitioners against the reasons for classification of the borrower as willful defaulter as per the show cause notice issued to the petitioners, concluded that the name of the petitioner company and its directors be included in the list of willful defaulters. 6.6) Learned advocate Ms. Bhavsar submitted that enough opportunities were given to the petitioners for hearing inasmuch as first hearing was arranged on 14.12.2017, but nobody appeared and thereafter the Committee gave another opportunity of hearing to the borrower and thereafter show cause notice dated 1.1.2018 was issued fixing the personal hearing on 18.01.2018 on which date the petitioner appeared before the Committee and made submissions. Thus it cannot be said that no opportunity of personal hearing was given to the petitioners. Thus it cannot be said that no opportunity of personal hearing was given to the petitioners. 6.7) It was submitted that the respondent bank addressed a letter dated 14.09.2020 informing the petitioners about inclusion of the names of the petitioners in the list of willful defaulters in which it was clearly stated that after having thoroughly examined the representation made by the petitioner company during the personal hearing and considering the reply and submissions, the same were rejected by passing order/resolution dated 28.08.2020. 6.8) It was submitted that the order dated 28.08.2020 and communication dated 15.02.2021 declaring the petitioners as willful defaulters is in consonance with the provisions of the Master Circular on Willful Defaulters dated 1.07.2015 issued by RBI and there is no violation of any clause embodied in the said circular and therefore, the decision/order of respondent bank is not in violation of Articles 14 and 19(1)(g) of the Constitution of India. It was submitted that the contention of the petitioners that 36% of the lenders have decided that there is no instance of willful default is not correct. 6.9) It was submitted that order of the Willful Defaulters Identification Committee dated 28.08.2020 is a speaking order and passed with full application of mind looking to the overall conduct of the petitioners in operating the account. The reply, submissions and documents submitted along with reply were fully considered by the said Committee who passed the impugned order which was duly confirmed by the Review Committee. It was therefore, submitted that petition may not be entertained. 7. Having heard the learned advocates for the respective parties and having gone through the materials on record, in order to appreciate the contentions raised by the respective parties, it would be germane to refer to few Clauses of Master Circular on willful defaulter dated 1st July, 2015 issued by the RBI. “Clause 2.1.3 : Wilful Default : A 'willful 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 willful 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 willful must be intentional, deliberate and calculated.” Clause no. 2.5 : Penal Measures The following measures should be initiated by the banks and FIs against the willful defaulters identified as per the definition indicated at paragraph 2.1.3 above: a. No additional facilities should be granted by any bank / FI to the listed willful defaulters. In addition, such companies (including their entrepreneurs / promoters) where banks/ FIs have identified siphoning / diversion of funds, misrepresentation, falsification of accounts and fraudulent transactions should be debarred from institutional finance from the scheduled commercial banks, financial institutions, NBFCs, for floating new ventures for a period of 5 years from the date of removal of their name from the list of willful defaulters as published/disseminated by RBI/CICs. b. The legal process, wherever warranted, against the borrowers/ guarantors and foreclosure for recovery of dues should be initiated expeditiously. The lenders may initiate criminal proceedings against willful defaulters, wherever necessary. c. Wherever possible, the banks and FIs should adopt a proactive approach for a change of management of the willfully defaulting borrower unit. b. The legal process, wherever warranted, against the borrowers/ guarantors and foreclosure for recovery of dues should be initiated expeditiously. The lenders may initiate criminal proceedings against willful defaulters, wherever necessary. c. Wherever possible, the banks and FIs should adopt a proactive approach for a change of management of the willfully defaulting borrower unit. d. A covenant in the loan agreements, with the companies to which the banks/ FIs have given funded/ non-funded credit facility, should be incorporated by the banks/ FIs to the effect that the borrowing company should not induct on its board a person whose name appears in the list of willful defaulters and that in case, such a person is found to be on its board, it would take expeditious and effective steps for removal of the person from its board. It would be imperative on the banks and FIs to put in place a transparent mechanism for the entire process so that the penal provisions are not misused and the scope of such discretionary powers are kept to the barest minimum. It should also be ensured that a solitary or isolated instance is not made the basis for imposing the penal action. Clause no.3 : Mechanism for identification of willful defaulters. The mechanism referred to in paragraph 2.5 above should generally include the following : (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 or equivalent 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 willful 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. 