Bombay HC Quashes Wilful Defaulter Declaration for Failure to Pass Reasoned Order

Shri Gunwant s/o Sudamrao Deopare Vs Branch Manager (Bombay High Court)

The Bombay High Court allowed the writ petition filed by Shri Gunwant s/o Sudamrao Deopare and another challenging the action of Bank of Maharashtra declaring them as wilful defaulters under the Reserve Bank of India’s Master Circular on Wilful Defaulters. The petitioners had availed multiple agricultural term loans, term loans and agricultural cash credit facilities from the respondent bank. After issuing a show cause notice dated 12 April 2019 alleging wilful default, the bank received detailed replies from the petitioners and granted them a personal hearing before the Empowered Committee. Thereafter, by communication dated 25 November 2019, the bank informed the petitioners that wilful default had been established and proceeded with the process of declaring them wilful defaulters. Subsequently, the bank published their photographs in newspapers describing them as wilful defaulters, leading to the filing of the present writ petition.

The petitioners contended that the declaration was contrary to the RBI Master Circular dated 1 July 2015 because no reasoned order had been issued by the first committee before declaring them wilful defaulters. They relied upon the Supreme Court decision in State Bank of India v. Jah Developers Private Limited to argue that the mandatory procedure prescribed under the RBI Guidelines had not been followed. The bank defended its action by contending that a show cause notice had been issued, replies had been considered, personal hearing had been granted and the High Level Committee’s decision had been approved by the Review Committee.