(1.) This revisional application is one under Article 227 of the Constitution of India and is directed against Order dated 6-4-2004 passed by the Chairperson of Debts Recovery Appellate Tribunal, Kolkata in appeal No. DRAT/CAL/17 of 2004.


(2.) The said appeal was preferred by the Corporation Bank who is Opposite Party No. 1 in this case against the order passed by the Kolkata Debts Recovery Tribunal dated 21-4-2004 in connection with Original Application No. 111 of 2002.


(3.) The facts leading to filing of the instant revisional application may be summed up thus :- i) The Opposite Party i.e. Corporation Bank filed one application before the said Tribunal for recovery of Rs. 11 crores and odd under Section 19 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 against the present petitioners and others. ii) The present petitioner filed written statement along with counter claim. iii) While the said application was pending, the present petitioner filed two applications against the Corporation Bank and IDBI with prayer for injunction restraining them from treating the Company as willful defaulter on the basis of guidelines issued by the RBI and also with prayer for injunction restraining the Corporation Bank and IDBI from sending any intimation to the RBI or from taking any other steps to that effect against the Company and also for quashing the decision of treating the Company as willful defaulter. iv) The said applications were filed by the present petitioner mainly on the ground that the Bank took the said decision arbitrarily as no opportunity was given to the present petitioner to show cause or to place their case before any such decision was taken by the Bank. v) The Corporation Bank contested the said application by filing objection stating that they have taken the decision already by which the Company was declared to be a willful defaulter and that decision was taken in the year 2002 as per the circular dated 20-2-1999 of the RBI. The Bank also took the plea that on the basis of intimation the RBI declared the present petitioner as a willful defaulter. The Bank also took the specific plea that as willful defaulter only entitles civil consequence, there is no need of notice or opportunity of hearing to be given to the Company. The Bank also took the plea that the Tribunal has no jurisdiction to decide the matter. vi) The IDBI who was defendant No. 6 also contested the said application but took the specific plea that they have not forwarded their views to RBI regarding willful defaulter on the part of the Company. vii) By order dated 21-4-2004. the Tribunal allowed the applications and quashed the decision by the Bank in the year 2002 treating the Company as willful defaulter and the intimation thereunder to that effect sent to the RBI or any other Banks or Financial Institution are bad in law. viii) The Tribunal further passed the order that if the Company's name is appearing in the willful defaulter's list of the RBI or any other Banks or financial institutions on the basis of any intimation so far sent by the Bank and the defendant No. 6, the same deserve to be deleted. ix) Being dissatisfied with the said order of the Tribunal, the Bank preferred appeal before the Appellate Authority in connection with Appeal No. DRAT/CAL/17 of 2004/501. x) By the order impugned, the Appellate Authority set aside the order of the Tribunal and allowed the appeal. The Appellate Authority allowed the said appeal on the ground that the impugned order is not sustainable either in law or facts.


(4.) Being aggrieved by the said order of the Appellate Authority, the instant revisional application has been preferred by the Company i.e. Ruia Cotex Ltd.


(5.) Mr. Abhrajit Mitra, Learned counsel for the petitioner challenged the order impugned on the following grounds :- i) That the Learned Appellate Authority committed error in allowing the appeal ignoring the fact that rule of natural justice has been violated by the act of the Bank. ii) That the Appellate Authority ignored the fact that the present petitioner should have been given an opportunity to place their case before its name was forwarded to the RBI to include their name in the list of willful defaulter. iii) That the Appellate Court committed error in deciding the point of law and fact.


(6.) The said pleas were opposed by Mr. Brahmachari. Learned counsel for the Opposite Party, who contended that the Learned Appellate Authority was justified in passing the order as there was error on the part of the Tribunal in passing the order which was against the RBI Circular/guidelines.


(7.) Mr. Brahmachari, Learned counsel for the Opposite Party contended that the guidelines issued by the RBI was followed by the Bank in forwarding the name of the petitioner as willful defaulter and there is no clause in the said circular/guidelines to provide the Company with an opportunity to place their case before the said Company is declared to be a willful defaulter.


(8.) In course of his argument Mr. Brahmachari challenged the pleas taken by Mr. Mitra mainly on the ground that the Bank followed the circular/guidelines of the RBI strictly and the said guidelines/circular has not been challenged by the present petitioner.


(9.) In other words, it was the contention of Mr. Brahmachari as there is no express provision in the circular/guidelines of the RBI which has been followed by the Bank regarding opportunity to be given to the Company before it is declared to be a willful defaulter, the plea of violation of rule of natural justice cannot be accepted.


