Wilful defaulter procedure must include a reasoned first-stage decision and fair opportunity before review, or the declaration fails.

A wilful defaulter declaration affecting civil and commercial rights must follow the RBI Master Circular procedure: the first committee must issue notice, consider the borrower's response, record a reasoned decision, and communicate that decision before a separate review committee considers any further representation. The Delhi HC found that the impugned communication was not a speaking order, the first committee's order had not been communicated, and the petitioners were denied an effective opportunity before the review committee. Non-compliance with this mandatory sequence offended fair hearing requirements, so the wilful defaulter declaration and consequential reporting and publication actions were held unsustainable and set aside.

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Issues: Whether the declaration of the petitioners as wilful defaulters and the consequential publication and reporting actions were vitiated for non-compliance with the procedure prescribed in the RBI Master Circular on Wilful Defaulters dated 01.07.2015 and the governing principles laid down by the Supreme Court.

Analysis: The prescribed procedure required the first committee to examine wilful default, issue notice, consider submissions, and then record an order, followed by review by a separate committee whose order would attain finality only after a reasoned decision. The governing principle was that the borrower must receive the first committee's order and then be given an effective opportunity to make a full representation to the review committee. In the present case, the impugned communication merely stated that the account had been declared a wilful defaulter and that the names and photographs had been reported and published. The order was not a speaking order, the first committee's order was not communicated, and the petitioners were denied the opportunity to represent before the review committee. This amounted to non-compliance with the mandatory procedure and offended the requirement of fair hearing.

Conclusion: The declaration of wilful default and all consequential reporting and publication actions were illegal and liable to be set aside in favour of the petitioners.

Final Conclusion: The impugned wilful defaulter action was invalid for breach of the prescribed procedure, and the matter was disposed of after granting consequential relief to the petitioners.

Ratio Decidendi: A wilful defaulter declaration affecting civil and commercial rights must be preceded by a communicated reasoned decision of the first committee and a meaningful opportunity of representation before the review committee; failure to follow that mandatory sequence renders the declaration unsustainable.

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