Writ Courts Can't Sit In Armchair Of Financial Experts U/Art 226, Business Prudence Can't Be Subject Matter Of Judicial Scrutiny: Gujarat High Court

The Gujarat High Court on Monday held that writ courts exercising jurisdiction under Article 226 of the Constitution cannot sit in the armchair of financial experts and decide matters of business prudence. 

A Division Bench of Chief Justice Aravind Kumar and Justice Ashutosh J. Shastri added that interference in financial and banking matters would only be called for if the impugned decision is evidently perverse, illegal or contrary to the admitted facts of the case. 

"This Court while exercising the jurisdiction under Article 226 of the Constitution of India could not be in a position to act as an expert body, sitting in the armchair of the financial experts as to what should have been the business prudence cannot be the subject-matter of judicial scrutiny. We are of the considered view that the conclusion reached by the experts particularly in the field of finance and banking cannot be substituted with our views. The 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 appellants were former directors of a company that engaged in the manufacturing and export of polished diamond and diamond-studded jewellery. The company had availed certain financial facilities from a group of consortium members, where the Bank of India was the lead bank and the second respondent was one of the consortium members.

However, the company defaulted on the repayment of loans and came to be classified as a Non-Performing Asset (NPA). The second respondent thereby initiated recovery proceedings before the Debt Recovery Tribunal for recovery of dues.

Later, the second respondent issued a show cause notice as to why the names of the appellants should not be included in the list of ‘Willful Defaulters’ as per RBI guidelines. After affording a personal hearing to the appellants, the second respondent passed an order declaring them as ‘Willful Defaulters’ on the grounds mentioned in the show cause notice.

The appellants were granted 15 days to offer their further representation for consideration by Review Committee on Willful Defaulters (WDRC). Accordingly, they submitted a representation reiterating their earlier representations. However, the decision of the WDRC was confirmed and the appellants were declared.

Aggrieved by this, the appellants moved a Special Civil Application. But this was dismissed by the Single Judge holding that while exercising jurisdiction under Articles 226 and 227 of the Constitution, the writ court would not sit in appeal over the findings of fact arrived at by WDIC or WDRC.

The appellants moved the Division bench challenging the said decision.  

The Division Bench found that the copies of the audit reports were very much available with the appellants and that they had delved into these reports in their reply submitted to the show cause notice. Thus, it rejected the argument of violation of principles of natural justice raised by the appellants by not furnishing copies.

The Bench also noticed that the appellants were well aware of the copies of the two audit reports since they had dealt with it in detail in their reply submitted to the second respondent. Therefore, the argument that the matter has to be remanded back to the authorities for the non-furnishing of copies of audit reports on demand was not accepted since that would only be an empty formality. 

The Court observed that it would serve no fruitful purpose since the appellants were fully aware of the contents of the report. In other words, the doctrine of ‘useless formality theory’ would surface, which has received the consideration of the Apex Court in M.C. Mehta vs. Union of India [(1999) 6 SCC 237]. 

Therefore, it concluded that the order passed by Willful Defaulter Identification Committee was not liable to be set aside on any grounds, including the ground of violation of principles of natural justice. 

Thereafter, the Bench found that it should refrain from engaging in matters of finance and banking where the expert body had already made a decision. 

"If the impugned decision is tested on the touchstone of reasonable person examining the plea of the debtor from the point of view of lender then such decision arrived at by the Review Committee cannot be substituted with the view of this Court."

The Court added that the reasons assigned by the appellants were found to be not satisfactory by the second respondent, who is a member of the consortium of lenders. This view cannot be substituted with the view of the Court, it held. 

As such, the appeal was dismissed. 

Senior Advocate Deven Parikh and Advocates Shakti S Jadeja and S.P Majmudar appeared for the appellants while Advocate B.H Bhagat represented the second respondent. 

Case Title: Kirtilal Ravchandbhai Sanghavi & Ors. v. Reserve Bank of India & Anr.

Case Citation: 2023 Livelaw (Guj) 3

Click Here To Read/Download The Order