2024:MHC:4009W.P.Nos.34669, 34662 & 34679 of 2023

IN THE HIGH COURT OF JUDICATURE AT MADRAS

Reserved on : 01.08.2024

Pronounced on: 06.11.2024

CORAM

THE HONOURABLE DR. JUSTICE ANITA SUMANTH

W.P.Nos.34669, 34662 & 34679 of 2023

and WMP.Nos.34621, 34622, 34640, 34641, 34615 & 34616 of 2023

V.Srinivasan ...Petitioner in WP.34669 of 2023

Saravana Sivasankaran ...Petitioner in WP.34679 of 2023

Sanjeev Bafna ...Petitioner in WP.34662 of 2023

Vs.

IDBI Bank Limited

No.115, Anna Salai,

P.B.No.805, Saidapet,

Chennai-600 015.

...Respondent in all WPs

Prayer in WP.No.34669 of 2023: Writ Petition filed under Article 226 of the

Constitution of India praying to issue Writ of Certiorari calling for the records of the

Review Committee of Respondent in the impugned Order No.WDRC/24/(FY2023-

24)/WPEL dated 12.10.2023, quash the same.

1

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W.P.Nos.34669, 34662 & 34679 of 2023

Prayer in WP.No.34679 of 2023: Writ Petition filed under Article 226 of the

Constitution of India praying to issue Writ of Certiorari calling for the records of the

Wilful Defaulters Review Committee of Respondent in the impugned Order

No.WDRC/24/(FY2023-24)/WPEL dated 12.10.2023, quash the same.

Prayer in WP.No.34662 of 2023: Writ Petition filed under Article 226 of the

Constitution of India praying to issue Writ of Certiorari calling for the records of the

Review Committee of Respondent in the impugned Order No.WDRC/24/(FY2023-

24)/WPEL dated 12.10.2023, quash the same.

Case Nos. For Petitioners For Respondents

WP.No.34669 of 2023Mr.P.V.Balasubramanian,

Senior Counsel

For Mr.R.Palaniandavan

Mr.Omprakash,

Senior Counsel

For M/s.Ramalingam

Associates

WP.No.34662 of 2023Mr.A.K.Sriram,

Senior Counsel

For Mr.R.Palaniandavan

Mr.Omprakash,

Senior Counsel

For M/s.Ramalingam

Associates

WP.No.34679 of 2023Mr.T.Mohan,

Senior Counsel

For M/s.Vivrti Law

Mr.Omprakash,

Senior Counsel

For M/s.Ramalingam

Associates

C O M M O N O R D E R

The Writ Petitioners were Directors in Winwind Power Energy Private

Limited (in short ‘Company’). They challenge proceedings of the Defaulters Review

Committee (DRC) of the IDBI Bank on various grounds.

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W.P.Nos.34669, 34662 & 34679 of 2023

2. Mr.P.V.Balasubramanian and Mr.A.K.Sriram, learned Senior Counsels

appear for Mr.R.Palaniandavan, learned counsel on record for the petitioners in

W.P.Nos.34669 and 34662 of 2023, Mr.T.Mohan, learned Senior Counsel appears

for Vivriti Law, learned counsel on record for the petitioner in W.P.No.34679 of

2023 and Mr.Omprakash, learned Senior Counsel appears for M/s.Ramalingam

Associates, for the respondent bank.

3. The submissions of the petitioners are as follows:

i) All petitioners accede to the factum of Directorship in the company.

ii) They accede to the fact that the company had availed financial facilities

from IDBI.

iii) None of the petitioners are either direct borrowers, nor are they co-

borrowers/guarantors in respect of the loan facilities availed by the company.

iv) The loan account of the company was classified as a Non-Performing

Asset (NPA) on 30.09.2014, with effect from 30.06.2012.

v) While an ambiguity has been raised as to how the classification as NPA

would be with effect from 30.06.2012 as the loan facility was re-structured only on

that date, it has been explained by the bank as follows:

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W.P.Nos.34669, 34662 & 34679 of 2023

a) It is true that on defaults by the company, there was a request for re-

structuring which was also accepted and the financial arrangement restructured on

29.06.2012.

b) However, the defaults in repayment continued and hence the loan

account was classified as NPA on 30.09.2014.

