BHARGAV D. KARIA, J.

1. Heard learned advocate Mr. Anand B. Gogia for the petitioners and learned advocate Mr. Bhaskar Sharma for respondent nos.1 and 2.

2. Rule returnable forthwith. Learned advocate Mr. Bhaskar Sharma waives service of notice of rule on behalf of respondent.

3. By this petition under Article 226 of the Constitution of India, the petitioners have challenged the order dated 09.08.2018 passed by respondent - Bank of Baroda, whereby the petitioners were declared as “Willful Defaulters” and also challenged show cause notices dated 07.04.2018 and 04.06.2018.

4. Brief facts of the case are as under :

4.1. The petitioner no.1 is a partnership firm registered under the Indian Partnership Act. Petitioner nos. 2 and 3 are the partners of the firm.

4.2. The petitioners are the borrowers of respondent bank and had availed the loan facilities.

4.3. For default in payment of loan availed, the respondent bank issued notice dated 14.10.2015 under section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (‘the SARFAESI Act’) stating that loan account of the petitioners has been classified as Non Performing Asset (NPA) and the bank has to recover total Rs. 23,65,33,962.51 as on 30.06.2015.

4.4. The petitioners thereafter received notice dated 07.04.2018 from the respondent bank calling upon to show cause why the petitioners should not be declared as willful defaulter and to classify the account as willful defaulter.

4.5. The petitioners made a representation dated 25.04.2018 against the show cause notice refuting the allegations made in the show cause notice.

4.6. The petitioners thereafter received a notice dated 4.06.2018 giving them personal hearing. The petitioners had attended such personal hearing and given written submissions dated 20.06.2018.

4.7. It is the case of the petitioners that without considering any averments made in the written submissions filed by the petitioners, the respondent bank passed the final order dated 09.08.2018.

4.8. Being aggrieved by the aforesaid action of the respondent bank, the petitioners have preferred the present petition.

5. Learned advocate Mr. Gogia for the petitioners submitted that the petitioners have been classified as willful defaulter without complying with the procedure prescribed in Clause 3 of the Circular of the RBI in respect of the classification of the willful defaulter and no reasons have been assigned for classifying the petitioners as willful defaulter and the petitioners have been classified as willful defaulter in violation of principles of natural justice.

6. It was submitted that the Committee which has held the petitioners to be willful defaulters and which has decided the appeal of the petitioners was not constituted in accordance with the RBI guidelines.

7. Learned advocate Mr. Gogia for the petitioners submitted that the classification of the petitioners was required to be done in terms of the RBI guidelines contained in the master circular of willful defaulter. Clause 3 of the circular provides for the Grievance Redressal mechanism and contains the procedure to be followed for taking a decision to classify the borrower as willful defaulter and in deciding the representation against the decision by the Grievance Redressal Committee as also the constitution of the Committee. Clause 3(ii) of the circular provides that the decision on classification of willful defaulter should be well documented and supported by the requisite evidence and the decision should clearly spell out the reason for which the borrower has been declared as willful defaulter vis-a-vis the guidelines. However, the impugned decision does not contain any reason whatsoever and it simply mentions that Review Committee is left with no option except to confirm the decision of the Committee. Thus, the decision was already taken, before the final decision dated 09.08.2018 and there is no independent application of mind by Grievance Redressal Committee and therefore, it is a case of prejudgment too.

8. It was submitted that no reason has been assigned by the Grievance Redressal Committee whereas with a view to maintain transparency and fair play in action, the Grievance Redressal Committee was required to apply its mind to the grounds raised in the representation/appeal and take an appropriate decision on the representation/appeal by passing a reasoned speaking order.

9. Learned advocate Mr. Gogia for the petitioners submitted that Reserve Bank of India has come out with a fresh circular dated July 1, 2015 which provides mechanism to declare the borrower as willful defaulter in its Clause 3. It was submitted that the mechanism for identification of Willful Defaulters as stipulated in the Master Circular on Willful Defaulters requires a bank to have an Identification Committee consisting of the quantity and quality of personnel stipulated in the Master Circular. It also requires a Review Committee to review the decision of the Identification Committee. The composition of the Review Committee has also been prescribed in the Master Circular on Willful Defaulters. Clause 3 of the Master Circular on Willful Defaulters requires a bank to place any evidence that the bank has on willful default of a borrower, before the Identification Committee which is the mandate of Clause 3(a). Clause 3(b) requires the Identification Committee to arrive at a finding as to whether the evidence produced by the bank on willful default by a borrower, constitute sufficient ground to arrive at a prima facie finding that, there is a willful default on the part of the borrower or not and if the Identification Committee arrives at a prima facie finding that, there is an event of willful default then, a notice is required to be issued to the borrower calling for the submission of the borrower. The submissions of the borrower, if there be any, are then considered by the Identification Committee. The Identification Committee has the discretion to grant personal hearing to the borrower if it feels that such an opportunity is necessary. The Identification Committee then decides on the issue of willful default and renders its finding to the parties. Clause 3(c) allows the order of the Identification Committee to be reviewed by the Review Committee and not all orders of the Identification Committee are amenable to review by the Review Committee but only such orders of the Identification Committee which arrives at a finding that there is a willful default can be placed before the Review Committee. Clause 3(b) of the Master Circular on Willful Defaulters requires the Identification Committee to arrive at its finding after affording an opportunity of hearing to the borrower.

