Supreme Court of India
STATE BANK OF INDIAversusM/S. JAH DEVELOPERS PVT. LTD. & ORS.
- Citation
- 2019 INSC 652
- Decided
- 8 May 2019
- Disposal
- Appeal(s) allowed
- Bench
- R F NARIMAN
Holding
In‑house committees appointed under the RBI Revised Circular are not tribunals and advocates have no right to appear before them under Section 30 of the Advocates Act, 1961.
Summary
The Supreme Court examined whether borrowers classified as wilful defaulters under RBI's 2015 Revised Circular could be represented by lawyers before the in‑house committees that determine such classification. The Court held that the First and Review Committees are administrative bodies, not tribunals vested with judicial power, and therefore advocates have no right to appear before them under Section 30 of the Advocates Act, 1961. It further ruled that oral hearing is not mandatory; written representations within 15 days satisfy natural‑justice requirements. While recognising that a wilful‑defaulter designation impacts the borrower’s fundamental right to carry on business under Article 19(1)(g), the Court found the circular’s procedure reasonable. Consequently, the High Court’s decision was set aside and the appeals were allowed.
Issues considered
- The nature of the RBI in‑house committees under the 2015 Revised Circular – whether they qualify as tribunals for purposes of Section 30 of the Advocates Act, 1961.
- Whether a borrower declared a wilful defaulter has a statutory right to be represented by a lawyer before such committees.
- Whether the Revised Circular mandates an oral hearing, or if written representation suffices under principles of natural justice.
Legislation cited
Subjects
wilful defaulterRBI circularAdvocates Acttribunalnatural justiceright to legal representationArticle 19(1)(g)Insolvency and Bankruptcy CodeSection 30banking regulations
Judgment
[2019] 7 S.C.R. 701 701
STATE BANK OF INDIA A
v.
M/S. JAH DEVELOPERS PVT. LTD. & ORS.
(Civil Appeal No. 4776 of 2019)
MAY 08, 2019 B
[R. F. NARIMAN AND VINEET SARAN, JJ.]
Advocates Act, 1961 – s.30 – Master Circular dtd. 01.07.13
issued by RBI inter alia setting out mechanism for identification of
wilful defaulters, entrusted cases of wilful default to a Committee
C
of higher functionaries, which would then take a preliminary
decision – Thereafter, the borrower should be provided 15 days’
time for making representation to the Grievance Redressal Committee
headed by the Chairman and the Managing Director and consisting
of two other senior officers– Such Committee must give hearing to
the borrower if he represents that he has been wrongly classified as D
a wilful defaulter, and it is only after such hearing that a final
declaration as wilful defaulter should be made – Revised Circular
dtd. 01.07.15 issued by RBI, replaced the aforesaid scheme by making
an Executive Director and two other senior officers examine
evidence of wilful default on the part of the borrower – If this First
E
Committee finds that an event of wilful default has occurred, it should
first issue show cause notice to the borrower and call for his
submissions, and after considering his submissions, issue an order
recording the fact of wilful default and reasons for the same –
Personal hearing can be given only if the Committee feels that such
hearing is necessary – Order of the Committee to be reviewed by F
another Committee (Review Committee) – Issue as to whether a
lawyer ought to be allowed to represent the borrower before the
First Committee and/or Review Committee under the Revised Circular
– High Court held that the two in-house committees can be
considered to be tribunals, and therefore, a lawyer has the right to
G
represent his client before such in-house committees – On appeal,
held: In-house committees appointed under the Revised Circular
are not vested with any judicial power at all, their powers being
administrative powers, to gather facts and then arrive at a result –
No lawyer has any right u/s.30 to appear before the in-house
H
701
702 SUPREME COURT REPORTS [2019] 7 S.C.R.
A committees – Said committees are also not persons legally authorised
to take evidence by statute/subordinate legislation – On this score
also, no lawyer would have any right u/s.30 to appear before the
same – However, Art.19(1)(g) is attracted in the facts of the present
case as the moment a person is declared wilful defaulter, the impact
on its fundamental right to carry on business is direct and immediate
B
– Given the drastic consequences, the Revised Circular, being in
public interest, construed reasonably – Committee comprising of
the Executive Director and two other senior officials, being the First
Committee must give its order to the borrower as soon as it is made
– Borrower can represent against such order within 15 days to the
C Review Committee – Review Committee must then pass a reasoned
order which must then be served on the borrower – All these steps
incorporated into the Revised Circular – Impugned judgment set
aside – Constitution of India – Art.19(1)(g) – Principles of natural
justice – Committees – Insolvency and Bankruptcy Code, 2016 –
s.29A.
D
Committees – When not tribunal – Held: Before a body can
be said to be a “tribunal”, it must be invested with the judicial
power of the State to decide a lis arising before it, must be legally
authorised to take evidence by statute/subordinate legislation or
otherwise.
E
Principles of natural justice – Revised Circular issued by RBI
replacing the mechanism for identification of wilful defaulters as
provided in the earlier Circular – In-house committees referred to
in the Circular – Right of oral hearing before such committees, if
any – Held: Given the scheme of the Revised Circular, it is difficult
F to state that oral hearing is mandatory – Natural justice is a flexible
tool used in order that a person or authority arrives at a just result
– Such result can be arrived at in many cases without oral hearing
but on written representations given by parties, after considering
which, a decision is then arrived at.
