Amit Kumar Kejriwal Vs. UCO Bank & Ors. (Calcutta High Court)
Summary: The Calcutta High Court, in Amit Kumar Kejriwal v. UCO Bank & Others, WPO No. 1776 of 2023, decided on 18 December 2023, set aside a show cause notice and subsequent orders declaring the petitioner a wilful defaulter. The Court held that an inconclusive Forensic Audit Report (FAR), containing several disclaimers, could not independently establish wilful default without further inquiry and supporting evidence. The Court also found that the Wilful Defaulter Identification Committee and Review Committee had failed to consider the petitioner’s representations and that the Review Committee had been improperly constituted contrary to the applicable Reserve Bank of India Master Circular on Wilful Defaulters.
The petitioner challenged the show cause notice issued by UCO Bank and the orders passed by the bank’s Wilful Defaulter Identification Committee, also referred to as the First Committee, and the Review Committee. It was argued that the show cause notice substantially reproduced the contents of a forensic audit report that was itself inconclusive. The petitioner had submitted representations before both committees, but the orders did not reflect consideration of the explanations or objections raised. According to the petitioner, both committees had relied mechanically upon the audit report without independently examining the allegations or determining whether the statutory and regulatory conditions for declaring wilful default were satisfied. It was additionally contended that the Review Committee had not been constituted in accordance with the applicable RBI directions.
UCO Bank defended the proceedings, submitting that the allegations extracted from the forensic audit report were required to be rebutted by the petitioner through cogent evidence. The bank maintained that the petitioner had failed to discharge that burden. It also disputed the objection regarding the constitution of the Review Committee, contending that the committee had been properly constituted and that its order had merely been communicated through the zonal head.
After examining the material placed on record, the High Court found that the show cause notice and both subsequent orders were essentially founded upon the Forensic Audit Report. The report contained several disclaimers and was not conclusive. At most, it could serve as a piece of evidence warranting further detailed investigation before any adverse declaration was made. The Court observed that the show cause notice did not independently identify particular acts of the petitioner falling within the scope of the RBI Master Circular. The absence of independent supporting material and further inquiry rendered the show cause notice and the committee orders unsustainable.
The Court also held that neither committee had properly considered the representations submitted by the petitioner. The petitioner’s explanations were not even reflected in their respective orders. This failure was material because proceedings for identifying wilful defaulters must comply with the regulatory procedure and applicable principles of natural justice. The Court further rejected the bank’s explanation concerning the Review Committee, holding that the document produced was the committee’s order itself, rather than merely a communication by the zonal manager. Since the Review Committee was improperly constituted, its decision was also a nullity.
Consequently, the Calcutta High Court allowed the writ petition and quashed the show cause notice and the orders of both the Wilful Defaulter Identification Committee and the Review Committee. However, the Court expressly clarified that its judgment would not prevent UCO Bank from initiating fresh wilful-defaulter proceedings against the petitioner in accordance with law. No order as to costs was made.
FULL TEXT OF THE ORDER OF CALCUTTA HIGH COURT
At the outset, it is submitted by learned counsel for the bank that in view of all the necessary documents being annexed to the writ petition, the bank does not want to use any affidavit-in-opposition to the writ petition. Accordingly, no affidavits are directed. However, it is deemed that none of the allegations made in the writ petition are admitted by the respondents.
Learned counsel for the petitioner throws a challenge to the show-cause notice issued against the petitioner for declaration of the petitioner as willful defaulter as well as the orders of the Willful Defaulter Identification Committee (First Committee) and thereafter the Review Committee.
It is pointed out that the show cause notice itself practically quoted a Forensic Audit Report (FAR) which itself was inconclusive.
The petitioner duly gave representation to the first committee as well as to the Review Committee, none of the contents of which were reflected in the orders of either committee. Both the committees, it is argued, placed reliance blindly on the Forensic Audit Report and came to the conclusion that the petitioner was required to be declared as a willful defaulter. It is argued that as such, the same vitiates not only the show cause notice but the subsequent orders of both committees.
It is further argued that the Review Committee was constituted unlawfully de hors the provisions of the concerned Master Circular on Willful Defaulter issued by the Reserve Bank of India.
Learned counsel for the bank contends that although the show cause notice referred to the Forensic Audit Report as its basis, the independent allegations quoted from the said FAR in the show cause notice were required to be rebutted by the petitioner by cogent evidence, which has not been done in the present case.
It is argued that the Review Committee was duly constituted but the order was communicated only by the zonal head of the bank. As such, the argument that the committee was not duly constituted is refuted.
Upon a consideration of the materials annexed to the writ petition, it is clear that the premise of the show cause notice and the subsequent orders was essentially the Forensic Audit Report which was allegedly not accepted by the National Company Law Tribunal in parallel proceedings.
The Forensic Audit Report, as is evident, was not only inconclusive but full of disclaimers, which robs the same of any conclusive value. In any event, the Forensic Audit Report could at best be a piece of evidence which would initiate a further detailed enquiry by the respondent authorities prior to declaring the petitioner to be a willful defaulter. The same having not been done by the respondents, the impugned orders as well as the show cause notice are vitiated.
The inconclusive FAR could not be a valid premise of the show cause notice or the orders of the committees. In fact, the show cause notice, apart from quoting the provisions and observations in the said FAR, did not independently make any allegation of particular acts done by the petitioner within the purview of the Master Circular.
More importantly, neither the first Committee nor the Review Committee considered the answers given by the petitioner in the petitioner’s representations to both the said committees. The pleadings of the petitioner in the petitioner’s representations are not even reflected in the order of either committee.
Also, the premise of both the committees’ orders was the FAR itself. Since the FAR was inconclusive and full with disclaimers, as rightly contended by the petitioner, in the absence of any further independent material to indict the petitioner on the allegations as made in the show cause notice and the said orders, both the committees acted de hors the Master Circular in declaring the petitioner to be a willful defaulter.
Moreover, the contention of the respondent bank that the document annexed to the writ petition as the order of the Review Committee was a mere communication by the zonal manager of the bank is not tenable since the said document is clearly the order itself and not a mere communication. In view of the Review Committee being improperly constituted contrary to the directions of the Master Circular on Willful Defaulters, the order of the Review Committee is rendered a nullity as well.
In such view of the matter, the show cause notice as well as the subsequent orders of both the committees do not survive the scrutiny of law.
Accordingly, WPO/1776/2023 is allowed on contest, thereby setting aside the impugned show-cause notice and the orders of both the Willful Defaulter Identification Committee and the Review Committee declaring the petitioner to be a willful defaulter.
Nothing in this order shall preclude the respondent form initiating a fresh proceeding for declaration of willful default against the petitioner in accordance with law.
No order as to costs.
Urgent certified website copy of this order, if applied for, be made available to the parties subject to compliance with the requisite formalities.
