Skip to main content

Declaring ‘Wilful Defaulter’ By Banks Unconstitutional: Gujarat High Court

The Gujarat high court has struck down the part of the Reserve Bank of India (RBI) circular governing wilful defaulter notices, which restricts all directors of wilful defaulter companies from banking services for other businesses for five years.

In a 162-page judgment, Justice Akil Kureshi and Justice JB Pardiwala, ruled in special civil applications 645 and 10120 of 2014, which were heard together.

They struck down the wilful defaulter notice served on Ionic Metalliks by Punjab National Bank in 2013, and held that it was “arbitrary and unreasonable” for the RBI to restrict all the directors of companies declared wilful defaulters, from banking facilities for any other ventures for five years.

However, the RBI could debar “promoters / entrepreneurs” “from availing of any additional facilities for floating a new venture for a period of five years from the date” that the wilful default notice is published by the RBI.

The court also declined to interfere in the wilful defaulter notice served in the second application on Aquafil Polymers, since that came from the private Standard Chartered Bank, which was outside its writ jurisdiction.

Advocates Masoom K Shah and Vishwas K Shah appeared for the petitioners Ionic Metalliks, Ionic Castings and two directors, while advocate Mitul Shelat for the petitioners in the second application, Aquafil Polymers and two directors.

Furtherore, while the court accepted the petitioner counsels’ arguments against restricting directorships, on the grounds that it went against Article 19(1) of the Constitution to carry out business, the court did not accept their argument that the RBI did not have the power to issue wilful defaulter notices.

The RBI’s master circular giving it the power to pass wilful default notices, was not an “impermissible delegation of a legislative power”, said the judges, but it had the “force of law and could be termed as a statutory circular”.

In attacking the RBI’s wilful default notices powers, the petitioners relied in particular on the Karnataka high court judgment E Sathyanarayanan and others v. Reserve Bank of India and others (2002) [download judgment (PDF)], by Justice Gopala Gowda.

The Reserve Bank of India was represented by senior counsel SN Soparkar and advocate Amar N Bhatt, with advocate Nalini S Lodha appearing for the Grievance Redressal Committee.

At the beginning of this month, Kingfisher Airlines failed in a Supreme Court appeal against a wilful default notice by United Bank of India, which has put the company’s promoter Vijay Mallya under pressure as State Bank of India (SBI) has also followed up with a wilful default notice to him and three other Kingfisher directors.

While this judgment won’t significantly ease his troubles, at least there could be the hope that the wilful defaulter tag might not stop him doing new businesses in future, if he manages to argue that singling him out as a promoter vis-a-vis directors is an unfair distinction and also against Article 19(1).

Article referred: http://www.legallyindia.com/201409105037/Bar-Bench-Litigation/vijay-mallya-lucky-in-gujarat-hc-strikes-down-rbi-wilful-defaulter-directorship-restrictions-in-unrelated-case-read-order

Comments

Most viewed this month

Partition proceedings are vitiated even if single co-sharer is not made party or is not served in accordance with law

Cause Title :  Bhagwant Singh vs  Financial Commissioner (Appeals) Punjab, Chandigarh,  CWP-2132-2018 (O&M), High Court Of Punjab & Haryana At Chandigarh Date of Judgment/Order : 31.08.2022 Corum : Hon’ble Mr. Justice Sudhir Mittal Background A large parcel of land was owned by the Nagar Panchayat. Thereafter, some of the co-sharers sold their shares to third parties including the petitioners herein. On 22.11.1995, respondents No.3 to 5 filed an application for partition of the land. The petitioners were not impleaded as parties.  On completion of proceedings, sanad was issued on 28.08.1996. Vide two separate sale deeds dated 28.05.2008 respondents No.3 and 5 sold some portion in favour of respondent No.6 and 7. These respondents sought implementation of the sanad resulting in issuance of warrants of possession dated 05.06.2008. Allegedly, it was then that the petitioners realized that joint land had been partitioned and that proceedings h...

Power of Attorney holder can also file cheque bounce cases: Supreme Court

The Supreme Court has held that a criminal complaint in a cheque bounce case can be filed and pursued by a person who holds a power of attorney (PoA) on behalf of the complainant. A three-judge bench headed by Chief Justice P Sathasivam gave the "authoritative" pronouncement on the issue, referred to it by a division bench in view of conflicting judgements of some high courts and the apex court. "We are of the view that the power of attorney holder may be allowed to file, appear and depose for the purpose of issue of process for the offence punishable under Section 138 of the Negotiable Instruments Act (which deals with cheque bounce cases)," the bench, also comprising justices Ranjana Prakash Desai and Ranjan Gogoi, said. The bench, in its judgement, said, "...we clarify the position and answer the questions in the following manner: "Filing of complaint petition under Section 138 of Negotiable Instruments Act through PoA holder is perfectly legal...

Christian who reconverts as Hindu SC will get quota benefits

Amid the controversy over “ghar wapsi”, the Supreme Court on Thursday ruled that a person who “reconverts” from Christianity to Hinduism shall be entitled to reservation benefits if his forefathers belonged to a Scheduled Caste and the community accepts him after “reconversion”. Citing articles by B R Ambedkar and James Massey, and reports by Mandal Commission and Chinappa Commission, the court said: “There has been detailed study to indicate the Scheduled Caste persons belonging to Hindu religion, who had embraced Christianity with some kind of hope or aspiration, have remained socially, educationally and economically backward.” The bench of Justices Dipak Misra and V Gopala Gowda held that a person shall not be deprived of reservation benefits if he decides to “reconvert” to Hinduism and adopts the caste that his forefathers originally belonged to just because he was born to Christian parents or has a Christian spouse. Expanding the scope of a previous Constitution benc...