Advocates Act, 1961 – s.30 – Master Circular dtd. 01.07.13 issued by RBI inter alia setting out mechanism for identification of wilful defaulters, entrusted cases of wilful default to a Committee of higher functionaries, which would then take a preliminary decision – Thereafter, the borrower should be provided 15 days’ time for making representation to the Grievance Redressal Committee headed by the Chairman and the Managing Director and consisting of two other senior officers– Such Committee must give hearing to the borrower if he represents that he has been wrongly classified as a wilful defaulter, and it is only after such hearing that a final declaration as wilful defaulter should be made – Revised Circular dtd. 01.07.15 issued by RBI, replaced the aforesaid scheme by making an Executive Director and two other senior officers examine evidence of wilful default on the part of the borrower – If this First Committee finds that an event of wilful default has occurred, it should first issue show cause notice to the borrower and call for his submissions, and after considering his submissions, issue an order recording the fact of wilful default and reasons for the same – Personal hearing can be given only if the Committee feels that such hearing is necessary – Order of the Committee to be reviewed by another Committee (Review Committee) – Issue as to whether a lawyer ought to be allowed to represent the borrower before the First Committee and/or Review Committee under the Revised Circular – High Court held that the two in-house committees can be considered to be tribunals, and therefore, a lawyer has the right to represent his client before such in-house committees – On appeal, held: In-house committees appointed under the Revised Circular are not vested with any judicial power at all, their powers being administrative powers, to gather facts and then arrive at a result – No lawyer has any right u/s.30 to appear before the in-house committees – Said committees are also not persons legally authorised to take evidence by statute/subordinate legislation – On this score also, no lawyer would have any right u/s.30 to appear before the same – However, Art.19(1)(g) is attracted in the facts of the present case as the moment a person is declared wilful defaulter, the impact on its fundamental right to carry on business is direct and immediate – Given the drastic consequences, the Revised Circular, being in public interest, construed reasonably – Committee comprising of the Executive Director and two other senior officials, being the First Committee must give its order to the borrower as soon as it is made – Borrower can represent against such order within 15 days to the Review Committee – Review Committee must then pass a reasoned order which must then be served on the borrower – All these steps incorporated into the Revised Circular – Impugned judgment set aside – Constitution of India – Art.19(1)(g) – Principles of natural justice – Committees – Insolvency and Bankruptcy Code, 2016 – s.29A.
Committees – When not tribunal – Held: Before a body can be said to be a “tribunal”, it must be invested with the judicial power of the State to decide a lis arising before it, must be legally authorised to take evidence by statute/subordinate legislation or otherwise.
Principles of natural justice – Revised Circular issued by RBI replacing the mechanism for identification of wilful defaulters as provided in the earlier Circular – In-house committees referred to in the Circular – Right of oral hearing before such committees, if any – Held: Given the scheme of the Revised Circular, it is difficult to state that oral hearing is mandatory – Natural justice is a flexible tool used in order that a person or authority arrives at a just result – Such result can be arrived at in many cases without oral hearing but on written representations given by parties, after considering which, a decision is then arrived at.
Allowing the appeals, the Court
HELD:1.1 The earlier Master Circular dated 01.07.2013 granted a hearing before the Grievance Redressal Committee headed by the Chairman/Managing Director, and also provided that the borrower should be provided 15 days’ time for making a representation against the preliminary decision of the First Committee, this situation does not now obtain. Under paragraph
3 of the Revised Circular dated 01.07.2015, it is only at the first stage that the First Committee is to issue a show cause notice and to consider the submissions of the borrower, a discretion being left with the aforesaid Committee to give or not to give a personal hearing. The Review Committee consisting of the higher officials and independent directors is completely in-house. Neither does the order of the First Committee have to be given to the borrower, nor is any representation required against the aforesaid order, nor is there any personal hearing before the Review Committee, which goes through the First Committee’s order by itself and then comes to a conclusion without involving the borrower at all. Serious consequences follow after a person has been classified as a wilful defaulter. These consequences are as follows: (a) No additional facilities to be granted by any bank/financial institution [paragraph 2.5(a)]; (b) Entrepreneurs/Promoters would be barred from institutional finance for a period of 5 years [paragraph 2.5(a)]; (c) Any legal proceedings can be initiated, including criminal complaints [paragraph 2.5(b)]; (d) Banks and financial institutions to adopt proactive approach in changing the management of the wilful defaulter [paragraph 2.5(c)]; (e) Promoter/Director of wilful defaulter shall not be inducted by another borrowing company [paragraph 2.5(d)]; (f) As per section 29A of the Insolvency and Bankruptcy Code, 2016, a wilful defaulter cannot be a resolution applicant. [Paras 7, 8] [712-B-H; 713-A]