10. It was submitted that the secured creditor is not discharging the same duties as that of Section 13(2) of the SARFAESI Act when it is acting in terms of the Master Circular on Wilful Defaulters. It was submitted that under Section 13(2) of the SARFAESI Act, a secured creditor is trying to recover its dues from a borrower who is in default and has its account classified as a non-performing asset (NPA) and only such borrowers whose accounts stand classified as a NPA are amenable to be proceeded against under the SARFAESI Act.

11. Learned advocate Mr. Gogia submitted that the Identification Committee cannot delegate its decision making power and it is called upon to decide at the first stage, the materials placed before it and arrive at a finding as to whether, the materials constitute a willful default by the borrower under the Master Circular on Willful Defaulters dated 01.07.2015 or not and if the Committee comes to the finding that there are materials constituting willful default then it has to give an opportunity to the borrower to make submissions and consider the submissions of the borrower and thereafter it is required to arrive at a final decision as to whether the borrower is to be classified as a willful defaulter or not. However, in this decision making process, there is a requirement to give notice to the borrower.

12. It was submitted that in the scheme of decision making process as prescribed under subject Master Circular, the function of issuance of Show Cause Notice cannot be delegated and the requirement must be discharged by identification Committee only. It was submitted that in the present case, the Show Cause Notice and other consequential order including final order are not issued by the Identification Committee but by the Assistant General Manager, who is not the part of the Committee. Therefore, the Show Cause Notice and impugned order are without jurisdiction.

13. Learned advocate Mr. Gogia thereafter assailing the impugned decision dated 09.08.2018 submitted that the subject loanCredit Limit was sanctioned by the Bank Vide Sanction Letter dated 19.05.2012 after considering the loan proposal of petitioners in all necessary and relevant aspects.

14. Referring to the terms and conditions of the loan sanctioned, it was submitted that all the terms and conditions of the said loan were fully complied with by the petitioners more particularly, as provided in Condition No.12 of the said Sanction Letter, whereby the Petitioners were allowed for the disbursement of the Sanctioned Credit Limit. Condition No. 13 & 14 of the said Sanction Letter are relating to submission of statements to the Bank under Quarterly Information System within stipulated time, while Condition No.14 is relating to Stock Audit to be carried out by the Chartered Accountant, appointed by the Bank. It was submitted that petitioners have submitted time to time financial and Stock Statements to the Bank as per Quarterly Information System. The said statements contain details of Stock, Fund Flow, Estimated Turnover etc. Stock Audit of the petitioners was carried by the Chartered Accountant, appointed by the Bank. The petitioners have requested by an application under Right to Information Act to the respondent bank to provide the above Stock Audit reports. However, the respondent bank vide their letter dated 28.01.2019 have not provided above details/documents to the petitioners. The petitioners have therefore, preferred appeal against the above order. It was submitted that the Books of Accounts, Stock Register and Records of Machinery were maintained by the petitioners and inspected by the Bank Officials periodically.

15. Learned advocate Mr. Gogia submitted that the petitioners have sustained Trading loss in year 2014-15 and 2015-16 in their trade of wheat and Seasame Seeds, for the reasons of advance Contract and huge difference of rates during the procurement of Cargo of the said goods. Further during the above period, rates of Seasame Seeds crashed down, which resulted into heavy losses to the petitioners which adversely affected the stock valuation of the petitioners and for the said reasons the drawing power of the petitioners was reduced by the Bank, which resulted into further losses to the petitioners.

16. It was submitted that the petitioners have sustained heavy losses in year 2014-15 as their goods i.e. Seasame Seeds were rejected by the Korea Agro Fisheries Trade Corporation and the said Corporation have invoked Bank Guarantee at the relevant time, which resulted further heavy losses to the Petitioners.

17. It was submitted that the property which is stated to have been mortgaged is a part of the total land of Revenue Survey No. 569 Paiki of Amreli. Thus, total land of Revenue Survey No. 569 is about 8,701.00 sq. meters. Out of the said total land, the land admeasuring about 3,789.86 sq. meters is occupied by M/s Sonpal Export Pvt. Ltd. on the basis of Registered lease no. 3328 dated 31.08.2004. Thus, from beginning and/or before creation of said mortgage, the above land admeasuring about 3,789.86 sq. meters was with by M/s Sonpal Export Pvt. Ltd. Petitioners had informed and communicated the above fact to the Respondent bank Authorities from time to time. It was submitted that from the valuation report of the subject property obtained by the respondent bank, it is evident that bank was aware about the fact that the part of the land i.e. 3,689.86 sq. meters with constructed industrial shed was with M/s Sonpal Export Pvt. Ltd. and said firm was having financial assistance of SBI, for their business.

18. It was submitted that on perusal of the valuation report obtained by the bank pertaining to the subject property it was evident that the valuation is not pertaining the entire land of R.S. no. 569 Paiki, but it is relating only to land admeasuring about 4911.14 sq. meters le. after deducting the land admeasuring about 3,789.86 sq. meters which is occupied by M/s Sonpal Export Pvt. Ltd. It was therefore, submitted that the petitioners did not offer the entire land to the bank as a security as alleged in the Show Cause Notice and thus the petitioners have not caused any loss to the bank, as the land which is valued by the Government Approved valuer of the bank reveals that land admeasuring about 4911.14 sq. meters, is valued by the bank and as such no inference can be drawn of any fraud having being committed by the petitioners as alleged.

19. Learned advocate Mr. Gogia submitted that whatever amount is received from M/s Sonpal Export Pvt. Ltd. out of lease and/or sale of land admeasuring about 3,789.86 sq was deposited by them in respondent bank in subject loan account and therefore, it cannot be said that petitioners had any mala fide intention.

