First Committee On Wilful Defaulters Not Obligated To Mention Its Composition In Its Order: Telangana High Court

BACKGROUND FACTS

M/s. Ind Bharath Power (Madras) Ltd. ("Ind Bharath") had availed credit facilities from REC Ltd. ("Respondent"), Axis Bank and PFL for implementation of 660 MW Coal Based Thermal Power Project at Sasthavinallur and Pallakkurichi villages, Sattankulam Taluq, Tuticorin District of Tamilnadu State. At the relevant time, the Petitioners were the Directors of Ind Bharath.

Thereafter, the Respondent had raised allegations of misutilization of its funds by Ind Bharath. Accordingly the Respondent issued a Show Cause Notice (SCN) dated 09.01.2019 as per the RBI Master Circular on Wilful Defaulters dated 01.07.2015 ("RBI Circular"), as to why the Petitioners should not be declared as 'willful defaulters'. The SCN alleged that the Petitioners had diverted and misutilized the borrowed funds to meet the liability/obligations of other group companies. On 03.05.2022 the Petitioners had tendered their response to the SCN.

The First Level Committee met on 08.06.2022 and 14.06.2022 and concluded that the debt was sanctioned for the purpose of implementation of 660 MW Coal Based Thermal Power Project. The Petitioners defaulted in repayment of loan and the account was declared Non Performing Asset on 31.12.2016. The Petitioners were directly responsible for the diversion and siphoning of funds to the group companies. Due to which, the Project could not be constructed and the debt given by the lenders became NPA. The default was found to be deliberate and intentional. Thus, the First Committee vide its Order dated 16.06.2022 declared the Petitioners as Wilful Defaulters.

The Petitioners filed a writ petition before High Court challenging the Order dated 16.06.2022.

CONTENTIONS OF PETITIONERS

Petitioners contended that as per Clause (3)(a) of the RBI Circular, the First Committee should be headed by an Executive Director or equivalent and consisting of two other Senior Officers of the rank of GM/DGM. However, the Order dated 16.06.2022 did not disclose formation of such committee. The Order was signed by CGM (Law), for and on behalf of REC Limited. The CGM is not authorized to sign the said order and First Committee has no power to delegate power to any official including the CGM (Law). Hence, the Order was illegal and liable to be set aside.

CONTENTIONS OF RESPONDENT

The Respondent argued that the Petitioners were vying to stall the wilful default proceedings at every stage. The First Committee authorized the CGM to sign and issue the order. The composition of the committee need not be motioned in the order dated 16.06.2022.

RELEVANT CLAUSE

Clause 3(a) of the RBI Master Circular on Wilful Defaulters dated 01.07.2015

"3(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 or Equivalent and consisting of two other senior officers of the rank of GM/DGM".

DECISION OF THE COURT

The Bench observed that As per Clause (3)(a) of the RBI Circular, the First Committee shall be headed by an Executive Director or equivalent and consisting of two other Senior Officers of the rank of GM/DGM. It does not say that order of the First Committee shall contain the composition and formation of such committee. However, in the order dated 16.06.2022 there is specific mention about the meetings held by First Committee on 08.06.2022 and 14.06.2022. The reasons were specifically assigned in the order dated 16.06.2022.

"Thus, there is no mention in the aforesaid clause (3)(a) that the order shall refer formation and composition of the said committee. The impugned order was signed by the CGM (Law). In the said order itself it is specially mentioned that "the committee has authorized the undersigned to sign and issue this order". Therefore, the CGM (Law) signed the order for and on behalf of the respondent. As per master Circular of RBI dt.01.07.2015 there is no bar or prohibition authorizing CGM(Law) of respondent, so sign and issue said order."

It was further observed that the First Level Committee met on 08.06.2022 and 14.06.2022 and after examination, has found the petitioners guilty of willful default. There is no delegation of power by the committee as alleged.

Further, Clause 3(c) of the RBI Circular states that the order passed by the First committee 'should' be reviewed by Review Committee and the Order 'shall' become final only after it is confirmed by the said Review Committee.

The Bench held that if the Petitioners were aggrieved by the order passed by First Committee, they should have approached the Review Committee instead of filing a writ petition.

It was held that the Petitioners are trying to stall the wilful default and hence writ petitions were dismissed. Liberty was granted to the Petitioners to represent before the Review Committee within 15 days time.

Case Title: Ms. Kanumuru Rama Devi v M/s REC Limited

Case No.: Writ Petition No.26813 Of 2022 & Writ Petition No.26815 Of 2022

Counsel for Petitioners: Sri Vikram Posarla and M.Abhinay Reddy.

Counsel for Respondent: Sri Amir Bavani

Citation: 2022 LiveLaw (Tel) 91 

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