1. Introduction (Paras 1-3)

The Petitioner, a Non-Executive Woman Director of PSL Limited, challenged a letter dated 16 July 2018 that declared her a "willful defaulter." The court issued a Rule, heard arguments, and proceeded to deliver its judgment.

2. Show Cause Notice: Not Issued to the Petitioner (Paras 4-6)

• A show-cause notice was issued solely to PSL Limited, not to the Petitioner.
• The Master Circular dated 1 July 2015 (Clause 3(b)) mandates a notice and hearing for individuals deemed "willful defaulters."

3. Safeguards for Non-Executive Directors (Paras 6-8)

• Clause 3(d) of the Circular specifies conditions under which non-whole-time directors can be declared willful defaulters, including explicit awareness of willful default or connivance.
• Petitioner was not alleged to meet these conditions.

4. Breach of Natural Justice (Paras 9-10)

• The impugned letter was issued without adherence to the procedural safeguards outlined in the Master Circular.
• In State Bank of India vs. Jah Developers Pvt. Ltd. (2019), the Supreme Court emphasized due process and natural justice in such cases.

5. Quashing the Impugned Letter (Paras 11-13)

• The Court quashed the impugned letter, citing non-compliance with natural justice principles and procedural lapses.
• Respondents were granted liberty to issue a fresh notice, if necessary, and proceed in accordance with the law.

6. Limitations on Relief (Paras 14-16)

• Relief was restricted to the Petitioner, and other aggrieved individuals were allowed to challenge the letter separately.
• The petition was disposed of without costs.

Acts and Sections Discussed

1. Master Circular on Wilful Defaulters (1 July 2015):
   • Clause 3(b): Notice and hearing requirement for declaring willful default.
   • Clause 3(d): Safeguards for non-promoter and non-whole-time directors.
2. Companies Act, 2013:
   • Section 2(60): Definition of "officer in default."
3. Constitution of India:
   • Article 19(1)(g): Protection of the right to carry on business.
4. Insolvency and Bankruptcy Code, 2016:
   • Section 29-A: Restriction on resolution applicants who are willful defaulters.

Ratio Decidendi

The Court held that:

1. A declaration of "willful defaulter" requires strict adherence to procedural safeguards, including issuing notices to affected parties.
2. Non-executive and non-promoter directors cannot be declared willful defaulters unless clear complicity or awareness is established.
3. Violation of principles of natural justice renders such declarations invalid.

Subjects:

Banking and Finance Law, Corporate Governance, Natural Justice #WillfulDefaulter #NaturalJustice #CorporateGovernance #NonExecutiveDirector #BankingLaw