c) On classification as NPA, the date would revert back to the original date

when the defaults had been identified and the loan restructured and hence the

classification as NPA would run from the original date of default onwards.

d) This is the procedure that is followed in accordance with the Reserve

Bank of India (RBI) mandate in this regard.

vi) The above explanation is accepted as being proper and appropriate and

in accordance with the extant Rules of RBI.

vii) The company had gone into Corporate Insolvency Resolution Process

(CIRP) in 2018 under the provisions of the Insolvency and Bankruptcy Code, 2016

(in short ‘Code’).

viii) It was transferred as a going concern to Agniti Industrial Parks Private

Limited on 14.10.2020 and the take-over was approved by the National Company

Law Tribunal (NCLT), Chennai on 08.02.2021.

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ix) Only thereafter, in 2022, did the bank wake up and examine the accounts

of the company.

x) A show cause notice was issued on 16.06.2022 alleging wilful default in

respect of the financial facilities availed by the company.

xi) Replies had been sent by the petitioners on various dates.

xii) The constitution of the wilful Defaulters Identification Committee

(Identification Committee) was unknown to the petitioners, despite a specific

request for the same having been made in the replies to the show cause notices.

xiii) In sum and substance, the reply of the petitioners was that they had no

liability in respect of the defaults committed by the company as they were neither

borrowers nor co-borrowers nor guarantors in respect of the loan facility.

xiv) Personal hearing was granted and written submissions were also filed.

xv) The Identification Committee had passed a cryptic order concurring with

the observations of the ‘Dealing Group’ overriding the responses of the petitioners.

xvi) Though the petitioners had sought material in support of the alleged

wilful default committed by them, no material was provided.

xvii) The replies of the petitioners had also referred to the Master Circulars

issued by the RBI which were also given a go-by by the Identification Committee.

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xviii) The original order of the Identification Committee was never served and

only a copy was served on the petitioners.

xix) As regards the petitioner in W.P.No.34669 of 2023, the Committee noted

that this petitioner had been declared as a wilful defaulter even by the State Bank of

India when in fact that order had been challenged before, and quashed by this Court.

xx) All petitioners filed Review Petitions before the wilful Defaulters Review

Committee (Review Committee).

xxi) The order of the Identification Committee had been confirmed. However,

the original order was not provided and only a copy of the same was served on the

petitioners.

xxii) The order of the Review Committee has been issued under the name of

the Chief General Manager, NPA Management Group of the respondent bank.

xxiii) However, the Chief General Manager is not a competent person to

serve on the Review Committee per applicable RBI Master Circulars.

xxiv) The orders are non-speaking and reveal absolutely no application of

mind to the various and series of grounds that had been set forth by the petitioners.

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xxv) The petitioners would, in one voice, pray that the impugned orders be

quashed as being wholly arbitrary, illegal and in contravention of the Circulars of

RBI.

4. The submissions of the respondent are as follows:

i)The Writ Petitions are not maintainable as IDBI is not a ‘State’ under

Article 12 of the Constitution. Moreover, the facts and circumstances do not merit

the applicability of the parameters touching upon ‘instrumentality of the State’ as

contained in Article 12 of the Constitution of India.

ii) The bank has been re-categorized as a private sector bank for regulatory

purposes with effect from 21.01.2019. Hence, all the more is it clear that it is

neither a State nor an instrumentality of the State.

iii) Without prejudice to the question on maintainability, there are various

assertions claiming to be facts which the respondent denies. Hence these Writ

Petitions are not maintainable in the face of the manifold disputed facts at play.

iv) The Master Circulars issued by RBI have clearly set out the procedure to

be followed by the Identification Committee and thereafter by the Review

Committee.

v) The procedure followed has been scrupulous and there has also been full

adherence to principles of natural justice.