G Allowing the appeals, the Court
HELD:1.1 The earlier Master Circular dated 01.07.2013
granted a hearing before the Grievance Redressal Committee
headed by the Chairman/Managing Director, and also provided
that the borrower should be provided 15 days’ time for making a
H representation against the preliminary decision of the First
STATE BANK OF INDIA v. M/S. JAH DEVELOPERS PVT. LTD. 703
Committee, this situation does not now obtain. Under paragraph A
3 of the Revised Circular dated 01.07.2015, it is only at the first
stage that the First Committee is to issue a show cause notice
and to consider the submissions of the borrower, a discretion
being left with the aforesaid Committee to give or not to give a
personal hearing. The Review Committee consisting of the higher
B
officials and independent directors is completely in-house. Neither
does the order of the First Committee have to be given to the
borrower, nor is any representation required against the aforesaid
order, nor is there any personal hearing before the Review
Committee, which goes through the First Committee’s order by
itself and then comes to a conclusion without involving the C
borrower at all. Serious consequences follow after a person has
been classified as a wilful defaulter. These consequences are as
follows: (a) No additional facilities to be granted by any bank/
financial institution [paragraph 2.5(a)]; (b) Entrepreneurs/
Promoters would be barred from institutional finance for a period
D
of 5 years [paragraph 2.5(a)]; (c) Any legal proceedings can be
initiated, including criminal complaints [paragraph 2.5(b)]; (d)
Banks and financial institutions to adopt proactive approach in
changing the management of the wilful defaulter [paragraph
2.5(c)]; (e) Promoter/Director of wilful defaulter shall not be
inducted by another borrowing company [paragraph 2.5(d)]; (f) E
As per section 29A of the Insolvency and Bankruptcy Code, 2016,
a wilful defaulter cannot be a resolution applicant. [Paras 7, 8]
[712-B-H; 713-A]
1.2 The impugned judgment has held that the expression
“legally authorised to take evidence” goes with the word F
“person” and not with the word “tribunal”. While this may be
correct, it is clear that before a body can be said to be a “tribunal”,
it must be invested with the judicial power of the State to decide
a lis which arises before it. This would necessarily mean that all
“tribunals” must be legally authorised to take evidence by statute
or subordinate legislation or otherwise, the judicial power of the G
State vesting in such tribunal. Applying the tests in Jaswant Sugar
Mills Ltd., Meerut v. Lakshmi Chand and Ors. and Engineering
Mazdoor Sabha and Anr. v. Hind Cycles Ltd. to the facts of the
present case, it cannot be possibly said that either in-house
committee appointed under the Revised Circular dated H
704 SUPREME COURT REPORTS [2019] 7 S.C.R.
A 01.07.2015 is vested with the judicial power of the State. The
impugned judgment’s conclusion that such Circulars have
statutory force, as a result of which the State’s judicial power has
been vested in the two committees, is wholly incorrect. First and
foremost, the State’s judicial power, as understood by several
judgments of this Court, is the power to decide a lis between the
B
parties after gathering evidence and applying the law, as a result
of which, a binding decision is then reached. This is far from the
present case as the in-house committees are not vested with any
judicial power at all, their powers being administrative powers
given to in-house committees to gather facts and then arrive at a
C result. Secondly, it cannot be said that the Circulars in any manner
vest the State’s judicial power in such in-house committees.
Therefore, the view of High Court is not correct, and no lawyer
has any right under Section 30 of the Advocates Act, 1961 to
appear before the in-house committees so mentioned. Further,
the said committees are also not persons legally authorised to
D
take evidence by statute or subordinate legislation, and on this
score also, no lawyer would have any right under Section 30 of
the Advocates Act to appear before the same. [Paras 11, 12]
[713-F-H; 715-A; D-G]
1.3 Given the scheme of the Revised Circular, it is difficult
E to state that oral hearing is mandatory. It is even more difficult to
state that in all cases oral hearings must be given, or else the
principles of natural justice are breached. A number of judgments
have held that natural justice is a flexible tool that is used in
order that a person or authority arrive at a just result. Such result
F can be arrived at in many cases without oral hearing but on written
representations given by parties, after considering which, a
decision is then arrived at. [Para 13] [716-A-C]
1.4 There is no right to be represented by a lawyer in the
in-house proceedings contained in paragraph 3 of the Revised
G Circular dated 01.07.2015, as it is clear that the events of wilful
default as mentioned in paragraph 2.1.3 would only relate to the
individual facts of each case. Whether a default is intentional,
deliberate, and calculated is again a question of fact which the
lender may put to the borrower in a show cause notice to elicit
the borrower’s submissions on the same. However, Article
H
STATE BANK OF INDIA v. M/S. JAH DEVELOPERS PVT. LTD. 705
19(1)(g) is attracted in the facts of the present case as the moment A
a person is declared to be a wilful defaulter, the impact on its
fundamental right to carry on business is direct and immediate.
This is for the reason that no additional facilities can be granted
by any bank/financial institutions, and entrepreneurs/promoters
would be barred from institutional finance for five years. Banks/
B
financial institutions can even change the management of the wilful
defaulter, and a promoter/director of a wilful defaulter cannot be
made promoter or director of any other borrower company.
