TaxTMI 
TaxTMI 
2021 (7) TMI 1309
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....(b) The petitioners have not utilised the finance from the lender for the purpose for which it was availed. The petitioners have diverted funds for other purposes. (c) Short term working capital funds have been utilised for long term purposes. (d) Investments were made in other companies by acquiring equity without approval of the bank. (e) The petitioners have siphoned off funds without using the same for the purpose of which funds were availed. 2. Against each of the aforesaid allegations the evidence and documents relied upon to substantiate, wilful default were the audited Balance Sheets of M/s. Rohit Fero Tech Limited (Principal Debtor) for the year ending 31st March, 2016, 31st March, 2017 and 31st March, 2018. 3. In reply thereto on 9th July, 2019, Advocates acting for the petitioners and the principal borrower purported to show cause. The petitioners also asked the bank to disclose all evidence before the said Wilful Defaulter Identification Committee (WDIC). The bank by communication dated 16th August, 2019 replied to the cause shown by the petitioners. The petitioners through their Advocates replied to the said reply on 9th September, 2019....
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....no. 2020-2021/12/45 were enclosed with such order. 9. Mr. Joy Saha, Ld. Senior Counsel appearing for the petitioners, would assail not only the final order of the Review Committee but also the WDIC proceedings conducted to declare the writ petitioners as Wilful Defaulters on, inter alia, the following grounds: (a) That the writ petitioners were not furnished with the documents relied upon by the WDIC. They were, therefore, deprived of an opportunity of defending themselves. (b) The petitioners could not have attended the personal hearing offered by the WDIC while sitting at the branch of the bank in view of the on-going pandemic. The petitioners were thus wrongfully denied the personal hearing albeit virtually from their residence and/or office. The petitioners were, therefore, never offered any personal hearing. He relied on the decision of the Supreme Court in the case of State Bank of India vs. Jah Developers Private Limited & Ors. reported in (2019) 6 SCC 787, Alogoma Steels Ltd. & Ors. vs. SBI & Ors. (Single Bench) and Gouri Prasad Goenka vs. State Bank of India & Anr. in support of this argument. (c) The WDIC could not have found diversion of fun....
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.... 11. Having heard the rival submissions of the parties at length, this Court now proceeds to deal with the same. 12. The argument of the writ petitioners that they were not supplied the documents relied upon by the WDIC or that documents were supplied to the petitioners after the decision of the WDIC, cannot be accepted. The show cause notice issued by the WDIC itself clearly refers to the audited Balance Sheet of the principal debtor Rohit Fero Tech Ltd. for the year ending 31st March, 2016, 31st March, 2017 and 31st March, 2018. No other documents have been relied upon by the Identification Committee. The findings of the Identification Committee have been culled out only from such audited Balance Sheets. Such Balance Sheets are public documents and/or own documents of the petitioners. The question of formal and/or further supply of the same, therefore, does not and cannot arise. 13. The repeated requests for supply of the documents relied upon by the Identification Committee, therefore, do not appear to be bona fide. Hence the petitioners' argument on that score cannot be sustained. In so far as supply of documents by the Bank under communication of its letter dated 3rd....
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....anks/financial institutions can even change the management of the wilful defaulter, and a promoter/director of a wilful defaulter cannot be made promoter or director of any other borrower company. Equally, under Section 29-A of the Insolvency and Bankruptcy Code, 2016, a wilful defaulter cannot even apply to be a resolution applicant. Given these drastic consequences, it is clear that the Revised Circular, being in public interest, must be construed reasonably. This being so, and given the fact that Para 3 of the Master Circular dated 1-7-2013 permitted the borrower to make a representation within 15 days of the preliminary decision of the First Committee, we are of the view that first and foremost, the Committee comprising of the Executive Director and two other senior officials, being the First Committee, after following Para 3(b) of the Revised Circular dated 1-7-2015, must give its order to the borrower as soon as it is made. The borrower can then represent against such order within a period of 15 days to the Review Committee. Such written representation can be a full representation on facts and law (if any). The Review Committee must then pass a reasoned order on such represen....
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....tice where such person does not dispute the case against him or it. This can happen by reason of estoppel, acquiescence, waiver and by way of non-challenge or non-denial or admission of facts, in cases in which the Court finds on facts that no real prejudice can therefore be said to have been caused to the person complaining of the breach of natural justice. (4) In cases where facts can be stated to be admitted or indisputable, and only one conclusion is possible, the Court does not pass futile orders of setting aside or remand when there is, in fact, no prejudice caused. This conclusion must be drawn by the Court on an appraisal of the facts of a case, and not by the authority who denies natural justice to a person. (5) The "prejudice" exception must be more than a mere apprehension or even a reasonable suspicion of a litigant. It should exist as a matter of fact, or be based upon a definite inference of likelihood of prejudice flowing from the non-observance of natural justice." 18. Further in the Ram Kumar decision (supra) the Hon'ble Supreme Court has stated at paragraph 7 and 8 as follows: "7. It has been pointed out by the High Court that the....
