Calcutta HC Sets Aside Bank’s Complaint Against Alleged ‘Wilful Defaulter,’ Says Arbitrariness Infringes Individual’s Right To Equality

The Calcutta High Court has set aside a complaint lodged by Punjab National Bank (“PNB”) against the petitioner, requesting the CBI to register an FIR against the petitioner on basis of the complaint due to the petitioner being allegedly construed as a “wilful defaulter” under the Master Circular on Wilful Defaulters issued by the Reserve Bank of India (RBI) in 2015.

Petitioner contended that after the aforesaid complaint was lodged, in 2021, the Wilful Defaulter Identification Committee (“IC”) had suo moto recalled its order whereby it declared the petitioner a wilful defaulter, and as such the premise of the complaint was a spent force.

Upon hearing the parties, a single-bench of Justice Sabyasachi Bhattacharya held:

The admitted position [is] that none of the grounds made out in the complaint subsist today or subsisted on the date of registration of the FIR. Equality before the law is [an] important aspect, under Article 14 of the Constitution. The moment arbitrariness and/or mala fides is exhibited against a citizen of India, a contravention of Article 14 occurs as in the present case. WPO No.1626 of 2023 is allowed on contest, thereby setting aside the impugned complaint lodged by the PNB requesting the CBI to register FIR dated June 18, 2021 insofar as the writ petitioner is concerned.

Petitioners counsel argued that after the issuance of the wilful defaulter notice, the NCLT and NCLAT had both ruled in favour of the petitioner, and rejected the plea of the liquidator who sought to proceed against him for allegedly preferential and undervalued transactions.

It was argued that after the aforesaid proceedings, the IC had noted that the wilful defaulter proceedings had been dropped against the borrower company and the petitioner.

Under another master direction of the RBI, the petitioners account was declared to be a fraudulent account and in subsequent proceedings, the Delhi HC had set aside the aforesaid declaration as well.

Petitioners counsel argued that a Look Out Circular (“LOC”) which had been issued against the petitioner pertaining to the aforementioned defaults had also been set aside by this Court, and hence the premise of the complaint having become a spent force, it ought to be set aside.

It was submitted that the CBI had acted unauthorisedly in registering an FIR more than two years after the complaint, since the allegations made in the complaint had already been withdrawn even before the FIR had been registered.

Counsel for PNB argued that no legal right of the petitioner had been infringed and that the complaint was germane when it had been lodged and subsequent events could not take away the basis for the complaint.

It was argued that when the IC had dropped wilful defaulter proceedings against the petitioner, it had given liberty to the bank to undertake a similar exercise to determine the status of the petitioner, thus not absolving him from the process.

Counsel submitted that under Section 154 of the CrPC a complaint could be registered by the bank under the principals of general criminal law, and the same could not be set aside.

It was argued that an FIR was not an encyclopaedia which would list all offences committed by the accused, and as such the writ court could not quash the complaint at such a nascent stage since the investigation by the CBI was ongoing.

It was finally argued that the complaint lodged by the bank and FIR on basis of the same were valid beyond the master circular of the RBI since the sections clubbed against the petitioner were under the IPC, along with allegations under the Prevention of Corruption Act.

Upon hearing the parties, the Court looked at the complaint lodged by the bank in 2021. It found that unlike the submissions advanced by the Bank’s counsel, it had sought to lodge the complaint against the petitioner on the sole basis of him being declared as a wilful defaulter under the RBI’s master circular.

The expressions “siphoning and diversion of funds‟ and “loss to public money‟ point to grounds of the RBI Master Circular on Wilful Defaulter dated July 1, 2015. Notably, “diversion of funds‟ and “siphoning of funds‟ are the two plinths of declaration of wilful defaulter under the Master Circular, it was observed.

Court further observed that the entire allegation of cheating on the petitioner was on the basis of siphoning and diversion of funds to the tune of more than Rs 1964 crores, thereby inviting the CBI’s scrutiny, along the lines of the RBI Master Direction, 2016.

It was observed that the Bank’s argument that it had the legal right to lodge a complaint against the petitioner was belied by the very fact that all the grounds in the Bank’s complaint were directly borne out of the wilful defaulter declaration by the IC, which had been withdrawn since.

Court noted that the entire cause of action against the petitioner had become a spent force, since the wilful defaulter declaration had itself been withdrawn, and that in subsequent proceedings, both the NCLT and NCLAT had refused to accept allegations against the petitioner and borrower-company. It held:

Wilful defaulter declaration has been suo motu recalled by the IC, the fraud classification has been set aside by the Delhi High Court and all the forums, including the NCLT and the NCLAT have disbelieved the TAR, which was the only premise of all the allegations against the petitioner. Thus, on the date of registration of the FIR, that is, August 18, 2023 none of the bank’s allegations in the complaint survived to justify registration of the FIR on such premise.

In conclusion, the Court set aside the Bank’s complaint and gave the petitioner liberty to approach the appropriate forum for quashing the consequential FIR which had been registered by the CBI, or any action that may have emanated therefrom.

Citation: 2023 LiveLaw (Cal) 330

Case: Vishambhar Saran v Punjab National Bank & Anr

Case No: W.P.O. No.1626 of 2023

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