Final Order 1

Order Details: Notice of Motion
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IN THE COURT OF CITY CIVIL COURT AT GR.BOMBAY
NOTICE OF MOTION NO. 1604 OF 2020
IN
S.C.(ST) SUIT NO. 5161 OF 2020
1. Asuti Trading Private Ltd
and others ..Plaintiffs
Versus
Bank of Baroda ..Defendant
Ld. Advocate Mr.PD Gandy with Adv.Thakur for plaintiffs
Ld. Advocate Mr.Sarang for the defendant
CORAM: HIS HONOUR JUDGE
SHRI M.SALMAN
AZMI
DATE: 24/11/2020
ORAL ORDER
1. This notice of motion is interalia tendered by the
plaintiffs company for grant of temporary injunction
restraining the defendants/its agents, servants, officers
and/or any person claiming through the defendant from
dissemination, publication, display of the names of the
plaintiffs as ‘wilful defaulter’, from acting upon and/or
taking any coercive action, to stay the impugned order
passed by the willful defaulters identification committee and
further directing the defendant to stay further process for
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declaration of plaintiffs as willful defaulter and further direct
the defendant to reserve the impugned action initiated on
Show Cause Notice dated 21/06/2019.
2. Heard.
3. In short the case of the plaintiffs is that plaintiff
no.1 is a private limited company. Plaintiff nos.2 and 3 are
the directors/guarantors of plaintiff no.1. The defendant
sanctioned FBWC. The plaintiff/company was sanctioned
FBWC limit of Rs.50 crores and defendant/bank has
disbursed the limit upto Rs.10 crores. The plaintiffs company
submits that they hypothecated the stock of goods and
mortgaged the immovable properties at Arjunali, Tal.
Bhiwandi, DistrictThane. Due to rough patch with low
demand and steel prices during 2008 till 2018, the
international consumption of steel in China also took a hit
and China in a big way started dumping its low cost steel in
the international markets. As a result, the steel imports of
India increased dramatically from China as India is a price
elastic market and demand shifts with the decrease of the
prices. The amount of Rs.2,19,53,094/ was paid by the
plaintiffs to the defendant. The plaintiffs requested the
defendant for one time settlement proposal and deposited
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Rs.10 lacs towards the same, inspite of which defendant
never accepted the one time settlement. The plaintiff’s
account was declared NPA. The defendant initiated the
process for declaration of plaintiffs as willful defaulter. Show
Cause notice was issued in contravention of the Master
Circular issued by RBI. The plaintiffs were not provided with
the documents on the basis of which allegations were made
against them. The order passed by the committee is not a
reasoned order and therefore the said declaration is bad in
law. Over and above, the plaintiffs were not granted an
opportunity of hearing. The plaintiffs further submit that the
entire process of labelling or classification of any person as a
‘wilful defaulter’ is a penal action and cannot be an
automatic action on part of any committee, much less the
defendant. The plaintiffs company further submits that
classifying and declaring any person as a ‘willful defaulter’
not only maligns them, but also adversely affects his business
interests and prospects and in cases, has the effect of
destroying and ruining him financially, which is a more
severe. If the defendant proceeds on the basis of such illegal
declaration, the plaintiffs would suffer irreparable loss and
entire business of the plaintiffs will be collapsed. Therefore,
the plaintiffs has filed the present suit along with this
accompanying notice of motion.
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4. The defendant has filed the reply and contended
that the defendant has given LC(Inland/Foreign) of Rs.50
crores to the plaintiffs and forward contact limit of Rs.50
crores. Out of the said credit limit, the plaintiffs did not avail
forward contract limit of Rs.50 crores. In terms of the letter
of credit limit sanctioned to plaintiff no.1, defendant bank
opened L/C in favour of M/s. Yatin Steels India Pvt Ltd and
under the said L/C two bills were received by the defendant.
On the due date, the plaintiffs failed to honour the
commitment under the L/C as such bills were paid to the
beneficiary by debiting the OCC account of the party on
15/03/2017. The plaintiff no.1 did not regularize the
liability on account of devolved LC even after more than
three months. Hence, the account became NPA on
27/06/2017. The plaintiffs are liable to pay an amount of
Rs.9,23,62,972/ as on 30/09/2017 together with further
interest @ 14.30% plus penal interest. The Empower
committee set up by RBI guidelines by the bank considered
the facts, records and findings of the case and has arrived at
a conclusion that the event of willful defaulter has occurred
as per RBI guidelines. The defendant bank has complied
with all the extensive procedure set by RBI Master Circular
before declaring the plaintiffs as willful defaulter and that
the entire process of enquiry against the plaintiffs. The
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defendant prayed for dismissal of the notice of motion.