20. It was submitted that DRT has granted interim relief in favour of the Sonpal Export Pvt. Ltd in SA No. 153 of 2017 filed against State Bank of India, in respect to the property mortgaged with Bank of Baroda and as such, the above contentions of the petitioners are supported by the above interim order.

21. Learned advocate Mr. Gogia submitted that though all the above documents are available and/or within the knowledge of the respondent Bank, the same were not considered by the respondent, while passing the impugned order.

22. It was submitted that the present case does not fall within the definition of willful defaulter or diversion and Siphoning of funds etc but the case is of total nonapplication of mind and perversity on part of the respondent Bank authorities.

23. Learned advocate Mr. Gogia submitted that declaration of a person as a "willful defaulter" has very far reaching consequences. It was submitted that respondent bank being a public authority, was enjoined to give the necessary details why it was of the opinion that the petitioners were "willful defaulter" within the meaning of the definition of “willful defaulter”.

24. It was therefore, submitted that the impugned order dated 09.08.2018 is illegal and contrary to the law and deserves to be quashed and set aside.

25. On the other hand, the learned advocate Mr. Bhaskar Sharma submitted that the present petition filed by the petitioners is the gross abuse of process of law and has been filed without any cause of action or without any proper or legal ground to challenge the classification of petitioners as Wilful Defaulters vide letter dated 09.08.2018.

26. It was submitted that petitioner no. 1 is the borrower partnership firm having petitioner nos. 2 and 3 as its partners who has availed various Credit facilities which they have defaulted to repay. It was submitted that respondent bank has filed OA No. 524/2015 on 26.10.2015 before the DRT for recovery of Rs 23,65,33,962.51/-. The petitioners also filed SA No. 31/2016 claiming Rs 904.40 Crores on account of damages on account of SARFAESI proceedings initiated by the respondent Bank which was dismissed vide order dated 30.05.2019.

27. It was submitted that FIR dated 6.4.2021 was also registered against the petitioners before the CBI, EOB, Mumbai. Show Cause notices dated 07.04.2018 for declaring the petitioners as Willful Defaulters was issued against the petitioners whereby separate replies dated 25.04.2018 were submitted by the petitioners.

28. It was submitted that vide letter dated 04.06.2018, the petitioners were given opportunity of personal hearing before the Committee of Executives on 20.06.2018 on which date two replies were submitted by the petitioners.

29. It was submitted that vide letters dated 09.08.2018, the petitioners were informed that Committee of Executives on Willful Defaulters (COE) of the respondent Bank has decided to declare the petitioners as Willful Defaulters after concluding that the firm has fraudulently availed credit facilities, defaulted in meeting its payment/repayment obligations to the lender and has diverted / siphoned off the funds so that the funds have neither been utilized for specific purpose for which finance was availed of nor are the funds available with the company in form of other assets. It was submitted that the Review Committee on willful defaulters has also confirmed the decision of COE.

30. It was submitted that the petitioners were declared Willful Defaulters after giving ample time and proper hearing commencing from show cause notice dated 7.4.2018 issued to the petitioners as per the procedure in accordance with law.

31. It was submitted that the petitioners are properly classified as Willful Defaulter in accordance with law after giving proper hearing and ample opportunity to the petitioners with application of mind in the light of the facts and circumstances, after hearing the petitioners and perusing the documents and reply submitted by the petitioners before the Committee of Executives on Willful Defaulters of the Respondent Bank.

32. Learned advocate Mr. Bhaskar Sharma submitted that it is a settled law that fraud and justice never dwell together and a person whose case is based upon falsehood deserves no relief from this Court. It was submitted that it is apparent from the facts of the case that the petitioners were not inclined to repay the credit facilities availed by them and the justification for default as given by the petitioners in present petition are sufficient to illustrate and establish the dishonest conduct of the petitioners. It was submitted that the respondent Bank deserves protection in accordance with law against such frivolous litigants who are threat to Banking system.

33. Learned advocate Mr. Sharma submitted that the petitioners are abusing the process of law with no intention to repay the outstanding dues and alleging violation on the part of Respondent Bank in following due process in classification of the petitioners as Willful Defaulters based upon falsehood and afterthought. There is no violation on the part of the Respondent Bank and the petitioners are classified as Willful Defaulters in accordance with law in the light of applicable Master Circular issued by the Reserve Bank of India. It was submitted that this is a case where the petitioners availed huge credit facilities and have no intention to repay inspite of having ample resources with the petitioners. It was therefore, submitted that petition may not be entertained.

34. Having heard the learned advocates for the respective parties and having gone through the materials on record, in order to appreciate the contentions raised by the respective parties, it would be germane to refer to few Clauses of Master Circular on willful defaulter dated 1st July, 2015 issued by the RBI.

“Clause 2.1.3 : Wilful Default : A 'willful 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.

(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 willful 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 categorised as willful must be intentional, deliberate and calculated.”

Clause no. 2.5 : Penal Measures.

The following measures should be initiated by the banks and FIs against the willful defaulters identified as per the definition indicated at paragraph 2.1.3 above:

a. No additional facilities should be granted by any bank / FI to the listed willful defaulters. In addition, such companies (including their entrepreneurs / promoters) where banks/ FIs have identified siphoning / diversion of funds, misrepresentation, falsification of accounts and fraudulent transactions should be debarred from institutional finance from the scheduled commercial banks, financial institutions, NBFCs, for floating new ventures for a period of 5 years from the date of removal of their name from the list of willful defaulters as published/disseminated by RBI/CICs.

b. The legal process, wherever warranted, against the borrowers/ guarantors and foreclosure for recovery of dues should be initiated expeditiously. The lenders may initiate criminal proceedings against willful defaulters, wherever necessary.

c. Wherever possible, the banks and FIs should adopt a proactive approach for a change of management of the willfully defaulting borrower unit.

d. A covenant in the loan agreements, with the companies to which the banks/ FIs have given funded/ nonfunded credit facility, should be incorporated by the banks/ FIs to the effect that the borrowing company should not induct on its board a person whose name appears in the list of willful defaulters and that in case, such a person is found to be on its board, it would take expeditious and effective steps for removal of the person from its board.

