Kingfisher promoter Mallya: Probably still screwedKingfisher promoter Mallya: Probably still screwed

The Gujarat high court has struck down the part of the Reserve Bank of India (RBI) circular governing wilful defaulter notices, which restricts all directors of wilful defaulter companies from banking services for other businesses for five years.

In a 162-page judgment, Justice Akil Kureshi and Justice JB Pardiwala, ruled in special civil applications 645 and 10120 of 2014, which were heard together.

They struck down the wilful defaulter notice served on Ionic Metalliks by Punjab National Bank in 2013, and held that it was “arbitrary and unreasonable” for the RBI to restrict all the directors of companies declared wilful defaulters, from banking facilities for any other ventures for five years.

However, the RBI could debar “promoters / entrepreneurs” “from availing of any additional facilities for floating a new venture for a period of five years from the date” that the wilful default notice is published by the RBI.

The court also declined to interfere in the wilful defaulter notice served in the second application on Aquafil Polymers, since that came from the private Standard Chartered Bank, which was outside its writ jurisdiction.

Advocates Masoom K Shah and Vishwas K Shah appeared for the petitioners Ionic Metalliks, Ionic Castings and two directors, while advocate Mitul Shelat for the petitioners in the second application, Aquafil Polymers and two directors.

Furtherore, while the court accepted the petitioner counsels’ arguments against restricting directorships, on the grounds that it went against Article 19(1) of the Constitution to carry out business, the court did not accept their argument that the RBI did not have the power to issue wilful defaulter notices.

The RBI’s master circular giving it the power to pass wilful default notices, was not an “impermissible delegation of a legislative power”, said the judges, but it had the “force of law and could be termed as a statutory circular”.

In attacking the RBI’s wilful default notices powers, the petitioners relied in particular on the Karnataka high court judgment E Sathyanarayanan and others v. Reserve Bank of India and others (2002) [download judgment (PDF)], by Justice Gopala Gowda.

The Reserve Bank of India was represented by senior counsel SN Soparkar and advocate Amar N Bhatt, with advocate Nalini S Lodha appearing for the Grievance Redressal Committee.

At the beginning of this month, Kingfisher Airlines failed in a Supreme Court appeal against a wilful default notice by United Bank of India, which has put the company’s promoter Vijay Mallya under pressure as State Bank of India (SBI) has also followed up with a wilful default notice to him and three other Kingfisher directors.

While this judgment won’t significantly ease his troubles, at least there could be the hope that the wilful defaulter tag might not stop him doing new businesses in future, if he manages to argue that singling him out as a promoter vis-a-vis directors is an unfair distinction and also against Article 19(1).

Gujarat High Court Wilful Default case

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Like +1 Object -0 randomanonymous 11 Sep 14, 12:22
I think the Supreme Court will set this one aside. The validity of the Master Circular on Willful Default has already been approved by the SC.Ref. 2013 (7) SCC 369.
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Like +1 Object -0 More Random! 11 Sep 14, 12:46
Para 39 of (2013)7 SCC 369


"39. We are also not impressed with the argument of Mr. Soli J. Sorabjee that the Master Circular contemplates grave consequences affecting the right of a person under Article 19(1)(g) of the Constitution of India to carry on any trade, business or occupation and should be strictly construed as otherwise it will be exposed to the challenge of unconstitutionality. No challenge was made by the writ Petitioners before the Bombay High Court to the constitutionality of the Master Circular and the challenge by the writ Petitioners before the Calcutta High Court was to the constitutionality of only Paragraph 3 of the Master Circular relating to the Grievance Redressal Mechanism. Hence, we are not called upon to decide in these appeals whether the Master Circular violates the right of a person under Article 19(1)(g) of the Constitution of India. Similarly, we cannot consider in these appeals, the contention raised by Dr. A.M. Singhvi that the Master Circular has the effect of black listing a bank's client and would, therefore, be arbitrary and violative of Article 14 of the Constitution. In these Civil Appeals, we are concerned with the interpretation of the Master Circular and on interpretation of the Master Circular, we find that the Master Circular covers not only wilful defaults of dues by a borrower to the bank but also covers wilful defaults of dues by a client of the bank under other banking transactions such as bank guarantees and derivative transactions."
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Like +0 Object -0 randomanonymous 11 Sep 14, 13:26
Also read para 62 of the same Judgement:
62. We are also not impressed with the argument of Mr Soli J. Sorabjee that the Master Circular contemplates grave consequences affecting the right of a person under Article 19(1)(g) of the Constitution of India to carry on any trade, business or occupation and should be strictly construed as otherwise it will be exposed to the challenge of unconstitutionality. No challenge was made by the writ petitioners before the Bombay High Court to the constitutionality of the Master Circular and the challenge by the writ petitioners before the Calcutta High Court was to the constitutionality of only Clause 3 of the Master Circular relating to the grievance redressal mechanism. Hence, we are not called upon to decide in these appeals whether the Master Circular violates the right of a person under Article 19(1)(g) of the Constitution of India. Similarly, we cannot consider in these appeals, the contention raised by Dr A.M. Singhvi that the Master Circular has the effect of blacklisting a bank's client and would, therefore, be arbitrary and violative of Article 14 of the Constitution. In these civil appeals, we are concerned with the interpretation of the Master Circular and on interpretation of the Master Circular, we find that the Master Circular covers not only wilful defaults of dues by a borrower to the bank but also covers wilful defaults of dues by a client of the bank under other banking transactions such as bank guarantees and derivative transactions.
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Like +1 Object -1 More Random! 11 Sep 14, 14:18
Lol It's the same para :) only para number are different as i quoted from Manupatra!

Kindly read both of them. Your bold portion is correct. But that is obiter/reference not connected to the issues in the matter. The Hon'ble Court later on says in para 62 which yourself has quoted "

Hence, we are not called upon to decide in these appeals whether the Master Circular violates the right of a person under Article 19(1)(g) of the Constitution of India. Similarly, we cannot consider in these appeals, the contention raised by Dr A.M. Singhvi that the Master Circular has the effect of blacklisting a bank's client and would, therefore, be arbitrary and violative of Article 14 of the Constitution.
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Like +1 Object -0 AM 13 Sep 14, 04:15
I don't see how this will ease Mallya's worries since the Guj HC validated the debarring of promoters for 5 years. This is either lack of careful reading on LI's part of puffery-journalism.
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Like +1 Object -0 Guest 13 Sep 14, 18:46
Atul Kasbekar is in some beach location getting models ready for Mallya's calendar. Why so much noise?
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Like +2 Object -0 Stat. 14 Sep 14, 10:49
LI seems to be determined to bring the best out of it's readers. Kudos guys!
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