TaxTMI 
TaxTMI 
TaxTMI 
2019 (5) TMI 862
X X X X Extracts X X X X
X X X X Extracts X X X X
....er Circular"] and is addressed to all scheduled commercial banks (excluding Regional Rural Banks (RRBs) and Local Area Banks (LABs)), and to All India Notified Financial Institutions. The purpose of the said Master Circular is stated as follows: "Purpose: To put in place a system to disseminate credit information pertaining to wilful defaulters for cautioning banks and financial institutions so as to ensure that further bank finance is not made available to them." Under this Master Circular, "wilful default" has been defined as follows: "2.1. Definition of wilful default The term "wilful default" has been redefined in supersession of the earlier definition as under: A "wilful default" would be deemed to have occurred if any of the following events is noted:- (a) The unit has defaulted in meeting its payment/repayment obligations to the lender even when it has the capacity to honour the said obligations. (b) The unit has defaulted in meeting its payment/repayment obligations to the lender and has not utilised the finance from the lender for the specific purposes for which finance was availed of but has diverted the funds for other purposes. (c) The unit has....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the same as in the earlier Master Circular. However, the mechanism for identification of wilful defaulters has been substituted as follows: "3. Mechanism for identification of Wilful Defaulters The mechanism referred to in paragraph 2.5 above should generally include the following: (a) The evidence of wilful default on the part of the borrowing company and its promoter/whole-time director at the relevant time should be examined by a Committee headed by an Executive Director or equivalent and consisting of two other senior officers of the rank of GM/DGM. (b) If the Committee concludes that an event of wilful default has occurred, it shall issue a Show Cause Notice to the concerned borrower and the promoter/whole-time director and call for their submissions and after considering their submissions issue an order recording the fact of wilful default and the reasons for the same. An opportunity should be given to the borrower and the promoter/whole-time director for a personal hearing if the Committee feels such an opportunity is necessary. (c) The order of the Committee should be reviewed by another Committee headed by the Chairman/Chairman & Managing Director or the Ma....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the respondent in Civil Appeal arising out of SLP (C) No. 10008 of 2017. 6. On the other hand, Shri Neeraj Kishan Kaul and Shri B.B. Sawhney, learned Senior Advocates appearing on behalf of the appellants in Civil Appeals arising out of SLP (C.) No. 8591 of 2016 and SLP (C.) No. 10008 of 2017 respectively, and Shri Preetesh Kapur, learned Senior Advocate appearing on behalf of the intervenor in Civil Appeal arising out of SLP (C.) No. 26329 of 2017, cited a number of judgments to show that the right to legal representation is no part of the right of natural justice. They also assailed the judgment of the Delhi High Court, stating that by no stretch of imagination could the in-house committees referred to in the RBI Circulars be said to be "tribunals" inasmuch as there is no investment of any judicial power by the State in these in-house committees. They buttressed this submission also by reference to several judgments. According to them, therefore, the Calcutta and Bombay High Courts' view is preferable to the Delhi High Court's view. It will be noted that the Master Circular dated 01.07.2013 first entrusted cases of wilful default to a Committee of higher functionaries, which C....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... First Committee have to be given to the borrower, nor is any representation required against the aforesaid order, nor is there any personal hearing before the Review Committee, which goes through the First Committee's order by itself and then comes to a conclusion without involving the borrower at all. 8. At this stage, it is necessary to mention that serious consequences follow after a person has been classified as a wilful defaulter. These consequences are as follows: (a) No additional facilities to be granted by any bank/financial institution [paragraph 2.5(a)]. (b) Entrepreneurs/Promoters would be barred from institutional finance for a period of 5 years [paragraph 2.5(a)]. (c) Any legal proceedings can be initiated, including criminal complaints [paragraph 2.5(b)]. (d) Banks and financial institutions to adopt proactive approach in changing the management of the wilful defaulter [paragraph 2.5(c)]. (e) Promoter/Director of wilful defaulter shall not be inducted by another borrowing company [paragraph 2.5(d)]. (f) As per section 29A of the Insolvency and Bankruptcy Code, 2016, a wilful defaulter cannot be a resolution applicant. 9. It is in this backgroun....