It would be imperative on the banks and FIs to put in place a transparent mechanism for the entire process so that the penal provisions are not misused and the scope of such discretionary powers are kept to the barest minimum. It should also be ensured that a solitary or isolated instance is not made the basis for imposing the penal action.

Clause no.3 : Mechanism for identification of willful defaulters.

The mechanism referred to in paragraph 2.5 above should generally include the following :

(a) The evidence of willful 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 willful 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 willful 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.

(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/ nonexecutive 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 willful defaulter, then the Review Committee need not be set up to review such decisions.”

35. Thus, clause 2.1.3 defines 'willful default' as to who can be said to have committed a willful default as enumerated in Clause (a) to (d). Whereas, Clause-3 provides for mechanism for identification of willful defaulters. Clause – 2.5 provides consequences of declaring any lender as willful defaulter resulting into penal measures including criminal case. On perusal of the above provisions of Master Circular, the Identification Committee is required to examine the availability of evidence of willful default on the part of the borrower company and its promoter/whole time director and if such committee concludes that in the event of willful default is occurred, it is obligatory on the part of the Identification Committee to issue a show cause notice to the concerned borrower and promoter whole time director calling for their submissions and after considering their submissions an order recording the fact of willful default has to be passed giving reasons for the same. Therefore, it is incumbent upon the Identification Committee to provide an opportunity of personal hearing to the borrower and promoter, whole time director or the persons, who are to be considered as willful defaulter and the decision of such Identification Committee is to be reviewed by any other Committee, which is Review Committee as per Clause-3(c) of the Master Circular.

36. The Division bench of the Bombay High Court in case of M/s. Kanchan Motors and others vs. Bank of India and others reported in 2018 SCC OnLine Bom 1761 has held as under with regard to violation of principles of natural justice as under:

“14. On the close scrutiny of the aforesaid provisions of Master Circular, it is clear that the consequences of declaring any lender as wilful defaulter are serious in nature. It is also clear that for declaring a lender to be wilful defaulter specific finding is required to have been recorded in terms of Clasue 2.1.3(a) to (d) as the case may be. The Master Circular also provides a mechanism to be adopted for identifying the wilful defaulter. It includes, availability of evidence of wilful default on the part of borrowing company and its promoter/whole-time director which needs to be examined by the Identification Committee. If the Committee concludes that an event of wilful default has occurred, it is obligatory on the part of Identification Committee to issue a show cause notice to the concerned borrower and the promoter/whole-time director calling from their submissions and after considering their submissions as may be received, an order recording the fact of wilful default has to be passed after giving reasons for the same. It is also incumbent upon the Identification Committee to give an opportunity of personal hearing to borrower & promoter/ whole-time director if it feels that such opportunity is necessary. The said order of the Committee needs to be reviewed by another Committee (Review Committee) as per Clause 3(c) of the Master Circular.

15. Examining the present matter on the touch stone of the aforesaid provisions, we find that the Respondent Bank has failed to comply with the aforesaid mechanism provided under the Master Circular. It is clear from the record that in response to the notice issued by the Bank informing the Petitioners about their intentions to proceed against them for declaring them as willful defaulter and giving last chance to deposit outstanding amounts, the Petitioners have submitted a detailed reply dated 29th January, 2018 giving reasons as to why such proceeding cannot be initiated. However, it appears that thereafter the Identification Committee has passed an order on 9th March, 2018 recording that the Petitioners have committed wilful default. It is also an admitted fact that the copy of the order dated 9th March, 2018 was not supplied to the Petitioners even though a written request for the same was made. Moreover, in the stand of the Bank in reply to the Petition, it is stated that is not necessary to supply the copy of the order of the Identification Committee to the Petitioners.

16. In the circumstances, in our considered view the Respondents while declaring the Petitioners as wilful defaulter have violated the provisions contained in the Master Circular and have also acted in violation of the principles of natural justice. The impugned action which is penal in nature has been taken causing serious implication on the Petitioners without following the basis principles of natural justice. The impugned order of Review Committee as is clear from a bare reading of it, is a non speaking order as the operative part of the order of Review Committee which contains the reasons reads thus:

“The Review Committee has examined and reviewed the proceedings initiated order and the findings of the Identification Committee and found that they are in order and confirmed that you have committed the following willful default: —

(Reasons) The unit has defaulted reasons in meeting its payment/repayment obligation to the lender and has not utilized the finance from lender even when it has capacity to honour the said obligations.”

17. This according to our considered view the order of the Review Committee cannot be termed as reasoned order and as such it cannot be sustained.

