Mumbai: Mere breach of law will not amount to wilful default, there must be an intention too, ruled the Bombay High Court recently. The court further held, a prima facie opinion of the Wilful Defaulter Identification Committee (WDIC) would alone not be sufficient to declare someone a wilful defaulter and the same should be backed with evidence.
A bench of Justices Satyaranjan Dharmadhikari and Gautam Patel also held that a guarantor who stands personal surety towards a loan can also be held and declared as a defaulter on non-payment of the amount.
The bench was dealing with a plea filed by a South Mumbai-based businessman, who challenged the decision of the WDIC and also that of a review committee which had declared him a wilful defaulter for failing to repay the loan amount.
The businessman claimed he was a non-executive and ‘no full-time director’ of a firm, which had borrowed loans from IDBI bank. He said he only stood as a guarantor to one such loan deed between his firm and the bank.
However, the firm later on defaulted in repaying the amounts and the bank’s WDIC, after issuing him show-cause notices, declared him a wilful defaulter.
Having heard all the submissions, the bench said, “It is true that there is a power to pronounce even a director as a wilful defaulter and that such a declaration is not confined to the borrower company alone. Firstly and importantly, a mere default is not enough.
Secondly, only an intentional, deliberate act brings in the declaration. Lastly, other than the borrower company, its promoter/ whole-time director can be subjected to such a declaration, but for that, there should be evidence.”
The bench then referred the series of circulars issued by the government from time to time to guide the authorities in declaring wilful defaulters.
The bench noted that the circulars show that when the default is made by the principal debtor, the banker will be able to proceed against the guarantor/surety even without exhausting the remedies against the principal debtor.
“As such, where a banker has made a claim on the guarantor on account of the default made by the principal debtor, the liability of the guarantor is immediate. In case the said guarantor refuses to comply with the demand made by the creditor/ banker, despite having sufficient means to make payment of the dues, such guarantor would also be treated as a wilful defaulter,” the bench ruled.
In the present instance, the court noted that the businessman could not attend the mandatory personal hearing before the WDIC and the high-power review committee and, thus, granted him one more chance to be heard before the authorities. The bench accordingly stayed the orders of the WDIC and granted an opportunity for him to be heard afresh.