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vi) The company had availed Rupee Term Loan (RTL) to the limit of

Rs.47.50 Crores during August, 2008 and Working Capital facility of a sum of

Rs.80.00 Crores in January, 2009. The Working Capital facility was reduced to

Rs.60 Crores thereafter.

vii) There had been defaults and on the request of the borrower, the lead

bank, State Bank of India, had proposed a restructuring package which was

accepted and implemented by all lenders, of which IDBI was one.

viii) The restructuring was effected under sanction letter dated 29.06.2012.

ix) The defaults continued and hence the account was closed as NPA in 2014,

with effect from 2012.

x) CIRP was initiated in 2018 and as there was no acceptable resolution plan

that was arrived at, liquidation was ordered by the NCLT on 08.08.2019.

xi) At an auction conducted in the course of the liquidation process, a

successful proposal was received from Agniti Industrial Parks Pvt. Ltd. and the

company was sold as a going concern, approved by the NCLT on 08.02.2021.

xii) The angle of wilful default was examined only thereafter by the

Identification Committee.

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xiii) According to the bank, there were two irregularities. The first was a

diversion of funds, meaning specifically non-utilisation of monies borrowed for a

specific purpose but diverted for other purposes.

xiv) They would also allege that the utilization of Working Capital funds was

not in conformity with the terms of the sanction.

xv) They also allege that in 2010 and 2011, the bank borrowings were far in

excess of the total Working Capital requirements and hence it was suspected that

the utilization of funds were for other purposes than for which the loan had been

sanctioned.

xvi) Thus, as a second irregularity, there was an allegation of siphoning off of

funds to related parties, namely, Siva Renewable Power and Energy Ltd (SRPL) and

Hi-tech Housing Project Pvt. Ltd. (HPPL).

xvii) The procedure followed post issuance of Show cause notices was proper

and an opportunity of personal hearing had been granted in all cases.

xviii) Admittedly, the petitioners have been Directors at the relevant point in

time and hence there is no merit in the Writ Petitions which are liable to be

dismissed.

5. Reliance is placed on the following Circulars:

i) RBI Circular DBOD No.BC/CIS/47/20.16.002/94 dated 23.04.1994

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ii) DBOD No.BC.DLW)12/20.16.002(1)/98-99 dated 20.02.1999

iii) DBOD No.DL(W)BC.110/20.16.003/2001-02 dated 30.05.2002

iv) DBOD No.CID.BC.3/20.16.003/2013-14 dated 01.07.2013

v) RBI/2023-24/06 DOR.STR.REC.3/21.04.048/2023-24 dated 01.04.2023

6. Reliance is placed on the judgments in State Bank of India and others V.

Rajesh Agarwal and others ((2023 6 SCC 1) and State Bank of India V. Jah

Developers Private Limited and others (2019) 6 SCC 787.

7. Heard all learned Senior Counsels, perused the material particulars and

studied the cases and Circulars relied upon. The original records were sought and,

on production, have been perused.

8. The tabulation of the relevant particulars relating to the petitioners is set

out below:

S.No

.

Name Date of

appointmen

t

Cessation Status of

the

petitione

r in the

company

Date of

reply to

SCN

Date of

order of the

identificatio

n

committee

1

.

Vaidyanathan

Srinivasan

9.8.2007 14.1.2015Director 27.6.202230.11.2022

2

.

Sivasankaran

Saravanan

17.9.200820.7.2015Promoter 6.7.202230.11.2022

3

.

Sanjeev Bafna 15.10.200914.3.2017Director 27.6.202230.11.2022

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9. The background to the action to be taken in respect of wilful defaulters has

been set out by the Supreme Court in the cases of Rajesh Agarwal (supra) and Jha

Developers Private Limited (supra). A note of caution was sounded as early as in

1994 by RBI vide its Circular dated 23.04.1994, wherein referring to the speech of

the then Finance Minister, an alert was sounded to banks and financial institutions

to put them on guard and alert them against entities who are habitual defaulters, or

at least those who are known to have defaulted in respect of their dues to banks and

financial institutions. Several measures were initiated in this respect.

10. RBI had stated that it would place in public domain the list of those

borrowers in respect of whom litigation has been initiated by the RBI. In general,

the move was to collect and disseminate information in regard to the defaults and

the pecuniary threshold in this regard was fixed at a sum of Rs.1 crore and above.

11. A public notice was issued which revealed the measures to be taken in

regard to the defaulting borrowers including the authorization extended to CIBIL

(Credit Information Bureau (India) Limited) to publish the defaulters list. The

measures continued under communication dated 20.02.1999 where the instructions

of the Central Vigilance Commission for collection of information of wilful

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defaulters was collated and a scheme was set out by the RBI under which banks and

financial institutions were required to submit details of wilful defaulters.

