Writ Jurisdiction Against 'Wilful Defaulter' Declaration By Identification Committee Attracted Only In Case Of Patent/Gross Illegality: Calcutta HC [Read Judgment]

"The fast-track scheme of the relevant legislation and RBI guidelines operating in the field would be frustrated if the courts interfere at the drop of a hat in every case of probable mistake, even if the same requires a thread-bare scrutiny to establish", the court explained.

Noting that the grounds for declaration of wilful defaulter relied on by the Identification Committee were legally tenable, being in consonance with the RBI Master Circular on Wilful Defaulters of July 1, 2015, the bench held that "a threadbare analysis thereof, on a reconsideration of documents or consideration of fresh documents at this stage, requiring a detailed enquiry dependent on re-appreciation of evidence, is entirely beyond the scope of the writ court and could at best be addressed by the review committee".

The bench of Justice Sabyasachi Bhattacharyya was considering the challenge against the decision of the Wilful Defaulter Identification Committee (WDIC) of Allahabad bank, dated July 3, 2019, by which the petitioners were declared to be 'Wilful Defaulters', as well as the preceding show cause notice dated April 6, 2019 and the communication regarding such declaration to the petitioner, dated January 18, 2020.

The Court noted that in the present case, the decision of the first committee, that is the WDIC, can be reviewed by the second, that is, the WD Review Committee. Such recourse is particularly open to the aggrieved borrower on questions of law and in some cases on legal or mixed questions as well.

The bench concluded that in the present case, there does not appear to be such patent mala fide, arbitrariness, bias or abuse of the process of law by the WDIC as may attract judicial intervention. The Court said that the declaration of the petitioners as wilful defaulters, in the present case dated July 3, 2019, was backed by sound and feasible reasoning, which "may not, arguably, be fool-proof to an elaborate enquiry befitting a civil suit" but was "sufficiently reasonable, keeping in mind that it was merely the initial step in fixing responsibilities to curtail shady transactions and conduct which eat into the precious little commerce generated by the country".

The bench further appreciated that the declaration was also preceded by a proper show cause notice dated April 6, 2019, which was fully in consonance with the guidelines provided in the RBI Master Circular dated July 1, 2015. The grounds stated in the show cause notice cannot be said to have traversed de hors the specific provisions, particularly Clause 3, of the said guidelines which furnish the indicators for arriving at a finding of wilful defaulter.

The bench was alive to the fact that several extensions of time were granted as per the petitioners' prayers on more than one occasion, of which the petitioners failed to take benefit. On one pretext or the other, the petitioners have been biding time, thereby adopting dilatory tactics to stall their declaration as wilful defaulters. Opportunities galore were afforded by the WDIC to the petitioners for giving representation against the decision of the first committee and even for personal hearing. The petitioners deliberately did not avail of those, but chose to rely on technical pivots, like the delay in communication of the decision and non-consideration of their delayed reply.

"However, enough justification for the purported delay in communication, between the date of the decision (July 3, 2019) and its communication to the petitioners (January 18, 2020), being provided by the pendency of the previous litigation. In any event, there is no statutory bar in late communication, provided sufficient opportunity is given to the borrower before and after the decision to redress any grievance. Such opportunities were afforded to the present petitioners in the instant case", the bench observed.

The other question raised by the petitioners was the non-acceptance of the reply to the show cause notice due to delay as, according to the petitioners, there is no statutory time-limit to file such reply. "However, the process of declaration of wilful defaulter is not a mechanical process where the WDIC has no power to restrict the time for giving such reply. In fact, in the present case, more than sufficient time was granted to the petitioners, acceding to their request for inspection of documents as well. Time is the essence of the wilful defaulter declaration process, due to the commercial nature of the allegations which add up to make the entire economy porous and non-viable for business, which generates jobs as well. The banks' money is public money, which cannot be blocked for an indefinite period on the whims of an individual borrower", announced the Court.

"The petitioners found time to approach this court directly, but not to file a representation to the review committee specifying their objections within the time granted by the WDIC, in consonance with the RBI guidelines...In fact, the declaration of wilful defaulter by the WDIC has not yet attained finality sans confirmation by the review committee, before which the petitioners had a remedy in law as well as on facts", noted the High Court.

