IN THE HIGH COURT OF JUDICATURE, ANDHRA PRADESH AT HYDERABAD (Special Original Jurisdiction) FRIDAY, THE EIGHTEENTH DAY OF JULY TWO THOUSAND AND EIGHT PRESENT THE HON'BLE MR JUSTICE B.SESHASAYANA REDDY WRIT PETITION NO : 9781 of 2008 Between: A.N. Gupta S/o. Baijnath Gupta, M/s. Premier Explosives Ltd., R/o. 81, Jyothi Colony, Tirumalagiri, Secundera 500015. ..... PETITIONER AND 1 UCO Bank, Rep. by its Chairman & Managing Director, Head Office No.10, Brabourne Road Calcutta-700001. 2 The Assistant General Manager, (Mid Corporate), UCO Bank, Regional Office, 8-2-624, Ground Floor Road No.10, Banjara Hills, Hyderabad-34. .....RESPONDENTS Petition under Article 226 of the Constitution of India praying that in the circumstances stated in the Affidavit filed herein the High Court may be pleased to issue any appropriate writ, order or direction more in the nature of Writ of Certiorari, quashing the impugned notices of the 2nd respondent dated 18.03.2008 as arbitrary, illegal, without jurisdiction being contrary to the Master Circular of the RBI on wilful defaulters and consequently direct the respondents not to initiate any action regarding publishing the petitioner's name in the RBI wilful defaulters list. Counsel for the Petitioner: SMT.M.BHASKARA LAKSHMI Counsel for the Respondents: MR.V.AJAYAKUMAR The Court made the following : O R D E R: This writ petition has been filed by A.N.Gupta with a prayer to issue any appropriate writ, order or direction, more particularly, one in the nature of writ of Certiorari quashing the notice dated 18.03.2008 issued by the Assistant General Manager (Mid Corporate) UCO Bank, Regional Office, Hyderabad-2nd respondent whereunder he has been called upon to settle the loan dues of M/s.Premier Explochem Ltd. 2. The petitioner is Promoter, Director of M/s. Premier Explosives Ltd., which came to be incorporated in the year 1980 in accordance with the provisions of the Companies Act, 1956. It has a registered office at S.D.Road, Secunderabad. The petitioner was nominated as Director of M/s. Premier Explochem Ltd and subsequently his nomination came to be withdrawn by M/s. Premier Explosive Ltd and as a result, he resigned from the directorship of the company on 30.06.2007. UCO Bank, rep. by its Chairman and Managing Director, Calcutta-1st respondent issued letter dated 22.09.2007 informing the petitioner regarding non-payment of instalments and interest by M/s. Premier Explochem Ltd. The petitioner informed the Bank of his resigning from the Board of Directors with effect from 30.06.2007. The petitioner received a notice from the authorized officer of UCO Bank, Zonal Office, Hyderabad, under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short, ‘the Act’). According to the petitioner, he resigned from the directorship of the company and therefore, there is no obligation on his part to pay the dues payable by M/s. Premier Explochem Ltd.. He also received a letter from the Assistant General Manager (Mid Corporate) UCO Bank, Regional Office, Hyderabad-2nd respondent on 18.03.2008 with regard to non- payment of loan dues by M/s. Premier Explochem Ltd. and requesting him to settle the loan dues of the subject company within a week’s time. The said letter is assailed in this writ petition. 3. Notice before admission came to be ordered on 01.05.2008. Sri Ajay Kumar, learned counsel, received notice on behalf of the respondents-Bank and sought time for filing counter-affidavit. An interim order came to be passed on 01.05.2008, which reads as hereunder: “In the meantime, the bank shall not take any further steps to notify the name of the writ petitioner, i.e., Sri A.N.Gupta to the Reserve Bank of India for publication of the list of willful defaulters. However, it is open to the bank to take such steps to have the name of M/s.Premier Explochem Limited, published as a willful defaulter, if not already done by now.” 4. The respondents-Bank filed vacate stay petition being W.V.M.P.No.1879 of 2008 with a prayer to vacate the interim order dated 01.05.2008. The respondents-Bank filed counter-affidavit. G.V.Sekhar, Chief Officer in Zonal Office, UCO Bank, Hyderabad, has sworn to the counter-affidavit. It is stated in the counter-affidavit that the petitioner was one of the Directors in the Board of M/s. Premier Explochem Ltd., and the petitioner was part and parcel of important decisions taken by the Board of M/s. Premier Explochem Ltd., and for a considerable period of time, the petitioner was the Chairman of the said Company. The company did not obtain prior