12. The Scheme provided inter alia, and for the first time, that the

banks/financial institutions would form a Committee consisting of three General

Managers (GM)/Deputy General Managers (DGM) for identifying the cases of

wilful default. This is what has come to be referred to as Identification Committee.

13. On 30.05.2002, the scheme for dealing with wilful defaulters was

streamlined and clarity was provided on the procedure that was to be followed. A

definition was provided for wilful default, as follows:

A "wilful default" would be deemed to have occurred if any of the

following events is noted:-

(a) the unit has defaulted in meeting its payment / repayment

obligations to the lender even when it has the capacity to honour the

said obligations.

(b) The unit has defaulted in meeting its payment / repayment

obligations to the lender and has not 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.

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14. In Circular DBOD No.BC/CIS/47/20.16.002/94 dated 23.04.1994,

financial institutions and banks were advised to compile a list of wilful defaults and

submit them to the RBI at regular intervals. All previous Circulars were collated

and a Master Circular was issued on 01.07.2013 which, for the first time, set out a

detailed structure on the measures that would be taken in order to address the issue

of wilful default. These measures provide inter alia, for grievance redressal

mechanisms, and criminal action to be initiated against wilful defaulters.

15. The structure in brief, as set out in the above Master Circular on Wilful

Defaulters is extracted below:

1 Introduction

2 Guidelines issued on wilful defaulters on May 30, 2002

2.1Definition of Wilful Default

2.2Diversion and siphoning of funds

2.3Cut-off limits

2.4End-use of Funds

2.5Penal measures

2.6Guarantees furnished by group companies

2.7Role of Auditors

2.8Role of Internal Audit / Inspection

2.9Reporting to RBI / Credit Information Companies

3 Grievances Redressal Mechanism

4 Criminal Action against Wilful Defaulters

4.1J P C recommendations

4.2Monitoring of End Use

4.3Criminal Action by Banks / FIs

5 Reporting Names of Directors

5.1Need for Ensuring Accuracy

5.2Position regarding Guarantors

5.3Government Undertakings

5.4Inclusion of Director Identification Number (DIN)

6 Annex 1 - Reporting Format

Annex 2 - List of Circulars consolidated

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16. Master Circulars on wilful defaults appear to have been issued annually

thereafter, incorporating the instructions and guidelines periodically issued in regard

to cases of wilful default. It is seen that the procedure has been updated from time

to time.

17. In Master Circular bearing DBR No.CID.BC.22/20.16.003/2015-16 dated

01.07.2015 which consolidates all instructions and guidelines issued till 30.06.2015

the mechanism for identification of wilful defaulters has been set out in detail, as

follows:

3. Mechanism for identification of Wilful Defaulters

The mechanism referred to in paragraph 2.5 above should generally

include the following:

(a) The evidence of wilful default on the part of the borrowing

company and its promoter / whole-time director at the relevant time

should be examined by a Committee headed by an Executive

Director or equivalent and consisting of two other senior officers of

the rank of GM / DGM.

(b) If the Committee concludes that an event of wilful default has

occurred, it shall issue a Show Cause Notice to the concerned

borrower and the promoter / whole-time director and call for their

submissions and after considering their submissions issue an order

recording the fact of wilful default and the reasons for the same. An

opportunity should be given to the borrower and the promoter /

whole-time director for a personal hearing if the Committee feels

such an opportunity is necessary.

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(c) The Order of the Committee should be reviewed by another

Committee headed by the Chairman / Chairman & Managing

Director or the Managing Director & Chief Executive Officer /

CEOs and consisting, in addition, to two independent directors / non-

executive directors of the bank and the Order shall become final only

after it is confirmed by the said Review Committee. However, if the

Identification Committee does not pass an Order declaring a

borrower as a wilful defaulter, then the Review Committee need not

be set up to review such decisions.

18. The constitution of the Identification and Review Committees has also

been amended. As far as criminal action is concerned, there is no difference and the

word of caution that figures in the earlier Master Circulars to the effect that penal

provisions must be used with due caution and in a transparent manner, continues.