(10) It would be worth mentioning that Mr. Mitra relied mainly upon violation of rule of natural justice by the Bank in treating the Company as willful defaulter.


(11.) Mr. Mitra relied upon the following cases i) C.B. Gautam v. Union of India and Ors. reported in (1993) 1 SCC 78 paragraphs 28 to 30. ii) Southern Painters v. Fertilizer and Chemicals Travancore Ltd. and Anr. reported in (1994) Supple (2) SCC 699 : (AIR 1994 SC 1277). iii) M/s. Erusian Equipments and Chemicals Ltd. v. State of West Bengal and Anr. and Union of India and Ors. v. A. K. Mithiborwala and Ors. reported in (1975) 1 SCC 70 : (AIR 1975 SC 266). iv) Canara Bank and Ors. v. Debasis Das and Ors. reported in (2003) 4 SCC 557 : (AIR 2003 SC 2041).


(12.) I have already stated that Mr. Mitra, Learned counsel for the petitioner challenged the order impugned on the ground that the Appellate Authority did not consider the theory of violation of rule of natural justice. At the same time, Mr. Mitra challenged the order on the ground that the Appellate Authority did not consider that the Bank approached the Tribunal by suppressing material fact. Mr. Mitra also challenged the impugned order on the ground that the Appellate Authority did not consider that not only the interest of present petitioner would be prejudiced but also the interest of other sister concerns of the present petitioner would be affected.


(13.) It is not disputed that in the application under Section 19 of the Act before the Tribunal, the Bank did not disclose that the present petitioner was declared a willful defaulter previous to filing of the said application. Mr. Mitra in course of his strenuous argument also took the plea that the said fact came to their knowledge when the Bank filed written objection against the application for injunction and that was in the year 2003.


(14.) Even in the affidavit-in-opposition against the petition of the Company, the Bank did not disclose that the Company was declared as a willful defaulter. In course of his argument Mr. Mitra referred to the letter written to RBI on behalf of the present petitioner dated 7-10-2003 in which the Company informed that they apprehended that Corporation Bank as well as IDBI were contemplating of declaring the present petitioner as willful defaulter. In the written objection on behalf of the Bank against another application of the respondent No. 1 it was for the first time the Bank disclosed that the Company has been declared as a willful defaulter by RBI on the basis of recommendation of the Bank.


(15.) Mr. Mitra, drew attention of the Court to the circular issued by the RBI on 20-2-1999 and referred the definition of willful default which runs as follows :- "iii) Willful default will broadly cover the following : a) Deliberate non-payment of the dues despite adequate cash flow and good networth. b) Siphoning off of funds to the detriment of the defaulting unit. c) Assets financed have either not been purchased or have been sold and proceeds have been misutilised. d) Misrepresentation/falsification of records. e) Disposal/removal of securities without bank's knowledge f) Fraudulent transactions by the borrower."


(16.) He also relied upon the definition of willful default as defined in the circular issued by the RBI on 30-5-2002. The definition of willful default runs as follows :- "A willful default would be deemed to have occurred if any of the following events is noted :- a) the unit has defaulted in meeting its payment/repayment obligations to the lender even when it has the capacity to honour the said obligation. b) The unit has defaulted in meeting the payment/repayment obligations to the lender and has not utilized the finance from the lender for the specific purposes for which finance was availed of but has diverted the funds for other purpose. c) The unit has defaulted in meeting its payment/repayment obligations to the lender and has siphoned off the funds so that the funds have not been utilized for the specific purpose for which finance was availed of nor are the funds available with the unit in the form of other assets."


(17.) Mr. Mitra on the basis of the said definition contended that rule of natural justice will come into play and it is expected that before any severe action is taken by Bank by referring the matter to RBI to declare the Company as a willful defaulter, the Company is entitled to get an opportunity to place their case. It was the further contention of Mr. Mitra that the question of repayment of dues does not arise as the Company took the specific plea of counter claim against the application under Section 19 of the Act filed by the Bank before the Debt Tribunal. It was the further contention of Mr. Mitra that by the alleged act of the Bank not only the interest of the Company has been prejudiced but also the interest of other sister concerns were also hampered.


(18.) He drew the attention of the Court to page 78 of the application regarding penal measures and he relied upon Article 7 (d) of the said circular.


(19.) On the basis of the same, it was submitted that if it is found that Director of the present Company is attached with some other company, those companies will also be debarred from getting any financial assistance from the Bank/Financial Institute.


(20.) On the basis of the same, it was argued by Mr. Mitra that Appellate authority totally ignored the rule of natural justice and relied upon the guidelines only.


(21.) It should be stated here that there are two distinct different features in the judgments passed by the Tribunal and the Appellate Authority.