5. On the rival contentions of the parties, following
points arise for my determination and findings to it are
recorded for the reasons stated hereinafter:
POINTS
(i) Whether the plaintiffs have made out a
prima facie case in their favour?
(ii) Whether the needle of balance of
convenience tilt in favour of plaintiffs?
(iii) To whom irreparable loss would be caused?
(iv) What order?
FINDINGS
(i) In the negative
(ii) In the negative
(iii) To the defendant
(vi) As per final order
REASONS
Point Nos. 1 to 3
6. At the outset the Court is not an Appellate
Authority to consider the entire aspect as pointed out in the
plaint. It is to be seen that the principle of natural justice
whether has been given gobye and there is departure from
the RBI Master Circular. While narrating the facts, the credit
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facility and it’s availment has been discussed. So, it would
not be proper to repeat it again.
7. The main crux of the argument of the Ld.
Counsel for the plaintiffs are based on four major issues viz
(a) Show cause notice was not issued as per the RBI
Master Circular,
(b) Plaintiffs were not provided with the documents which
forms the basis of allegation against them,
(c) There is no speaking order with reasons passed by the
committee under the above said circular
(d) Not provided satisfactory hearing before coming to the
conclusion as Willful defaulter.
8. It would be proper to refer the Master Circular
and the relevant portion of para. 3 of the RBI Master Circular
dated 01/07/2015 is reproduced as under:
(a) The unit has defaulted in meeting its
payment/repayment obligations to the lender
even when it has the capacity to honour the said
obligations.
(b) The unit has defaulted in meeting its payment /
repayment obligations to the lender and has not
utilised the finance from the lender for the
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specific purposes for which finance was availed of but
has diverted the funds for other purposes.
(c) The unit has defaulted in meeting its payment/
repayment obligations to the lender and has siphoned
off the funds so that the funds have not been utilised
for the specific purpose for which finance was availed
of, nor are the funds available with the unit in the form
of other assets.
(d) The unit has defaulted in meeting its payment/
repayment obligations to the lender and has also
disposed off or removed the movable fixed assets or
immovable property given for the purpose of securing a
term loan without the knowledge of the bank/lender.
9. Ld. Counsel for the plaintiffs argued that the
entire process as contemplated above in the circular have
been evaded. He argued that the Show cause notice was
issued by the Chief Manager and not by the committee as
contemplated in para.3 of the circular. He would submit that
the said power of the committee cannot be delegated. In
support of his contention, he placed reliance upon the
judgment of Hon’ble Calcutta High Court in the case of
Atlantic Projects Ltd. And others V/s The Allahabad Bank
and others, MANU/WB/1115/2019, wherein the Hon’ble
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Calcutta High Court held that,”The Identification Committee
cannot delegate its decision making power. It is called upon
to decide at the first stage, the materials placed before it and
arrive at a finding as to whether, the materials constitute a
willful default by the borrower under the Master Circular on
willful Defaulters dated July 1, 2015 or not. If it comes to
the finding that, there are materials constituting willful
default, then, it has to give an opportunity to the borrower to
make his submissions and consider the submissions of the
borrower. It is required to arrive at a final decision as to
whether the borrower is to be classified as a willful defaulter
or not. In this decision making process, there is a
requirement to give notice to the borrower.”
He thus submits that issuance of Show cause notice by the
Chief manager is bad in law and the action consequent to it
does not survive. On perusal of Show Cause notice dated
21/06/2019 which was issued under the signature of Chief
Manager reflects that the notice was issued as per the
direction of the committee of Executives on Willful Defaulters
of the bank. The relevant portion of the notice is reproduced
as under:
“We further write to inform you that as per the directions of
the Committee of Executives on Willful Defaulters of our
Bank and on scrutiny of your account based on your acts of
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omission and commission, deeds/documents and writings,
performed/executed by you, the Company and its Directors/
Guarantor be classified as Willful defaulter as per guidelines
of RBI.
10. It is apparent from the above wordings that the
committee has not delegated the power of decision making.
