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Judgment
Honourable Mr. Justice K. Chandru
The petitioner has come forward to challenge the minutes of meeting of the second respondent, Industrial Development Bank of India Ltd.,
Redressal Committee, dated 16.12.2009 and the consequential order of the first respondent, i.e., Industrial Development Bank of India (for short
IDBI), dated 15.2.2010. The impugned order dated 15.02.2010 came to be passed pursuant to the petitioner moving this court with W.P. No.
13178 of 2009, dated 27.8.2009. By the aforesaid writ petition, the petitioner company, i.e., M/s. Paramount Airways Pvt. Limited, of which the
petitioner is the Chairman and Managing Director, has sought to set aside the order dated 28.5.2008 and also not to report the petitioner as a
willful defaulter to the Reserve Bank of India and CIBIL or any other person as willful defaulter on the grounds stated in the letter of the
respondent dated 19.6.2009. In the letter dated 19.6.2009, the petitioner was informed that pursuant to the Facility Agreement entered with the
respondent Bank and various instruments signed, the petitioner was directed to pay interest and other charges. But they had failed and neglected to
pay the same and committed defaults in performance of other conditions of the Facility Agreement. In view of the defaults committed, their case
was examined vis-a-vis the criteria on willful default as laid down by the RBI and it was observed that the company met the RBI criteria of willful
defaulter. It was also observed that the Company had committed various irregularities such as deliberate non payment of dues despite adequate
cash flow and good networth, i.e., capacity to honour, diversion of funds and disposal / removal of securities without bank''s knowledge. Having
regard to these facts, it was decided that the names of the company and its Directors except nominee directors will be reported to the RBI for
inclusion in the list of willful defaulters.
The grounds under which such conclusion was arrived at was set out in the same letter which is as follows:
During six-month period ended March 31, 2008, the company has earned net profit of Rs. 117 lakh. Equity capital has increased from Rs. 2530
lakh as on Sept.2007 to Rs. 22530 lakh as on March 31, 2008. Regular cash flows from operations / capital from PE investors is being utilized to
expand fleet, addition of new routes and payment to other banks except IDBI, implying that it has capacity to honour the debt obligations.
However, it has defaulted in settlement of its dues to IDBI.
The receivables is one of the security for Cash Credit facility, however, the company is not routing the transactions through IDBI, instead through
other banks (Kotak, HDFC Banks), which do not have charge on the receivables. Company has not complied with our repeated requests for
closure of these accounts. This deliberate action of the company by diversion of receivables for purposes other than for servicing the IDBI dues,
tantamounts to willful default.
Insurance policies for other banks have been renewed. However, the same was not renewed for IDBI and the company has not taken steps for
renewal. Non-renewal of insurance, and inducing cancellation of insurance policies, inspite of lender (IDBI) advising the company for renewal of
policies tantamounts to willful default, as insurance is one of the security for IDBI.
Challenging the communication, the petitioner company filed W.P. No. 13178 of 2009. The said writ petition came to be disposed of on
27.8.2009 with a direction which is as follows:
In the result, the writ petition is disposed of in the following terms:
(1) The petitioner is at liberty to submit explanation and other materials for the show cause notice impugned in the writ petition within a period of
two weeks from the date of receipt of copy of this order.
(2) The said explanation and the other materials submitted by the petitioner to the respondent shall be placed before the Grievance Redressal
Committee and in that event, the said Committee shall afford sufficient opportunity to the petitioner including personal hearing and thereafter pass
appropriate order strictly in accordance with law.
(3) It is further directed that if adverse order is passed against the petitioner by the said Committee, the same shall be communicated to the
petitioner forthwith and the same shall not be enforced for four weeks from the date of service of the order of the Committee on the petitioner.
(4) It is further directed that on expiry of the period of four weeks'' time, if there is no other order from any Court, the Reserve Bank of India may
pass consequential orders in the matter.
(5) It is made clear that all the defences, which has been raised in the present writ petition, are open to be raised by the petitioner before the
Grievance Redressal Committee.
(Emphasis added)
Pursuant to the order passed by this court and after hearing the petitioner, the impugned order came to be passed. It is necessary to refer to the
order in extenso which is as follows:
Working capital facilities granted to Paramount Airways Pvt. Limited
Defaults committed ''Reporting to RBI'' Wilful Defaulter
***
We refer to the hearing held on December 16, 2009 before the Wilful Defaulters Redressal Committee at Mumbai. The Redressal Committee,
after careful examination, has resolved that there are no merits in the submissions made by the Company represented by Mr. M. Thiagarajan and
directed us to go ahead with the process of declaring Paramount Airways Private Limited and its directors in the RBI list of wilful defaulters (suit-
filed cases), in accordance with the order dated August 27, 2009 passed by the Hon''ble High Court of Madras in W.P. No. 13178 of 2009.