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 & Managing Director or the Managing Director & 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 willful defaulter, then the Review Committee need not be set up to review such decisions.” 8. Thus, clause 2.1.3 defines 'willful default' as to who can be said to have committed a willful default as enumerated in Clause (a) to (d). Whereas, Clause-3 provides for mechanism for identification of willful defaulters. Clause–2.5 provides consequences of declaring any lender as willful defaulter resulting into penal measures including criminal case. On perusal of the above provisions of Master Circular, the Identification Committee is required to examine the availability of evidence of willful default on the part of the borrower company and its promoter/whole time director and if such committee concludes that in the event of willful default is occurred, it is obligatory on the part of the Identification Committee to issue a show cause notice to the concerned borrower and promoter whole time director calling for their submissions and after considering their submissions an order recording the fact of willful default has to be passed giving reasons for the same. Therefore, it is incumbent upon the Identification Committee to provide an opportunity of personal hearing to the borrower and promoter, whole time director or the persons, who are to be considered as willful defaulter and the decision of such Identification Committee is to be reviewed by any other Committee, which is Review Committee as per Clause-3(c) of the Master Circular. 9. The Division bench of the Bombay High Court in case of M/s. Kanchan Motors and others vs. Bank of India and others reported in 2018 SCC OnLine Bom 1761 has held as under with regard to violation of principles of natural justice as under: “14. 9. The Division bench of the Bombay High Court in case of M/s. Kanchan Motors and others vs. Bank of India and others reported in 2018 SCC OnLine Bom 1761 has held as under with regard to violation of principles of natural justice as under: “14. On the close scrutiny of the aforesaid provisions of Master Circular, it is clear that the consequences of declaring any lender as wilful defaulter are serious in nature. It is also clear that for declaring a lender to be wilful defaulter specific finding is required to have been recorded in terms of Clause 2.1.3(a) to (d) as the case may be. The Master Circular also provides a mechanism to be adopted for identifying the wilful defaulter. It includes, availability of evidence of wilful default on the part of borrowing company and its promoter/whole-time director which needs to be examined by the Identification Committee. If the Committee concludes that an event of wilful default has occurred, it is obligatory on the part of Identification Committee to issue a show cause notice to the concerned borrower and the promoter/whole-time director calling from their submissions and after considering their submissions as may be received, an order recording the fact of wilful default has to be passed after giving reasons for the same. It is also incumbent upon the Identification Committee to give an opportunity of personal hearing to borrower & promoter/ whole-time director if it feels that such opportunity is necessary. The said order of the Committee needs to be reviewed by another Committee (Review Committee) as per Clause 3(c) of the Master Circular. 15. Examining the present matter on the touch stone of the aforesaid provisions, we find that the Respondent Bank has failed to comply with the aforesaid mechanism provided under the Master Circular. It is clear from the record that in response to the notice issued by the Bank informing the Petitioners about their intentions to proceed against them for declaring them as willful defaulter and giving last chance to deposit outstanding amounts, the Petitioners have submitted a detailed reply dated 29th January, 2018 giving reasons as to why such proceeding cannot be initiated. However, it appears that thereafter the Identification Committee has passed an order on 9th March, 2018 recording that the Petitioners have committed wilful default. However, it appears that thereafter the Identification Committee has passed an order on 9th March, 2018 recording that the Petitioners have committed wilful default. It is also an admitted fact that the copy of the order dated 9th March, 2018 was not supplied to the Petitioners even though a written request for the same was made. Moreover, in the stand of the Bank in reply to the Petition, it is stated that is not necessary to supply the copy of the order of the Identification Committee to the Petitioners. 