18. We are also of the considered view that the Respondent Bank cannot be allowed to say that it is not necessary for them to supply copy of the order passed by the Identification Committee. As would be clear from Clause 3(b) of the Master Circular the Identification Committee has to record reasons while passing the order of recording the fact of commission of wilful default as also to assign valid reasons as to whether it is necessary to give the borrower and the the promoter/whole time director the opportunity of personal hearing. This requirement whether has been complied with or not could have been examined only if the said order was brought on record. But strangely in reply the Bank has taken a stand that the order dated 9 th March, 2018 passed by the Identification Committee is the internal order and it is not supposed to be served upon the Petitioners. It is also stated by the Respondents in the reply that no question arises of serving the order dated 9th March, 2018 on the Petitioners and that the order dated 9th March, 2018 is the preliminary internal order and after its finalization by Review Committee, it is conveyed to the Petitioners. Thus from the stand taken by the Respondents, it is clear that they have neither supplied copy of the order passed by the Identification Committee to the Petitioners nor according to them it was necessary. It is also very strange that the said order has not even been brought on record by the Bank to deny the Petitioners' contention that their grounds raised through reply dated 29th January, 2018 to show cause notice against proposed declaration of wilful defaulter have not been considered and that as to why the Petitioners were denied the opportunity of being heard.

19. In our considered view the stand of the Bank that they are not obliged to furnish copy of the order passed by the Identification Committee cannot be sustained. Such stand if accepted would given rise to arbitrary exercise of powers as the Identification Committee may give complete go bye to the requirement of assigning reasons for declaring a party as Wilful Defaulter and also requirement of giving reasons as to why opportunity of personal hearing would not be necessary.

20. In the present case, as already observed even the order of Review Committee is bereft of any reasons for arriving at the conclusion that, “the Petitioners have defaulted in meeting its payment/repayment obligation to the lender even when it has capacity to honour the said obligation.

21. Having regard to the aforesaid in our considered view failure to supply the reasons by the Identification Committee of recording the fact that the Petitioners are in wilful default and as to why they need not be given an opportunity of hearing when in their reply dated 29th January, 2018 the Petitioners have raised various grounds opposing the proposed action of declaring them willful defaulter and sought opportunity of personal hearing cannot be said to be justified. Similarly absence of reasons in the order of Review Committee also amounts to denial of justice. It is now well settled that reasons are the live links between the minds of the decision taker to the controversy in question and the decision or conclusion arrived at. Reasons substitute subjectivity to objectivity right to reason is an indispensable part of sound judicial system. The rational is that the affected party can know why the decision has gone against him. One of the statutory requirement of the natural justice is spelling out reasons for the order made, in other words a speaking order. Even in respect of administrative order the giving of reasons is one of the fundamentals of good administration.”

37. The Apex Court in case of State Bank Of India Vs. Jah Developers Private Limited and Others (Supra) while denying the right to be represented by a lawyer in the in-house proceedings contained in Para 3 of the Revised Circular dated 01.07.2015, has held that Revised Circular, being in public interest, must be construed reasonably as under:

“15. The next question that arises is whether an oral hearing is required under the Revised Circular dated 1-7- 2015. We have already seen that the said circular makes a departure from the earlier Master Circular in that an oral hearing may only be given by the First Committee at the first stage if it is so found necessary. Given the scheme of the Revised Circular, it is difficult to state that oral hearing is mandatory. It is even more difficult to state that in all cases oral hearings must be given, or else the principles of natural justice are breached. A number of judgments have held that natural justice is a flexible tool that is used in order that a person or authority arrive at a just result. Such result can be arrived at in many cases without oral hearing but on written representations given by parties, after considering which, a decision is then arrived at. Indeed, in a recent judgment in Gorkha Security Services v. State (NCT of Delhi) [Gorkha Security Services v. State (NCT of Delhi), (2014) 9 SCC 105] [LQ/SC/2014/776] this Court has held, in a blacklisting case, that where serious consequences ensue, once a showcause notice is issued and opportunity to reply is afforded, natural justice is satisfied and it is not necessary to give oral hearing in such cases (see para 20).

16. When it comes to whether the borrower can, given the consequences of being declared a wilful defaulter, be said to have a right to be represented by a lawyer, the judgments of this Court have held that there is no such unconditional right, and that it would all depend on the facts and circumstances of each case, given the governing rules and the fact situation of each case. Thus, in Mohinder Singh Gill v. Chief Election Commr. [Mohinder Singh Gill v. Chief Election Commr., (1978) 1 SCC 405] [LQ/SC/1977/331] , in the context of election law, this Court held: (SCC p. 439, para 63).

“63. In Wiseman v. Borneman [Wiseman v. Borneman, 1968 Ch 429 : (1968) 2 WLR 320 : (1967) 3 All ER 1045 (CA)] there was a hint of the competitive claims of hurry and hearing. Lord Reid said: ‘Even where the decision has to be reached by a body acting judicially, there must be a balance between the need for expedition and the need to give full opportunity to the defendant to see material against him’ (emphasis added). We agree that the elaborate and sophisticated methodology of a formalised hearing may be injurious to promptitude so essential in an election under way. Even so, natural justice is pragmatically flexible and is amenable to capsulation under the compulsive pressure of circumstances. To burke it altogether may not be a stroke of fairness except in very exceptional circumstances. Even in Wiseman [Wiseman v. Borneman, 1971 AC 297 : (1969) 3 WLR 706 (HL)] where all that was sought to be done was to see if there was a prima facie case to proceed with a tax case where, inevitably, a fuller hearing would be extended at a later stage of the proceedings, Lord Reid, Lord Morris of Borth-y-Gest and Lord Wilberforce suggested ‘that there might be exceptional cases where to decide upon it ex parte would be unfair, and it would be the duty of the tribunal to take appropriate steps to eliminate unfairness’ (Lord Denning, M.R., in Howard v. Borneman (2) [Howard v. Borneman (2), 1975 Ch 201 : (1974) 3 WLR 660 (CA)] summarised the observations of the Law Lords in this form). No doctrinaire approach is desirable but the court must be anxious to salvage the cardinal rule to the extent permissible in a given case. After all, it is not obligatory that counsel should be allowed to appear nor is it compulsory that oral evidence should be adduced. Indeed, it is not even imperative that written statements should be called for. Disclosure of the prominent circumstances and asking for an immediate explanation orally or otherwise may, in many cases, be sufficient compliance. It is even conceivable that an urgent meeting with the parties concerned summoned at an hour's notice, or in a crisis, even a telephone call, may suffice.”