Equally, under Section 29A of the Insolvency and Bankruptcy
Code, 2016, a wilful defaulter cannot even apply to be a resolution
applicant. Given these drastic consequences, it is clear that the C
Revised Circular, being in public interest, must be construed
reasonably. This being so, and given the fact that paragraph 3 of
the Master Circular dated 01.07.2013 permitted the borrower to
make a representation within 15 days of the preliminary decision
of the First Committee, first and foremost, the Committee
D
comprising of the Executive Director and two other senior
officials, being the First Committee, after following paragraph
3(b) of the Revised Circular dated 01.07.2015, must give its order
to the borrower as soon as it is made. The borrower can then
represent against such order within a period of 15 days to the
Review Committee. Such written representation can be a full E
representation on facts and law (if any). The Review Committee
must then pass a reasoned order on such representation which
must then be served on the borrower. Given the fact that the
earlier Master Circular dated 01.07.2013 itself considered such
steps to be reasonable, all these steps are incorporated into the
F
Revised Circular dated 01.07.2015. The impugned judgment is,
therefore, set aside. [Para 21] [722-D-H; 723-A-D]
Jaswant Sugar Mills Ltd., Meerut v. Lakshmi Chand
and Ors., [1963] Supp. 1 SCR 242 ; Engineering
Mazdoor Sabha and Anr. v. Hind Cycles Ltd., [1963]
Supp. 1 SCR 625 ; Associated Cement Companies Ltd. G
v. P.N. Sharma and Anr., [1965] 2 SCR 366 ; Gorkha
Security Services v. Govt. (NCT of Delhi) and Ors.
(2014) 9 SCC 105 ; Mohinder Singh Gill and Anr. v.
Chief Election Commissioner, New Delhi and Ors.
H
706 SUPREME COURT REPORTS [2019] 7 S.C.R.
A (1978) 1 SCC 405 : [1978] 2 SCR 272 ; Kavita v. State
of Maharashtra and Ors. (I), (1981) 3 SCC 558 : [1982]
1 SCR 138 ; J.K. Aggarwal v. Haryana Seeds
Development Corporation Ltd. and Ors. (1991) 2 SCC
283 : [1990] 3 Suppl. SCR 13; Crescent Dyes and
Chemicals Ltd. v. Ram Naresh Tripathi (1993) 2 SCC
B
115 : [1992] 3 Supp. SCR 559 ; D.G., Railway Protection
Force and Ors. v. K. Raghuram Babu (2008) 4 SCC
406 : [2008] 3 SCR 752 ; Krishna Chandra Tandon v.
Union of India, (1974) 4 SCC 374 ; National Seeds
Corporation Ltd. v. K.V. Rama Reddy, (2006) 11 SCC
C 645 : [2006] 6 Suppl. SCR 725 – relied on.
State Bank of India v. M/s. Jah Developers Pvt. Ltd.
and Ors. Decision of Delhi High Court in LPA No.
113 of 2015 ; Kingfisher Airlines Ltd. v. Union of India
and Ors. Decision of Bombay High Court in WP (L)
D No. 1684 of 2015 ; Kingfisher Airlines Ltd. v. Union of
India and Ors. Decision of Calcutta High Court in AST
No. 320 of 2014 ; Nand Lal Bajaj v. State of
Punjab and Anr. (1981) 4 SCC 327 : [1982] 1 SCR
718 – referred to.
E Case Law Reference
[1963] Supp. 1 SCR 242 relied on Para 11
[1963] Supp. 1 SCR 625 relied on Para 11
[1965] 2 SCR 366 relied on Para 12
F (2014) 9 SCC 105 relied on Para 13
[1978] 2 SCR 272 relied on Para 14
[1982] 1 SCR 138 relied on Para 15
[1982] 1 SCR 718 referred to Para 15
G [1990] 3 Supp. SCR 13 relied on Para 16
[1992] 3 Supp. SCR 559 relied on Para 17
[2008] 3 SCR 752 relied on Para 18
(1974) 4 SCC 374 relied on Para 19
H [2006] 6 Supp. SCR 725 relied on Para 20
STATE BANK OF INDIA v. M/S. JAH DEVELOPERS PVT. LTD. 707
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 4776 A
of 2019.
From the Judgment and Order dated 17.12.2015 of the High
Court of Delhi at New Delhi in LPA No. 113 of 2015.
With
B
Civil Appeal Nos. 4777, 4778 of 2019.
Parag P. Tripathi, Sr. Adv., Lalltaksh Doshi, Adv. (A.C.)
N. K. Kaul, B. B. Sawhney, Preetesh Kapur, Sr. Advs., Sanjay
Kapur, Bharath Gangadharan, Ms. Megha Karnwal, Ms. Shubhra Kapur,
Vipin Kumar Jai, Rakesh Kumar, Ms. Preeti Kashyap, Saurabh Mishra, C
Shibashish Misra, Mrs. Kanchan Kaur Dhodi, Advs. for the appearing
parties.
The Judgment of the Court was delivered by
R. F. NARIMAN, J. 1. Leave granted.
D
2. The question that arises in the present appeals is whether, when
a person is declared to be a wilful defaulter under the Circulars of the
Reserve Bank of India [“RBI”], such person is entitled to be represented
by a lawyer of its choice before such declaration is made.
