Wilful default classification upheld where letter of credit liability and repayment breaches fell within the RBI framework.

Wilful default under the RBI Master Circular may be assessed contextually and is not limited to a narrow lender-borrower situation where funds are physically credited into the borrower's account. The Court held that liability arising from the bank's payment to foreign suppliers under a letter of credit created an enforceable credit obligation, and the petitioners' failure to repay, along with withdrawal of equity funds without consent, justified classification as wilful defaulters. It further held that the circular's personal hearing does not include a right to be represented by an advocate or chartered accountant, and that review by the internal committee is a safeguard, not an appellate hearing requiring fresh reasons. The writ petition was dismissed.

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Issues: (i) Whether the petitioners' liability under the foreign letter of credit and related utilisation of funds could justify classification as wilful defaulters under the RBI Master Circular; (ii) Whether denial of representation through an advocate or chartered accountant and the review process vitiated the declaration of wilful default.

Issue (i): Whether the petitioners' liability under the foreign letter of credit and related utilisation of funds could justify classification as wilful defaulters under the RBI Master Circular.

Analysis: The Court held that the liability created by the bank's payment to foreign suppliers on behalf of the petitioners was a credit obligation enforceable against the petitioners. It relied on the contextual interpretation of the concept of wilful default, including the principle that the expression is not confined to a narrow, literal lender-borrower situation where funds are physically credited into the borrower's account. The Court found that the petitioners had defaulted in honouring repayment obligations and had also withdrawn substantial equity funds without the bank's consent, bringing the case within the categories of wilful default contemplated by the Master Circular.

Conclusion: The petitioners were validly classified as wilful defaulters; this issue was decided against the petitioners.

Issue (ii): Whether denial of representation through an advocate or chartered accountant and the review process vitiated the declaration of wilful default.

Analysis: The Court followed the view taken by a coordinate Bench that the personal hearing contemplated by the Master Circular does not confer a right of representation through an advocate or chartered accountant. It further held that the review committee is an internal safeguard mechanism and not an appellate forum requiring a fresh hearing or separate independent reasons when it affirms the identification committee's decision.

Conclusion: The challenge based on denial of professional representation and the review procedure failed; this issue was decided against the petitioners.

Final Conclusion: The writ petition was held to be without merit and the declaration of wilful default was upheld, leaving no basis for interference.

Ratio Decidendi: Wilful default under the RBI Master Circular is to be construed contextually and may cover default in banking obligations arising from non-fund-based facilities, while the personal hearing contemplated by the circular does not include a right to be represented by legal practitioners or chartered accountants.

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