Supreme Court removes names of wilful defaulters post settlement

The Supreme Court upheld the finding that the company and its promoters were wilful defaulters. Following the sale of the company during insolvency proceedings, the Review Committee of Axis Bank determined that the writ petitioners remained wilful defaulters under the Master Circular. However, the Court ordered the removal of the writ petitioners' names from the list of wilful defaulters effective March 1, 2019, upon settlement of the debt through an approved resolution plan. The prohibition on new commercial finance for the writ petitioners would continue for five years from February 28, 2019.

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Issues Involved:
1. Applicability of the Reserve Bank's Master Circular on wilful default.
2. Finality of the finding of wilful default.
3. Impact of the insolvency proceedings and sale of the company on the wilful defaulter status.
4. Review Committee's decision on the wilful defaulter status post-sale.
5. Single Bench's order regarding the wilful defaulter status of the promoters.
6. Removal of names from the list of wilful defaulters.

Issue-wise Detailed Analysis:

1. Applicability of the Reserve Bank's Master Circular on wilful default:
The case revolves around the Reserve Bank's Master Circular on wilful default, specifically the edition published on July 1, 2015. The Master Circular outlines the criteria and penal measures for identifying and dealing with wilful defaulters. The relevant clause for this case is sub-clause (a) of clause 2.5, which stipulates that no additional facilities should be granted to listed wilful defaulters and debarment from institutional finance for a period of five years.

2. Finality of the finding of wilful default:
The ultimate finding that the company and its promoters were wilful defaulters attained finality. This was confirmed by a Division Bench order of the High Court, which was upheld by the Supreme Court. The Supreme Court's order allowed the writ petitioners to make a representation to the Review Committee of Axis Bank regarding their continued classification as wilful defaulters in light of subsequent events, specifically the sale of the company in insolvency proceedings.

3. Impact of the insolvency proceedings and sale of the company on the wilful defaulter status:
The company, Pro Minerals Pvt. Ltd., was sold to new promoters during insolvency proceedings before the National Company Law Tribunal (NCLT). The Supreme Court noted that the assets of the company had been sold in liquidation of its debts. The Review Committee of Axis Bank was tasked with deciding whether the subsequent sale of the company affected the wilful defaulter status of the writ petitioners.

4. Review Committee's decision on the wilful defaulter status post-sale:
The Review Committee of Axis Bank, following the Supreme Court's directive, did not permit the reopening of matters that had attained finality. It only considered the impact of the company's sale on the wilful defaulter status. The Review Committee concluded that despite the sale, the writ petitioners continued to be regarded as wilful defaulters under the Master Circular of July 1, 2015.

5. Single Bench's order regarding the wilful defaulter status of the promoters:
The Single Bench upheld the Review Committee's decision not to reopen concluded matters. However, it opined that since the writ petitioners had been divested of their control over and association with the company, they ceased to be wilful defaulters. This view was challenged in the appeals.

6. Removal of names from the list of wilful defaulters:
The Court noted that the Master Circular was somewhat unclear on how a wilful defaulter could have their name removed from the list. It was determined that since the writ petitioners had no personal guarantee or property as security, their names should have been removed from the list once the debt was settled through the resolution plan approved by NCLT. The Court concluded that the writ petitioners' names should be deemed removed from the list of wilful defaulters effective March 1, 2019. However, the prohibition on obtaining new commercial finance would continue for five years from February 28, 2019.

Conclusion:
The appeals were disposed of by modifying the order under appeal. The Reserve Bank was directed to ensure the removal of the writ petitioners' names from the list of wilful defaulters effective February 28, 2019. There were no orders as to costs.

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