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'Economic Situation Uncertain Owing To COVID-19' : Calcutta HC Restrains Bank From Declaring Borrower As 'Wilful Defaulter'

Mehal Jain
2 July 2020 12:53 PM GMT
Economic Situation Uncertain Owing To COVID-19 : Calcutta HC Restrains Bank From Declaring Borrower As Wilful Defaulter
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The Calcutta High Court has passed an interim order restraining the Punjab National Bank from declaring a borrower as a "wilful defaulter'.

Noting that "the economic situation of the country owing to Covid 19 pandemic is uncertain", the Court held that in such situation, it is the "balance of convenience and inconvenience" which should be the "primary guiding factor" so far as the declaration of a person as "Wilful Defaulter" is concerned.

The Single Bench of Justice Arindam Mukherjee observed that the Reserve Bank of India had formulated the July 1, 2015 Master Circular on Wilful Defaulters "to check the meddling with the bank's money", and that the circular provides for "very strict measure against the defaulting party and/or the person behind the entities which commits such wilful default".

"Considering the seriousness of the circular, it is expected that the banks and, in the instant case, the respondent bank should comply with all the statutory requirements as also observe the principles of natural justice", directed the Court.

 "In such situation, it is the balance of convenience and inconvenience which should be the primary guiding factor in granting injunction or restraining order in the case like the present one after a prima facie case is established", opined the Court on Tuesday.

It continued to express that "coming to the balance of convenience and inconvenience in the instant case, the bank will suffer less prejudice than the petitioner if the bank is not allowed to publish the petitioner's name in the wilful defaulters' list whereas the petitioner will suffer greater prejudice if his name figures in the wilful defaulters' list".

The Single Judge noted that the said Circular dated July 1, 2015 provides for a two-tier mechanism before a person is declared as a wilful defaulter. There is an Identification Committee which identifies that the person is liable to be declared as a wilful defaulter and then the Review Committee which ultimately put in the seal to declare him as a wilful defaulter. Thereafter the name of the person is published as a wilful defaulter.

In the case at hand, the petitioner argued before the bench that the first committee that is the Identification Committee did not come to a definite conclusion that the petitioner is liable to be declared as a wilful defaulter. On the other hand, the Review Committee has mechanically declared the petitioner as a wilful defaulter even though there is no finding to that effect by the Identification (First) Committee. The orders passed by the Review Committee, as also the manner of conducting the proceeding by the First Committee, according to the petitioner, are illegal and without jurisdiction. The said orders and/or communications made on basis thereof are, therefore, prayed to be recalled and/or rescinded.

The bench was of the view that the petitioner by referring to the orders and documents has made out a prima facie case. "Considering the balance of convenience and inconvenience and the prima facie case, I am of the view that the interim order already passed should be allowed to continue. The respondent bank and/or its officials are restrained from publishing the petitioner's name in the wilful defaulters' list till 17th August, 2020", ordered the Single Judge.

On behalf of the respondent bank, it was submitted on Tuesday that the order dated 29th June, 2020 was obtained by suppressing the actual state of affairs. The respondent bank had made several communications prior to 29th June, 2020 which were duly received by the petitioner, despite thereof the petitioner submitted otherwise. It is further contended that on proper scrutiny and after following the required procedure, the bank has come to the conclusion that the petitioner no. 1 is a defaulter. The petitioners, therefore, cannot have any grievance.

Further, the respondent bank submitted that on the ground of suppression alone the interim protection granted by the order dated 29th June, 2020 should be withdrawn. "The respondent bank, however, has not brought on record any document as of now to substantiate suppression. In any event, according to the respondent bank, the order is of limited nature and unless extended will die its natural death. The respondent bank submits that the order should not be extended and the writ petition be dismissed", recorded the Single Judge.

The matter will be next considered after four weeks.

WP 206 of 2020

GA 838 of 2020




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