3. The RBI Circular dated 01.07.2013 is described as a “Master E
Circular on Wilful Defaulters” [“Master Circular”] and is addressed
to all scheduled commercial banks (excluding Regional Rural Banks
(RRBs) and Local Area Banks (LABs)), and to All India Notified
Financial Institutions. The purpose of the said Master Circular is stated
as follows:
F
“Purpose:
To put in place a system to disseminate credit information
pertaining to wilful defaulters for cautioning banks and financial
institutions so as to ensure that further bank finance is not made
available to them.” G
Under this Master Circular, “wilful default” has been defined as
follows:
“2.1. Definition of wilful default
The term “wilful default” has been redefined in supersession of
the earlier definition as under: H
708 SUPREME COURT REPORTS [2019] 7 S.C.R.
A A “wilful 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 obligations.
B (b) The unit has defaulted in meeting its payment/repayment
obligations to the lender and has not utilised the finance
from the lender for the specific purposes for which finance
was availed of but has diverted the funds for other
purposes.
C (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 utilised for the specific purpose
for which finance was availed of, nor are the funds
available with the unit in the form of other assets.
D (d) The unit has defaulted in meeting its payment/repayment
obligations to the lender and has also disposed off or
removed the movable fixed assets or immovable property
given by him or it for the purpose of securing a term loan
without the knowledge of the bank/lender.”
E The Grievance Redressal Mechanism is set out in paragraph 3 of
the Master Circular as follows:
“3. Grievance Redressal Mechanism
Banks/FIs should take the following measures in identifying and
reporting instances of wilful default:
F
(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
G 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
H defaulter vis-à-vis RBI guidelines.
STATE BANK OF INDIA v. M/S. JAH DEVELOPERS PVT. LTD. 709
[R. F. NARIMAN, J.]
(iii) The borrower should thereafter be suitably advised about A
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
Grievance Redressal Committee headed by the Chairman
B
and Managing Director and consisting of two other senior
officials.
(iv) Further, the above Grievance Redressal Committee should
also give a hearing to the borrower if he represents that
he has been wrongly classified as wilful defaulter.
C
(v) 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.”
4. On 01.07.2015, the RBI issued another Master Circular D
consolidating instructions on how all scheduled commercial banks and
notified financial institutions are to deal with wilful defaulters [“Revised
Circular”]. The definition of “wilful default” is substantially the same
as in the earlier Master Circular. However, the mechanism for
identification of wilful defaulters has been substituted as follows:
E
“3. Mechanism for identification of Wilful Defaulters
The mechanism referred to in paragraph 2.5 above should generally
include the following:
(a) The evidence of wilful default on the part of the borrowing
company and its promoter/whole-time director at the F
relevant time should be examined by a Committee headed
by an Executive Director or equivalent and consisting of
two other senior officers of the rank of GM/DGM.
(b) If the Committee concludes that an event of wilful default
has occurred, it shall issue a Show Cause Notice to the G
concerned borrower and the promoter/whole-time director
and call for their submissions and after considering their
submissions issue an order recording the fact of wilful
default and the reasons for the same. An opportunity
should be given to the borrower and the promoter/whole
H
710 SUPREME COURT REPORTS [2019] 7 S.C.R.
A time director for a personal hearing if the Committee feels
such an opportunity is necessary.
(c) The order of the Committee should be reviewed by another
Committee headed by the Chairman/Chairman &
Managing Director or the Managing Director & Chief
B Executive Officer/CEOs and consisting, in addition, to two
independent directors/non-executive directors of the bank
and the Order shall become final only after it is confirmed
by the said Review Committee. However, if the
identification Committee does not pass an order declaring
a borrower as a wilful defaulter, then the Review
C Committee need not be set up to review such decisions.
xxx xxx xxx”
5. Considering that nobody appeared on behalf of the respondents
in the Civil Appeal arising out of SLP (C) No. 8591 of 2016, we appointed
D Shri Parag Tripathi, learned Senior Advocate, to assist us as Amicus
Curiae. Shri Tripathi has forcefully argued that Section 30 of the
Advocates Act, 1961 [“Advocates Act”] makes it clear that an advocate
has the right to practice before any tribunal or person legally authorised
to take evidence. Secondly, he spoke about the consequences, both civil
and criminal, of being classified as a wilful defaulter, and stated that as
E serious consequences ensue, the fundamental right of the borrower under
Article 19(1)(g) of the Constitution of India would be impacted, as a
result of which, it would be necessary to read into the aforesaid guidelines
a right to be represented by a lawyer. The only possible objection that
banks can have is that lawyers might unnecessarily delay the process of
F declaration of a borrower as a wilful defaulter by seeking adjournments
and otherwise protracting arguments. He submitted that this can be
curtailed and it can be made clear that no adjournment under any
circumstances shall be given and a maximum period of half an hour for
argument may be given. According to him, the borrower may not be
competent to represent himself and issues of discrimination may also
G arise. He therefore supported the impugned judgment of the Delhi High
Court in State Bank of India v. M/s. Jah Developers Pvt. Ltd. and
Ors., LPA No. 113 of 2015. He pointed out that the Bombay High Court,
in Kingfisher Airlines Ltd. v. Union of India and Ors., WP (L) No.
1684 of 2015, and the Calcutta High Court, in Kingfisher Airlines
H Ltd. v. Union of India and Ors., AST No. 320 of 2014, have taken a
STATE BANK OF INDIA v. M/S. JAH DEVELOPERS PVT. LTD. 711
[R. F. NARIMAN, J.]
different view which was not in consonance with the Delhi High Court’s A
view and the Delhi High Court’s view ought to prevail. Shri Tripathi’s
submission was supported by Shri Rakesh Kumar, learned Advocate
appearing on behalf of the respondent in Civil Appeal arising out of SLP
(C) No. 10008 of 2017.
