Nishad Mathew v. Reserve Bank of India, Federal Bank Ltd., and Review Committee (Identification of Wilful Default)

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** ## **THE HONOURABLE MR.JUSTICE N.NAGARESH** **THURSDAY, THE 17[TH] DAY OF MARCH 2022/26TH PHALGUNA, 1943 WP(C) NO. 29679 OF 2021** ## **PETITIONER:** **NISHAD MATHEW, S/O.K.T.MATHEW, AGED 40 YEARS, 2B, SKYLINE GATEWAY, PATHADIPALAM, CHANGAMPUZHA NAGAR (P.O.), SOUTH KALAMASSERY, ERNAKULAM - 682 033.** **BY ADVS. C.AJITH KUMAR RAJEEVU L.G.** ## **RESPONDENTS:** **1 THE RESERVE BANK OF INDIA, 21ST FLOOR, CENTRAL OFFICE BUILDING, SHAHID BHAGAT SINGH ROAD, MUMBAI - 400 001, REPRESENTED BY ITS CHIEF GENERAL MANAGER. 2 THE FEDERAL BANK LTD., LOAN COLLECTION AND RECOVERY DEPARTMENT, 5TH FLOOR, HEAD OFFICE, FEDERAL TOWERS, ALUVA - 683 101, REPRESENTED BY ITS VICE PRESIDENT. 3 REVIEW COMMITTEE (IDENTIFICATION OF WILFUL DEFAULT), C/O.LOAN COLLECTION AND RECOVERY DEPARTMENT, FEDERAL BANK LTD., 5TH FLOOR, FEDERAL TOWERS, ALUVA - 683 101, REPRESENTED BY ITS VICE PRESIDENT AND DEPUTY COMPLIANCE OFFICER.** **BY ADVS. MOHAN JACOB GEORGE P.V.PARVATHY REENA THOMAS NIGI GEORGE** **THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON 17.03.2022, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** WP(C) No.29679/2021 2 ## **JUDGMENT** Dated this the 17[th] day of March, 2022 The petitioner, who has borrowed loan from the 2[nd] respondent-Bank, is before this Court aggrieved by the proceedings initiated for declaring him as Wilful Defaulter. The petitioner seeks to quash Exts.P1 and P7 and to restrain the 2[nd] and 3[rd] respondents from forwarding the name of the petitioner as a Wilful Defaulter to Credit Information Companies. 2. The petitioner has availed advances/loans from the 2[nd] respondent-Bank. On default, the Vice President and Deputy Compliance Officer, who is a member of Committee for Identification of Wilful Defaulters, issued Ext.P1 show-cause notice to the petitioner for declaring the petitioner as a Wilful Defaulter as per the Guidelines of the Reserve Bank of India. The petitioner submitted Ext.P2 WP(C) No.29679/2021 3 reply to the show-cause notice to the Committee for identification of Wilful Defaulters, of the 2[nd] respondentBank. The Committee came to the conclusion that the petitioner is a Wilful Defaulter and decided to declare the petitioner as such and inform the Credit Information Companies, as envisaged by the Master Circular of RBI. 3. Aggrieved by the decision of the Committee, the petitioner preferred Ext.P9 review before the Review Committee (Identification of Wilful Default). The said Ext.P9 review is pending. 4. The petitioner in the meanwhile has approached this Court. The contention of the petitioner is that Ext.P1 has been issued not by a Committee for Identification of Defaulters as contemplated by Clause 3(b) of Ext.P8 Master Circular on Wilful Defaulters issued by the RBI. The Master Circular authorised the Committee and the Committee alone to issue show-cause notice to the WP(C) No.29679/2021 4 ## concerned borrower in the matter. 5. The petitioner would further urge that as per Clause 2.1.3 of the Master Circular, for declaring a person as Wilful Defaulter, one of the conditions in Clauses (a) to (d) should be satisfied. In the petitioner's case, none of the clauses is satisfied. Ext.P1 show-cause notice does not indicate as to why the petitioner is found to be a wilful defaulter. 6. The petitioner further urged that the evidence of wilful default on the part of the borrower should be examined by a Committee headed by an Executive Director or equivalent and consisting of two other Senior Officers of the rank of General Manager/Deputy General Manager. The 2[nd] respondent has not followed clause 3(a) of Ext.P8 Master Circular in the petitioner's case. Ext.P7 proceedings do not in any manner show that the petitioner's capacity to repay the amount due to the Bank has been assessed by WP(C) No.29679/2021 5 the 2[nd] respondent. It is the argument of the petitioner that the State was undergoing Covid-19 pandemic and the petitioner had no revenue income to repay the loan amount. The inability of the petitioner to repay the amount is evident from the records. The capacity of the petitioner to repay has not been properly assessed. 7. In the meanwhile, the respondents have issued Ext.P10 communication stating that the petitioner's representation to the Review Committee of the Board in response to Ext.P7 was considered by the Review Committee of the Board and had decided to give the petitioner an opportunity to settle/close the liability before taking a final decision by the Review Committee. 