16. In the circumstances, in our considered view the Respondents while declaring the Petitioners as wilful defaulter have violated the provisions contained in the Master Circular and have also acted in violation of the principles of natural justice. The impugned action which is penal in nature has been taken causing serious implication on the Petitioners without following the basis principles of natural justice. The impugned order of Review Committee as is clear from a bare reading of it, is a non speaking order as the operative part of the order of Review Committee which contains the reasons reads thus: “The Review Committee has examined and reviewed the proceedings initiated order and the findings of the Identification Committee and found that they are in order and confirmed that you have committed the following willful default : — (Reasons) The unit has defaulted reasons in meeting its payment/repayment obligation to the lender and has not utilized the finance from lender even when it has capacity to honour the said obligations.” 17. This according to our considered view the order of the Review Committee cannot be termed as reasoned order and as such it cannot be sustained. 18. We are also of the considered view that the Respondent Bank cannot be allowed to say that it is not necessary for them to supply copy of the order passed by the Identification Committee. As would be clear from Clause 3(b) of the Master Circular the Identification Committee has to record reasons while passing the order of recording the fact of commission of wilful default as also to assign valid reasons as to whether it is necessary to give the borrower and the promoter/whole time director the opportunity of personal hearing. This requirement whether has been complied with or not could have been examined only if the said order was brought on record. This requirement whether has been complied with or not could have been examined only if the said order was brought on record. But strangely in reply the Bank has taken a stand that the order dated 9th March, 2018 passed by the Identification Committee is the internal order and it is not supposed to be served upon the Petitioners. It is also stated by the Respondents in the reply that no question arises of serving the order dated 9th March, 2018 on the Petitioners and that the order dated 9th March, 2018 is the preliminary internal order and after its finalization by Review Committee, it is conveyed to the Petitioners. Thus from the stand taken by the Respondents, it is clear that they have neither supplied copy of the order passed by the Identification Committee to the Petitioners nor according to them it was necessary. It is also very strange that the said order has not even been brought on record by the Bank to deny the Petitioners' contention that their grounds raised through reply dated 29th January, 2018 to show cause notice against proposed declaration of wilful defaulter have not been considered and that as to why the Petitioners were denied the opportunity of being heard. 19. In our considered view the stand of the Bank that they are not obliged to furnish copy of the order passed by the Identification Committee cannot be sustained. Such stand if accepted would given rise to arbitrary exercise of powers as the Identification Committee may give complete go bye to the requirement of assigning reasons for declaring a party as Wilful Defaulter and also requirement of giving reasons as to why opportunity of personal hearing would not be necessary. 20. In the present case, as already observed even the order of Review Committee is bereft of any reasons for arriving at the conclusion that, “the Petitioners have defaulted in meeting its payment/repayment obligation to the lender even when it has capacity to honour the said obligation. 21. 20. In the present case, as already observed even the order of Review Committee is bereft of any reasons for arriving at the conclusion that, “the Petitioners have defaulted in meeting its payment/repayment obligation to the lender even when it has capacity to honour the said obligation. 21. Having regard to the aforesaid in our considered view failure to supply the reasons by the Identification Committee of recording the fact that the Petitioners are in wilful default and as to why they need not be given an opportunity of hearing when in their reply dated 29th January, 2018 the Petitioners have raised various grounds opposing the proposed action of declaring them willful defaulter and sought opportunity of personal hearing cannot be said to be justified. Similarly absence of reasons in the order of Review Committee also amounts to denial of justice. It is now well settled that reasons are the live links between the minds of the decision taker to the controversy in question and the decision or conclusion arrived at. Reasons substitute subjectivity to objectivity right to reason is an indispensable part of sound judicial system. The rational is that the affected party can know why the decision has gone against him. One of the statutory requirement of the natural justice is spelling out reasons for the order made, in other words a speaking order. Even in respect of administrative order the giving of reasons is one of the fundamentals of good administration.” 