The committee has itself classified the plaintiffs as willful
defaulter and the Show Cause notice was issued by the Chief
Manager as per the direction of the Committee. The Chief
Manager has not issued the said notice in his personal
capacity, therefore the argument that the power of decision
making was delegated does not hold good.
11. The other important aspect is when willful
default occur. It would be proper at this stage to refer para.
2.1.3 of the above circular. The same is reproduced as
under:
(a) The unit has defaulted in meeting its
payment/repayment obligations to the lender
even when it has the capacity to honour the said
obligations.
(b) The unit has defaulted in meeting its payment /
repayment obligations to the lender and has not
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utilised the finance from the lender for the specific
purposes for which finance was availed of but has
diverted the funds for other purposes.
(c) The unit has defaulted in meeting its payment/
repayment obligations to the lender and has siphoned
off the funds so that the funds have not been utilised
for the specific purpose for which finance was availed
of, nor are the funds available with the unit in the form
of other assets.
(d) The unit has defaulted in meeting its payment/
repayment obligations to the lender and has also
disposed off or removed the movable fixed assets or
immovable property given for the purpose of securing a
term loan without the knowledge of the bank/lender.
The identification of the willful default should be made
keeping in view the track record of the borrowers and should
not be decided on the basis of isolated
transactions/incidents. The default to be categorised as
willful must be intentional, deliberate and calculated.
12. The argument of plaintiffs is that there is no case
made out against them to declare willful defaulter. There is
no material to suggest that the case of plaintiffs come within
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the ambit of willful defaulter as contemplated in the above
part of circular. Ld. Counsel for the plaintiffs argued that
they have not been supplied with the documents on the basis
of which the alleged committee of executives has come to the
conclusion classifying the plaintiffs as willful defaulters.
Even the Show Cause notice is silent about the annexture of
the documents. On perusal of Show Cause notice, it appears
that the committee has classified the plaintiffs as willful
defaulters on the grounds mentioned in the said Show Cause
notice.
(1) As per the stock audit report the company was having
book debt of Rs.138.69 cr. As on 31.03.17 and No stock was
held by the company. However turnover in the account since
01.04.17 is Rs.0.11 Cr.only.
(2) The borrower had availed the credit facilities but did
not carry out the activities.
(3) Borrower created mortgage knowing well that the sale
is not completed and title was not transferred to them.
(4) The builder of the properties also filed a police
complaint against the directors.
At this juncture considering the above reasons for
issuance of Show Cause it would not be proper to conclude
that the case of plaintiffs is not coming within the ambit of
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willful defaulter as envisage in the RBI Circular.
13. Ld. Counsel for plaintiffs placed reliance upon the
judgment of Hon’ble Bombay High Court in the case of
Kailash Shahra V/s IDBI Bank Limited in Writ Petition(L)
No.1630 of 2019 dated 16/10/2019, wherein the Hon’ble
High Court held that ,”However, there ought to be established
and proven acts attributable to each, before such a drastic step
is taken. To our mind, therefore, some of the documents and
records may be relevant for enabling the Director like the
petitioner to effectively defend himself. Further, before a
personal hearing is granted to him, he should be aware of the
allegations in the show cause notice with specific details so that
he is able to recollect or the bank is in a position to refresh his
memory. It will then alone be able to establish whether there is
any consent with the acts of omission and commission of the
borrower company by such Director. That he has participated
in the meeting and that when the proceedings are recorded in
the minutes of the meeting of Board, this gentleman has not
recorded his objection to the same in the minutes or, the willful
default had taken place with his consent or connivance.”
14. He also argued that the order of the Committee is
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not well reasoned. The minutes of the meeting dated
11/04/2019 classifying the plaintiffs as willful defaulter is
not available on record. But, the extract of the meeting is
reflected in the Show Cause notice dated 21/06/2019 and
the extract of meeting dated 30/12/2019 is also available in
the communication by the defendant to the plaintiffs. As
pointed above, the above four grounds have been considered
for classifying plaintiffs as willful defaulter.
