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

  • Blog|News|FEMA & Banking|
  • 2 Min Read
  • By Taxmann
  • |
  • Last Updated on 30 April, 2024

wilful defaulter status

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 BanerjeeIshaan SahaMs Sananda Ganguli, Advs. for the Petitioner.
    • Ms Soni OjhaMs Sonia NandyOm Narayan RaiMs Deblina LahiriMrinmoy 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.

Disclaimer: The content/information published on the website is only for general information of the user and shall not be construed as legal advice. While the Taxmann has exercised reasonable efforts to ensure the veracity of information/content published, Taxmann shall be under no liability in any manner whatsoever for incorrect information, if any.

Leave a Reply

Your email address will not be published. Required fields are marked *

Everything on Tax and Corporate Laws of India

To subscribe to our weekly newsletter please log in/register on Taxmann.com

Author: Taxmann

Taxmann Publications has a dedicated in-house Research & Editorial Team. This team consists of a team of Chartered Accountants, Company Secretaries, and Lawyers. This team works under the guidance and supervision of editor-in-chief Mr Rakesh Bhargava.

The Research and Editorial Team is responsible for developing reliable and accurate content for the readers. The team follows the six-sigma approach to achieve the benchmark of zero error in its publications and research platforms. The team ensures that the following publication guidelines are thoroughly followed while developing the content:

  • The statutory material is obtained only from the authorized and reliable sources
  • All the latest developments in the judicial and legislative fields are covered
  • Prepare the analytical write-ups on current, controversial, and important issues to help the readers to understand the concept and its implications
  • Every content published by Taxmann is complete, accurate and lucid
  • All evidence-based statements are supported with proper reference to Section, Circular No., Notification No. or citations
  • The golden rules of grammar, style and consistency are thoroughly followed
  • Font and size that's easy to read and remain consistent across all imprint and digital publications are applied