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

The recovery of vehicles by the financier not an offence - SC

Special Leave Petition (Crl.) No. 8907  of 2009 Anup Sarmah (Petitioner) Vs Bhola Nath Sharma & Ors.(Respondents) The petitioner submitted that  respondents-financer had forcibly taken away the vehicle financed by them and  illegally deprived the petitioner from its lawful possession  and  thus,  committed  a crime. The complaint filed by the petitioner had been  entertained  by  the Judicial Magistrate (Ist Class), Gauhati (Assam) in Complaint Case  No.  608 of 2009, even directing the interim custody of the vehicle (Maruti  Zen)  be given to the petitioner vide order dated  17.3.2009.  The respondent on approaching the Guwahati High  Court against this order, the hon'ble court squashed the criminal  proceedings  pending   before  the  learned Magistrate. After hearing both sides, the Hon'ble Supreme Court decided on 30th...

Vanishing promoters and languishing shareholders

Over Rs 60,000 crore of shareholders’ wealth is stuck in 1,450 companies suspended by the stock exchanges. More importantly, near 100 per cent pledging of promoter holding appears to be common in many of these companies. This, almost rules out any chance of the companies bouncing back. The suspension is for non-compliance of the listing norms. Vanishing Companies - Definition As per the definition stipulated by SEBI, any listed company, which raised moneythrough initial public offer and, thereafter, stopped operations, did not file returnseither with the RoC or SEBI and did not exist on the registered premises wastermed as vanishing.There are provisions under Companies Act under which companies are termedvanishing companies on satisfying certain conditions. it is provided a companywould be deemed to be a vanishing company, if it satisfies all the conditions given below : a) Failed to file returns with Registrar of Companies (ROC) for a period of two years; b) Failed to fil...

Property can be sold on power of attorney - Delhi High Court

As reported in the Hindusthan Times on 5th May:-  http://www.hindustantimes.com/India-news/NewDelhi/Property-can-be-sold-on-power-of-attorney/Article1-1054964.aspx In a judgment that will benefit lakhs of Delhi residents living in co-operative housing societies and DDA flats, the Delhi High Court has quashed a Delhi government circular banning property sale in the Capital through general power of attorney (GPA). The court found that the directions in the circular, issued by the revenue department on April 27 last year, were contrary to the Supreme Court judgment dated October 11, 2011. The HC order will increase the number of saleable properties in Delhi and could bring down the value of freehold properties. According to realty watchers, on an average, around 20% of properties are registered through GPA transfers — a common way of selling leasehold properties and those that don’t have a clear title. The judgment came on a petition filed by a company, Pace Developers and ...