Wilful defaulter classification requires actual prejudice to challenge non-supply of audit material and limits writ interference.

Non-supply of forensic audit reports did not vitiate wilful defaulter classification where the borrowers had already dealt with the reports in their own reply and showed awareness of the material relied on; absent demonstrable prejudice, breach of procedure did not justify relief. The review process under the RBI framework was also treated as valid because the committee recorded findings on diversion of funds and routing of funds through non-consortium accounts without permission. In writ jurisdiction, the Court would not substitute its own assessment for that of expert lender committees unless the decision was perverse, illegal, or contrary to admitted facts. The challenge to the wilful defaulter declaration was therefore rejected.

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Issues: (i) Whether non-supply of the forensic audit reports vitiated the order declaring the appellants as wilful defaulters for breach of natural justice; (ii) Whether the review order confirming the declaration of wilful default suffered from legal or factual infirmity warranting interference.

Issue (i): Whether non-supply of the forensic audit reports vitiated the order declaring the appellants as wilful defaulters for breach of natural justice.

Analysis: The governing requirement of fair hearing was applied along with the prejudice principle. The appellants had already referred to and answered the contents of the forensic audit reports in their own reply, showing full awareness of the material relied upon. In such a situation, non-furnishing of copies did not cause demonstrable prejudice, and remand would amount to an empty formality. The doctrine that breach of procedure does not warrant relief unless some substantive prejudice is shown was treated as controlling.

Conclusion: The challenge based on violation of natural justice failed and the order of the Identification Committee was upheld.

Issue (ii): Whether the review order confirming the declaration of wilful default suffered from legal or factual infirmity warranting interference.

Analysis: The framework under the RBI circular required examination of wilful default, issuance of notice, consideration of reply, a reasoned order by the first committee, and review by the second committee. The review order recorded findings on diversion of funds and routing of funds through non-consortium accounts without permission. The Court held that such findings were based on financial and banking assessment, and in writ jurisdiction it could not substitute its own view for that of the expert lender committees unless the decision was perverse, illegal, or contrary to admitted facts.

Conclusion: The review order was held to be valid and no ground for interference was made out.

Final Conclusion: The appellants' challenge to the declaration of wilful default was rejected, and the dismissal of the writ petition was sustained.

Ratio Decidendi: In matters of wilful defaulter classification, non-supply of documents does not vitiate the decision unless actual prejudice is shown, and writ courts will not interfere with reasoned findings of expert banking committees absent perversity, illegality, or violation of admitted facts.

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