2026 (1) TMI 562 - HC - Indian Laws

Classification of petitioner as promoter for RBI wilful-defaulter listing - declaration set aside; bank must delist within one month

Whether the petitioner could be classified as a Promoter and thereby held a wilful defaulter under the RBI Master Circular: HC found no admission or ... Petitioner declared as Wilful Defaulters under the Reserve Bank of India (RBI) Master Circular on Wilful Defaulters dated July 1, 2015 - petitioner claims to fall outside the ambit of the Master Circular - Whether the petitioner could be classified as a Promoter of the Company? - HELD THAT:- This Court do not find any admission on the part of the petitioner that he was a Promoter of the defaulter Company. In paragraph no. 35 of the self-same reply, it was stated on behalf of the petitioner that the Interim Resolution Professional accordingly took charge of the company on and from 5th March 2020 and Mr. G. P. Goenka and Srivardhan Goenka, who are members of the Board of said Company, stood suspended and ceased to have any control over the affairs of the Company from that date onwards and the bank accounts of the said Company were under the control of and operated by the said Interim Resolution Professional. As such, they had no means to settle the dues of the SBI. Isolated excerpts cannot be culled out from the rest of the reply out of context. The reply nowhere admits the petitioner to be a Promoter or Director of the borrower-Company. In any event, we find from the Prospectus of the Company that the petitioner's name does not feature in the list of the original subscribers/Promoters of the Company. The letter issued on behalf of the petitioner to the bank dated May 23, 2022 does not contain any admission as such that the petitioner was a Promoter, particularly in the absence of any document being produced by the bank to substantiate such allegation. In fact, there are no document on record to indicate that the petitioner was ever a Promoter of the borrower-Company, nor does the impugned decision of the RC refer to any such document to substantiate such allegation - the case of the petitioner is required to be considered on the premise that he was a Non-Executive Director of the Company. The mere fact of the petitioner being a Non-Whole Time Director in the borrower-Company during the relevant period does not satisfy the parameters of Clause 3(d) insofar as such Directors are concerned. This Court finds abject failure on the part of the bank to substantiate any of the parameters laid down in the said provision of the Master Circular to indict the petitioner for wilful default or any complicity on the part of the petitioner in the wilful default allegedly committed by the borrower-Company - there are no reference in the impugned decision of the RC to the jurisdictional objection taken by the petitioner, nor any material to bring the petitioner, who was a Non-Whole Time Director, within the fold of the exception clause of Clause 3(d) of the Master Circular. The impugned decision of the Review Committee dated April 18, 2023 set aside to the extent that the petitioner was held to be a Wilful Defaulter - since the decision of the Wilful Defaulter Identification Committee attains finality only upon the Review Committee affirming the same, the declaration of the petitioner as a Wilful Defaulter by the Identification Committee is also nipped in the bud and is hereby held to have no effect in law whatsoever. The respondent-Bank is directed to take immediate steps to give effect to the present judgment by taking down the name of the petitioner from the CIC list of Wilful Defaulters and reversing any step, if taken in furtherance of the declaration of the petitioner as a Wilful Defaulter, at the earliest, positively within a month from date - petition allowed. Issues: Whether the petitioner, a Non-Executive/Non-Whole Time Director, was validly held to be a Wilful Defaulter under Clause 3(d) of the RBI Master Circular on Wilful Defaulters dated July 1, 2015 and whether the Review Committee's decision declaring the petitioner a Wilful Defaulter is sustainable in law.Analysis: The issue requires determination of (a) whether there is material establishing that the petitioner was a Promoter or had the requisite awareness of wilful default through minutes of Board/Committee meetings or by consent or connivance as envisaged by Clause 3(d), and (b) whether the Review Committee considered the petitioner's jurisdictional objection and provided reasons or material to support its conclusion. Relevant documentary materials include the company's prospectus, annual reports, the petitioner's replies to notices, attendance and committee membership records, and the Review Committee decision. The exception in Clause 3(d) protects Non-Whole Time Directors from being classified as Wilful Defaulters unless exceptional circumstances are shown by specific evidence such as board minutes recording knowledge of wilful default or proof of consent or connivance. The Review Committee's order contains no reference to minutes, no substantiation of consent or connivance, and fails to address the petitioner's jurisdictional objection; isolated excerpts relied upon by the bank do not amount to admissions that the petitioner was a Promoter or that he had the requisite awareness. The absence of any reasoning or incriminating material in the impugned decision renders the conclusion legally unsustainable.Conclusion: The Review Committee's decision dated April 18, 2023 insofar as it holds the petitioner to be a Wilful Defaulter is set aside; the petitioner's inclusion in the Wilful Defaulters list is quashed and the bank is directed to remove the petitioner's name and reverse consequential steps within one month. Ratio Decidendi: A Non-Whole Time/Non-Executive Director cannot be validly declared a Wilful Defaulter under Clause 3(d) of the RBI Master Circular on Wilful Defaulters dated July 1, 2015 unless there is specific evidence showing awareness of wilful default recorded in board/committee minutes or proof of consent or connivance, and an administrative decision lacking such material and reasons is vitiated and liable to be set aside.