Declaration of Wilful Defaulter and Debt Recovery Proceedings are Distinct: High Court

Case Details: Jagdish Prasad Saboo v. IDBI Bank Ltd. - [2023] 150 taxmann.com 320 (HC-Gujarat)

Judiciary and Counsel Details

• • A.S. Supehia, J.
  • Aditya A. Gupta & Mohit A. Gupta for the Petitioner.
  • B.H. Bhagat for the Respondent.

Facts of the Case

In the instant case, the petitioner was the director of the company that had borrowed money from a consortium of banks including the respondent bank. Due to inadequate cash flows, the company’s account was red-flagged and an internal investigation was carried out by the consortium. A Forensic Auditor was appointed to carry out an audit of the company.

Based on the Forensic Audit Report (FAR) submitted by the Forensic Auditor, the Committee for Identification of a wilful defaulter of the Bank by the impugned order classified the petitioner as a wilful defaulter. Later, the order of the Identification Committee was confirmed by Review Committee.

The petitioner by the instant writ assailed the action of declaring him as a wilful defaulter on the ground that FAR was never supplied to him. Therefore, the impugned order passed by the Identification Committee violated the principles of natural justice.

It was noted that the show cause notice issued by the respondent declaring the petitioner as a wilful defaulter itself incorporated relevant findings of FAR and the petitioner was given ample opportunity to deal with the same.

High Court Held

The High Court noted that the proceedings for declaring the borrower as a wilful defaulter in terms of the master circular dated 1-7-2015 issued by the RBI were absolutely different from recovery proceedings of debt. Hence, the provisions of section 96 of the IBC cannot be extended to a borrower who had been declared a wilful defaulter.

The High Court held that the conclusion reached by experts, particularly in the field of finance and banking cannot be substituted with a view of the Court and interference in such matters in writ jurisdiction would not be called for unless it is demonstrably perverse or illegal or contrary to admitted facts.

The High Court, further held that since the petitioner was aware of the contents of the FAR, it was not necessary to forward the report to him. As a result, the instant writ was to be dismissed.

List of Cases Reviewed

• • State Bank of India v. Jah Developers (P.) Ltd. [2019] 105 taxmann.com 189/154 SCL 72 (SC) (para 18) followed.
  • Ionic Metalliks v. Union of India [2014] 49 taxmann.com 222/128 SCL 316 (Guj.) (para 18) distinguished.

List of Cases Referred to

• • Tata Capital Financial Service Ltd. v. Jagdish Prasad Saboo [C.P. (IB)-57 of 2022, dated 7-3-2023] (para 3.1)
  • P. Mohanraj v Shah Brothers Ispat (P.) Ltd. [2021] 125 taxmann.com 39/167 SCL 327 (SC)/6 SCC 258 (para 3.1)
  • Ionic Metalliks v. Union of India [2014] 49 taxmann.com 222/128 SCL 316/2015 (2) GLH 156 (Guj.) (para 3.2)
  • State Bank of India v. Jah Developers (P.) Ltd. [2019] 105 taxmann.com 189/154 SCL 72 (SC)/6 SCC 787 (para 3.2)
  • Ayan Mallick v. SBI [2021] 128 taxmann.com 151/167 SCL 659 (Cal.) (para 3.2)
  • Kirtilal Ravchandbhai Sanghavi v. Reserve Bank of India [Letters Patent Appeal No. 596 of 2022, dated 2-1-2023 (para 4.1)
  • Adarsh Jhunjhunwala v. State Bank of India [WPO No. 1548 of 2021] (para 4.2)
  • State Bank of India v. V. Ramakrishnan [2018] 96 taxmann.com 271/149 SCL 107 (SC)/17 SCC 394 (para 4.2)
  • Nitin v. IDBI Bank Ltd. [2019] 109 taxmann.com 211 (Bom.) (para 4.3).