Declaration of wilful defaulter was set aside as review committee just endorsed a view of Identification Committee

Case Details: Senthil Arumugasamy v. Deputy General Manager, State Bank of India - [2021] 131 taxmann.com 130 (Madras)

Judiciary and Counsel Details

• • Sanjib Banerjee, CJ. and P.D. Audikesavalu, J.
  • Ms. Ananda Gomathy for the Petitioner. S. Sethuraman for the Respondent.

Facts of the Case

The State Bank of India sent a notice to many directors, including the petitioner of the borrower company that had acquired credit facilities in connection with its operations, in the instant case.

The Identification Committee of the Bank proceeded to consider the same and concluded that, inter alia the petitioner was liable to be labeled as a wilful defaulter. Said order was contained by Review Committee.

The petitioner, on the other hand, cites the Master Circular and the method set out therein as the mechanism for identifying willful defaulters. According to the petitioner, the subject had to be considered by both Committees, however, based on a reading of the Review Committee’s conclusion as conveyed by the bank to the petitioner, it appears that the Review Committee did not consider anything at all. Ironically, the petitioner emphasized the Master Circular’s obligation to a bank’s Identification Committee and the exercise of review to be conducted by its Review Committee.

High Court Held

The High Court of Madras ruled that after careful review of the master circular, both the Identification and Review committees will investigate the case, with the Review Committee making an independent assessment. It was also noted that when appellate judgments upholding the orders under appeal are issued, they may not go into great detail or even accept the grounds set forth in the challenged order. However, the appellate ruling must also show the appellate authority’s independent application of mind, otherwise, it will not qualify as the discharge of any adjudicatory duty.

In addition to the foregoing, the matter appears to be somewhat offensive and in derogation of the responsibility conferred on it by the Master Circular. There is nothing to indicate that any more mind was applied to the matters in issue or the assessment was undertaken with any degree of seriousness.

Since the Review Committee of the State Bank, in this case, does not appear to have applied its mind while assessing the correctness of the opinion rendered by the Identification Committee, the declaration of the petitioner as a wilful defaulter cannot be sustained and the same is set aside.

List of Cases Referred to

• • State Bank of India v. Jah Developers (P.) Ltd. [2019] 105 taxmann.com 189/154 SCL 72 (SC) (para 8)
  • Santanu Ghosh v. State Bank of India [2015] 57 taxmann.com 370/130 SCL 745 (Cal) (para 9).