Wilful default under RBI circular includes deliberate non-payment of derivative transaction dues with a bank.

The RBI Master Circular on wilful defaulters is not confined to traditional loan or advance transactions; read with the banking and credit-information statutes, it extends to deliberate defaults on obligations arising from foreign exchange derivative transactions with a bank. The Court held that the circular's object is to prevent further bank finance to entities that consciously default on banking obligations, including non-funded facilities, and that RBI may collect and disseminate credit information about such defaults. Accordingly, dues under derivative transactions fall within the wilful default regime and a party may be treated as a wilful defaulter for deliberate non-payment.

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Issues: Whether default in payment of dues arising out of foreign exchange derivative transactions with a bank falls within the expression "wilful default" under the RBI Master Circular on Wilful Defaulters.

Analysis: The Master Circular was framed to disseminate credit information relating to wilful defaulters so that further bank finance is not extended to them. The Court held that the expression "wilful default" cannot be confined by a literal reading of the word "lender" to only traditional loan or advance transactions. Reading the Master Circular with the statutory setting in the Reserve Bank of India Act, 1934, the Banking Regulation Act, 1949, the Credit Information Companies (Regulation) Act, 2005 and the regulatory framework governing derivatives, the Court concluded that the object of the circular is to prevent banks from extending finance to entities that deliberately default on obligations to banks, including obligations arising from non-funded banking transactions. The Court also held that the RBI's power to collect and disseminate credit information permits disclosure of defaults under derivative transactions, and that the circular is not to be narrowly construed as a penal provision.

Conclusion: Dues arising out of derivative transactions are covered by the Master Circular, and a party wilfully defaulting in such payment obligations may be treated as a wilful defaulter.

Ratio Decidendi: A bank customer's deliberate default in payment obligations arising from derivative transactions falls within the RBI's wilful default regime where the transaction is a banking facility affecting credit information and the regulatory object is to prevent further finance to defaulting entities.

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