The proposal for initiation of criminal action as contained in Circular No DBOD

No.CID.BC.3/20.16.003/13-14 dated 01.07.2013 thus remains constant over the

years in the following terms:

4. Criminal Action against Wilful Defaulters

(ii) Criminal Action by Banks / FIs

It is essential to recognise that there is scope even under the

existing legislations to initiate criminal action against wilful

defaulters depending upon the facts and circumstances of the case

under the provisions of Sections 403 and 415 of the Indian Penal

Code (IPC), 1860. Banks / FIs are, therefore, advised to seriously

and promptly consider initiating criminal action against wilful

defaulters or wrong certification by borrowers, wherever considered

necessary, based on the facts and circumstances of each case under

the above provisions of the IPC to comply with our instructions and

the recommendations of JPC.

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It should also be ensured that the penal provisions are used

effectively and determinedly but after careful consideration and due

caution. Towards this end, banks / FIs are advised to put in place a

transparent mechanism, with the approval of their Board, for

initiating criminal proceedings based on the facts of individual case.

19. The need for accurate reporting and transparency has thus remained

constant through the Master Circulars and the substantive amendments to the

Master Circulars as seen over the years would relate to the mechanisms that have

been put in place to address defaults and the change in the constitution of the

Identification and Review Committees. In the present cases, one of the main

contentions of the petitioners is in regard to the fact that neither the Identification

nor the Review Committees have remained true to the constitution as set out in the

Master Circulars.According to them, this would go to the root of the matter.

20. The fact that RBI has amended the constitution over the years would

indicate due application of mind to the constitution of the committees. Senior

members of the Committee have been inducted to ensure that the mandate of

transparency and accuracy is maintained throughout.

21. There is thus some merit in the contention that the constitution of the

Committees must be in tandem with what is prescribed under the Master Circulars.

Any deviation from this aspect shall be fatal to the integrity of the procedure and

ultimately the proceedings themselves.

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22. In the present case, the Identification Committee is seen to comprise of

Chairman, J.Samuel Joseph, DMD, Member, S.G.Nadkarni, ED-LCG and Member

Murali Sourirajan, ED-NMG and the Review Committee contains only the signature

of A.Mallikarjun, Chief General Manager, NPA Management Group. Shri Rakesh

Sharma, MD & CEO – Chairman, Shri SamareshParida, Independent Director and

Smt.P.V.Bharathi, Independent Director are stated to have attended through Video

Conference from Bengaluru but the records do not contain any order duly signed by

all members.

23. Contrast this with the stipulations under the Master Circulars as per which

the Identification Committee should be headed by an Executive Director or

equivalent and comprise of two other senior officers of the rank of GM/DGM. The

Review Committee should be headed by Chairman/Chairman & Managing director

or the Managing director and Chief Executive Officer/CEOs and two independent

directors/non-executive directors of the bank. On this comparison, I find a marked

difference between the requirements as per the Circulars and the actual constituents

of the Committees.

24. I have carefully perused the orders of the Identification Committee as well

as the Review Committee. The Supreme Court in the case of Jah Developers

Private Limited and others (supra) has indicated that there is no necessity for an

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opportunity of hearing to be granted both at the level of the Identification as well as

the Review Committees. However, in this case, the respondents are at pains to point

out that they have, in fact, heard the petitioners on both instances.

25. However, in order to render the hearing effective, the order must reflect

all contentions as raised by the parties. While it is true that hearing notices have

been issued and the petitioners heard, many of the contentions raised in the written

submissions do not find place in the orders. To illustrate the aforesaid finding, I

extract below the operative portion of the order of the Identification Committee:

The dealing group verified the factual aspects of the submissions

made by Shri Vaidyanathan Srinivasan, Shri. Sanjeev Bafna and Shri

Sivasankaran Saravana during the personal hearing and written

submissions made by them and submitted their comments as under:

In respect of wilful default charge 2.2. 1(a) - (Diversion of

funds), submission made by Directors of WPEL is not tenable

as bank borrowings availed by WPEL was more than the total

WC requirement. Therefore, it appears to be utilization of funds

for the purposes other than the purpose for which loan was

sanctioned.

