2019 (9) TMI 1630 - HC - Indian Laws

Bank's Actions Quashed for Lack of Communication: Petitioners Notified of Wilful Defaulter Status

Alogoma Steel Limited And Others Versus State Bank of India And Others

The court held that the Bank's actions under the Master Circular on Wilful Defaulters were quashed due to the lack of communication of the Identification ... Violation of principles of natural justice - petitioner was denied an opportunity of hearing by the Identification Committee - Wilful Defaulter - HELD THAT:- In the facts of the present case, a Deputy General Manager issued the impugned show-cause notice dated May 25, 2016. The impugned show-cause notice does not have the decision of the Identification Committee in its entirety. Materials placed before the Identification Committee by the Bank do not find place in the impugned show-cause notice. The impugned show-cause notice is the understanding of the another of the show-cause notice of the decision of the Identification Committee. Such understanding cannot substitute the decision of the Identification Committee in its original form nor the materials placed by the Bank before the Identification Committee on which basis the Identification Committee arrived at its decision. The petitioners were therefore deprived of the materials, which were before the Identification Committee and which the Identification Committee considered to recommend providing under the Master Circular on Wilful Defaulters dated July 1, 2015 against the delinquent. The petitioners, therefore, were denied an opportunity to meet the claim of the Bank in the proceeding. The impugned action of the Bank taken under the Master Circular on Wilful Defaulters dated July 1, 2015 cannot be sustained - Petition allowed. Issues:Challenge to decisions of Bank under Master Circular on Wilful Defaulters dated July 1, 2015.Analysis:The petitioners challenged decisions dated August 31, 2018 and October 10, 2018 made by the Bank under the Master Circular on Wilful Defaulters. The Advocate for the petitioners argued that the petitioners were not provided with a copy of the resolution by the Identification Committee initially, thus denying them a fair hearing. Reference was made to a previous judgment and the Supreme Court's decision in a related case to support this contention. On the other hand, the Senior Advocate for the respondent Bank contended that the petitioners were informed of all decisions by the Identification Committee and had been issued a show-cause notice which they responded to. The Senior Advocate argued that there was no flaw in the decisions made by the Identification Committee. The court noted that according to Atlantic Projects Limited, the delinquent must be informed of the Identification Committee's decision to allow for a meaningful response. In this case, the show-cause notice issued to the petitioners did not contain the full decision of the Identification Committee, depriving the petitioners of crucial information to contest the Bank's claims effectively.The court held that the Bank's actions under the Master Circular on Wilful Defaulters could not stand due to the lack of communication of the Identification Committee's decision to the petitioners. Citing Jah Developers Private Limited, the court emphasized that principles of natural justice must be upheld in proceedings under the Master Circular. Consequently, all actions taken by the Bank against the petitioners under the Master Circular were quashed. Despite the Bank's argument that its actions were not under challenge in the writ petition, the court disagreed based on the prayers in the petition seeking to annul the decisions classifying the petitioners as wilful defaulters. Therefore, the court allowed the writ petition and set aside the Bank's actions under the Master Circular.The court clarified that its order did not prevent the Bank from initiating fresh proceedings in accordance with the law under the Master Circular on Wilful Defaulters. No costs were awarded in this matter, and parties were directed to receive a certified copy of the order upon completing the necessary formalities.