15. Ld. Counsel for the defendant has filed the
documents. From it, it prima facie does not reflect that the
documents were supplied to the plaintiffs alongwith Show
Cause notice. Subsequently defendant has filed the
documents and represented that by letter dated 08/05/2020
the minutes dated 30/12/2019 were delivered to the
plaintiffs. In the above cited judgment, the Hon’ble Bombay
High Court considered that before personal hearing, person
should be aware about the allegations in the Show Cause
notice with specific details, so that he is able to collect and
bank to refresh his memory. The Hon’ble High Court also
held that Show cause notice should be issued and order must
be reasoned order. The Hon’ble High Court reiterated the
view of the Hon’ble Bombay High Court taken in Finolex
Industries Limited and another V/s Reserve Bank of India
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and others. There is no quarrel about the law laid down by
the Hon’ble Bombay High Court in the above cited judgment.
16. The order of the committee should be speaking
order, well documented and supported by the requisite
evidence. In the case in hand, after the receipt of the said
Show Cause notice dated 21/06/2019, the plaintiff no.1 has
responded by letter dated 31/07/2019. The said letter is
signed by plaintiff no.2 as director. The plaintiff nos.1 and 2
did not offer anything in the letter and has not claimed that
they are ready for hearing. They even did not ask the
defendant to supply the documents and evidence to present
their case. They even did not raise objection that the said
order of issuance of Show Cause is without any reason and
not supported by any material. Therefore, the objection at
this stage in that regard is not sustainable that too for grant
of interim relief.
17. The committee subsequently moved ahead as
there was no response from the end of the plaintiffs for
hearing. By virtue of the resolution dated 30/12/2019, the
plaintiffs were declared as willful defaulter. The meeting of
Review Committee of willful defaulter held on 23/09/2020
and thereby confirmed the order of Identification Committee.
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The defendant has also filed documents showing that the
order dated 30/12/2019 was communicated to the plaintiffs
vide letter dated 08/05/2020. The plaintiffs admit the receipt
of the letter but denies the receipts of minutes of the order.
The plaintiffs have received letter in that regard. The letter
dated 08/05/2020 shows that the plaintiffs were given an
opportunity to sent their submissions and representations
before Review Committee. At that time also the plaintiffs
have not raised any issue or intimated that they have not
received the resolution dated 30/12/2019. Similarly the
communication dated 28/09/2020 appears to have been
received by the plaintiffs on 30/09/2020. The plaintiffs did
nothing but kept mum for about 20 days and subsequently
filed the suit. This conduct of the plaintiffs prima facie
shows that the plaintiffs was all along avoiding the
proceedings initiated as per the RBI Guidelines and raising
the issue at this stage for grant of interim relief. The said
conduct of the plaintiffs has to be looked in for grant of
interim relief. The inaction of the plaintiffs since the
issuance of the Show Cause notice, does not warrant for
grant of any interim relief. Thus, the plaintiffs have not made
out any prima facie case for grant of interim relief. The
needle of balance of convenience does not tilt in favour of
the plaintiffs. The contention of the plaintiffs that there will
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be serious consequences of such willful declaration, but,
when the plaintiffs were aware of the same and they did not
act promptly then it can be safely said that there is no
irreparable loss to the plaintiffs. On the contrary, from the
record, merely from the resolution dated 30/12/2019 and
minutes of Review Committee, it reflects that the fraud was
reported vide FMR no.BOB 18030031 dated 31/08/2018.
The complaint has been lodged with SP, CBI, EOW, Mumbai
on 17/10/2018. Hence, the apprehension of the plaintiffs of
the penal consequences is also not worth. Therefore, the
plaintiffs have not made out interim relief. Hence, I answer
point nos. 1 to 3 in the negative.
Point No.4
11. In view of the above discussion, the notice of
motion needs no consideration. Hence, it is expedient to
pass following order:
ORDER
1. N/M No.1604/20 stands rejected.
2. Costs in the cause.
24/11/2020 M.SALMAN AZMI
CITY CIVIL COURT,
GR.MUMBAI.
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Dictated on : 24/11/2020
Transcribed on : 21/12/2020
Signed on : 24/12/2020
'CERTIFIED TO BE TRUE AND CORRECT COPY OF THE ORIGINAL
SIGNED JUDGMENT/ORDER”.
24/12/2020 at 4.00 pm. Mrs.T.C.Kamble
Name of the Judge HHJ SHRI M.S.AZMI, CR NO.1
Date of Pronouncement of
judgment/order
24.11.2020
Judgment and order signed by P.O. 24.12.2020
Judgment/order uploaded on 24.12.2020
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