TaxTMI 
TaxTMI 
2020 (12) TMI 1020
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.... Master Circular dated July 1, 2015. The petitioners replied to the show-cause notice on June 6, 2019. By way of a letter dated July 10, 2019, the petitioners were informed that the Committee for Identification of Wilful Defaulters (Identification Committee) had classified the petitioners as wilful defaulters on April 19, 2019 and that such decision had been confirmed by a Review Committee. The petitioners, by a letter dated July 23, 2019, refuted the allegations made by the respondents and requested the latter to withdraw and/or cancel and/or revoke the orders of the Committees. The petitioners thereafter moved a writ petition bearing W.P. No. 392 of 2019 before this court, which was disposed of by a co-ordinate Bench on August 5, 2019, whereby it was held that there were procedural irregularities in the decision to classify the account as wilful defaulter. The bank was permitted to initiate proceedings under the Master Circular in respect of the subject account in accordance with law and to communicate the decision of the Identification Committee to the persons responsible in accordance with law. 3. Subsequently, another show-cause notice dated November 5, 2019 was served on t....
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....oners cites an unreported judgment dated May 3, 2019 passed by a co-ordinate Bench of this court in W.P. No. 7471(W) of 2019 [M/s Atlantic Projects Ltd. & Ors. Vs. The Allahabad Bank & Ors.], for the proposition that Clause 3(b) of the Master Circular, 2015 requires application of mind by the Identification Committee at all stages. It is required to apply its mind on the contents of the show-cause notice also as it is a crucial stage in the whole process. The delinquent must have the entirety of the materials that were placed before the Identification Committee for the delinquent to give a meaningful submission. It was held to be imperative that the Identification Committee applies its mind to the contents of the show-cause notice so that the delinquent is not deprived of a meaningful opportunity to defend itself. 9. The petitioners next place reliance on another unreported judgment of the same co-ordinate Bench dated July 16, 2019 passed in W.P. No. 381 of 2018 [Moser Baer India Ltd. vs. UCO Bank & Anr.]. It was held in the said judgment that the Master Circular on wilful defaulters dated July 1, 2015 contemplates two tier decision-making process for the purpose of identificati....
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....ners were promoters/whole-time directors of the company. Moreover, the show-cause notice dated February 28, 2019 and/or the orders of both the Committees did not reveal any allegation against the Corporate Guarantors. Such guarantors, it is argued, have no liability in respect of wilful default but might only be held responsible with regard to repayment of the loan itself, if at all. Paragraph no. 2 of the writ petition indicates clearly that the petitioner nos. 3, 4, 5 and 7 are erstwhile Independent Directors, the petitioner no. 6 an erstwhile Executive Director and petitioner nos. 8 to 12 Corporate Guarantors of the company. 13. On the other hand, learned counsel for the respondents submits that the company itself has not come up with the writ petition or challenged the show-cause notice and/or the orders of the Committees. The petitioners are only some of the Directors/Corporate Guarantors and are different and distinct from the company, which is a separate juristic entity in law. 14. It is next argued by the respondents that there has been substantial compliance of the Master Circular. Even if there has been any minor deviation, no prejudice has been caused to the petiti....
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.... the Identification Committee and being confirmed by the Review Committee. 20. Learned counsel for the respondents submits that the findings of the audit report, as quoted in the show-cause notice, correspond to certain findings of the Review Committee order, as evident from page nos-86 to 89 of the Review Committee order. It is evident from the portions of the forensic report, as appearing at page nos-86 to 89, 91, 103 and 104 of the vacating application, that such findings indicate violation of Clauses 2.1, 2.2.1(b) etc., of the Master Circular. 21. It is argued that the Identification Committee maintained its earlier order even after the direction of the co-ordinate Bench of this court and, therefore, no further notice of such order was required to be served on the petitioners. That apart, the petitioners filed no reply on merits, which left no option for the Review Committee but to approve of the Identification Committee order. 22. As per Clause 3(b) of the Master Circular, 2015, the Identification Committee has to issue its order to the willful defaulters. Although such stipulation was not complied with strictly by the respondents, the petitioners were not prejudiced ....