10. The Apex Court in case of State Bank Of India Vs. Jah Developers Private Limited and Others (Supra) while denying the right to be represented by a lawyer in the in-house proceedings contained in Para 3 of the Revised Circular dated 01.07.2015, has held that Revised Circular, being in public interest, must be construed reasonably as under: “15. The next question that arises is whether an oral hearing is required under the Revised Circular dated 1-7-2015. We have already seen that the said circular makes a departure from the earlier Master Circular in that an oral hearing may only be given by the First Committee at the first stage if it is so found necessary. Given the scheme of the Revised Circular, it is difficult to state that oral hearing is mandatory. We have already seen that the said circular makes a departure from the earlier Master Circular in that an oral hearing may only be given by the First Committee at the first stage if it is so found necessary. Given the scheme of the Revised Circular, it is difficult to state that oral hearing is mandatory. It is even more difficult to state that in all cases oral hearings must be given, or else the principles of natural justice are breached. A number of judgments have held that natural justice is a flexible tool that is used in order that a person or authority arrive at a just result. Such result can be arrived at in many cases without oral hearing but on written representations given by parties, after considering which, a decision is then arrived at. Indeed, in a recent judgment in [Gorkha Security Services v. State (NCT of Delhi), (2014) 9 SCC 105 ] this Court has held, in a blacklisting case, that where serious consequences ensue, once a show-cause notice is issued and opportunity to reply is afforded, natural justice is satisfied and it is not necessary to give oral hearing in such cases (see para 20). 16. When it comes to whether the borrower can, given the consequences of being declared a wilful defaulter, be said to have a right to be represented by a lawyer, the judgments of this Court have held that there is no such unconditional right, and that it would all depend on the facts and circumstances of each case, given the governing rules and the fact situation of each case. Thus, in [Mohinder Singh Gill v. Chief Election Commr., (1978) 1 SCC 405 ], in the context of election law, this Court held: (SCC p. 439, para 63) “63. In [Wiseman v. Borneman, 1968 Ch 429 : (1968) 2 WLR 320 : (1967) 3 All ER 1045 (CA)] there was a hint of the competitive claims of hurry and hearing. Lord Reid said: ‘Even where the decision has to be reached by a body acting judicially, there must be a balance between the need for expedition and the need to give full opportunity to the defendant to see material against him’ (emphasis added). We agree that the elaborate and sophisticated methodology of a formalised hearing may be injurious to promptitude so essential in an election under way. We agree that the elaborate and sophisticated methodology of a formalised hearing may be injurious to promptitude so essential in an election under way. Even so, natural justice is pragmatically flexible and is amenable to capsulation under the compulsive pressure of circumstances. To burke it altogether may not be a stroke of fairness except in very exceptional circumstances. Even in Wiseman [Wiseman v. Borneman, 1971 AC 297 : (1969) 3 WLR 706 (HL)] where all that was sought to be done was to see if there was a prima facie case to proceed with a tax case where, inevitably, a fuller hearing would be extended at a later stage of the proceedings, Lord Reid, Lord Morris of Borth-y-Gest and Lord Wilberforce suggested ‘that there might be exceptional cases where to decide upon it ex parte would be unfair, and it would be the duty of the tribunal to take appropriate steps to eliminate unfairness’ (Lord Denning, M.R., in [Howard v. Borneman, 1975 Ch 201 : (1974) 3 WLR 660 (CA)] summarised the observations of the Law Lords in this form). No doctrinaire approach is desirable but the court must be anxious to salvage the cardinal rule to the extent permissible in a given case. After all, it is not obligatory that counsel should be allowed to appear nor is it compulsory that oral evidence should be adduced. Indeed, it is not even imperative that written statements should be called for. Disclosure of the prominent circumstances and asking for an immediate explanation orally or otherwise may, in many cases, be sufficient compliance. It is even conceivable that an urgent meeting with the parties concerned summoned at an hour's notice, or in a crisis, even a telephone call, may suffice.” (emphasis in original) 17. In [Kavita v. State of Maharashtra, (1981) 3 SCC 558 : 1981 SCC (Cri) 743] (Kavita), this Court held, in the context of preventive detention, that even when a detenu makes a request for legal assistance before the Advisory Board, the Advisory Board is vested with a discretion whether to allow or disallow such legal assistance. This was despite the fact that adequate legal assistance may be essential for the protection of the fundamental right to life and personal liberty guaranteed by Article 21 of the Constitution. This was despite the fact that adequate legal assistance may be essential for the protection of the fundamental right to life and personal liberty guaranteed by Article 21 of the Constitution. On facts, it was held that since the detenu had not made any request to the Advisory Board for any such permission, the Court was not prepared to hold that the detenu was denied the assistance of counsel so as to lead to the conclusion that procedural fairness under Article 21 of the Constitution was denied to him. Likewise, in [Nand Lal Bajaj v. State of Punjab, (1981) 4 SCC 327 : 1981 SCC (Cri) 841] , this Court referred to Article 22(3)(b) of the Constitution of India which states that the right to consult and be defended by a legal practitioner of his choice is denied to a person who is arrested or detained under any law providing for preventive detention. This Court then went on to hold that normally, lawyers have no place in proceedings before the Advisory Board, and then went on to refer to Kavita [Kavita v. State of Maharashtra , (1981) 3 SCC 558 : 1981 SCC (Cri) 743] . It was finally held that since the detaining authority was allowed to be represented by counsel before the Advisory Board, whereas the detenu was not, the order of detention would be quashed as this would be discriminatory. 