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Issues: (i) Whether the petitioners could be classified and published as wilful defaulters without strict compliance with the RBI Master Circular. (ii) Whether the screening committee and the Grievance Redressal Committee had material and reasons sufficient to sustain the declaration of wilful default.
Issue (i): Whether the petitioners could be classified and published as wilful defaulters without strict compliance with the RBI Master Circular.
Analysis: The distinction between an ordinary defaulter and a wilful defaulter is material. The circular treats wilful default as something more than mere inability to repay and requires conduct showing means to repay but deliberate non-payment, diversion of funds, or similar bad faith. Because the consequences of such a label are serious, the procedure in clause 3 of the Master Circular must be strictly followed before the borrower is branded as a wilful defaulter.
Conclusion: The declaration could not be sustained unless the procedure under the Master Circular was strictly complied with.
Issue (ii): Whether the screening committee and the Grievance Redressal Committee had material and reasons sufficient to sustain the declaration of wilful default.
Analysis: The initial committee's decision was not shown to be properly reasoned or supported by requisite evidence. The reasons communicated to the petitioners reflected only non-payment of dues, not the elements of wilful default under clause 2.1. Since the initial decision was neither well documented nor supported by evidence, the Grievance Redressal Committee had no proper material before it to affirm the classification.
Conclusion: The decisions of both committees could not be sustained.
Final Conclusion: The petition succeeded, the impugned classification as wilful defaulters was set aside, and the bank was left free to commence the process afresh in accordance with law and the RBI Master Circular.
Ratio Decidendi: A borrower cannot be branded a wilful defaulter unless the bank strictly follows the prescribed procedure and its decision is supported by a reasoned, evidence-based finding showing the elements of wilful default.
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