In respect of wilful default charge (Clause: 2.1.3(c) 2.2.2 - Siphoning off of funds) Promoters/Directors have admitted the

transactions effected between Siva Renewable Power and

Energy Ltd. and Hi-tech Housing Project Pvt. Ltd. As per

transaction audit report, it is stated that in terms of sanction

letter of the credit facility provided by the banks, all the current

asset of the company has been hypothecated to the bank, which

means bank had first right towards the receivable of SRPL.

Hence the aforesaid transaction leads to preferential payments

made to related parties and that is detrimental to the financial

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health of the lender. In view of the above, the submission made

by Shri Sanjeev Bafna and Shri Vaidyanathan Srinivasan are

not acceptable.

Promoter / Director viz., Shri Sivasankaran Saravana had not

given any specific reply to the transactions observed under

Diversion / Siphoning of funds and had mentioned that he was

NRI for the period from 2011 to 2015 and not a Director in

charge of day to day affairs nor a signatory.

Submissions made during the personal hearing and

subsequently vide letter dated August 05, 2022 were similar to

what was stated in their earlier letters and without any

sufficient justification for the transactions mentioned in the

SCN.

Since, Shri Sivasankaran Saravana had not given any specific

reply to the transactions observed under Diversion / Siphoning

of funds, his submission were not acceptable.

There were no response from other Promoter/directors viz.,

Shri. ShajuPadamattumel Sebastian Stephen, Shri. Sultan

Ahmed Al Jaber, Shri Ziad Tassabehii and Shri. Henri Antti

Erik Grundsten. SCN forwarded to their address were retumed

and emails sent were not acknowledged. Undelivered SCN

published in newspaper.

5. WDC at its meeting held on October 17, 2022 deliberated on

memorandum and submission made by Dealing Group and noted as

under.

The Committee concurred with observations of Dealing Group

mentioned hereinabove.

Shri Shri Vaidyanathan Srinivasan, Shri. Sanjeev Bafna and

Shri Saravana Sivasankaran could not provide convincing and

conducive replies to the wilful default charges in their reply to

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SCN on behalf of themselves, company and directors /

guarantors.

They also failed to provide supportive documents in support of

their submissions. There were no responses from other

Promoter/directors viz., Shri. ShajuPadamattumel Sebastian

Stephen, Shri. Sultan Ahmed Al Jaber, Shri Ziad Tassabehii

and Shri. Henri Antti Erik Grundsten.

SBI(Lead Bank) has declared the account as wilful defaulter

along with following directors: (i) Shri C Sivasankaran, (ii)

Shri Padmavathy Suresh (iii) Shri S Sarvanan (iv) Shri Sanjeev

Bafna (v) Shri Shankar Vardharajan (vi) Shri Vaidyanathan

Srinivasan and following corporate guarantors : (vii) Hi Tech

Housing Project Pvt. Ltd (viii) Siva Compulink Ltd (ix) Siva

Industries and Holdings Ltd, (x) Sterling Agro Produce Pvt. Ltd

(xi) Winwind OY, Finland.

6. The Committee therefore concluded that the Promoters / Erstwhile

Directors of WEL viz. (i) Shri Saravana Sivasankaran, ii) Shri

Vaidyanathan Srinivasan, (iti) Shri Sanjeev Bafna, (iv) Shri

ShajuPadamattumel Sebastian Stephen, (v) Shri Sultan Ahmed Al

Jaber, (vi) Shri Ziad Tassabehji and (vi) Shri Henri Anti Erik

Grundsten are fit to be declared as wilful Defaulter in terms of

Clauses 2.1.3 (b) (2.2.1 (a)l &e 2.1.3 (c) (2.2.21 of RBI circular dated

July 01, 2015 on Wilful Defaulters as summarized at para 3 above.