18. In [J.K. Aggarwal v. Haryana Seeds Development Corpn. Ltd., (1991) 2 SCC 283 : 1991 SCC (L&S) 483] , this Court, after discussing the case law, held in para 4, that the right of representation by a lawyer cannot be held to be a part of natural justice. No general principle valid in all cases can be enunciated. In the last analysis, a decision has to be reached on a case to case basis on situational particularities and the special requirements of justice of the case (see para 8). 19. In [Crescent Dyes and Chemicals Ltd. v. Ram Naresh Tripathi, (1993) 2 SCC 115 : 1993 SCC (L&S) 360] , this Court held that a workman under the Industrial Disputes Act, 1947 has no right, under principles of natural justice, that he must be represented by counsel. After discussing several judgments, this Court concluded: (SCC pp. 126-27 & 129, paras 12-13 & 17) “12. After discussing several judgments, this Court concluded: (SCC pp. 126-27 & 129, paras 12-13 & 17) “12. From the above decisions of the English Courts it seems clear to us that the right to be represented by a counsel or agent of one's own choice is not an absolute right and can be controlled, restricted or regulated by law, rules or regulations. However, if the charge is of a serious and complex nature, the delinquent's request to be represented through a counsel or agent could be conceded. 13. The law in India also does not concede an absolute right of representation as an aspect of the right to be heard, one of the elements of principle of natural justice. It has been ruled by this Court in (i) [N. Kalindi v. Tata Locomotive & Engg. Co. Ltd., (1960) 3 SCR 407 : AIR 1960 SC 914 ] , (ii) [Brooke Bond (India) (P) Ltd. v. S. Subba Raman, (1961) 2 LLJ 417 (SC)] and (iii) [Dunlop Rubber Co. (India) Ltd. v. Workmen, (1965) 2 SCR 139 : AIR 1965 SC 1392 ] that there is no right to representation as such unless the company by its Standing Orders recognises such a right. *** 17. It is, therefore, clear from the above case-law that the right to be represented through counsel or agent can be restricted, controlled or regulated by statute, rules, regulations or Standing Orders. A delinquent has no right to be represented through counsel or agent unless the law specifically confers such a right. The requirement of the rule of natural justice insofar as the delinquent's right of hearing is concerned, cannot and does not extend to a right to be represented through counsel or agent. In the instant case, the delinquent's right of representation was regulated by the Standing Orders which permitted a clerk or a workman working with him in the same department to represent him and this right stood expanded on Sections 21 and 22(ii) permitting representation through an officer, staff-member or a member of the union, albeit on being authorised by the State Government. The object and purpose of such provisions is to ensure that the domestic enquiry is completed with despatch and is not prolonged endlessly. The object and purpose of such provisions is to ensure that the domestic enquiry is completed with despatch and is not prolonged endlessly. Secondly, when the person defending the delinquent is from the department or establishment in which the delinquent is working he would be well conversant with the working of that department and the relevant rules and would, therefore, be able to render satisfactory service to the delinquent. Thirdly, not only would the entire proceedings be completed quickly but also inexpensively. It is, therefore, not correct to contend that the Standing Order or Section 22(ii) of the Act conflicts with the principles of natural justice.” 20. In [Railway Protection Force v. K. Raghuram Babu, (2008) 4 SCC 406 : (2008) 1 SCC (L&S) 1043] , this Court, in the context of a domestic/departmental enquiry held: (SCC p. 408, paras 9-11) “9. It is well settled that ordinarily in a domestic/departmental enquiry the person accused of misconduct has to conduct his own case vide [N. Kalindi v. Tata Locomotive & Engg. Co. Ltd., (1960) 3 SCR 407 : AIR 1960 SC 914 ] Such an inquiry is not a suit or criminal trial where a party has a right to be represented by a lawyer. It is only if there is some rule which permits the accused to be represented by someone else, that he can claim to be so represented in an inquiry vide [Brooke Bond (India) (P) Ltd. v. S. Subba Raman, (1961) 2 LLJ 417 (SC)] . 10. Similarly, in [Cipla Ltd. v. Ripu Daman Bhanot, (1999) 4 SCC 188 : 1999 SCC (L&S) 847] it was held by this Court that representation could not be claimed as of right. This decision followed the earlier decision [Bharat Petroleum Corpn. Ltd. v. Maharashtra General Kamgar Union, (1999) 1 SCC 626 : 1999 SCC (L&S) 361] in which the whole case law has been reviewed by this Court. 