Wilful defaulter classification requires reasoned review and consideration of a later approved resolution plan in insolvency.

A wilful defaulter classification must be made and reviewed in a reasoned manner under the RBI Master Circular, with consideration of the borrower's track record and the material relied on. The Court treated later approval of a resolution plan in insolvency proceedings as a supervening development that could furnish a fresh cause of action and require reconsideration of the classification. The challenge was therefore not rejected on delay alone, and the review committee was directed to reassess the matter in light of the governing circular and the subsequent insolvency event, leaving the substantive questions open for fresh determination.

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Issues: (i) Whether the writ challenge was barred by delay and whether the later approval of the resolution plan under the insolvency law furnished a fresh cause of action; (ii) whether the declaration of the appellants as wilful defaulters and the review process complied with the Reserve Bank of India Master Circular, including consideration of track record and a reasoned decision; (iii) whether the approval of the resolution plan by the adjudicating authority had a bearing on the continuance of the wilful defaulter classification.

Issue (i): Whether the writ challenge was barred by delay and whether the later approval of the resolution plan under the insolvency law furnished a fresh cause of action.

Analysis: The later approval of the resolution plan was treated as a supervening event that materially altered the legal landscape. That development was held to have given rise to a fresh cause of action to seek relief against the wilful defaulter classification. In that view, the challenge could not be rejected merely on the ground of delay, and the subsequent circumstances justified reconsideration of interim and final relief.

Conclusion: The plea of delay did not defeat the writ challenge in the changed factual and legal setting.

Issue (ii): Whether the declaration of the appellants as wilful defaulters and the review process complied with the Reserve Bank of India Master Circular, including consideration of track record and a reasoned decision.

Analysis: The governing circular treats wilful default as involving intentional and deliberate non-payment despite capacity to pay, and requires the borrower's track record to be considered. The material before the Court did not show that the identification committee or the review committee had applied that standard in a reasoned manner. The review process was found wanting because the decision did not adequately disclose consideration of the relevant factual material or give detailed reasons on the points raised.

Conclusion: The classification and review process were found insufficiently reasoned and required reconsideration.

Issue (iii): Whether the approval of the resolution plan by the adjudicating authority had a bearing on the continuance of the wilful defaulter classification.

Analysis: The approval of the resolution plan was treated as a significant subsequent event. It was held to be relevant to the continued existence of the liability and the status of the appellants, and it was directed to be considered by the review committee. The matter was not finally decided on the substantive effect of the resolution plan, but that development was held sufficient to justify a fresh review.

Conclusion: The resolution plan approval had to be taken into account by the review committee and could not be ignored.

Final Conclusion: The appeal and the writ petition were disposed of by directing a fresh review by the bank's review committee on the basis of the governing circular and the subsequent insolvency development, with all factual and legal questions left open for that reconsideration.

Ratio Decidendi: A wilful defaulter classification must be based on a reasoned application of the RBI circular, including consideration of the borrower's track record and a meaningful review, and a subsequent resolution plan approved in insolvency proceedings may constitute a fresh and material circumstance requiring reconsideration of that classification.

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