1.2 The impugned judgment has held that the expression “legally authorised to take evidence” goes with the word “person” and not with the word “tribunal”. While this may be correct, it is clear that before a body can be said to be a “tribunal”, it must be invested with the judicial power of the State to decide a lis which arises before it. This would necessarily mean that all “tribunals” must be legally authorised to take evidence by statute or subordinate legislation or otherwise, the judicial power of the State vesting in such tribunal. Applying the tests in Jaswant Sugar Mills Ltd., Meerut v. Lakshmi Chand and Ors. and Engineering Mazdoor Sabha and Anr. v. Hind Cycles Ltd. to the facts of the present case, it cannot be possibly said that either in-house committee appointed under the Revised Circular dated 01.07.2015 is vested with the judicial power of the State. The impugned judgment’s conclusion that such Circulars have statutory force, as a result of which the State’s judicial power has been vested in the two committees, is wholly incorrect. First and foremost, the State’s judicial power, as understood by several judgments of this Court, is the power to decide a lis between the parties after gathering evidence and applying the law, as a result of which, a binding decision is then reached. This is far from the present case as the in-house committees are not vested with any judicial power at all, their powers being administrative powers given to in-house committees to gather facts and then arrive at a result. Secondly, it cannot be said that the Circulars in any manner vest the State’s judicial power in such in-house committees. Therefore, the view of High Court is not correct, and no lawyer has any right under Section 30 of the Advocates Act, 1961 to appear before the in-house committees so mentioned. Further, the said committees are also not persons legally authorised to take evidence by statute or subordinate legislation, and on this score also, no lawyer would have any right under Section 30 of the Advocates Act to appear before the same. [Paras 11, 12] [713-F-H; 715-A; D-G]
1.3 Given the scheme of the Revised Circular, it is difficult to state that oral hearing is mandatory. It is even more difficult to state that in all cases oral hearings must be given, or else the principles of natural justice are breached. A number of judgments have held that natural justice is a flexible tool that is used in order that a person or authority arrive at a just result. Such result can be arrived at in many cases without oral hearing but on written representations given by parties, after considering which, a decision is then arrived at. [Para 13] [716-A-C]
1.4 There is no right to be represented by a lawyer in the in-house proceedings contained in paragraph 3 of the Revised Circular dated 01.07.2015, as it is clear that the events of wilful default as mentioned in paragraph 2.1.3 would only relate to the individual facts of each case. Whether a default is intentional, deliberate, and calculated is again a question of fact which the lender may put to the borrower in a show cause notice to elicit the borrower’s submissions on the same. However, Article 19(1)(g) is attracted in the facts of the present case as the moment a person is declared to be a wilful defaulter, the impact on its fundamental right to carry on business is direct and immediate. This is for the reason that no additional facilities can be granted by any bank/financial institutions, and entrepreneurs/promoters would be barred from institutional finance for five years. Banks/financial institutions can even change the management of the wilful defaulter, and a promoter/director of a wilful defaulter cannot be made promoter or director of any other borrower company. Equally, under Section 29A of the Insolvency and Bankruptcy Code, 2016, a wilful defaulter cannot even apply to be a resolution applicant. Given these drastic consequences, it is clear that the Revised Circular, being in public interest, must be construed reasonably. This being so, and given the fact that paragraph 3 of the Master Circular dated 01.07.2013 permitted the borrower to make a representation within 15 days of the preliminary decision of the First Committee, first and foremost, the Committee comprising of the Executive Director and two other senior officials, being the First Committee, after following paragraph 3(b) of the Revised Circular dated 01.07.2015, must give its order to the borrower as soon as it is made. The borrower can then represent against such order within a period of 15 days to the Review Committee. Such written representation can be a full representation on facts and law (if any). The Review Committee must then pass a reasoned order on such representation which must then be served on the borrower. Given the fact that the earlier Master Circular dated 01.07.2013 itself considered such steps to be reasonable, all these steps are incorporated into the Revised Circular dated 01.07.2015. The impugned judgment is, therefore, set aside. [Para 21] [722-D-H; 723-A-D]
Jaswant Sugar Mills Ltd., Meerut v. Lakshmi Chand and Ors., [1963] Supp. 1 SCR 242 ; Engineering Mazdoor Sabha and Anr. v. Hind Cycles Ltd., [1963] Supp. 1 SCR 625 ; Associated Cement Companies Ltd. v. P.N. Sharma and Anr., [1965] 2 SCR 366 ; Gorkha Security Services v. Govt. (NCT of Delhi) and Ors. (2014) 9 SCC 105 ; Mohinder Singh Gill and Anr. v. Chief Election Commissioner, New Delhi and Ors. (1978) 1 SCC 405 : [1978] 2 SCR 272 ; Kavita v. State of Maharashtra and Ors. (I), (1981) 3 SCC 558 : [1982]
1 SCR 138 ; J.K. Aggarwal v. Haryana Seeds
Development Corporation Ltd. and Ors. (1991) 2 SCC
283 : [1990] 3 Suppl. SCR 13; Crescent Dyes and Chemicals Ltd. v. Ram Naresh Tripathi (1993) 2 SCC
115 : [1992] 3 Supp. SCR 559 ; D.G., Railway Protection Force and Ors. v. K. Raghuram Babu (2008) 4 SCC
406 : [2008] 3 SCR 752 ; Krishna Chandra Tandon v. Union of India, (1974) 4 SCC 374 ; National Seeds Corporation Ltd. v. K.V. Rama Reddy, (2006) 11 SCC
645 : [2006] 6 Suppl. SCR 725 – relied on.
State Bank of India v. M/s. Jah Developers Pvt. Ltd. and Ors. Decision of Delhi High Court in LPA No.
113 of 2015 ; Kingfisher Airlines Ltd. v. Union of India and Ors. Decision of Bombay High Court in WP (L) No. 1684 of 2015 ; Kingfisher Airlines Ltd. v. Union of India and Ors. Decision of Calcutta High Court in AST No. 320 of 2014 ; Nand Lal Bajaj v. State of
Punjab and Anr. (1981) 4 SCC 327 : [1982] 1 SCR
718 – referred to.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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