Bombay High Court Quashes Union Bank's Wilful Defaulter Tag Against Former Promart Director
The Bombay High Court has recently quashed the Union Bank of India's decision declaring Punit Agarwal, a former director of Promart Retail India Pvt. Ltd., a willful defaulter in relation to credit facilities of about Rs. 40 crores, holding that the action violated the RBI Master Circular on Wilful Defaulters dated July 1, 2013 and principles of natural justice.
A Division Bench of Justices Bharati Dangre and Manjusha Deshpande held that the mechanism adopted by the bank was contrary to the law laid down in the case of Jah Developers Pvt. Ltd. and set aside the impugned order as it was passed without following the procedure prescribed under RBI circulars. The court observed:
“The above mechanism adopted by Respondent No.2 is clearly in teeth of the decision of the Apex Court in case of Jah Developers Pvt Ltd (supra) and therefore, we quash and set aside the impugned order classifying the Petitioner as willful defaulter as the decision of the Respondent No.2 to include the Petitioner in the list, is without following the procedure prescribed in the RBI circular.”
The case arose where Agarwal was initially a shareholder and director of Promart Retail. He resigned on January 15, 2014. The company's account was later classified as NPA on December 12, 2014. Subsequently, the bank issued a show cause notice on August 8, 2015 proposing to classify the company and its directors as wilful defaulters. Agarwal replied on September 4, 2015 and was granted a hearing on December 14, 2015, on which date he also filed written submissions.
However, Union Bank proceeded to declare him a wilful defaulter on the very same day, without granting him an opportunity to make a representation before a review committee, as required under RBI guidelines. The decision was also not communicated to him and he became aware of it only in March 2019.
Examining the RBI framework on identification of willful defaulters, the court found that the prescribed procedure had not been followed at all, noting that the order was passed on the very day of hearing, reflecting non-application of mind. The bench said:
“We do not find that the said procedure has been followed at all as the date on which the Petitioner is afforded an opportunity of hearing, on the same day, the order is passed classifying him as a willful defaulter.”
Accordingly, the court quashed the wilful defaulter classification against Punit Agarwal, while granting liberty to the bank to initiate fresh proceedings in accordance with law.
For Petitioner: Senior Advocate Ashish Kamat with Advocates Siddha Pamecha, Akash Warang
For Respondents: Advocate Harsh Sheth instructed by MDP Legal