Borrower Has No Right To Be Represented By Lawyer Before In-House Committee Probing 'Wilful Default': SC [Read Judgment]

The bench comprising Justice Rohinton Fali Nariman and Justice Vineet Saran set aside a Delhi High Court judgment that held that a lawyer has the right to represent his client before such in-house committees.

But the bench modified the revised RBI circular, and held that the First Committee must give its order to the borrower as soon as it is made so that the borrower can then represent against such order within a period of 15 days to the Review Committee.

In-House Committee Procedure

As per revised RBI circular, a committee of Executive Director and two other senior officers should examine evidence of wilful default on the part of the borrower. If this Committee finds that an event of wilful default has occurred, it should first issue a show cause notice to the concerned borrower and call for his submissions, and after considering his submissions, issue an order recording the fact of wilful default and reasons for the same; a personal hearing can be given only if the Committee feels that such hearing is necessary. Thereafter, the order of the Committee is to be reviewed by another Committee headed by the Chairman/Chairman and Managing Director or CEO, in addition to two independent directors/non-executive directors of the bank and the order will become final only after it is confirmed by the said Review Committee. Review Committee consisting of the higher officials and independent directors is completely in-house. As per the revised circular, neither does the order of the First Committee have to be given to the borrower, nor is any representation required against the aforesaid order, nor is there any personal hearing before the Review Committee.

In-house committees are not vested with any judicial power at all

The court noted that these in-house committees are not vested with any judicial power at all, their powers being administrative powers given to in-house committees to gather facts and then arrive at a result. The bench said:

"It cannot be said that the Circulars in any manner vests the State's judicial power in such in-house committees. On this ground, therefore, the view of Delhi High Court is not correct, and no lawyer has any right under Section 30 of the Advocates Act to appear before the in-house committees so mentioned. Further, the said committees are also not persons legally authorised to take evidence by statute or subordinate legislation, and on this score also, no lawyer would have any right under Section 30 of the Advocates Act to appear before the same."

First Committee Must Give Its Order To Borrower

The court, however, observed that the Committee comprising of the Executive Director and two other senior officials, being the First Committee, 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"

The bench made this modification of the revised circular of RBI noticing that 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 29A 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 reasonable"

Read Judgment