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....tion by the appellate or supervisory authority. But the other considerations, referred to above, which have also weighed with this Court in holding that an administrative authority must record reasons for its decision, are of no less significance. These considerations show that the recording of reasons by an administrative authority serves a salutary purpose, namely, it excludes chances of arbitrariness and ensures a degree of fairness in the process of decision-making. The said purpose would apply equally to all decisions and its application cannot be confined to decisions which are subject to appeal, revision or judicial review. In our opinion, therefore, the requirement that reasons be recorded should govern the decisions of an administrative authority exercising quasi-judicial functions irrespective of the fact whether the decision is subject to appeal, revision or judicial review. It may, however, be added that it is not required that the reasons should be as elaborate as in the decision of a court of law. The extent and nature of the reasons would depend on particular facts and circumstances. What is necessary is that the reasons are clear and explicit so as to indicate that ....
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....st be able to demonstrate clearly the prejudice suffered by the reason of such infraction. Hence even if one accepts the submission of Mr. Saha that there has been some minor infractions of natural justice or procedure, no prejudice appears to have been caused to the petitioners, by such infraction. 24. Although not pressed in course of arguments it has been pleaded in the writ petition that the bank has instituted proceedings under Section 7 of the IBC, 2016. It is submitted that declaring the writ petitioners as Wilful Defaulters would deprive the petitioners of Rights under Section 32 A of the IBC. It is argued that the impugned orders under Master Circular, 2015 would entail penal consequence on the petitioners and are in derogation of the proceedings under and the provisions of the IBC, 2016. 25. It is evident from Paragraph 275, 276 and 280 of the decision of the Supreme Court in the case of Manish Kumar vs. Union Of India (supra) that the benefits of Section 32 A are not available to every other promoter and guarantor of every corporate debtor. The relevant paragraphs of the aforesaid decision are set out hereinbelow: "275. Section 32A has been divided into th....
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....lan under Section 31 and a prosecution has been instituted during the CIRP against the corporate debtor, the corporate debtor will stand discharged. This is, however, subject to the condition that the requirements in sub-Section (1), which have been elaborated by us, have been fulfilled. In other words, if under the approved Resolution plan, there is a change in the management and control of the corporate debtor, to a person, who is not a promoter, or in the management and control of the corporate debtor, or a related party of the corporate debtor, or the person who acquires control or management of the corporate debtor, has neither abetted nor conspired in the commission of the offence, then, the prosecution, if it is instituted after the commencement of the CIRP and during its pendency, will stand discharged against the corporate debtor. Under the second proviso to sub-Section (1), however, the designated partner in respect of the liability partnership or the Officer in default, as defined under Section 2(60) of the Companies Act, 2013, or every person, who was, in any manner, in-charge or responsible to the corporate debtor for the conduct of its business, will continue to be li....
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....plicable in the instant case as well. The provision deals with reference to offences committed prior to the commencement of the CIRP. With the admission of the application the management of the corporate debtor passes into the hands of the Interim Resolution Professional and thereafter into the hands of the Resolution Professional subject undoubtedly to the control by the Committee of Creditors. As far as protection afforded to the property is concerned there is clearly a rationale behind it. Having regard to the object of the statute we hardly see any manifest arbitrariness in the provision." 26. Useful reference in this context may also be made to the case of Kotak Mahindra decision (supra) paragraph 49. "49. This approach of the Calcutta High Court in interpreting the Master Circular, in our considered opinion, is not correct because it is a settled principle of interpretation that the words in a statute or a document are to be interpreted in the context or subject-matter in which the words are used and not according to its literal meaning. In Principles of Statutory Interpretation, 13th Edn., 2012, Justice G.P. Singh has given this explanation to the rule of literal....
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....ter Circular was issued and the mischief that the Master Circular intends to remedy because these constitute the context and the subject-matter in which the definition of "wilful default" finds place in the Master Circular." 27. The petitioners even otherwise are not entitled to benefit of Section 32A, since no resolution plan has been sanctioned as yet by the NCLT and even if a resolution plan was approved, the petitioners cannot avail the benefits of Section 32A for being promoters and consequently being persons in default under Section 32 A read with Section 2(60) of the Companies Act, 2013. 28. On the question of penal consequences useful reference may be made to the decision of the Kotak Mahindra Bank (supra) particularly paragraph 61. "61. We do not also find any force in the submission of Mr. Bhaskar P. Gupta that the Master Circular has penal consequences and, therefore, has to be literally and strictly construed. Clause 4.3 of the Master Circular, which contemplates criminal action by banks/financial institutions, is extracted hereinbelow: "4.3. Criminal action by banks/financial institutions.--It is essential to recognise that there is scope even u....