6. On the other hand, Shri Neeraj Kishan Kaul and Shri B.B. B
Sawhney, learned Senior Advocates appearing on behalf of the appellants
in Civil Appeals arising out of SLP (C.) No. 8591 of 2016 and SLP (C.)
No. 10008 of 2017 respectively, and Shri Preetesh Kapur, learned Senior
Advocate appearing on behalf of the intervenor in Civil Appeal arising
out of SLP (C.) No. 26329 of 2017, cited a number of judgments to
show that the right to legal representation is no part of the right of natural C
justice. They also assailed the judgment of the Delhi High Court, stating
that by no stretch of imagination could the in-house committees referred
to in the RBI Circulars be said to be “tribunals” inasmuch as there is no
investment of any judicial power by the State in these in-house
committees. They buttressed this submission also by reference to several D
judgments. According to them, therefore, the Calcutta and Bombay High
Courts’ view is preferable to the Delhi High Court’s view. It will be
noted that the Master Circular dated 01.07.2013 first entrusted cases of
wilful default to a Committee of higher functionaries, which Committee
would then take a preliminary decision which should be well documented
and supported by evidence [“First Committee”]. Thereafter, the E
concerned borrower should be provided 15 days’ time for making a
representation to the Grievance Redressal Committee headed by the
Chairman and the Managing Director and consisting of two other senior
officers [“Review Committee”]. Further, such Committee must give
a hearing to the borrower if he represents that he has been wrongly F
classified as a wilful defaulter, and it is only after such hearing that a
final declaration as wilful defaulter should be made. On the other hand,
the Revised Circular dated 01.07.2015 circumscribes the right of
borrowers, as paragraph 3 of the Revised Circular replaces the aforesaid
scheme by making an Executive Director and two other senior officers
examine evidence of wilful default on the part of the borrower. If this G
Committee finds that an event of wilful default has occurred, it should
first issue a show cause notice to the concerned borrower and call for
his submissions, and after considering his submissions, issue an order
recording the fact of wilful default and reasons for the same; a personal
hearing can be given only if the Committee feels that such hearing is H
712 SUPREME COURT REPORTS [2019] 7 S.C.R.
A necessary. Thereafter, the order of the Committee is to be reviewed by
another Committee headed by the Chairman/Chairman and Managing
Director or CEO, in addition to two independent directors/non-executive
directors of the bank and the order will become final only after it is
confirmed by the said Review Committee.
B 7. It will be noted that whereas the earlier Master Circular dated
01.07.2013 granted a hearing before the Grievance Redressal Committee
headed by the Chairman/Managing Director, and also provided that the
borrower should be provided 15 days’ time for making a representation
against the preliminary decision of the First Committee, this situation
does not now obtain. Under paragraph 3 of the Revised Circular dated
C 01.07.2015, it is only at the first stage that the First Committee is to issue
a show cause notice and to consider the submissions of the borrower, a
discretion being left with the aforesaid Committee to give or not to give
a personal hearing. It may be noticed that the Review Committee
consisting of the higher officials and independent directors is completely
D in-house. Neither does the order of the First Committee have to be given
to the borrower, nor is any representation required against the aforesaid
order, nor is there any personal hearing before the Review Committee,
which goes through the First Committee’s order by itself and then comes
to a conclusion without involving the borrower at all.
E 8. At this stage, it is necessary to mention that serious
consequences follow after a person has been classified as a wilful
defaulter. These consequences are as follows:
(a) No additional facilities to be granted by any bank/financial
institution [paragraph 2.5(a)].
F (b) Entrepreneurs/Promoters would be barred from institutional
finance for a period of 5 years [paragraph 2.5(a)].
(c) Any legal proceedings can be initiated, including criminal
complaints [paragraph 2.5(b)].
(d) Banks and financial institutions to adopt proactive approach
G
in changing the management of the wilful defaulter
[paragraph 2.5(c)].
(e) Promoter/Director of wilful defaulter shall not be inducted
by another borrowing company [paragraph 2.5(d)].
H
STATE BANK OF INDIA v. M/S. JAH DEVELOPERS PVT. LTD. 713
[R. F. NARIMAN, J.]
(f) As per section 29A of the Insolvency and Bankruptcy Code, A
2016, a wilful defaulter cannot be a resolution applicant.
9. It is in this background that we have to consider the question as
to whether a lawyer ought to be allowed to represent the borrower before
the First Committee and/or Review Committee under the Revised Circular
dated 01.07.2015. B
10. Since the judgment of the Delhi High Court has held that the
two in-house committees can be considered to be tribunals, and that
therefore, a lawyer has the right to represent his client before such in-
house committees, it is first necessary to determine whether these in-
house committees can be said to be tribunals for the purpose of Section C
30 of the Advocates Act. Section 30 of the Advocates Act reads as
follows:
“30. Right of advocates to practise.—Subject to the provisions
of this Act, every advocate whose name is entered in the State
roll shall be entitled as of right to practise throughout the territories D
to which this Act extends,—
(i) in all courts including the Supreme Court;
(ii) before any tribunal or person legally authorised to take
evidence; and
E
(iii) before any other authority or person before whom such
advocate is by or under any law for the time being in force
entitled to practise.”
