Akhilesh Kotia vs. Reserve Bank Of INDIA And Others

Facts

The petitioner, Akhilesh Kotia, challenged a show-cause notice dated June 2, 2018, issued by the Identification Committee of Willful Defaulters of Allahabad Bank, and a subsequent Order dated February 21, 2022, by the Review Committee of Willful Defaulters, which declared him a willful defaulter. The allegations included routing sale proceeds through an Axis Bank account instead of the sole banking arrangement with Allahabad Bank, diverting funds from Non-LC bills, and making an unauthorized investment of Rs. 27.63 crore in M/s. Marson Power Ltd. without prior permission, which adversely affected the company's working capital and led to its account being classified as NPA. The petitioner admitted to opening an Axis Bank account for statutory dues and routing some transactions through it due to perceived ineffective services from Allahabad Bank, but denied personal diversion of funds, stating it was for the company's benefit.

Held

The Court held that the Review Committee failed to apply its mind while passing the impugned order dated February 21, 2022. The judgment emphasized the drastic civil consequences of being declared a willful defaulter, citing State Bank of India – Vs. – Jha Developers, which necessitates a reasoned order. The Court found the Review Committee's approach to be casual and lethargic, merely mechanically confirming the Identification Committee's decision without any deliberation or discussion of the findings. This lack of reasoning, despite the serious implications for the petitioner, was deemed a "glaring instance of non-application of mind." The Court distinguished the exceptions carved out in the National Highways and SBI Vs MJ James decisions, finding them not attracted in this case due to the severity of the consequences. Therefore, the impugned Resolution of the Review Committee and the subsequent order were set aside. The matter was remanded back to the Review Committee for reconsideration, with a clear direction that reasons must be provided for any decision. The Court explicitly stated it did not pronounce on the merits of the willful default allegations themselves.

Key Issues

1. Whether the Review Committee applied its mind while passing the order dated February 21, 2022, declaring the petitioner a willful defaulter, in accordance with the Reserve Bank of India (RBI) Guidelines? (Question of law and fact, concerning RBI Master Circular No. RBI/2015-16/100 DBR No. CID.BC.22/20.16.003/2015-16 dt. 01.07.2015). Petitioner's contention: The Review Committee's order demonstrates a lack of application of mind, being a single-page, mechanical declaration of multiple individuals as willful defaulters with only a casual reference to the Identification Committee's findings and no discussion of its reasoning. This is supported by the Supreme Court's observations in Kotak Mahindra Bank Vs. Hindustan National Glass & Industries Ltd. Revenue's (Allahabad Bank) contention: The petitioner admitted to routing and diverting transactions through Axis Bank Ltd. The sanction letter stipulated obligations that the petitioner was aware of and controlled the principal debtor. Prior knowledge by the bank of such routing does not absolve the petitioner. Reliance is placed on National Highway Authority of India & Ors. – Vs. – Madhukar Kumar & Ors. for the proposition that courts should not interfere if culpability can be culled from pleadings, even if the order is devoid of reasons.