Case Note & Summary
The petitioners, who are directors of M/s. Universal Industrial Equipments and Technical Services Pvt. Ltd., challenged orders dated 07.12.2020 and 26.03.2021 passed by the Wilful Defaulter Identification Committee (WDIC) and the Review Committee of the State Bank of India, respectively, declaring them as wilful defaulters. The petitioners contended that the show-cause notice was issued only to the company and not to them individually, thereby violating principles of natural justice. The court noted that the RBI Master Circular on Wilful Defaulters requires a separate show-cause notice to each person sought to be declared a wilful defaulter. Since the notice was served only on the company, the petitioners were denied an opportunity to be heard. The court held that the impugned orders were unsustainable and quashed them, allowing the writ petition. The court did not express any opinion on the merits of the case and left it open for the bank to initiate fresh proceedings in accordance with law.
Headnote
A) Administrative Law - Natural Justice - Show-Cause Notice - RBI Master Circular on Wilful Defaulters - The court held that a show-cause notice must be served individually on each person sought to be declared a wilful defaulter, and service on the company alone is insufficient. The WDIC and Review Committee orders were quashed for violating natural justice. (Paras 5-8) B) Banking Law - Wilful Defaulter - Declaration of Directors - RBI Master Circular on Wilful Defaulters - The court held that the Master Circular requires a separate show-cause notice to directors before declaring them wilful defaulters. Failure to do so vitiates the entire proceedings. (Paras 5-8)
Issue of Consideration
Whether the declaration of petitioners as wilful defaulters is sustainable when the show-cause notice was issued only to the company and not to the petitioners individually, thereby violating principles of natural justice.
Final Decision
The court quashed the impugned orders dated 07.12.2020 and 26.03.2021 to the extent they declared the petitioners as wilful defaulters. The rule is made absolute. No order as to costs. The bank is at liberty to initiate fresh proceedings in accordance with law.
Law Points
- Natural justice
- show-cause notice
- wilful defaulter
- RBI Master Circular
- opportunity of hearing
- individual notice to directors