(22.) In the judgment passed by the Tribunal, much emphasis or stress was given upon the rule of natural justice as not only the interest of the present petitioner was hampered but also the interest of other sister concerns were involved.


(23.) However, a different view altogether was taken by the appellate authority which relied upon mainly on the circulars/guidelines issued by the RBI.


(24.) Mr. Mitra in course of his argument took the specific plea that they never challenged the authority of the RBI in providing the guidelines/circulars to be followed by the Banks/Financial Institutions.


(25.) Mr. Mitra further contended that as they did not challenge the circular/guidelines of the RBI, copy of the application filed before the Debt Tribunal was not served upon the RBI.


(26.) Mr. Mitra further contended that they did not pray for any relief against the RBI and as such the RBI was not a necessary party.


(27.) I have already stated that Mr. Brahmachari, Learned counsel for the Bank in course of his argument took the specific plea that there was no necessity of giving an opportunity to the present petitioner before its name was recommended to RBI to declare the Company as "willful defaulter" as there is no such provision in the circular/guidelines.


(28.) At the same time, Mr. Brahmachari contended that the Learned Appellate authority was perfectly justified in coming to the conclusion that the circulars issued by the RBI is to be treated as a Statute and accordingly as there is no provision in the statute to issue notice upon the present petitioner to show cause why its name would not be recommended as a willful defaulter, the same was not done.


(29.) Mr. Brahmachari further contended that the question of violation of rule of natural justice does not arise as the interest of the present petitioner was not hampered. For this he drew the attention of the Court to the judgment passed by the Appellate authority which is Annexure 'K'. I quote the relevant portion "the allegation that the Company was refused financial assistance in particular, was a mere assertion without an iota of evidence, and a clear admission that the respondents could not and did not suffer any prejudice as they were not refused."


(30.) It is really strange that the Appellate authority came to the said conclusion though previously he opined that the said circular/guidelines by the RBI are to be treated as a statute and in that Statute there is specific penal provision by which not only the present petitioner but also its sister concerns will be debarred from getting financial assistance from the Bank/Financial Institutions.


(31.) In view of the said position, I cannot accept the finding of the Learned Appellate authority that the interest of the present petitioner would not be prejudiced.


(32.) Mr. Mitra in course of his argument relied upon the judgment delivered by Division Bench of this Court in connection with APOT No. 319 of 2006, G.A. No. 1931 of 2006 with W.P. No. 736 of 2006. In that appeal the writ petitioners approached the Court when they were served with a notice by the Bank why they shall not be declared as a willful defaulter and was asked to give to reply.


(33.) The first writ application was allowed and the Bank was directed with the following direction :- "the writ petitioners may proceed on the assumption that the case of the Bank is that the borrower has diverted the funds in each one of the manner indicated in the letter dated 20-5-2006. Now it is for the writ petitioners to answer that he has not diverted the funds in the manner........"


(34.) Subsequently, the Bank issued letter with the mentioning of the same circular.


(35.) Thereafter, the petitioner approached the writ Court and appropriate order was passed.


(36.) Against that order of the Hon'ble Single Judge appeal was preferred.


(37.) We disposed of the appeal with observation that the writ petitioners will take the plea that they have not diverted funds in any of the manners mentioned in (A to F) as mentioned in the RBI circulars.


(38.) The fact of that case was different as in that case, before the writ petitioner was declared a willful defaulter, opportunity was given to the person concerned to place his case.


(39.) In the instant case no such opportunity was given to the present petitioner. I have already stated that in the judgment passed by the Tribunal, much stress/emphasis was given over the rule of natural justice as the Tribunal was of the clear opinion that the present petitioner would be prejudiced as everything was done by the Bank behind its back.


(40.) I have already stated that Learned Appellate Authority set aside the order of the Tribunal mainly on the ground that the statute does not provide for giving an opportunity to the present petitioner to place its case before the Company was declared as a willful defaulter and also on the ground that the interest of the Company was not hampered.


(41.) It is expected that when a serious consequence will follow over any act done by a person, an opportunity should be given to the person concerned whose interest would be prejudiced to place his case.


(42.) Mr. Mitra in course of his argument also relied upon the circular issued by the RBI dated 29-7-2003 and attention of the Court was drawn to Clause (iii) which runs as follows:- iii) "The decision taken on classification of willful 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 willful defaulter vis-a-vis RBI guidelines."


(43.) On the basis of the same, Mr. Mitra argued that Bank suppressed all the documents before the Tribunal which were the basis of declaring the present petitioner as a willful defaulter.


