Delhi High Court observed the need for a transparent mechanism to prevent misuse of penal measures outlined in the Master Circular against wilful defaulters.
The Single-Judge Bench of Justice Purushaindra Kumar Kaurav was hearing a petition and stressed the necessity for banks to strictly adhere to the RBI's Master Circular when declaring someone a Wilful Defaulter. The Bench emphasized transparent processes based on objective facts, avoiding categorization solely on isolated incidents. The Delhi High Court bench prioritized financial integrity while safeguarding individual constitutional rights, demanding a higher burden of proof in such cases due to their gravity.
Justice Purushaindra Kumar Kaurav highlighted the requirement for a higher degree of proof in cases of willful default due to the serious consequences involved, urging banks to conduct thorough investigations and assessments before making such declarations. Moreover, the Court emphasized the significance of considering the overall track record of borrowers and avoiding categorization based solely on isolated transactions or events.
In a Writ Petition filed under Article 226 of the Constitution of India, the Petitioner challenged the order passed by the Review Committee of Punjab National Bank (PNB) on 20.04.2023, which upheld the declaration of the Petitioner as a Wilful Defaulter under the "Master Circular on Wilful Defaulters, 2015" issued by the Reserve Bank of India (RBI). The Petitioner, Chairman of Hindustan Power Projects Pvt. Ltd., had obtained significant loan facilities for a power plant business without any prior history of default. However, the contention arose from the Petitioner's involvement with Moser Baer Solar Ltd. (MBSL), a company facing financial difficulties due to external factors like the global financial crisis of 2008 and competition from inexpensive Chinese solar panels.
Despite the Petitioner's disassociation from MBSL and the latter's subsequent admission into Corporate Debt Restructuring (CDR), the Respondent Bank persisted in declaring the Petitioner as a Wilful Defaulter. The case involved extensive documentation, restructuring agreements, and correspondence between the Petitioner and the Respondent Bank. Despite multiple representations and legal proceedings, including previous writ petitions, the Respondent Bank maintained its stance.
The High Court analysed the legal framework governing Wilful Default declarations, referencing the RBI's Master Circular and the standards of proof required. It emphasized the importance of maintaining financial discipline and preventing misuse of funds, highlighting the serious consequences involved in being declared a wilful defaulter, including reputational damage and legal ramifications. Moreover, the judgment discussed the need for a transparent mechanism to prevent the misuse of penal measures outlined in the Master Circular against wilful defaulters.
The court also examined the Credit Information Companies (Regulations) Act, 2015, which mandates banks to submit lists of wilful defaulters to credit information companies for monitoring and prevention of credit facilities to such entities. It stressed the importance of rigorous processes and adherence to legal principles to withstand judicial scrutiny, particularly in cases involving serious financial implications.
Additionally, the judgment delved into the Corporate Debt Restructuring (CDR) scheme, emphasizing measures to ensure viability and prevent fund diversion. It outlined a detailed process for borrower classification and restructuring under the CDR scheme, highlighting the need for forensic audits in cases of suspected fund diversion.
Ultimately, the court issued an interim order staying the operation of the impugned order pending further proceedings, signalling a thorough examination of the case and a commitment to upholding legal principles in financial matters.
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