11. The impugned judgment has held that the expression “legally
authorised to take evidence” goes with the word “person” and not with
F
the word “tribunal”. While this may be correct, it is clear that before a
body can be said to be a “tribunal”, it must be invested with the judicial
power of the State to decide a lis which arises before it. This would
necessarily mean that all “tribunals” must be legally authorised to take
evidence by statute or subordinate legislation or otherwise, the judicial
power of the State vesting in such tribunal. This Court, in Jaswant Sugar G
Mills Ltd., Meerut v. Lakshmi Chand and Ors., [1963] Supp (1)
SCR 242, held that a Conciliation Officer under clause 29 of an Order
promulgated under the U.P. Industrial Disputes Act, 1947, has to act
judicially. However, he cannot be regarded as a “tribunal” within the
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714 SUPREME COURT REPORTS [2019] 7 S.C.R.
A meaning of Article 136 of the Constitution of India as such tribunal must
be a body invested with the judicial power of the State, which a
Conciliation Officer was not so invested with. Similarly, in Engineering
Mazdoor Sabha and Anr. v. Hind Cycles Ltd., [1963] Supp (1) SCR
625, this Court held that an arbitrator appointed under Section 10-A of
the Industrial Disputes Act, 1947 could not be said to be a tribunal because
B
the State has not invested him with judicial power. His position may be
stated to be higher than that of a private arbitrator, but lower than that of
a tribunal.
12. Similarly, in Associated Cement Companies Ltd. v. P.N.
Sharma and Anr., [1965] 2 SCR 366, this Court held that the State of
C Punjab is a tribunal when it exercises its authority under Rule 6(6) of the
Punjab Welfare Officers Recruitment and Conditions of Service Rules,
1952. Hence, an order passed by the State of Punjab would be appealable,
as the State of Punjab is a “tribunal” within the meaning of Article 136(1)
of the Constitution of India. The majority judgment, through
D Gajendragadkar, C.J., held that the basic test is whether the adjudicating
power which a particular authority is empowered to exercise, has been
conferred on it by a statute and can be described as a part of the State’s
inherent power exercised in discharging its judicial function, can be said
to be satisfied on the facts of the case. In a separate concurring judgment,
Bachawat, J., held:
E
“44. An authority other than a Court may be vested by statute
with judicial power in widely different circumstances, which it
would be impossible and indeed inadvisable to attempt to define
exhaustively. The proper thing is to examine each case as it arises,
and to ascertain whether the powers vested in the authority can
F be truly described as judicial functions or judicial powers of the
State. For the purpose of this case, it is sufficient to say that any
outside authority empowered by the State to determine
conclusively the rights of two or more contending parties with
regard to any matter in controversy between them satisfies the
G test of an authority vested with the judicial powers of the State
and may be regarded as a tribunal within the meaning of Article
136. Such a power of adjudication implies that the authority must
act judicially and must determine the dispute by ascertainment of
the relevant facts on the materials before it and by application of
the relevant law to those facts. This test of a tribunal is not meant
H
STATE BANK OF INDIA v. M/S. JAH DEVELOPERS PVT. LTD. 715
[R. F. NARIMAN, J.]
to be exhaustive, and it may be that other bodies not satisfying A
this test are also tribunals. In order to be a tribunal, it is essential
that the power of adjudication must be derived from a statute or a
statutory rule. An authority or body deriving its power of
adjudication from an agreement of the parties, such as a private
arbitrator or a tribunal acting under Section 10-A of the Industrial
B
Disputes Act, 1947, does not satisfy the test of a tribunal within
Article 136. It matters little that such a body or authority is vested
with the trappings of a Court. The Arbitration Act, 1940 vests an
arbitrator with some of the trappings of a
Court, so also the Industrial Disputes Act, 1947 vests an authority
acting under Section 10-A of the Act with many of such trappings, C
and yet, such bodies and authorities are not tribunals.”
Applying the aforesaid tests to the facts of the present case, it
cannot be possibly said that either in-house committee appointed under
the Revised Circular dated 01.07.2015 is vested with the judicial power
of the State. The impugned judgment’s conclusion that such Circulars D
have statutory force, as a result of which the State’s judicial power has
been vested in the two committees, is wholly incorrect. First and foremost,
the State’s judicial power, as understood by several judgments of this
Court, is the power to decide a lis between the parties after gathering
evidence and applying the law, as a result of which, a binding decision is E
then reached. This is far from the present case as the in-house committees
are not vested with any judicial power at all, their powers being
administrative powers given to in-house committees to gather facts and
then arrive at a result. Secondly, it cannot be said that the Circulars in
any manner vests the State’s judicial power in such in-house committees.
On this ground, therefore, the view of Delhi High Court is not correct, F
and no lawyer has any right under Section 30 of the Advocates Act to
appear before the in-house committees so mentioned. Further, the said
committees are also not persons legally authorised to take evidence by
statute or subordinate legislation, and on this score also, no lawyer would
have any right under Section 30 of the Advocates Act to appear before G
the same.
13. The next question that arises is whether an oral hearing is
required under the Revised Circular dated 01.07.2015. We have already
seen that the said Circular makes a departure from the earlier Master
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716 SUPREME COURT REPORTS [2019] 7 S.C.R.