8. The learned counsel for the petitioner relied on the judgment of the Hon'ble High Court of Calcutta in **Pawan Kumar Patodia and others v. Union Bank of India and others** [Laws (Cal) 2019 2 15] to contend that all WP(C) No.29679/2021 6 administrative powers of the Bank cannot be delegated. The petitioner also relied on the judgment of the High Court of Calcutta in **Madans Wine Stores Private Limited v. State Bank of India** [Laws (Cal) 2019 11 113] to urge the point. Relying on the judgment of the Hon'ble High Court of Madras in **V. Selvaraj v. The Reserve Bank of India, Department of Non-Banking Supervision and others** (Laws (Mad) 2019 8 490), the petitioner contended that the allegations in the nature are liable to be approved only on the basis of material evidence on record. Ext.P7 does not contain any material justifying the conclusions therein. 9. As regards the maintainability of the writ petition, the learned counsel for the petitioner relied on the judgments of the Hon'ble Apex Court in **Anandi Mukta Sadguru Shree Kuktajee Vandas Swami Suvarna Jayanti Mahotsav Smarak Trust and others v. V.R. Rudani and others** [(1989) 2 SCC 691] and **Binny** WP(C) No.29679/2021 7 **Limited and another v. Sadasivan and others** [(2019) 14 SCC 189]. When the private Banks are discharging functions of a public nature, the writ petition is maintainable. In the present case, the action of the 2[nd] respondent in declaring the petitioner as Wilful Defaulter will cause adverse civil consequences to the petitioner. Further, the 2[nd] respondent is exercising the powers under Master Circular issued by the RBI, which has statutory force. Therefore, the writ petition is maintainable. 10. The 2[nd] respondent entered appearance and contested the writ petition. The 2[nd] respondent submitted that the writ petition is premature inasmuch as the proceedings initiated against the petitioner for declaring him as Wilful Defaulter has not been concluded finally. The Master Circular prescribed that once Committee takes a decision, the petitioner has a right to file a review. It is only when the Review Committee takes final decision in the WP(C) No.29679/2021 8 matter that the petitioner will be declared as a Wilful Defaulter. Knowing this provision, the petitioner has already filed Ext.P9 review before the Review Committee. The Review Committee is considering the matter. Unless the Review Committee takes a decision adverse to the petitioner, the petitioner has no cause of action to file a writ petition. 11. The learned counsel for the 2[nd] respondent relied on the judgment in **Federal Bank Ltd. v. Sagar Thomas** [2003 (3) KLT 876] contended that the writ petition is not maintainable. The Bank is not discharging any public function or public duty. The action of the Bank is consequence of a commercial transaction between the petitioner and the 2[nd] respondent. The 2[nd] respondent-Bank is not a 'State', 'instrumentality of State' or other authority falling within the ambit of Article 226 of the Constitution of India. The writ petition is not maintainable. WP(C) No.29679/2021 9 12. The learned counsel for the 2[nd] respondent pointed out that the petitioner had earlier approached this Court filing WP(C) No.4919/2021 and this Court held that the petitioner has not pointed out that the Federal Bank is a State or an authority within the meaning of Article 12 of the Constitution of India. This Court has held that the writ petition is not maintainable and hence the earlier writ petition was dismissed. In spite of that, the petitioner has again approached this Court invoking Article 226 of the Constitution of India. 13. I have heard the learned counsel for the petitioner and the learned Standing Counsel representing the 2[nd] respondent. 14. The prime contention of the petitioner is as regards the jurisdiction of the Vice President and Deputy Compliance Officer to issue Ext.P1 show-cause notice. Clause 3 of Ext.P8 Master Circular Mechanism for WP(C) No.29679/2021 10 ## Identification of Wilful Defaulters reads as follows: “(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/wholetime director for a personal hearing if the Committee feels such an opportunity is necessary. (c) The order of the Committee should be reviewed by another Committee headed by the Chairman/Chairman & Managing Director of 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.” WP(C) No.29679/2021 11 The petitioner argues that if the Committee concludes that an event of wilful default has occurred, “it shall issue a show-cause notice” to the concerned borrower. Ext.P1 show-cause notice has been issued by the Vice President and Deputy Compliance Officer. Therefore, Ext.P1 does not satisfy the requirements of Clause 3(b) of Ext.P8, is the contention of the petitioner. 