(emphasis in original)

17. In Kavita v. State of Maharashtra (1) [Kavita v. State of Maharashtra (1), (1981) 3 SCC 558 [LQ/SC/1981/312] : 1981 SCC (Cri) 743] (Kavita), this Court held, in the context of preventive detention, that even when a detenu makes a request for legal assistance before the Advisory Board, the Advisory Board is vested with a discretion whether to allow or disallow such legal assistance. This was despite the fact that adequate legal assistance may be essential for the protection of the fundamental right to life and personal liberty guaranteed by Article 21 of the Constitution. On facts, it was held that since the detenu had not made any request to the Advisory Board for any such permission, the Court was not prepared to hold that the detenu was denied the assistance of counsel so as to lead to the conclusion that procedural fairness under Article 21 of the Constitution was denied to him. Likewise, in Nand Lal Bajaj v. State of Punjab [Nand Lal Bajaj v. State of Punjab, (1981) 4 SCC 327 [LQ/SC/1981/381] : 1981 SCC (Cri) 841] [LQ/SC/1981/381] , this Court referred to Article 22(3)(b) of the Constitution of India which states that the right to consult and be defended by a legal practitioner of his choice is denied to a person who is arrested or detained under any law providing for preventive detention. This Court then went on to hold that normally, lawyers have no place in proceedings before the Advisory Board, and then went on to refer to Kavita [Kavita v. State of Maharashtra (1), (1981) 3 SCC 558 [LQ/SC/1981/312] : 1981 SCC (Cri) 743] [LQ/SC/1981/357] . It was finally held that since the detaining authority was allowed to be represented by counsel before the Advisory Board, whereas the detenu was not, the order of detention would be quashed as this would be discriminatory.

18. In J.K. Aggarwal v. Haryana Seeds Development Corpn. Ltd. [J.K. Aggarwal v. Haryana Seeds Development Corpn. Ltd., (1991) 2 SCC 283 [LQ/SC/1990/504] : 1991 SCC (L&S) 483] , this Court, after discussing the case law, held in para 4, that the right of representation by a lawyer cannot be held to be a part of natural justice. No general principle valid in all cases can be enunciated. In the last analysis, a decision has to be reached on a case to case basis on situational particularities and the special requirements of justice of the case (see para 8).

19. In Crescent Dyes and Chemicals Ltd. v. Ram Naresh Tripathi [Crescent Dyes and Chemicals Ltd. v. Ram Naresh Tripathi, (1993) 2 SCC 115 [LQ/SC/1992/897] : 1993 SCC (L&S) 360] , this Court held that a workman under the Industrial Disputes Act, 1947 has no right, under principles of natural justice, that he must be represented by counsel. After discussing several judgments, this Court concluded: (SCC pp. 126-27 & 129, paras 12-13 & 17).

“12. From the above decisions of the English Courts it seems clear to us that the right to be represented by a counsel or agent of one's own choice is not an absolute right and can be controlled, restricted or regulated by law, rules or regulations. However, if the charge is of a serious and complex nature, the delinquent's request to be represented through a counsel or agent could be conceded.

13. The law in India also does not concede an absolute right of representation as an aspect of the right to be heard, one of the elements of principle of natural justice. It has been ruled by this Court in (I) N. Kalindi v. Tata Locomotive & Engg. Co. Ltd. [N. Kalindi v. Tata Locomotive & Engg. Co. Ltd., (1960) 3 SCR 407 [LQ/SC/1960/95] : AIR 1960 SC 914 [LQ/SC/1960/95] ] , (ii) Brooke Bond (India) (P) Ltd. v. S. Subba Raman [Brooke Bond (India) (P) Ltd. v. S. Subba Raman, (1961) 2 LLJ 417 (SC)] and (iii) Dunlop Rubber Co. (India) Ltd. v. Workmen [Dunlop Rubber Co. (India) Ltd. v. Workmen, (1965) 2 SCR 139 [LQ/SC/1964/323] : AIR 1965 SC 1392 [LQ/SC/1964/323] ] that there is no right to representation as such unless the company by its Standing Orders recognises such a right.

***

17. It is, therefore, clear from the above case-law that the right to be represented through counsel or agent can be restricted, controlled or regulated by statute, rules, regulations or Standing Orders. A delinquent has no right to be represented through counsel or agent unless the law specifically confers such a right. The requirement of the rule of natural justice insofar as the delinquent's right of hearing is concerned, cannot and does not extend to a right to be represented through counsel or agent. In the instant case, the delinquent's right of representation was regulated by the Standing Orders which permitted a clerk or a workman working with him in the same department to represent him and this right stood expanded on Sections 21 and 22(ii) permitting representation through an officer, staff-member or a member of the union, albeit on being authorised by the State Government. The object and purpose of such provisions is to ensure that the domestic enquiry is completed with despatch and is not prolonged endlessly. Secondly, when the person defending the delinquent is from the department or establishment in which the delinquent is working he would be well conversant with the working of that department and the relevant rules and would, therefore, be able to render satisfactory service to the delinquent. Thirdly, not only would the entire proceedings be completed quickly but also inexpensively. It is, therefore, not correct to contend that the Standing Order or Section 22(ii) of the Act conflicts with the principles of natural justice.”