A Circular in that an oral hearing may only be given by the First Committee
at the first stage if it is so found necessary. Given the scheme of the
Revised Circular, it is difficult to state that oral hearing is mandatory. It
is even more difficult to state that in all cases oral hearings must be
given, or else the principles of natural justice are breached. A number of
judgments have held that natural justice is a flexible tool that is used in
B
order that a person or authority arrive at a just result. Such result can be
arrived at in many cases without oral hearing but on written
representations given by parties, after considering which, a decision is
then arrived at. Indeed, in a recent judgment in Gorkha Security
Services v. Govt. (NCT of Delhi) and Ors., (2014) 9 SCC 105, this
C Court has held, in a blacklisting case, that where serious consequences
ensue, once a show cause notice is issued and opportunity to reply is
afforded, natural justice is satisfied and it is not necessary to give oral
hearing in such cases [see paragraph 20].
14. When it comes to whether the borrower can, given the
D consequences of being declared a wilful defaulter, be said to have a
right to be represented by a lawyer, the judgments of this Court have
held that there is no such unconditional right, and that it would all depend
on the facts and circumstances of each case, given the governing rules
and the fact situation of each case. Thus, in Mohinder Singh Gill and
Anr. v. Chief Election Commissioner, New Delhi and Ors., (1978)
E 1 SCC 405, in the context of election law, this Court held:
“63. In Wiseman v. Borneman [(1967) 3 All ER 1945] there was
a hint of the competitive claims of hurry and hearing. Lord Reid
said: “Even where the decision has to be reached by a body acting
judicially, there must be a balance between the need for
F expedition and the need to give full opportunity to the defendant
to see material against him” (emphasis added). We agree that the
elaborate and sophisticated methodology of a formalised hearing
may be injurious to promptitude so essential in an election under
way. Even so, natural justice is pragmatically flexible and is
G amenable to capsulation under the compulsive pressure of
circumstances. To burke it altogether may not be a stroke of
fairness except in very exceptional circumstances. Even in
Wiseman where all that was sought to be done was to see if there
was a prima facie case to proceed with a tax case where, inevitably,
a fuller hearing would be extended at a later stage of the
H
STATE BANK OF INDIA v. M/S. JAH DEVELOPERS PVT. LTD. 717
[R. F. NARIMAN, J.]
proceedings, Lord Reid, Lord Morris of Borth-y-Gest and Lord A
Wilberforce suggested “that there might be exceptional cases
where to decide upon it ex parte would be unfair, and it would be
the duty of the tribunal to take appropriate steps to eliminate
unfairness” (Lord Denning, M.R., in Howard v. Borneman [(1974)
3 WLR 660] summarised the observations of the Law Lords in
B
this form). No doctrinaire approach is desirable but the Court
must be anxious to salvage the cardinal rule to the extent
permissible in a given case. After all, it is not obligatory that Counsel
should be allowed to appear nor is it compulsory that oral evidence
should be adduced. Indeed, it is not even imperative that written
statements should be called for. Disclosure of the prominent C
circumstances and asking for an immediate explanation orally or
otherwise may, in many cases, be sufficient compliance. It is even
conceivable that an urgent meeting with the concerned parties
summoned at an hour’s notice, or in a crisis, even a telephone
call, may suffice. ……”
D
(emphasis in original)
15. In Kavita v. State of Maharashtra and Ors. (I), (1981) 3
SCC 558 [“Kavita”], this Court held, in the context of preventive
detention, that even when a detenu makes a request for legal assistance
before the Advisory Board, the Advisory Board is vested with a discretion E
whether to allow or disallow such legal assistance. This was despite the
fact that adequate legal assistance may be essential for the protection of
the fundamental right to life and personal liberty guaranteed by Article
21 of the Constitution. On facts, it was held that since the detenu had not
made any request to the Advisory Board for any such permission, the
Court was not prepared to hold that the detenu was denied the assistance F
of counsel so as to lead to the conclusion that procedural fairness under
Article 21 of the Constitution was denied to him. Likewise, in Nand Lal
Bajaj v. State of Punjab and Anr., (1981) 4 SCC 327, this Court referred
to Article 22(3)(b) of the Constitution of India which states that the right
to consult and be defended by a legal practitioner of his choice is denied G
to a person who is arrested or detained under any law providing for
preventive detention. This Court then went on to hold that normally,
lawyers have no place in proceedings before the Advisory Board, and
then went on to refer to Kavita (supra). It was finally held that since the
detaining authority was allowed to be represented by counsel before the
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718 SUPREME COURT REPORTS [2019] 7 S.C.R.
A Advisory Board, whereas the detenu was not, the order of detention
would be quashed as this would be discriminatory.
16. In J.K. Aggarwal v. Haryana Seeds Development
Corporation Ltd. and Ors., (1991) 2 SCC 283, this Court, after
discussing the case law, held in paragraph 4, that the right of representation
B by a lawyer cannot be held to be a part of natural justice. No general
principle valid in all cases can be enunciated. In the last analysis, a decision
has to be reached on a case to case basis on situational particularities
and the special requirements of justice of the case [see paragraph 8].
17. In Crescent Dyes and Chemicals Ltd. v. Ram Naresh
C Tripathi, (1993) 2 SCC 115, this Court held that a workman under the
Industrial Disputes Act, 1947 has no right, under principles of natural
justice, that he must be represented by counsel. After discussing several
judgments, this Court concluded:
“12. From the above decisions of the English Courts it seems
D clear to us that the right to be represented by a counsel or agent
of one’s own choice is not an absolute right and can be controlled,
restricted or regulated by law, rules or regulations. However, if
the charge is of a serious and complex nature, the delinquent’s
request to be represented through a counsel or agent could be
conceded.
