TaxTMI 
TaxTMI 
2023 (1) TMI 1490
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....n Special Civil Application No. 2518 of 2022 is under challenge whereunder the learned Single Judge has dismissed the Special Civil Application and affirmed the impugned orders dated 01.09.2021 (Annexure-N) passed by second respondent, order dated 02.02.2021 (Annexure-L), notices / communications dated 18.09.2021/ 28.08.2020 (Annexure-O) issued by second respondent. BRIEF BACKGROUND OF THE CASE : 2. Parties are referred to as per their rank before the learned Single Judge. Petitioners are the Ex-Directors of Sanghavi Exports International Private Limited (at present under liquidation) which was then engaged in the business of manufacturing and export of cut and polished diamond and diamond studded jewellary. Said company had availed certain financial facilities from the group of consortium members wherein the Bank of India was the lead bank and second respondent was one of the consortium member. Said company defaulted in repayment of loans and came to be classified as a Nonperforming Asset (NPA) by the second respondent. Second respondent has initiated recovery proceedings before the Debt Recovery Tribunal for recovery of dues by filing an application under Section 19 of....
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....itioners. It has been further held that while exercising the jurisdiction under Articles 226 and 227 of the Constitution of India, the writ Court would not sit in appeal over the findings of fact arrived at by WDIC or WDRC and hence, held that the impugned orders did not warrant interference. Hence, these intra-court appeals. 6. We have heard the arguments of Shri Deven Parikh, learned Senior Counsel appearing for appellants. Respondent No. 1 is served and unrepresented. Shri B.H. Bhagat, learned advocate has addressed the arguments on behalf of second respondent. 7. It is the contention of Shri Deven Parikh, learned Senior Counsel appearing for the writ applicants that learned Single Judge having arrived at a conclusion that WDIC has not assigned any reason in the order dated 02.02.2021, ought not to have dismissed the Special Civil Application on the ground of said Committee having considered all submissions of the writ applicants and having assigned reasons for declaring the writ applicants as willful defaulters. He would also contend that as per the mandate of Clause 3(a) and 3(b) of the RBI circular, there should have been evidence on record to show 'Willful Default....
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....forcement and another, reported in (2010) 13 SCC 255. (ii) State Bank of India vs. Jah Developers Private Limited, reported in 2019 AIJELSC 64236. 9. Per contra, Shri B.H. Bhagat, learned advocate appearing for second respondent would support the impugned orders and he would contend that second respondent has followed the mechanism as provided in the master circular before arrived at conclusion that petitioner has to be declared as "Willful Defaulter". He would contend that show cause notice was followed by personal hearing notice and after extending opportunity, considering the replies submitted by petitioners, a detailed order has been passed by the WDIC which eventually was reviewed by the WDRC after extending personal hearing on various occasions which had culminated in the order being passed on 29.06.2021 (Annexure-N). He would submit that order of WDIC would become final only upon confirmation by WDRC and there is no procedural irregularity committed as sought to be made out by petitioners. 10. He would also submit that petitioners are squarely covered by the provisions of Clauses 2.1.3 (b), 2.1.1 (c) and 2.2.1 (d) of master circular dated 01.07.2015 and would ....
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....the matter of Union of India and another vs. Tulsiram Patel and others, reported in AIR 1985 SC 1416 has held that natural justice has assumed significance in modern administration process and held them as 'foundational and fundamental concepts' which are part of legal and judicial procedures. Natural justice is mainly the procedural concept. If an action of the authority is contrary to the doctrine of audi alteram partem, such act would be frowned upon. The whole edifice is built upon the well-known adage that no one may be condemned unheard. It is the fundamental principle that a person against whom some action is proposed to be taken, or whose right or interest is going to be affected adversely, ought to be given a reasonable opportunity to defend himself. Procedural fairness is thus regarded as an integral element of administrative process. The principle of natural justice also gives a sense of participation to the concerned person in administrative decision making which can by itself be justified as democratic value. Natural justice also serves as a means of making agencies accountable. If a hearing has been extended to the affected person, the adjudicating authority would be ....
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....financial institutions, and entrepreneurs/promoters would be barred from institutional finance for five years. Banks/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 29A 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 paragraph 3 of the Master Circular dated 01.07.2013 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 paragraph 3(b) of the Revised Circular dated 01.07.2015, 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 ....
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....ic audit. You have cited two reports on the forensic audits, by M/s. Deloitte and M/s. Amit Ray & Co. who submitted reports on 18.07.2017 and 22.05.2020, respectively. We advise that (a) xxxxx (b) xxxxx (i) xxxxx (ii) xxxxx (iii) Vide Criteria No. 2.2.1 (c), as stated vide your letter under reference, on willful default, regarding transferring of funds to subsidiaries/ group companies, we say that both the forensic auditors have stated different observations. The observations have been conclusively replied vide individual representation dated 12-01-2021 which form an integral part of our present reply. The credits as stated in the report dated 18-07-2017, pertain to payments for raw diamonds and raw gold. Since, after classification of account as NPA on 31-12- 2015, by your bank, the operations in the account with your bank, were curtailed, by default and operations were carried out with other banks/ lending institutions, to continue business transactions. It appears that the forensic auditor, could not have access to the operations with other banks/ lending institutions. The alleged credits pertain to forex transactions, could not ....