11. Following the above decision it has to be held that there is no vested or absolute right in any charge-sheeted employee to representation either through a counsel or through any other person unless the statute or rules/standing orders provide for such a right. Moreover, the right to representation through someone, even if granted by the rules, can be granted as a restricted or controlled right. Moreover, the right to representation through someone, even if granted by the rules, can be granted as a restricted or controlled right. Refusal to grant representation through an agent does not violate the principles of natural justice.” Ultimately, the Court upheld the validity of Rule 153.8 of the Railway Protection Force Rules, 1987, which permitted a friend to accompany a delinquent, who will not, however, be allowed to address the inquiry officer or be allowed to cross-examine witnesses. 21. It has also been argued before us that the present case, being a case where “wilful default” consists of facts which are known to the borrower, and as “wilful default” would only be the borrower's version of facts, no lawyer is needed as no complicated questions of law need to be presented before the In- House Committees. Thus, in [Krishna Chandra Tandon v. Union of India, (1974) 4 SCC 374 : 1974 SCC (L&S) 329] , this Court held: (SCC p. 381, para 17) “17. It was next argued that the appellant had asked for the assistance of an advocate but the same was refused. It was submitted that having regard to the intricacies of the case and particularly the ill health of the appellant, he should have been given the assistance of an advocate, and since that was not given there was no reasonable opportunity to defend. The High Court has rejected this submission and we think for good reasons. The appellant was not entitled under the Rules to the assistance of an advocate during the course of the enquiry. The learned Judges were right in pointing out that all that the appellant had to do in the course of the enquiry was to defend the correctness of his assessment orders. Clear indications had been given in the charges with regard to the unusual conduct he displayed in disposing of the assessment cases and the various flaws and defaults which were apparent on the face of the assessment records themselves. The appellant was the best person to give proper explanations. The circumstances in the evidence against him were clearly put to him and he had to give his explanation. An advocate could have hardly helped him in this. It was not a case where oral evidence was recorded with reference to accounts and the petitioner required the services of a trained lawyer for cross-examining the witnesses. The circumstances in the evidence against him were clearly put to him and he had to give his explanation. An advocate could have hardly helped him in this. It was not a case where oral evidence was recorded with reference to accounts and the petitioner required the services of a trained lawyer for cross-examining the witnesses. There was no legal complexity in the case. We do not, therefore, accede to the contention that the absence of a lawyer deprived the appellant of a reasonable opportunity to defend himself.” 22. Also, in [National Seeds Corpn. Ltd. v. K.V. Rama Reddy, (2006) 11 SCC 645 : (2007) 1 SCC (L&S) 512] , this Court laid down: (SCC p. 648, para 7) “7. The law in this country does not concede an absolute right of representation to an employee in domestic enquiries as part of his right to be heard and that there is no right to representation by somebody else unless the rules or regulation and standing orders, if any, regulating the conduct of disciplinary proceedings specifically recognise such a right and provide for such representation: see [N. Kalindi v. Tata Locomotive & Engg. Co. Ltd., (1960) 3 SCR 407 : AIR 1960 SC 914 ], [Dunlop Rubber Co. (India) Ltd. v. Workmen, (1965) 2 SCR 139 : AIR 1965 SC 1392 ], [Crescent Dyes and Chemicals Ltd. v. Ram Naresh Tripathi, (1993) 2 SCC 115 : 1993 SCC (L&S) 360] and [Indian Overseas Bank v. Officers' Assn., (2001) 9 SCC 540 : 2002 SCC (L&S) 1043] ” 23. The Court then held: (National Seeds Corpn. Ltd. case [National Seeds Corpn. Ltd. v. K.V. Rama Reddy, (2006) 11 SCC 645 : (2007) 1 SCC (L&S) 512] , SCC pp. 650-51, para 10) “10. Learned counsel for the appellant Corporation has brought to our notice office memorandum dated 21-11-2003 by which the prayer to engage a legal practitioner to act as a defence assistant was rejected. Reference was made to the Rules, though no specific reference has been made to the discretion available to be exercised in particular circumstances of a case. The same has to be noted in the background of the basis of prayer made for the purpose. Reference was made to the Rules, though no specific reference has been made to the discretion available to be exercised in particular circumstances of a case. The same has to be noted in the background of the basis of prayer made for the purpose. The reasons indicated by the respondent for the purpose were: (a) amount alleged to have been misappropriated is Rs 63.67 lakhs, (b) a number of documents and number of witnesses are relied on by the respondent, and (c) the prayer for availing services of the retired employee has been rejected and the respondent is unable to get any assistance to get any other able