Director’s Challenge to Co.’s Wilful Defaulter Status Dismissed as Lender’s Review Committee Found No Irregularity

Case Details: Gouri Prasad Goenka v. State Bank of India - [2024] 161 taxmann.com 785 (HC-Calcutta)

Judiciary and Counsel Details

• • Sabyasachi Bhattacharyya, J.
  • Jishnu Saha, Sr. Adv. Suddhasatva Banerjee, Ishaan Saha & Ms Sananda Ganguli, Advs. for the Petitioner.
  • Ms Soni Ojha, Ms Sonia Nandy, Om Narayan Rai, Ms Deblina Lahiri, Mrinmoy Chatterjee and Piyas Choudhury, Advs. for the Respondent.

Facts of the Case

In the instant case, the Borrower Company availed cash credit facility from the respondent bank and pledged its business and its produce with the bank. Subsequently, the CIRP was initiated against the borrower and a moratorium was declared.

A Master Circular was issued by the RBI, to declare a borrower as a wilful defaulter if it failed to repay loan/debt despite having the capacity to pay or the company had not used loan amount for the purpose for which such finance was availed. Instead, diverted funds for other purposes and disposed of or removed moveable fixed assets or immovable property given to secure term loan without knowledge of the bank.

The Bank issued a show cause notice to the borrower and its directors including the petitioner to declare them as wilful defaulter as per the said circular on the ground that the borrower defaulted to repay said facility despite having the capacity to pay and also diverted the facility funds for other purposes.

The Wilful Defaulter Identification Committee of the bank was constituted and submitted a report holding the petitioner as a wilful defaulter. After reviewing the said report, the Review Committee by the impugned order affirmed the declaration of the borrower as a wilful defaulter.

The petitioner filed an instant writ petition praying to set aside the impugned order and contended that the company was not a wilful defaulter as did not have the opportunity to repay the loan due to the commencement of the CIRP and the company was suffering huge losses during the relevant period, could not consequently pay.

High Court Held

The High Court observed that funds available from proceeds of sales realization were not routed by the borrower to repay the said facility and said proceeds were parked in a different account opened with different banks, which came within the purview of diversion of funds as contemplated in the Master Circular.

Further, the High Court observed that the directors and promoters of the said company could not be absolved of any wilful default committed by its company, irrespective of an ongoing CIRP.

The High Court held that there was no patent irregularity or perversity in decisions or the procedure adopted by committees for arriving at the same. The basic premise and purpose of the Master Circular of RBI were satisfied and the wilfulness behind default was evident from the actions of the borrower and petitioner. Thus, the instant petition was to be dismissed.