TaxTMI 
TaxTMI 
2020 (9) TMI 1177
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.... said company") and the writ petitioners were, in fact, in control of such entity. Appellant Axis Bank granted credit facilities to the said company in 2012 and later discovered that the funds made available to the said company had been diverted by its promoters for purposes other than for which the credit facilities had been accorded. In due course, show-cause notices followed and proceedings were held in terms of the Master Circular of 2015 for the adjudication as to whether the relevant lending unit and its promoters were wilful defaulters within the meaning of the expression used in the relevant Master Circular. 4. For the present purpose, it may only be said that the ultimate finding as to the said company and its promoters being wilful defaulters has attained finality. A Division Bench order of this Court, confirming the finding of wilful default, was carried by way of a Special Leave Petition to the Supreme Court. By such time, however, the said company was sold to new promoters in insolvency proceedings before the National Company Law Tribunal. In such situation, the order of the Supreme Court of May 8, 2019, passed at the admission stage of the petition for special leav....
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....ections are limited to the Single Bench accepting the Review Committee's decision to not allow the past and concluded transactions to be reopened. 7. In all fairness, the writ petitioners have not laboured much over the Review Committee's decision to not allow the concluded matters to be reopened. In any event, in view of the limited scope of the adjudication allowed by the Supreme Court order of May 8, 2019 and such order not setting aside the judgment and order that was challenged before the Supreme Court, the writ petitioners virtually accept that the only relevant consideration before the Review Committee of Axis Bank was whether the subsequent event of the lending unit having been sold in insolvency proceedings absolved the promoters of the lender company of the wilful default stigma under the relevant Master Circular. 8. The Master Circular of 2015 is somewhat of a departure from the immediate previous circular of July 1, 2014. However, for the present purpose, the most important clause appears to be sub-clause (a) of clause 2.5 of the 2015 Master Circular:- "2.5 Penal Measures The following measures should be initiated by the banks and FIs aga....
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....st be understood that the more important word in the expression "wilful default" is "default". If there is no default in repayment, the question of any adjudication of any act being wilful or otherwise would not arise. It is possible, say, that money lent for a particular purpose was diverted for use otherwise and the promoters promptly repay the lender. In such an event, the lender would not be required to go into the question as to whether there was any diversion of funds since the money was returned and there is no default. Thus, the entire purpose of the Master Circular and the larger goal that it seeks to achieve is to identify defaulters and such defaulters who have wilfully defaulted, where wilful default includes diversion of funds, not paying despite having the ability, siphoning off of funds and the like. 12. When an inanimate juristic entity like a company is found to be in wilful default within the meaning of the relevant expression in the Master Circular, the human agencies in control of such company and who may have caused the wilful default may also be branded as wilful defaulters along with the borrower company. As long as the human wilful defaulters continue to ....
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....e human agencies who had caused the wilful default on the part of Pro Minerals not being removed from the list of wilful defaulters. The appellant herein opposed the writ petitions before the Single Bench and says that once a wilful defaulter, the person continues to be a wilful defaulter. Axis Bank is also quick to point out that the default in this case was not made good by the writ petitioners but by a third party on behalf of Pro Minerals in terms of the resolution as approved by the tribunal. The underlying submission of Axis Bank appears to be that persons who are found guilty of siphoning off funds or diversion of funds or not paying despite having the ability to repay should not qualify to obtain future credit facilities from other banks or financial institutions in view of their deplorable conduct. However, at the same time, Axis Bank, in all fairness, points out to the limitation of the penal measures that can be taken under the Master Circular. 15. The Master Circular is somewhat unhappily worded as to how the name of a wilful defaulter ought to be removed upon such name being appropriately once included in the list. In other words, once a person is appropriately cond....