7. Accordingly, the Committee recorded its findings as under:

(a) WPEL has defaulted in meeting its payment / repayment

obligations to the lender and the Promoters / erstwhile Directors /

Guarantors of WPEL viz. 1.Shri Saravana Sivasankaran, 2. Shri

Vaidyanathan Srinivasan, 3. Shri Sanjeev Bafna, 4. Shri

ShajuPadamattumel Sebastian Stephen, 5. Shri Sultan Ahmed Al

Jaber, 6. Shri Ziad Tassabehji and 7. Shri Henri Antti Erik Grundsten

have committed wilful default as per the RBI's Master circular on

Wilful Defaulters dated July 01, 2015 in terms of Clauses 2.1.3 (b)

(2.2.1 (a)) & 2.1.3 (6) (2.2.2)

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(b) The Promoters / Erstwhile Directors of WPEL viz. 1. Shri

Saravana Sivasankaran, 2. Shri. Vaidyanathan Srinivasan, 3. Shri

Sanjeev Bafna, 4. Shri ShajuPadamattumel Sebastian Stephen, 5. Shri

Sultan Ahmed Ai Jaber, 6. Shri Ziad Tassabehji and 7. Shri Henri

Antti Erik Grundsten are fit to be declared as Wilful Defaulters and

the decision of the Committee may be submitted to Wilful Defaulters

Review Committee for confirmation and thereafter for reporting to

Credit Information Companies (CICs) and other actions to be

initiated as specified in RBI Circular.

26. There are no findings in regard to the issues raised by the petitioners and

all contentions have merely been brushed away without any reasons being assigned

in that regard.

27. Additionally, and as regards the order of the Review Committee, since

what has been served upon the parties is a single page order bereft of any reasoning,

I had specifically sought from Mr.Omprakash a clarification on whether that

constituted the entirety of the order. He had explained that the order had, in fact,

been more elaborate, but that for administrative and logistic purposes, what has

been communicated was only the operative portion. I had hence sought the records

to peruse the entirety of the order of the Review Committee.

28. The records do not contain any order other than the one-page order

impugned in these Writ Petitions. That order of the Review Committee reads as

follows:

The WDRC deliberated on the records and order passed by WDC

carfully examined the contents of the submissions and written

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representations made by the erstwhile Promoter / Directors) of WPEL

and after thorough perusal of the records of the matter, the WDRC

resolved that:

The erstwhile Promoter / Directors) of WPEL, viz, 1. Shri

Vaidyanathan Srinivasan 2. Shri Sanjeev Bafna and 3. Shri Saravana

Sivasankaran are fit to be declared as wilful defaulter in terms of

criteria Clause 2.13 (c) [2.2.2] as laid down in RBI's Circular and that

to withdraw wilful defaulter proceedings initiated against the erstwhile

Promoter / Director(s), viz., (i) Shri ShajuPadamattumelScbastian

Stephen, (ii) Shri Sultan Ahmed Al Jaber, (iti) Shri Ziad Tassabchji and

(iv) Shri Henri Antti Erik Grundsten.

In view of the above, it is ordered that erstwhile Promoter / Directors)

of WPEL viz., 1. Shri Vaidyanathan Srinivasan 2. Shri Sanjeev Bafna

and 3. Shri Saravana Sivasankaran are fit to be declared as wilful

defaulter in terms of criteria Clause 2.1.3 (c) (2.2.2] as laid down in

RBI Circular and their names are to be reported to the CIC and other

actions be initiated against all of the above as specified in RBI

Circular.

BY THE ORDER OF THE WILFUL DEFAULTER'S REVIEW

COMMITTEE.

A.Mallikarjun

Chief General Manager

NPA Management Group

29. As the petitioners point out, the Scheme formulated to deal with wilful

defaulters is stringent in many ways. It proceeds on the position that the noticee is

an economic defaulter which by itself, is stigmatizing. The consequences of being

fastened with this allegation are manifold. The authorities are bound to, in line with

the Circulars of the RBI, report the defalcations indicated by the RBI with all

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W.P.Nos.34669, 34662 & 34679 of 2023

attendant consequences, such as bar of Directorship in all companies. The levy of

penalty is stringent and the penal provisions under the Scheme are as follows:

4. Criminal Action against Wilful Defaulters

4.1 J.P.C. Recommendations

Reserve Bank examined, the issues relating to restraining wilful defaults

in consultation with the Standing Technical Advisory Committee on

Financial Regulation in the context of the following recommendations of

the JPC and in particular, on the need for initiating criminal action

against concerned borrowers, viz.

a. It is essential that offences of breach of trust or cheating construed to

have been committed in the case of loans should be clearly defined

under the existing statutes governing the banks, providing for criminal

action in all cases where the borrowers divert the funds with malafide

intentions.

b. It is essential that banks closely monitor the end-use of funds and

obtain certificates from the borrowers certifying that the funds have

been used for the purpose for which these were obtained.

c. Wrong certification should attract criminal action against the

borrower.