Stating that no rare or exceptional case has been made out by the petitioners to justify interference by this court in its writ jurisdiction at this stage, even before exhaustion of the remedy of the petitioners before the review committee, and that a thorough perusal of the impugned wilful defaulter order by the WDIC does not show any discrepancy or gross miscarriage of justice to call for interference under Article 226, the Court dismissed the writ petition.

"For the unnecessary harassment caused to the respondents and to deprecate the dilatory tactics adopted by the petitioners, the petitioners shall pay to the respondents costs of Rs. 50,000/- within July 6, 2020, the said date inclusive", ordered the bench.

1998 SC Decision on writ jurisdiction in Whirlpool Corporation Case not applicable

The bench appreciated that in the Whirlpool Corporation case, the Supreme Court reiterated the principle that the jurisdiction of the High Court in entertaining a writ petition under Article 226 of the Constitution, in spite of the alternative statutory remedies, is not affected, especially in a case where the authority against whom the writ is filed is shown to have had no jurisdiction or had purported to usurp jurisdiction without any legal foundation. 

"However, the context is entirely different in the present case, as the previous legal position, as laid down in the RBI Master Circular of July 1, 2013, had changed with the July 1, 2015 Circular and the review committee was conferred jurisdiction to review the first decision of the wilful defaulter identification committee", differentiated the Calcutta High Court.

"None of the tests laid down in Whirlpool Corporation, for the writ court to interfere, is satisfied in the case at hand", it concluded.

Scope Of Writ Jurisdiction In SARFAESI Wider Than In Wilful Defaulter Declaration

As regards a co-ordinate bench judgment of the High Court, where the Single Judge dealt with Section 13 (3A) of The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, (SARFAESI Act), 2002 and allied provisions, the Single Bench in the case at hand noted that there, the writ petitioners had given a detailed representation in response to the bank's notice under Section 13 (2) of the SARFAESI Act, to which a cryptic reply was sent by the bank, without disclosure of adequate reasons for overruling the objections raised by the writ petitioners.

"However, in contrast, the writ petitioners in the instant case had avoided submitting their reply to the show cause notice of the bank, despite getting several opportunities, even within the extended time afforded by the bank. In spite of the delay, although the bank was under no obligation to do so, it dealt with the salient objections raised by the petitioners in their reply, in the impugned order declaring the petitioners to be wilful defaulters. Sufficient reasons were provided for the decision, the factual and legal merits of which are for the review committee, and not this court, under Article 226 of the Constitution, to enter into and decide", observed the Court.

Moreover, it continued to hold that the purview and context of a notice under Section 13 (2) under the SARFAESI Act are somewhat different from those of a wilful defaulter decision of the WDIC under the RBI guidelines of 2015. Besides, the Court expressed the view that not only are the scope and purpose of the two provisions different, but it is the legally constituted WDIC, and not the concerned bank, which passes such order in the latter case.

"As such, the element of neutrality (not so convincingly, though), can arguably be said to be a shade ahead in case of a formally constituted identification committee than the bank itself, which acts as a judge, jury and executioner in its own cause, albeit within a legal framework, under the SARFAESI Act", it said.

That apart, the Single bench opined that the consequences of a wilful defaulter decision are preliminary in nature and amenable to review on facts as well as law by a co-ordinate forum, which is required to confirm the identification committee's decision upon giving opportunity of making a representation and personal hearing, if deemed necessary, to the aggrieved borrower. "However, the fallout of a notice under Section 13 (2) is more serious and takes only about two more steps for the bank to take penal action against the borrower under the SARFAESI Act", the Court reflected.

Hence, it was asserted that the scope of interference in writ jurisdiction logically ought to be wider in case of a violation of Section 13 (3A), SARFAESI Act than a wilful defaulter declaration, the latter being somewhat more preliminary in nature and subject to further checks and bounds, particularly a confirmation by the review committee upon considering the legality and factual veracity of the declaration.

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