Once again, the petitioner is before this court challenging the impugned order as well as the minutes of the meeting held on 16.12.2009. In fact,
the petitioner himself had participated in the said meeting and made extensive submissions on behalf of the company. The Redressal Committee
held that there was not merit in the submission made by the petitioner and that the IDBI should go ahead with the process of declaring the name of
the company and its directors in the RBI list of willful defaulters keeping in mind the time frame indicated in the orders of the High Court. Even
before coming to this court, on behalf of the petitioner a legal notice was issued on 15.11.2011 and that the bank has sent a reply to the counsel
for the petitioner on 17.12.2011.
Heard Mr. AR.L. Sundaresan, learned Senior Counsel leading M/s. Suchindran and Ananth Padmanabhan, learned counsel appearing for the
petitioner.
The contention raised by the petitioner was that the order has been passed without any application of mind. The order did not give any reason
for that decision. It was only the reproduction of the minutes of the meeting held on 16.12.2009. The enquiry was conducted in a biased manner.
The action of the first respondent in classifying the petitioner as a Willful Defaulter in implementing the decision of the committee is violation of the
order of this court. They have not considered whether any default in payment by itself is willful. The delay in payment by the petitioner company on
no account is called as willful. They have offered valid explanation. The company is willing to clear all pending dues. On the date of the order,
neither the petitioner nor Ms. Lakshmi Murugesan were Directors of the Paramount Airways. The order was also contrary to the Master Circular
on Willful defaulters. The petitioner will be put to irreparable loss and hardship if the impugned order is given effect to.
The learned Senior counsel appearing for the petitioner referred to the RBI Master circular dated 1.9.2009 which was enclosed in page 36 of
the typed set. The circular defines as to what was meant by the term ""Willful Defaulter"". The Willful default was to be broadly covered the
following :
a) Deliberate non-payment of the dues despite adequate cash flow and good net worth ;
b) Siphoning off of funds to the detriment of the defaulting unit;
c) Assets financed either not been purchased or been sold and proceeds have misutilized;
d) Misrepresentation / falsification of records;
e) Disposal / removal of securities without bank''s knowledge;
f) Fraudulent transactions by the borrower.
Each of the head has been separately defined and the said circular also directed the Banks and financial institutions to evolve grievance redressal
mechanism and it is stated as follows:
Banks/FIs should take the following measures in identifying and reporting instances of wilful default :
(i) With a view to imparting more objectivity in identifying cases of wilful default, decisions to classify the borrower as wilful defaulter should be
entrusted to a Committee of higher functionaries headed by the Executive Director and consisting of two GMs/DGMs as decided by the Board of
the concerned bank/FI.
(ii) The decision taken on classification of wilful defaulters should be well documented and supported by requisite evidence. The decision should
clearly spell out the reasons for which the borrower has been declared as wilful defaulter vis-�-vis RBI guidelines.
(iii) The borrower should thereafter be suitably advised about the proposal to classify him as wilful defaulter along with the reasons therefor. The
concerned borrower should be provided reasonable time (say 15 days) for making representation against such decision, if he so desires, to a
Grievance Redressal Committee headed by the Chairman and Managing Director and consisting of two other senior officials.
(iv) Further, the above Grievance Redressal Committee should also give a hearing to the borrower if he represents that he has been wrongly
classified as wilful defaulter.
(v) A final declaration as ''wilful defaulter'' should be made after a view is taken by the Committee on the representation and the borrower should
be suitably advised.
The learned Senior Counsel further referred to the Credit Information Companies (Regulation) Act, 2005 (Central Act 30/2005) for the
purpose of emphasizing the privacy principle stated therein. u/s 22 of the Act it is stated that no person shall have access to credit information in the
possession or control of a credit information company or a credit institution u less the access is authorised by the Act. Any contravention of the Act
has been made as a penal offence. u/s 29, the Credit information company is under obligation to maintain fidelity and secrecy.
The learned Senior Counsel also referred to a judgment of the Delhi High Court in Sudarshan Overseas Ltd. Vs. Reserve Bank of India and
another reported in 160 (2009) DLT 77, wherein the Delhi High Court had observed in paragraph 19 as follows :
State Financial Corporation are a Public Sector Undertaking; where as the second respondent is a Private bank. However, in the present case
no adjudication order for recovery is being made. Banks and financial institutions are required to follow the guidelines of Master Circular
introduced by the Reserve Bank of India before declaring a borrower a willful defaulter and communication has to be sent to the borrower. In case
of violation, complaint to Reserve Bank of India can be made. Action to declare a borrower as willful defaulter is an internal action of the bank in
question and declaration to the same effect is required to be made after giving hearing and right to representation. The borrower is also entitled to
receive documents and evidence relied upon by the bank/financial institution. The Master Circular has taken precaution to ensure that genuine
borrowers or others, who have committed defaults in making the payment of money are not categorized as willful defaulters. In case of wrong
classification, aggrieved person can move to Court or approach Reserve Bank of India in case there is breach of the conditions mentioned in the
Master Circular.