30. In my considered view, the procedure followed by the respondent lacks

transparency, particularly when the consequence of the Scheme are onerous. Aside

from that, the respondents have not adhered to the requirements under the Scheme

in terms of the constitution of the Committee. The impugned orders reflect pre-

determination of the issue and many of the contentions advanced by the petitioners

have not been addressed.

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31. While the discussion as above would suffice to justify the conclusion

arrived at, a word on the merits itself. The tenure of Directorship of the petitioners

have been set out in the tabulation at paragraph 8 above. Undoubtedly, they were

Directors at the relevant point in time. It is however their contention that they were

never actively engaged in the management of the company. This has not been

denied by the respondents.

32. In addition, Mr.Saravana Sivasankaran, petitioner in WP.34679 of 2023

has contended that he was not in the Country during the tenure of Directorship as he

had been pursuing academic studies abroad. However, in my considered view, this

may not be a factor to exonerate a Director if negligence or malfeasance is made out

otherwise. In the present case, the respondent has not established this critical aspect

of the matter.

33. I also find that there has been substantial delay on the part of the

respondents in taking necessary steps. The company has been declared as an NPA

in 2014 with retrospective effect from 2012. It has gone into CIRP in 2018 and has

been wound up by an order of NCLT in 2021. It is only thereafter that the

respondent has even looked into the accounts, coming to the conclusion that there

has been wilful default.

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34. No doubt, since the defaults in financial arrangements have a direct

impact on public money and public interest, the ground of delay on the part of the

bank would not, by itself, be fatal to its interests, or stand in the way of action being

taken as against the company or its directors. However, it is a pre-requisite that

wilful default must be established prior to such action being initiated.

35. The reasons advanced by the bank to classify the petitioners as wilful

defaulters were originally two fold. However, they have, in the course of the

proceedings, been reduced only to one, as the explanations tendered in regard to one

of the alleged defaults have been accepted by the bank. Even in the case of the lone

default that has been identified, an explanation has been tendered by the petitioners.

That default relates to the allegation that financial facilities were far in excess of the

working capital requirements. Hence there was an inference that the excess financial

facilities would have been diverted to the Directors.

36. This is a mere assumption. If at all this allegation were to be the basis of

the impugned action, it is necessary that sufficient evidence be brought on record

by the bank to establish such diversion. Merely because the quantum of loans

were in excess of working capital requirements, it cannot be assumed that a) the

amounts had been diverted, b) it was the Directors who were responsible for the

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diversion and c) the Directors or their nominees were beneficiaries of the diverted

funds.

37. The larger question that would arise is the role of the bank in granting

such financial facilities without ascertaining the working capital requirements of the

company. After all, it is the bank, which is the custodian of public funds. Even

assuming that the company or its officials had been remiss, they are commercial

players who would have to face the consequences in the event of default being

established. However, there is no excuse for a bank dealing with public funds to

blindly extend financial facilities allegedly in excess of working capital requirements

and, more importantly, detecting lapses, if at all, 7 years after the alleged

occurrence.

38. While the Court is fully in sync with the tone, tenor, scope and object of

the wilful defaulters Scheme and agrees that the same must be implemented

ruthlessly and without exception, there has to be a modicum of responsibility in the

administration of the Scheme by the bank. In the present case, the Court finds this

aspect conspicuous by its absence.

39. Thus, on a combined appreciation of the three factors, that the

respondents have not made out wilful default by the petitioners, the procedure

followed is not in line with the stipulations under the Scheme/RBI Circulars and

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the bank is itself seen to be remiss in the administration of the Scheme, I set aside

the impugned orders and allow these Writ Petitions. No costs. Connected

Miscellaneous Petitions are closed.

06.11.2024

Index: Yes

Speaking order

Neutral Citation: Yes

Sl

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DR. ANITA SUMANTH, J.

sl

W.P.Nos.34669, 34662 & 34679 of 2023

06.11.2024

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