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.... (1993) 4 SCC 727, while summing up the discussion and answering various questions posed therein, had to say qua the prejudice principle as under: "30. Hence the incidental questions raised above may be answered as follows: xx xx xx (v) The next question to be answered is what is the effect on the order of punishment when the report of the enquiry officer is not furnished to the employee and what relief should be granted to him in such cases. The answer to this question has to be relative to the punishment awarded. When the employee is dismissed or removed from service and the inquiry is set aside because the report is not furnished to him, in some cases the non- furnishing of the report may have prejudiced him gravely while in other cases it may have made no difference to the ultimate punishment awarded to him. Hence to direct reinstatement of the employee with back-wages in all cases is to reduce the rules of justice to a mechanical ritual. The theory of reasonable opportunity and the principles of natural justice have been evolved to uphold the rule of law and to assist the individual to vindicate his just rights. They are not incantations to be invoke....
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....judicial mind to the question and give their reasons for setting aside or not setting aside the order of punishment, (and not any internal appellate or revisional authority), there would be neither a breach of the principles of natural justice nor a denial of the reasonable opportunity. It is only if the Court/Tribunal finds that the furnishing of the report would have made a difference to the result in the case that it should set aside the order of punishment." 23. Keeping the aforesaid principles in mind, it will have to be examined when there is an infraction of principles of natural justice is alleged it will have to be examined as to whether any purpose would be served in remitting the case to the authority to pass fresh orders after furnishing the copies. However, said situation does not arise at all in the instant case. Firstly, the copies of the audit reports were very much available with the petitioners and petitioners themselves have delved upon these reports in their reply submitted to the show cause notice and as such the boogie of violation of principles of natural justice raised by the petitioners on the ground of non-furnishing of copies referred to in the impugne....
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....w that there is `real likelihood-not certainty- of prejudice.' On the other hand, Garner Administrative Law (8th Edn. 1996. pp.271-72) says that slight proof that the result would have been different is sufficient. On the other side of the argument, we have apart from Ridge v. Baldwin, Megarry, J. in John v. Rees, stating that there are always `open and shut cases. and no absolute rule of proof of prejudice can be laid down. Merits are not for the court but for the authority to consider. Ackner, J has said that the `useless formality theory' is a dangerous one and, however inconvenient, natural justice must be followed. His Lordship observed that `convenience and justice are often not on speaking terms' More recently, Lord Bingham has deprecated the `useless formality theory' in R. v. Chief Constable of the Thames Valley Police Forces, ex p. Cotton by giving six reasons (see also his article `Should Public Law Remedies be Discretionary?" 1991 PL. p.64). A detailed and emphatic criticism of the `useless formality theory. has been made much earlier in `Natural Justice, Substance or Shadow' by Prof. D.H. Clark of Canada (see 1975 PL.pp.27-63) contending that Malloc....
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.... 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 defaulted in meeting its payment/repayment obligations to the lender and has siphoned off the funds so that the funds have not been utilised for the specific purpose for which finance was availed of, nor are the funds available with the unit in the form of other assets. (d) The unit has defaulted in meeting its payment/repayment obligations to the lender and has also disposed off or removed the movable fixed assets or immovable property given for the purpose of securing a term loan without the knowledge of the bank/lender. The identification of the wilful default should be made keeping in view the track record of the borrowers and should not be decided on the basis of isolated transactions/ incidents. The default to be categorized as wilful must be intentional deliberate and calculated." 26. Clause 3 of the Circular describes the mechanism for identification of the Willful Defaulters. It reads : "3. Mechanism for identification of Wilful Defaulters : The mechanism referred to ....
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.... these four entities had appeared in the Monthly Creditors Statements. It was also noticed that the outstanding balances from the four related or associated parties was to the tune of Rs. 609.59 Crores and no legal action was taken by the company in respective countries for recovery of the said amounts. For these reasons as more fully described in the order dated 02.02.2021, there has been an order passed declaring the petitioners namely writ applicant as willful defaulters. A perusal of Clause 3(b) of the Circular dated 01.07.2015 referred to hereinabove would indicate that if the WDIC were to conclude that an event of willful default has occurred, it is required to issue a show cause notice to the borrower and the Promoters/Whole-Time Director and after calling for their submissions and after considering their submissions issue an order recording the fact of willful default and the reasons for the same. As could be noticed from the order dated 02.02.2021, the reasons have been assigned after considering the submissions of the concerned borrower and the Promoter/Director. Hence, it cannot be gainsaid by petitioner that there has been no reason assigned in the order passed for....
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.... 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 paragraph 3 of the Master Circular dated 01.07.2013 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 paragraph 3(b) of the Revised Circular dated 01.07.2015, 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 representation which must then be served on the borrower. Given the fact xxx xxx xxx valuable assistance to this Court." 28. In the aforesaid background, when the order of the Review Committee - WDRC dated 29.06.2021 (Annexure-N) is perused, it would clearly indicate that on the observations of WDRC the response of the Promot....