(Emphasis added)
However, the petitioner cannot be allowed to have several rounds of litigation on the same subject. The right of the petitioner and the obligation
of the respondents have already been settled by this court in the order passed in the earlier writ petition. The petitioner was given an hearing and a
reasoned order has been passed. Ultimately, the respondent being the Creditor company is entitled to take steps which are open to them to get
back the amount advanced and reporting the default company in public place is the method which is designed by the respondents. This court do
not find any violation of either the Central Act 30 of 2005 or the Master Circular issued by the RBI. Ultimately even after the respondent IDBI
bank informed the RBI, the RBI can still examine whether the norms have been followed as they are the supervising authority for allowing the
banks to consider the petitioner as a willful defaulter.
The term ""Willful"" came to be used in many enactments. It cannot have a pure dictionary meaning in all enactments and it all depend upon the
enactment under which the term is used. In the present case, the petitioner company is the defaulter and they have huge dues to be paid is not
denied. The respondent also found that there were diversion of funds and falsification of records. Therefore, it cannot be said that it is a case of
mere default without any intend. Merely because the petitioner had offered to clear the dues will not take the case any further. The present attempt
by the petitioner before this court is to seek a gag order against the respondent IDBI Bank, which is the banking institution advanced huge amount
without there being any hope of return and the bank is entitled to adopt methods which are open to them which include a declaration of the
petitioner company as willful defaulter. The case of the petitioner has been heard by the Redressal committee as directed by this court and the
petitioner was also heard.
When a writ petition came to be filed preventing the nationalised bank from advertising the name of defaulters, this court vide judgment in Mr.
K.J. Doraisamy Vs. The Assistant General Manager, State Bank of India, Erode Branch and The Chief Manager (PBD), State Bank of India,
Erode Branch (0837), had negatived the plea by stating that there is no right to privacy in such matters and if a person, who had availed loan, had
committed default by adopting novel method, it is also open to the bank to device a new method to recover the said loan. In paragraph 31, this
court had observed as follows:
Lastly, with the advent of the Right to Information Act, 2005, the Bank has become obliged to disclose information to the public. Section 3 of
the said Act entitles all citizens to a Right to Information. Section 4(2) of the said Act provides as follows:
(2)It shall be a constant endeavour of every public authority to take steps in accordance with the requirements of clause (b) of sub-section (1) to
provide as much information suo moto to the public at regular intervals through various means of communications, including internet, so that the
public have minimum resort to the use of this Act to obtain information.
Public Authority is defined u/s 2(h) of the Act to include ""any body owned, controlled or substantially financed"". Therefore, the respondent Bank is
a Public Authority within the meaning of the Act and they owe a duty to disseminate information even suo moto. Certain exemptions are listed out
u/s 8 of the Right to Information Act, 2005, two of which are of significance and they read as follows:
-omitted-
Thus the aforesaid provision leaves no room for any doubt that the ''Right to Privacy'' fades out in front of the ''Right to Information'' and ''larger
public interest''. The said judgment was also confirmed by a division bench of this Court.
Ultimately, in the days of RTI Act where even a citizen who is interested in maintenance of public sector financial institutions is entitled to
question the credit policy of the institution and get the names of huge defaulters and that such information when it is available in the public realm, it
is too late for the petitioner to protest and contend that they cannot be held as defaulter. There is no constitutional right of the petitioner is violated
and that the transaction is purely contractual.
The Supreme Court in Federal Bank Ltd. Vs. Sagar Thomas and Others, had observed as follows:
Merely because Reserve Bank of India lays the banking policy in the interest of the banking system or in the interest of monetary stability or
sound economic growth having due regard to the interests of the depositors etc. as provided u/s 5(c)(a) of the Banking Regulation Act does not
mean that the private companies carrying on the business or commercial activity of banking, discharge any public function or public duty. These are
all regulatory measures applicable to those carrying on commercial activity in banking and these companies are to act according to these provisions
failing which certain consequences follow as indicated in the Act itself. As to the provision regarding acquisition of a banking company by the
Government, it may be pointed out that any private property can be acquired by the Government in public interest. It is now a judicially accepted
norm that private interest has to give way to the public interest. If a private property is acquired in public interest it does not mean that the party
whose property is acquired is performing or discharging any function or duty of public character though it would be so for the acquiring authority.
Even if the writ petition is maintainable against the first respondent, that does not mean every activity of the respondent can be supervised by
this court in exercise of power under Article 226 of the Constitution. In this context it is necessary to refer to a judgment of the Supreme Court in
Indian Bank v. Godhara Nagrik Cooperative Credit Society Limited reported in (2008) 12 SCC 541 and in paragraph 16, it was observed as
follows:
16.It is one thing to say that the public sector banks having regard to the provisions of the Banking Companies (Acquisition and Transfer of
Undertakings) Act, 1970 should discharge their functions keeping in mind the larger public interest but ordinarily in the matter of enforcement of
contract, they are to be governed by the terms thereof, which would not be amenable to writ jurisdiction of the High Court unless the actions of the
banks are found to be wholly arbitrary and unreasonable.
In the light of the above, the writ petition will stand dismissed. However, there will be no order as to costs. Consequently connected miscellaneous
petitions stand closed.