15. The 2[nd] respondent has filed a statement in the writ petition disclosing that a Committee has been constituted by the 2[nd] respondent in strict compliance of Ext.P8 Circular. The Vice President and Deputy Compliance Officer is a member of the Committee for Identification of Wilful Defaulters. When the Vice President and Deputy Compliance Officer as a member of the Committee constituted by the 2[nd] respondent and issued notice, it cannot be said that Ext.P1 show-cause notice does not satisfy the requirement of the Master Circular. WP(C) No.29679/2021 12 This Court cannot accept the argument of the petitioner that Ext.P1 has to be issued by the Committee itself. Going by the language of Ext.P1 and the statement filed by the 2[nd] respondent, it is evident that Ext.P1 has been issued by the Committee, though it has been signed only by a member of the Committee, who is Vice President and Deputy Compliance Officer. In that view of the matter, this Court is of the opinion that there is no delegation of power as alleged by the petitioner in issuing Ext.P1. 16. The further contention of the petitioner is that as per Clause 2.1.3. of Ext.P8 Master Circular. Unless any of the events at (a) to (d) under Clause 2.1.3 exists, a person cannot be said to be a Wilful Defaulter. Ext.P1 show-cause notice does not indicate that any of the Clauses enumerated under Clause 2.1.3 exist. Therefore Ext.P1 cannot stand any scrutiny of law. WP(C) No.29679/2021 13 17. This Court finds that on the basis of Ext.P1, the petitioner has submitted his reply and the Committee has decided to declare the petitioner as a Wilful Defaulter. In terms of the Circular, the decision of the Committee is only tentative and it will become final only when the review committee takes a decision in the matter. The petitioner has brought Ext.P1 show cause notice before the Review Committee. In the circumstances, it is for the Review Committee to take a decision as to existence of any of the events indicated in Clause 2.1.3 of Ext.P8 Master Circular. At this stage, this Court is not called upon to pronounce on that issue. In view of the above, this Court finds that the writ petition filed by the petitioner is premature and is liable to be dismissed. The writ petition is dismissed accordingly. Sd/- **N. NAGARESH JUDGE** ncd/18.03.2022 WP(C) No.29679/2021 14 ## **APPENDIX OF WP(C) 29679/2021** ## **PETITIONER'S EXHIBITS** |**Exhibit P1**|**TRUE COPY OF THE SHOW CAUSE NOTICE**| |---|---| ||**DATED 04/09/2020 ISSUED BY THE 3RD**| ||**RESPONDENT TO THE PETITIONER AND**| ||**OTHERS.**| |**Exhibit P2**|**TRUE COPY OF THE REPLY DATED**| ||**25/09/2020 ISSUED TO EXT.P1 BY THE**| ||**PETITIONER AND HIS FATHER.**| |**Exhibit P3**|**TRUE COPY OF THE NOTICE DATED**| ||**19/11/2020 ISSUED TO PETITIONER AND**| ||**OTHERS BY THE 3RD RESPONDENT.**| |**Exhibit P4**|**TRUE COPY OF THE REQUEST LETTER DATED**| ||**24/11/2020 ISSUED BY THE PETITIONER**| ||**TO THE 3RD RESPONDENT, SEEKING**| ||**ADJOURNMENT OF HEARING ALONG WITH**| ||**POSTAL RECEIPT EVIDENCING DISPATCH OF**| ||**SAME.**| |**Exhibit P5**|**TRUE COPY OF THE REPLY DATED**| ||**28/07/2021 SUBMITTED BY PETITIONER**| ||**BEFORE THE 3RD RESPONDENT.**| |**Exhibit P6**|**TRUE COPY OF THE LETTER DATED**| ||**08/09/2021 ISSUED BY THE 2ND**| ||**RESPONDENT TO THE PETITIONER AND**| ||**OTHERS.**| |**Exhibit P7**|**TRUE COPY OF THE ORDER DATED**| ||**28/07/2021 PASSED BY THE 3RD**| ||**RESPONDENT FOR IDENTIFICATION OF**| ||**ACCOUNTS AS WILFUL DEFAULTERS.**| |**Exhibit P8**|**TRUE**<br>**COPY**<br>**OF**<br>**THE**<br>**CIRCULAR**| ||**NO.RBI/2015-16-100 DATED 01/07/2015**| ||**OF THE 1ST RESPONDENT ON MASTER**| ||**CIRCULAR ON WILFUL DEFAULTERS.**| |**Exhibit P9**|**TRUE COPY OF THE REPLY DATED**| ||**21/09/2021 SUBMITTED BY PETITIONER**| ||**BEFORE THE 3RD RESPONDENT.**| |**Exhibit P10**|**TRUE COPY OF THE LETTER DATED**| ||**08/12/2021 ISSUED BY THE 2ND**| ||**RESPONDENT TO THE PETITIONER.**| WP(C) No.29679/2021 15 **Exhibit P11 TRUE COPY OF THE WP(C) 4919/2021 WITHOUT EXHIBITS, FILED BY THE PETITIONER BEFORE THIS HON'BLE COURT. Exhibit P12 TRUE COPY OF THE JUDGMENT IN WP(C) 4919/2021.**