Wilful defaulter proceedings are distinct from recovery action and are not barred by insolvency moratorium; relied-upon documents must be disclosed.

A show-cause notice commencing wilful defaulter proceedings is not barred by pending insolvency proceedings or an interim NPA-related restraint order, because such proceedings are distinct from recovery or enforcement action and are not hit by the moratorium under Section 96 of the Insolvency and Bankruptcy Code. The notice is also not invalid merely because it refers to guarantors' assets or leaves the detailed examination of wilful default to the review process. Fairness, however, requires disclosure of the forensic audit report and other materials actually relied upon, with corresponding enlargement of time to reply.

---

---

Issues: (i) whether a show-cause notice initiating wilful defaulter proceedings is barred by the pendency of insolvency proceedings and the alleged NPA-related restraint order; (ii) whether the notice is vitiated because it refers to guarantors' assets and does not accompany the forensic audit report and other relied-upon materials.

Issue (i): whether a show-cause notice initiating wilful defaulter proceedings is barred by the pendency of insolvency proceedings and the alleged NPA-related restraint order.

Analysis: An interlocutory order passed in another proceeding does not finally set aside the NPA classification, and the subsequent withdrawal of an appeal against that interim order does not convert it into a conclusive adjudication. The default by the borrower precedes NPA classification, and wilful defaulter proceedings under the RBI framework are distinct from recovery proceedings. A proceeding under Section 95 of the Insolvency and Bankruptcy Code does not attract a moratorium under Section 96 against such a proceeding, because a wilful defaulter proceeding is not a legal action for foreclosure, recovery, or enforcement of security interest, but a credit-information mechanism intended to caution banks and financial institutions.

Conclusion: The show-cause notice is not barred on this ground and the objection fails.

Issue (ii): whether the notice is vitiated because it refers to guarantors' assets and does not accompany the forensic audit report and other relied-upon materials.

Analysis: The assets of guarantors may be referred to in the context of their co-extensive liability, and at the show-cause stage the notice need only disclose the broad allegations, not prove them in detail. The notice is not invalid merely because the alleged ingredients of wilful default are to be examined by the identification and review committees. However, where the notice substantially relies upon a forensic audit report and other materials, fairness requires that those materials be supplied so that the noticee can submit an effective reply. The absence of those documents does not justify quashing the notice, but it does warrant a direction for disclosure and for corresponding enlargement of time.

Conclusion: The notice is upheld, but the respondent-bank must furnish the relied-upon documents and grant additional time to reply.

Final Conclusion: The challenge to the show-cause notice does not succeed on merits, but the petitioners are entitled to disclosure of the relied-upon material and an effective opportunity to answer the allegations before the wilful defaulter process proceeds further.

Ratio Decidendi: A wilful defaulter proceeding is distinct from recovery or enforcement proceedings and is not hit by the moratorium under Section 96 of the Insolvency and Bankruptcy Code, 2016, while fairness at the show-cause stage requires supply of documents actually relied upon by the authority.

---