(44.) Mr. Brahmachari, however, vehemently opposed the said pleas on the ground that in the absence of any specific provision in the statute, the present petitioner cannot claim as of right that he is entitled to get an opportunity to place his case before he is declared as a willful defaulter.


(45.) At the same time, Mr. Brahmachari argued that the provision of the circular/guidelines issued by the RBI were strictly followed and on the basis of the same, the name of the present petitioner was recommended to RBI, which ultimately enlisted the present petitioner as a willful defaulter. As such, it was the contention of Mr. Brahmachari that RBI is the authority which declared the present petitioner as a willful defaulter and the Bank has no role to play with the said act of the RBI.


(46.) I cannot accept the said plea as raised by Mr. Brahmachari. It is true that RBI is the authority who can declare the present petitioner as a willful defaulter. Before that the Bank is to convince the RBI that the present petitioner has violated the provision of the circular/guidelines issued by the RBI.


(47.) The circular dated 29-7-2003 by the RBI which is at Page 81 of the application clearly provides that recommendation should be well documented and supported by requisites evidence.


(48.) That circular means that Bank should be cautious in recommending the name. As penal action will follow thereafter, the rule of natural justice will come into play and it is expected that an opportunity should have been given to the person concerned whose interest is going to be prejudiced.


(49.) In the instant case on the basis of materials on record, I am of clear opinion that there was clear violation of rule of natural justice by the act of the Bank and the said fact was ignored by the Appellate authority though the Tribunal rightly came to the correct conclusion.


(50.) I will now discuss with the cases as referred by Mr. Mitra.


(51.) In the case between C.B. Gautam v. Union of India and Ors. reported in (1993) 1 SCC 78, the Apex Court came to the conclusion that opportunity of showing cause even the same is not supported in the statute must be afforded by way of compliance with immediate requirement of natural justice rule where provision involved adverse civil consequences such as, on imputation of tax evasion (Head Note).


(52.) The Hon'ble Court further came to the conclusion that provision for recording of reasons not a substitute for and so provision for it will not preclude grant of opportunity to hear.


(53.) In the case in between Southern Painters v. Fertilizer and Chemicals Travancore Ltd. and Anr. reported in (1994) Supple (2) SCC 699 : (AIR 1994 SC 1277), the Supreme Court held that an opportunity of being heard should be given on the basis of rule of natural justice.


(54.) In the case between M/s. Erusian Equipments and Chemicals Ltd. v. State of West Bengal and Anr. and Union of India and Ors. v. A. K. Mithiborwala and Ors. reported in (1975) 1 SCC 70 : (AIR 1975 SC 266), the Apex Court also opined that a party black listed is entitled to a notice to be heard before his name is put on the black list.


(55.) In the case between Canara Bank and Ors. v. Debasis Das and Ors. reported in (2003) 4 SCC 557 : (AIR

2003 SC 2041) head Note "E" runs as follows :- "Administrative Law - Natural justice - Audi alteram partem - Notice - Embodies rule of fair play and must precede the adverse order - Should be clear and precise so as to apprise the party determinatively of the case he has to meet - Time given for the purpose should be adequate - On denial of notice and such reasonable opportunity to respond, the order passed becomes wholly vitiated." (56.) On the basis of the said decisions, it is clear that it has become the settled proposition of law that where the interest of a person is going to be prejudiced by some act of another person, the person, whose interest is affected is entitled to get an opportunity of being heard before any such serious decision is taken. (57.) In view of the said position, I am of clear opinion that approach of the appellate authority was not correct and as such, the order impugned by which the order of the Tribunal was set aside cannot be supported. (58.) Mr. Mitra very frankly conceded that as his client got relief as per first portion of the order dated 21-4-2004, there is no need to pass the subsequent order which is Sl. No. 2 i.e. "if the Company's name is appearing in the willful defaulter's list of the RBI or any other Banks or Financial Institutions on the basis of any intimation so far sent by the Bank and the defendant No. 6, the same deserves to be deleted." (59.) I accept the said plea of Mr. Mitra. (60.) On the basis of the materials on record, I am of clear opinion that there was error on the part of the Learned Appellate Authority in setting aside the order of the Tribunal dated 21-4-2004 and as such interference of this Court is necessary. (61.) Accordingly, this revisional application is allowed on contest but without any cost. The order of the Appellate authority dated 6-8-2004 is hereby set aside. The order passed by the tribunal dated 21-4-2004 to the effect "the decision taken by the Bank in 2002 treating the Company as willful defaulter and the intimation thereunder to that effect sent to the RBI or any other Bank or Financial Institution are bad in law and, therefore, quashed," is hereby affirmed. The order dated 21-4-2004 is modified accordingly. Application allowed.