Wilful defaulter declaration sustained where sale proceeds were diverted, secured assets were dealt with without consent, and later insolvency did not erase default.

Calcutta HC upheld a wilful defaulter declaration where the record showed revenue was earned but not routed through the lending bank, sale proceeds were parked in another account, and rights over tea sale proceeds forming part of the secured corpus were transferred without consent. The Court held that the review committee was not required to give a fresh elaborate restatement of reasons when it concurred on the material before it, and judicial review was limited to cases of no evidence, perversity, or patent irregularity. It further held that an ongoing insolvency process, a one-time settlement, and claimed financial losses did not negate earlier wilful default or the diversion and disposal of secured assets.

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Issues: (i) Whether the declaration of the borrower as a wilful defaulter was sustainable on the materials before the committees; (ii) whether the review committee was required to record independent detailed reasons; (iii) whether an ongoing corporate insolvency resolution process, the one-time settlement, and the claimed financial losses negated wilful default; (iv) whether the alleged diversion of funds and disposal of secured assets were established under the RBI framework.

Issue (i): Whether the declaration of the borrower as a wilful defaulter was sustainable on the materials before the committees.

Analysis: The material on record showed a substantial mismatch between revenue earned and credit summation in the cash credit account, indicating that sale proceeds were not routed through the lender account for reduction of dues. The record also showed routing of funds through another bank account and transfer or assignment of the borrower's entitlement in respect of tea sale proceeds, which formed part of the secured corpus. The findings of the committees were therefore supported by the record and were not perverse.

Conclusion: The declaration of wilful default was sustained against the petitioner.

Issue (ii): Whether the review committee was required to record independent detailed reasons.

Analysis: The review committee was dealing with an administrative determination and no fresh material was shown to require a fresh elaborate re-writing of the earlier decision. The committee considered the relevant factors and recorded its own concurrence on the material issues. In judicial review, interference is warranted only where the decision is without evidence, patently irregular, or perverse.

Conclusion: The challenge based on absence of independent reasons failed.

Issue (iii): Whether an ongoing corporate insolvency resolution process, the one-time settlement, and the claimed financial losses negated wilful default.

Analysis: The one-time settlement did not efface an earlier default, and the commencement of insolvency proceedings did not absolve the promoter-director of responsibility for defaults committed while in control of the company. Financial losses by themselves did not disprove capacity to pay where revenue was admittedly earned but not channelled to the lender. The conduct disclosed wilful non-payment notwithstanding the claimed commercial distress.

Conclusion: Neither the corporate insolvency resolution process nor the one-time settlement or losses defeated the finding of wilful default.

Issue (iv): Whether the alleged diversion of funds and disposal of secured assets were established under the RBI framework.

Analysis: Parking sale proceeds in a different bank account amounted to diversion of funds within the circular's framework. The assignment or transfer of rights in the tea estate proceeds without the lender's consent amounted to disposal of secured assets and removal of the security from the bank's control. The conduct fell within the categories of wilful default contemplated by the circular.

Conclusion: The allegations of diversion of funds and disposal of secured assets were established.

Final Conclusion: The writ petition failed because the impugned wilful defaulter declaration was supported by the record, disclosed no patent illegality or perversity, and did not warrant interference in judicial review.

Ratio Decidendi: A wilful defaulter declaration can be sustained where the borrower earns revenue but does not route it through the lending bank, diverts funds through another account, or deals with secured assets without the lender's consent, and such liability is not effaced by a subsequent insolvency process or a one-time settlement.

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