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....pondents for the first time with the vacating application, only a negligible percentage of transactions were off-set out of the loan amount. By placing several findings in the auditor's report itself, learned counsel submits that the same was tentative and not final and was not binding on the petitioners or the company in any respect. The authors of the report specifically observed in the report that it was prepared for a specific purpose on request of the SBI and could not be used for any other purpose. The SBI itself having no qualms with the petitioners or the company, the respondents could not have relied on the same as sacrosanct for taking the ultimate step of declaring the petitioners wilful defaulters. 30. By reading out several observations made at pages-80, 81, 100 and 104 of the report itself, learned counsel argues that the same could not be sufficient basis of declaring the petitioners wilful defaulters. Thus, it is submitted, it was all the more necessary for the respondents to supply a copy of the forensic report to the petitioners for the latter to make a meaningful representation on fact and the law before both the Committees, as held in Jah Developers (supra). ....
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...., without impleading the company separately, is valid in law. 37. At the outset it is noted that admittedly, apart from petitioner nos. 1 and 2, none of the petitioners were promoters/whole-time directors of the company. Since the Master Circular is penal in nature, although arguably not stigmatic, the provisions thereof ought to be strictly construed. Moreover, Clause 3(b) of the Master Circular, 2015 operates in a restricted and specific domain and specifies that a show-cause notice is to be issued to the concerned borrower and the promoters/whole-time director before initiating proceedings under the provisions of the Circular against such persons. Hence, the mechanism for identification of wilful defaulters, as stipulated in Clause 3 of the Master Circular, cannot apply at all to persons other than promotes/whole-time directors, in the present case, petitioner nos. 3 to 12. There was no allegation against corporate guarantors at all, either in the show cause notice or in the orders of the committees. Even regarding the erstwhile Independent Directors and Executive Directors, the show-cause notice itself was not maintainable, thus, vitiating the consequent orders of the Identi....
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....under Clause 3(b) of the Master Circular to give to the petitioners immediately. The first opportunity of reply given to the petitioners would necessarily be before the Review Committee, thereby depriving the petitioners of the first forum. 41. In any event, the Review Committee merely quoted the report and the findings of the Identification Committee without any independent application of mind being reflected from its order. Thus, the entire process of declaring the petitioners as wilful defaulters was reduced to a farce. 42. The principle laid down in Jah Developers (supra), as elaborated in M/s Atlantic (supra), were utterly violated by the respondents, as were the provisions of Clause 3 of the Master Circular, 2015. 43. Contrary to the arguments of the respondents, the observation made in M/s Atlantic (supra) was not diluted in any manner, let alone being overruled, in Sandip Kumar Bajaj (supra). Sandip Kumar Bajaj (supra) was rendered on an entirely different footing and in a different context than M/s Atlantic (supra). While dealing with M/s Atlantic Projects (supra), the learned Single Judge in Sandip Kumar Bajaj (supra) relied on the principles laid down in a Divis....
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....t such opportunity, the order of the Identification Committee would be incomplete, being bereft of the delinquents' version, leaving no scope for the Review Committee to consider the petitioners' defence. 47. The argument, that the Review Committee had no option but to confirm the Identification Committee order in its entirety, is based on faulty logic, since the petitioners had, in fact, specifically asked for a copy of forensic report and other relevant documents, which was denied to them. Thus, it was impossible for the petitioners to put their representation on fact and law before either of the Committees. The petitioners had no opportunity to refute the observations of the forensic report, to show its inherent contradictions and/or point out the irrelevance of the report in the context of declaration of willful default, although the report was virtually the sole basis of the show cause notice and the impugned orders. 48. That apart, mere reference to the forensic report in the orders of the committees was not enough, in the absence of any opportunity of rebuttal being given to the petitioners, as no copy of the report was served on the petitioners at any point of time. P....