Wilful defaulter declarations require reasoned orders and fair hearing; non-speaking confirmation orders cannot sustain penal classification.

A wilful defaulter declaration cannot stand where the Identification Committee fails to supply a reasoned order, does not meaningfully consider the borrower's reply or request for personal hearing, and the Review Committee merely affirms the decision without speaking reasons. The Bombay High Court held that the RBI Master Circular requires examination of material, disclosure of reasons, consideration of the representation, and observance of natural justice before imposing this penal classification with serious civil consequences. The declaration was therefore set aside for procedural non-compliance and arbitrariness.

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Issues: Whether the declaration of the petitioners as wilful defaulters could be sustained when the Identification Committee did not furnish its order with reasons, did not effectively consider the reply and request for personal hearing, and the Review Committee passed a non-speaking confirmation order, in the face of the RBI Master Circular and principles of natural justice.

Analysis: The Master Circular governing wilful defaulters required the bank to examine the material, issue a show cause notice, consider the borrower's reply, record reasons while declaring wilful default, and grant personal hearing where necessary. The Identification Committee's order was not supplied to the petitioners, depriving them of the ability to know why their reply was rejected and why hearing was denied. The Review Committee's order merely confirmed the finding without disclosing meaningful reasons. In a penal action with serious civil consequences, reasons are necessary to ensure fairness and to avoid arbitrary exercise of power.

Conclusion: The declaration of the petitioners as wilful defaulters could not be sustained and was set aside for breach of the RBI procedure and the principles of natural justice.

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