Banks should pass reasoned orders while declaring entity/person wilful defaulter, says Bombay HC
Bombay High Court has said banks and financial institutions should pass reasoned orders before declaring an entity or person a wilful defaulter under the Reserve Bank of India's Master Circular. A division bench of Justices B P Colabawalla and Somasekhar Sundaresan, in its order on March 4, noted that wilful defaulters are ostracized from access to the financial sector and hence, the discretion given to banks under the circular should be exercised with caution as mandated by the RBI.
«Banks and financial institutions that seek to invoke the Master Circular to declare occurrence of wilful default, must share the reasoned orders passed by its Identification Committee and Review Committee,» the HC said.
The bench was hearing a petition filed by Milind Patel, former joint managing director of IL&FS Financial Services Limited (IFIN), challenging an order passed by the Union Bank of India in February 2023 declaring the firm and its promoters wilful defaulters under the 2015 Master Circular issued by the RBI.
The RBI's circular calls for banks/financial institutions to submit data on wilful defaulters on a quarterly basis, which is also communicated to the Securities and Exchange Board of India (SEBI).
According to the plea, in July 2022, the Union Bank issued show cause notice to the IFIN and Patel saying it had formed a prima facie view that they deserved to be declared as willful defaulters.
In February 2023, the bank's review committee passed an order declaring the firm and its promoters as wilful defaulters.
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