approval from the Bank with regard to change of Directors. As per inter se bindings, the Company has to effect change in Board of Directors only after having approval from the Bank as long as the Bank is a lender to the company. It is further stated in the counter-affidavit that all the Directors are liable for payment of the bank loan dues and accordingly, notice under the provisions of the Act has been sent to all the directors. The Reserve Bank of India, vide Circular No.DBOD.DL.BC12928/20.16.003/2007-08, dated 02.07.2007 has informed about guidelines for declaring a borrower as wilful defaulter. As per the provisions of the said circular, the defaulting company i.e. M/s. Premier Explochem Ltd. is eligible to be declared as ‘Wilful Defaulter’ and the petitioner happens to be one of the Directors of the Company. Para.10 of the counter-affidavit needs to be noted and it is thus: “10. It is submitted that as the agreement entered into between the respondent Bank and the borrower company, the Directors of the Company cannot be changed without the prior approval of the Bank. In the present case admittedly there was no such approval was obtained from the respondent bank by the borrower company about the resignation of the petitioner as Director of the Company. Hence, the resignation of the petitioner is not binding on the respondent bank and the writ petition is liable to be dismissed.” 5. When the vacate stay petition being W.V.M.P.No.1879 of 2008 came up for consideration, with the consent of learned counsel for the parties, the main writ petition is taken up for final disposal. 6. Heard learned counsel appearing for the petitioner and learned Standing Counsel appearing for the respondents-Bank. 7. Learned counsel appearing for the petitioner submits that the petitioner has resigned as Director of M/s.Premier Explochem Ltd. on 30.06.2007 and since then he severed his relationship with the said company and therefore, he is not responsible for any defaults committed by M/s. Premier Explochem Ltd. 8. Per contra, learned Standing Counsel appearing for the respondents-Bank submits that a procedure has been prescribed for declaring a borrower as wilful defaulter and in the course of following such procedure, notice impugned in this writ petition came to be issued to the petitioner. Learned Standing Counsel further submits that a mechanism has been provided under Master Circular on Wilful Defaulters to express objections for his declaring as wilful defaulter. Much emphasis has been laid on clause (3) of the said Circular, which reads as hereunder: “3. Grievances Redressal Mechanism Banks/Fis should take the following measures in identifying and reporting instances of wilful default: (i) With a view to imparting more objectivity in identifying cases of wilful default, decisions to classify the borrower as wilful defaulter should be entrusted to a Committee of higher functionaries headed by the Executive Director and consisting of two GMs/DGMs as decided by the Board of the concerned bank/FI. (ii) The decision taken on classification of wilful defaulters should be well documented and supported by requisite evidence. The decision should clearly spell out the reasons for which the borrower has been declared as wilful defaulter vis-à-vis RBI guidelines. (iii) The borrower should thereafter be suitably advised about the proposal to classify him as wilful defaulter along with the reasons therefor. The concerned borrower should be provided reasonable time (say 15 days) for making representation against such decision, if he so desires, to a Committee headed by the Chairman and Managing Director. (iv) A final declaration as ‘wilful defaulter’ should be made after a view is taken by the Committee on the representation and the borrower should be suitably advised.” It is evident from the above referred clause in the Circular, a separate mechanism has been provided before declaring a person as wilful defaulter. The notice issued to the petitioner is only a step in aid contemplated under Clause (3) of the said Circular. The respondents- Bank have to follow the procedure prescribed in Clause (3) of the Master Circular on Wilful Defaulters issued by the Reserve Bank of India before declaring the petitioner as a willful defaulter. 9. With the above direction, the writ petition is disposed of at the admission stage. No costs. ______________________ B.SESHASAYANA REDDY, J. Date:18th July, 2008. cs .....ASSISTANT REGISTRAR // TRUE COPY // SECTION OFFICER To 1. 2 CCs 2.2CD copies Form-NIC-OGS/WP{LS}