X X X X Extracts X X X X
X X X X Extracts X X X X
....because the State has not invested him with judicial power. His position may be stated to be higher than that of a private arbitrator, but lower than that of a tribunal. 12. Similarly, in Associated Cement Companies Ltd. v. P.N. Sharma and Anr., [1965] 2 SCR 366, this Court held that the State of Punjab is a tribunal when it exercises its authority under Rule 6(6) of the Punjab Welfare Officers Recruitment and Conditions of Service Rules, 1952. Hence, an order passed by the State of Punjab would be appealable, as the State of Punjab is a "tribunal" within the meaning of Article 136(1) of the Constitution of India. The majority judgment, through Gajendragadkar, C.J., held that the basic test is whether the adjudicating power which a particular authority is empowered to exercise, has been conferred on it by a statute and can be described as a part of the State's inherent power exercised in discharging its judicial function, can be said to be satisfied on the facts of the case. In a separate concurring judgment, Bachawat, J., held: "44. An authority other than a Court may be vested by statute with judicial power in widely different circumstances, which it would be impossible and ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....from the present case as the in-house committees are not vested with any judicial power at all, their powers being administrative powers given to inhouse committees to gather facts and then arrive at a result. Secondly, it cannot be said that the Circulars in any manner vests the State's judicial power in such in-house committees. On this ground, therefore, the view of Delhi High Court is not correct, and no lawyer has any right under Section 30 of the Advocates Act to appear before the in-house committees so mentioned. Further, the said committees are also not persons legally authorised to take evidence by statute or subordinate legislation, and on this score also, no lawyer would have any right under Section 30 of the Advocates Act to appear before the same. 13. The next question that arises is whether an oral hearing is required under the Revised Circular dated 01.07.2015. We have already seen that the said Circular makes a departure from the earlier Master Circular in that an oral hearing may only be given by the First Committee at the first stage if it is so found necessary. Given the scheme of the Revised Circular, it is difficult to state that oral hearing is mandatory. It....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... there might be exceptional cases where to decide upon it ex parte would be unfair, and it would be the duty of the tribunal to take appropriate steps to eliminate unfairness" (Lord Denning, M.R., in Howard v. Borneman [(1974) 3 WLR 660] summarised the observations of the Law Lords in this form). No doctrinaire approach is desirable but the Court must be anxious to salvage the cardinal rule to the extent permissible in a given case. After all, it is not obligatory that Counsel should be allowed to appear nor is it compulsory that oral evidence should be adduced. Indeed, it is not even imperative that written statements should be called for. Disclosure of the prominent circumstances and asking for an immediate explanation orally or otherwise may, in many cases, be sufficient compliance. It is even conceivable that an urgent meeting with the concerned parties summoned at an hour's notice, or in a crisis, even a telephone call, may suffice. ......" (emphasis in original) 15. In Kavita v. State of Maharashtra and Ors. (I), (1981) 3 SCC 558 ["Kavita"], this Court held, in the context of preventive detention, that even when a detenu makes a request for legal assistance before the Ad....
X X X X Extracts X X X X
X X X X Extracts X X X X
....if the charge is of a serious and complex nature, the delinquent's request to be represented through a counsel or agent could be conceded. 13. The law in India also does not concede an absolute right of representation as an aspect of the right to be heard, one of the elements of principle of natural justice. It has been ruled by this Court in (i) Kalindi (N) v. Tata Locomotive & Engineering Co. Ltd., Jamshedpur [(1960) 3 SCR 407 : AIR 1960 SC 914], (ii) Brooke Bond India (P) Ltd. v. Subba Raman (S.) [(1961) 2 LLJ 417] and (iii) Dunlop Rubber Co. v. Workmen [(1965) 2 SCR 139 : AIR 1965 SC 1392] that there is no right to representation as such unless the company by its Standing Orders recognises such a right." xxx xxx xxx "17. It is, therefore, clear from the above case-law that the right to be represented through counsel or agent can be restricted, controlled or regulated by statute, rules, regulations or Standing Orders. A delinquent has no right to be represented through counsel or agent unless the law specifically confers such a right. The requirement of the rule of natural justice insofar as the delinquent's right of hearing is concerned, cannot and does not ext....
X X X X Extracts X X X X
X X X X Extracts X X X X
....statute or rules/standing orders provide for such a right. Moreover, the right to representation through someone, even if granted by the rules, can be granted as a restricted or controlled right. Refusal to grant representation through an agent does not violate the principles of natural justice." Ultimately, the Court upheld the validity of Rule 153.8 of the Railway Protection Force Rules, 1987, which permitted a friend to accompany a delinquent, who will not, however, be allowed to address the inquiry officer or be allowed to cross-examine witnesses. 19. It has also been argued before us that the present case, being a case where "wilful default" consists of facts which are known to the borrower, and as "wilful default" would only be the borrower's version of facts, no lawyer is needed as no complicated questions of law need to be presented before the in-house committees. Thus, in Krishna Chandra Tandon v. Union of India, (1974) 4 SCC 374, this Court held: "17. It was next argued that the appellant had asked for the assistance of an advocate but the same was refused. It was submitted that having regard to the intricacies of the case and particularly the ill-health of the app....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eference was made to the Rules, though no specific reference has been made to the discretion available to be exercised in particular circumstances of a case. The same has to be noted in the background of the basis of prayer made for the purpose. The reasons indicated by the respondent for the purpose were: (a) amount alleged to have been misappropriated is Rs. 63.67 lakhs, (b) a number of documents and number of witnesses are relied on by the respondent, and (c) the prayer for availing services of the retired employee has been rejected and the respondent is unable to get any assistance to get any other able coworker. None of these factors are really relevant for the purpose of deciding as to whether he should be granted permission to engage the legal practitioner. As noted earlier, he had to explain the factual position with reference to the documents sought to be utilised against him. A legal practitioner would not be in a position to assist the respondent in this regard. It has not been shown as to how a legal practitioner would be in a better position to assist the respondent so far as the documents in question are concerned. As a matter of fact, he would be in a better position....