20. In Railway Protection Force v. K. Raghuram Babu [Railway Protection Force v. K. Raghuram Babu, (2008) 4 SCC 406 [LQ/SC/2008/557] : (2008) 1 SCC (L&S) 1043] , this Court, in the context of a domestic/departmental enquiry held: (SCC p. 408, paras 9-11).

“9. It is well settled that ordinarily in a domestic/departmental enquiry the person accused of misconduct has to conduct his own case vide N. Kalindi v. Tata Locomotive & Engg. Co. Ltd. [N. Kalindi v. Tata Locomotive & Engg. Co. Ltd., (1960) 3 SCR 407 [LQ/SC/1960/95] : AIR 1960 SC 914 [LQ/SC/1960/95] ] Such an inquiry is not a suit or criminal trial where a party has a right to be represented by a lawyer. It is only if there is some rule which permits the accused to be represented by someone else, that he can claim to be so represented in an inquiry vide Brooke Bond (India) (P) Ltd. v. S. Subba Raman [Brooke Bond (India) (P) Ltd. v. S. Subba Raman, (1961) 2 LLJ 417 (SC)].

10. Similarly, in Cipla Ltd. v. Ripu Daman Bhanot [Cipla Ltd. v. Ripu Daman Bhanot, (1999) 4 SCC 188 [LQ/SC/1999/407] : 1999 SCC (L&S) 847] it was held by this Court that representation could not be claimed as of right. This decision followed the earlier decision Bharat Petroleum Corpn. Ltd. v. Maharashtra General Kamgar Union [Bharat Petroleum Corpn. Ltd. v. Maharashtra General Kamgar Union, (1999) 1 SCC 626 [LQ/SC/1998/1186] : 1999 SCC (L&S) 361] in which the whole case law has been reviewed by this Court.

11. Following the above decision it has to be held that there is no vested or absolute right in any charge-sheeted employee to representation either through a counsel or through any other person unless the statute or rules/standing orders provide for such a right. Moreover, the right to representation through someone, even if granted by the rules, can be granted as a restricted or controlled right. Refusal to grant representation through an agent does not violate the principles of natural justice.”

Ultimately, the Court upheld the validity of Rule 153.8 of the Railway Protection Force Rules, 1987, which permitted a friend to accompany a delinquent, who will not, however, be allowed to address the inquiry officer or be allowed to cross-examine witnesses.

21. It has also been argued before us that the present case, being a case where “wilful default” consists of facts which are known to the borrower, and as “wilful default” would only be the borrower's version of facts, no lawyer is needed as no complicated questions of law need to be presented before the InHouse Committees. Thus, in Krishna Chandra Tandon v. Union of India [Krishna Chandra Tandon v. Union of India, (1974) 4 SCC 374 [LQ/SC/1974/166] : 1974 SCC (L&S) 329] , this Court held: (SCC p. 381, para 17).

“17. It was next argued that the appellant had asked for the assistance of an advocate but the same was refused. It was submitted that having regard to the intricacies of the case and particularly the ill health of the appellant, he should have been given the assistance of an advocate, and since that was not given there was no reasonable opportunity to defend. The High Court has rejected this submission and we think for good reasons. The appellant was not entitled under the Rules to the assistance of an advocate during the course of the enquiry. The learned Judges were right in pointing out that all that the appellant had to do in the course of the enquiry was to defend the correctness of his assessment orders. Clear indications had been given in the charges with regard to the unusual conduct he displayed in disposing of the assessment cases and the various flaws and defaults which were apparent on the face of the assessment records themselves. The appellant was the best person to give proper explanations. The circumstances in the evidence against him were clearly put to him and he had to give his explanation. An advocate could have hardly helped him in this. It was not a case where oral evidence was recorded with reference to accounts and the petitioner required the services of a trained lawyer for cross-examining the witnesses. There was no legal complexity in the case. We do not, therefore, accede to the contention that the absence of a lawyer deprived the appellant of a reasonable opportunity to defend himself.”

22. Also, in National Seeds Corpn. Ltd. v. K.V. Rama Reddy [National Seeds Corpn. Ltd. v. K.V. Rama Reddy, (2006) 11 SCC 645 [LQ/SC/2006/895] : (2007) 1 SCC (L&S) 512] , this Court laid down: (SCC p. 648, para 7).

“7. The law in this country does not concede an absolute right of representation to an employee in domestic enquiries as part of his right to be heard and that there is no right to representation by somebody else unless the rules or regulation and standing orders, if any, regulating the conduct of disciplinary proceedings specifically recognise such a right and provide for such representation: see N. Kalindi v. Tata Locomotive & Engg. Co. Ltd. [N. Kalindi v. Tata Locomotive & Engg. Co. Ltd., (1960) 3 SCR 407 [LQ/SC/1960/95] : AIR 1960 SC 914 [LQ/SC/1960/95] ], Dunlop Rubber Co. (India) Ltd. v. Workmen [Dunlop Rubber Co. (India) Ltd. v. Workmen, (1965) 2 SCR 139 [LQ/SC/1964/323] : AIR 1965 SC 1392 [LQ/SC/1964/323] ],Crescent Dyes and Chemicals Ltd. v. Ram Naresh Tripathi [Crescent Dyes and Chemicals Ltd. v. Ram Naresh Tripathi, (1993) 2 SCC 115 [LQ/SC/1992/897] : 1993 SCC (L&S) 360] and Indian Overseas Bank v. Officers' Assn. [Indian Overseas Bank v. Officers' Assn., (2001) 9 SCC 540 [LQ/SC/2001/2251] : 2002 SCC (L&S) 1043] ”

23. The Court then held: (National Seeds Corpn. Ltd. case [National Seeds Corpn. Ltd. v. K.V. Rama Reddy, (2006) 11 SCC 645 [LQ/SC/2006/895] : (2007) 1 SCC (L&S) 512] , SCC pp. 650-51, para 10).

