Wilful defaulter classification requires strict compliance with RBI procedure; bank action was set aside for procedural non-compliance.

The Calcutta HC held that a bank's proposal to classify borrowers as wilful defaulters could not stand where the mandatory procedure under the RBI Master Circular was not followed. Rule 3 requires a structured process, including action by the first committee and a show-cause notice from the committee contemplated under Rule 3(b), followed by appellate consideration. As no material showed that the Rule 3(b) committee had issued the requisite notice, the impugned writing inviting objections was treated as procedurally invalid and was set aside.

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Issues: Whether the impugned writing proposing classification of the petitioners as wilful defaulters was invalid for non-compliance with Rule 3(b) of the Reserve Bank of India Master Circular on Wilful Defaulter.

Analysis: The petitioners were borrowers of the bank and a proceeding under section 19 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 was pending. The impugned writing disclosed that an appropriate committee had decided to include the petitioners in the wilful defaulters list and had invited objections. Rule 3 of the Master Circular prescribes a structured mechanism for identification of a wilful defaulter, including action by the first committee under Rule 3(a) and 3(b) and an appeal before the second committee. No material was placed to show that the committee contemplated under Rule 3(b) had issued the requisite show cause notice. The bank's action therefore did not comply with the prescribed procedure and could not be sustained.

Conclusion: The impugned writing dated April 13, 2017 was set aside for non-compliance with the mandatory procedure under the Master Circular.

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