Court rules moratorium under IBC does not protect guarantors. Show-Cause Notice valid. Petition denied.

The court dismissed the writ petition, ruling that the moratorium under Section 14 of the IBC does not shield the petitioners as guarantors from proceedings under the RBI Master Circular. The court upheld the validity of the Show-Cause Notice, finding it compliant with the Master Circular. The petitioners' claims for relief were denied, and the case was dismissed without costs.

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Issues Involved:
1. Whether the moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 (IBC) prohibits proceedings for identification of wilful defaulters.
2. Validity of the impugned Show-Cause Notice under the RBI Master Circular on Wilful Defaulters, 2015.

Issue-Wise Analysis:

1. Moratorium under Section 14 of IBC:
The petitioners argued that due to the moratorium declared under Section 14 of the IBC, proceedings under the RBI Master Circular for declaring them as wilful defaulters should be stayed. The moratorium was declared by the National Company Law Tribunal (NCLT) on 17th March, 2020. Section 14(1) of the IBC prohibits the institution or continuation of suits or proceedings against the corporate debtor. However, Section 14(3)(b) clarifies that this prohibition does not extend to a surety in a contract of guarantee to a corporate debtor. The court noted that the petitioners, being erstwhile guarantors, do not fall under the moratorium's protective umbrella. Additionally, Section 128 of the Indian Contract Act, 1872, which states that the liability of the surety is co-extensive with that of the principal debtor, was emphasized. Therefore, the argument that the moratorium under Section 14 of the IBC would shield the petitioners from the proceedings was rejected.

2. Validity of the Show-Cause Notice:
The petitioners contended that the Show-Cause Notice dated 14th November, 2019, and the notice of hearing dated 6th August, 2020, were invalid as they were not issued by the committee empowered under the RBI Master Circular. Specifically, they argued that the notices failed to disclose the particulars of the "appropriate committee" and the evidence of wilful default. The court examined Clause 3 of the Master Circular, which outlines the mechanism for identifying wilful defaulters. Clause 3(a) requires the evidence of wilful default to be examined by a committee headed by an Executive Director or equivalent and consisting of two other senior officers. The court found that the Deputy Managing Director, who issued the notice, is equivalent to the Executive Director, satisfying Clause 3(a). The court also noted that the Show-Cause Notice included an annexure detailing the "Justification/Reasons for declaring the Borrower as Wilful Defaulter," fulfilling the requirement of Clause 3(b).

The court referred to the Division Bench judgment in Union Bank of India versus Sudhir Kumar Patodia/Pawan Kumar Patodia, which held that delegation of the task of issuing a Show-Cause Notice does not invalidate the proceedings. The court also considered the petitioners' conduct, noting that they were initially not averse to appearing before the concerned committee for a personal hearing.

Conclusion:
The court dismissed the writ petition, holding that the moratorium under Section 14 of the IBC does not protect the petitioners as guarantors from proceedings under the RBI Master Circular. The court also upheld the validity of the Show-Cause Notice, finding that it complied with the requirements of the Master Circular. The petitioners were not entitled to the reliefs claimed, and the case was dismissed without any order as to costs.

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