“10. Learned counsel for the appellant Corporation has brought to our notice office memorandum dated 21-11-2003 by which the prayer to engage a legal practitioner to act as a defence assistant was rejected. Reference was made to the Rules, though no specific reference has been made to the discretion available to be exercised in particular circumstances of a case. The same has to be noted in the background of the basis of prayer made for the purpose. The reasons indicated by the respondent for the purpose were: (a) amount alleged to have been misappropriated is Rs 63.67 lakhs, (b) a number of documents and number of witnesses are relied on by the respondent, and (c) the prayer for availing services of the retired employee has been rejected and the respondent is unable to get any assistance to get any other able coworker. None of these factors are really relevant for the purpose of deciding as to whether he should be granted permission to engage the legal practitioner. As noted earlier, he had to explain the factual position with reference to the documents sought to be utilised against him. A legal practitioner would not be in a position to assist the respondent in this regard. It has not been shown as to how a legal practitioner would be in a better position to assist the respondent so far as the documents in question are concerned. As a matter of fact, he would be in a better position to explain and throw light on the question of acceptability or otherwise and the relevance of the documents in question. The High Court [K.V. Rama Reddy v. National Seeds Corpn. Ltd., 2004 SCC OnLine Kar 654] has not considered these aspects and has been swayed by the fact that the respondent was physically handicapped person and the amount involved is very huge. As option to be assisted by another employee is given to the respondent, he was in no way prejudiced by the refusal to permit engagement of a legal practitioner. The High Court's order is, therefore, unsustainable and is set aside.”

24. Given the above conspectus of case law, we are of the view that there is no right to be represented by a lawyer in the in-house proceedings contained in Para 3 of the Revised Circular dated 1- 7-2015, as it is clear that the events of wilful default as mentioned in Para 2.1.3 would only relate to the individual facts of each case. What has typically to be discovered is whether a unit has defaulted in making its payment obligations even when it has the capacity to honour the said obligations; or that it has borrowed funds which are diverted for other purposes, or siphoned off funds so that the funds have not been utilised for the specific purpose for which the finance was made available. Whether a default is intentional, deliberate, and calculated is again a question of fact which the lender may put to the borrower in a show-cause notice to elicit the borrower's submissions on the same. However, we are of the view that Article 19(1)(g) is attracted in the facts of the present case as the moment a person is declared to be a wilful defaulter, the impact on its fundamental right to carry on business is direct and immediate. This is for the reason that no additional facilities can be granted by any bank/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 29-A 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 Para 3 of the Master Circular dated 1-7-2013 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 Para 3(b) of the Revised Circular dated 1-7-2015, 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 that the earlier Master Circular dated 1-7-2013 itself considered such steps to be reasonable, we incorporate all these steps into the Revised Circular dated 1- 7-2015. The impugned judgment [SBI v. Jah Developers (P) Ltd., LPA No. 113 of 2015 sub nom Punjab National Bank v. Kingfisher Airlines Ltd., 2015 SCC OnLine Del 14128 : (2016) 154 DRJ 164 [LQ/DelHC/2015/2668] ] [Kingfisher Airlines Ltd. v. Union of India, 2015 SCC OnLine Bom 6075 : (2016) 2 Mah LJ 838] is, therefore, set aside, and the appeals are allowed in terms of our judgment. We thank the learned Amicus Curiae, Shri Parag Tripathi, for his valuable assistance to this Court.”

38. In view of the above conspectus of the law and undisputed facts of this case, it is apparent that the respondent bank has failed to comply with the aforesaid mechanism provided under the Revised Master Circular as petitioners were never informed by the Identification Committee by issuing show cause notice and the notice was issued by the respondent bank to which the petitioners filed detailed reply but the order passed by the Identification Committee recording that the petitioners have committed willful default was never provided to the petitioners.

39. It emerges from the record that the copy of the order passed by the Identification Committee was never supplied to the petitioners even though written request for the same was made by the petitioners. In view of the above facts and circumstances, the respondent bank while declaring the petitioners as willful defaulter has violated the provisions contained in the Revised Master Circular and has also acted in violation of principles of natural justice. As the impugned action which is penal in nature has been taken causing serious implication to the petitioners without following the basis of principles of natural justice, the impugned action of the respondent bank identifying the account of the petitioners as willful default is liable to be quashed and set aside.

40. In view of the foregoing reasons, the petitions succeed and are accordingly allowed. The impugned action of the respondent bank identifying the account of the petitioners as willful defaulters is hereby quashed and set aside and the matter is remanded back to the Identification Committee of the respondent bank to follow the procedure as prescribed in Master Circular dated 1st July, 2015 by issuing a show cause notice to the petitioners and providing opportunity to the petitioners as per Clause-3 of the said circular. Such exercise by the Identification Committee and thereafter by the Review Committee shall be completed within the period of six months from the date of receipt of this order.

41. Rule is made absolute to the aforesaid extent. No order as to costs.