co-worker. None of these factors are really relevant for the purpose of deciding as to whether he should be granted permission to engage the legal practitioner. As noted earlier, he had to explain the factual position with reference to the documents sought to be utilised against him. A legal practitioner would not be in a position to assist the respondent in this regard. It has not been shown as to how a legal practitioner would be in a better position to assist the respondent so far as the documents in question are concerned. As a matter of fact, he would be in a better position to explain and throw light on the question of acceptability or otherwise and the relevance of the documents in question. The High Court [K.V. Rama Reddy v. National Seeds Corpn. Ltd., 2004 SCC OnLine Kar 654] has not considered these aspects and has been swayed by the fact that the respondent was physically handicapped person and the amount involved is very huge. As option to be assisted by another employee is given to the respondent, he was in no way prejudiced by the refusal to permit engagement of a legal practitioner. The High Court's order is, therefore, unsustainable and is set aside.” 24. Given the above conspectus of case law, we are of the view that there is no right to be represented by a lawyer in the in-house proceedings contained in Para 3 of the Revised Circular dated 1- 7-2015, as it is clear that the events of wilful default as mentioned in Para 2.1.3 would only relate to the individual facts of each case. What has typically to be discovered is whether a unit has defaulted in making its payment obligations even when it has the capacity to honour the said obligations; or that it has borrowed funds which are diverted for other purposes, or siphoned off funds so that the funds have not been utilised for the specific purpose for which the finance was made available. Whether a default is intentional, deliberate, and calculated is again a question of fact which the lender may put to the borrower in a show-cause notice to elicit the borrower's submissions on the same. However, we are of the view that Article 19(1)(g) is attracted in the facts of the present case as 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. This is for the reason that no additional facilities can be granted by any bank/financial institutions, and entrepreneurs/promoters would be barred from institutional finance for five years. Banks/financial institutions can even change the management of the wilful defaulter, and a promoter/director of a wilful defaulter cannot be made promoter or director of any other borrower company. Equally, under Section 29-A of the Insolvency and Bankruptcy Code, 2016, a wilful defaulter cannot even apply to be a resolution applicant. 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. 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 [SBI v. Jah Developers (P) Ltd., LPA No. 113 of 2015 sub nom Punjab National Bank v. Kingfisher Airlines Ltd., 2015 SCC OnLine Del 14128 : (2016) 154 DRJ 164 ] [Kingfisher Airlines Ltd. v. Union of India, 2015 SCC OnLine Bom 6075 : (2016) 2 Mah LJ 838] 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.” 11. In view of the above conspectus of the law and undisputed facts of this case, it is apparent that the respondent bank has failed to comply with the aforesaid mechanism provided under the Revised Master Circular and though the notice was issued by the respondent bank to which the petitioners filed detailed reply but the order passed by the Review Committee confirming the petitioners as willful defaulters was never provided to the petitioners. 12. In view of the above facts and circumstances, the respondent bank while declaring the petitioners as willful defaulter has violated the provisions contained in the Revised Master Circular and has also acted in violation of principles of natural justice. As the impugned action which is penal in nature has been taken causing serious implication to the petitioners without following the basis of principles of natural justice, the impugned action of the respondent bank identifying the account of the petitioners as willful default and subsequent reporting of name of the petitioners to the RBI/CIBIL as willful defaulters are liable to be quashed and set aside. 13. In view of the foregoing reasons, the petition succeeds and is accordingly allowed. 13. In view of the foregoing reasons, the petition succeeds and is accordingly allowed. The impugned action of the respondent bank identifying the account of the petitioners as willful defaulters and subsequent reporting of the names of the petitioners to RBI/CIBIL as willful defaulters is hereby quashed and set aside and the matter is remanded back to the Review Committee of the respondent bank to follow the procedure as prescribed in Master Circular dated 1st July, 2015 by issuing a show cause notice to the petitioners and providing opportunity to the petitioners as per Clause-3 of the said circular. Petitioners are permitted to raise all the objections which are raised in this petition before the Review Committee within a period of four weeks from the date of receipt of this order. The Review Committee shall complete the exercise and decide the same in accordance with law within a period of three months thereafter. 14. Rule is made absolute to the aforesaid extent. No order as to costs.