E
13. The law in India also does not concede an absolute right of
representation as an aspect of the right to be heard, one of the
elements of principle of natural justice. It has been ruled by this
Court in (i) Kalindi (N) v. Tata Locomotive & Engineering Co.
Ltd., Jamshedpur [(1960) 3 SCR 407 : AIR 1960 SC 914], (ii)
F Brooke Bond India (P) Ltd. v. Subba Raman (S.) [(1961) 2
LLJ 417] and (iii) Dunlop Rubber Co. v. Workmen [(1965) 2
SCR 139 : AIR 1965 SC 1392] that there is no right to representation
as such unless the company by its Standing Orders recognises
such a right.”
G xxx xxx xxx
“17. It is, therefore, clear from the above case-law that the right
to be represented through counsel or agent can be restricted,
controlled or regulated by statute, rules, regulations or Standing
Orders. A delinquent has no right to be represented through counsel
H
STATE BANK OF INDIA v. M/S. JAH DEVELOPERS PVT. LTD. 719
[R. F. NARIMAN, J.]
or agent unless the law specifically confers such a right. The A
requirement of the rule of natural justice insofar as the delinquent’s
right of hearing is concerned, cannot and does not extend to a
right to be represented through counsel or agent. In the instant
case the delinquent’s right of representation was regulated by the
Standing Orders which permitted a clerk or a workman working
B
with him in the same department to represent him and this right
stood expanded on Sections 21 and 22(ii) permitting representation
through an officer, staff-member or a member of the union, albeit
on being authorised by the State Government. The object and
purpose of such provisions is to ensure that the domestic enquiry
is completed with despatch and is not prolonged endlessly. C
Secondly, when the person defending the delinquent is from the
department or establishment in which the delinquent is working
he would be well conversant with the working of that department
and the relevant rules and would, therefore, be able to render
satisfactory service to the delinquent. Thirdly, not only would the
D
entire proceedings be completed quickly but also inexpensively. It
is, therefore, not correct to contend that the Standing Order or
Section 22(ii) of the Act conflicts with the principles of natural
justice.”
18. In D.G., Railway Protection Force and Ors. v. K.
Raghuram Babu, (2008) 4 SCC 406, this Court, in the context of a E
domestic/departmental enquiry held:
“9. It is well settled that ordinarily in a domestic/departmental
enquiry the person accused of misconduct has to conduct his own
case vide N. Kalindi v. Tata Locomotive and Engg. Co. Ltd.
[AIR 1960 SC 914]. Such an inquiry is not a suit or criminal trial F
where a party has a right to be represented by a lawyer. It is only
if there is some rule which permits the accused to be represented
by someone else, that he can claim to be so represented in an
inquiry vide Brooke Bond India (P) Ltd. v. Subba Raman
[(1961) 2 LLJ 417 (SC)]. G
10. Similarly, in Cipla Ltd. v. Ripu Daman Bhanot [(1999) 4
SCC 188 : 1999 SCC (L&S) 847] it was held by this Court that
representation could not be claimed as of right. This decision
followed the earlier decision Bharat Petroleum Corpn. Ltd. v.
H
720 SUPREME COURT REPORTS [2019] 7 S.C.R.
A Maharashtra General Kamgar Union [(1999) 1 SCC 626 : 1999
SCC (L&S) 361] in which the whole case law has been reviewed
by this Court.
11. Following the above decision it has to be held that there is no
vested or absolute right in any charge-sheeted employee to
B representation either through a counsel or through any other person
unless the statute or rules/standing orders provide for such a right.
Moreover, the right to representation through someone, even if
granted by the rules, can be granted as a restricted or controlled
right. Refusal to grant representation through an agent does not
violate the principles of natural justice.”
C
Ultimately, the Court upheld the validity of Rule 153.8 of the
Railway Protection Force Rules, 1987, which permitted a friend to
accompany a delinquent, who will not, however, be allowed to address
the inquiry officer or be allowed to cross-examine witnesses.
D 19. It has also been argued before us that the present case, being
a case where “wilful default” consists of facts which are known to the
borrower, and as “wilful default” would only be the borrower’s version
of facts, no lawyer is needed as no complicated questions of law need to
be presented before the in-house committees. Thus, in Krishna Chandra
Tandon v. Union of India, (1974) 4 SCC 374, this Court held:
E
“17. It was next argued that the appellant had asked for the
assistance of an advocate but the same was refused. It was
submitted that having regard to the intricacies of the case and
particularly the ill-health of the appellant, he should have been
given the assistance of an advocate, and since that was not given
F there was no reasonable opportunity to defend. The High Court
has rejected this submission and we think for good reasons. The
appellant was not entitled under the Rules to the assistance of an
advocate during the course of the enquiry. The learned Judges
were right in pointing out that all that the appellant had to do in the
G course of the enquiry was to defend the correctness of his
assessment orders. Clear indications had been given in the charges
with regard to the unusual conduct he displayed in disposing of
the assessment cases and the various flaws and defaults which
were apparent on the face of the assessment records themselves.
The appellant was the best person to give proper explanations.
H
STATE BANK OF INDIA v. M/S. JAH DEVELOPERS PVT. LTD. 721
[R. F. NARIMAN, J.]
The circumstances in the evidence against him were clearly put A
to him and he had to give his explanation. An advocate could have
hardly helped him in this. It was not a case where oral evidence
was recorded with reference to accounts and the petitioner
required the services of a trained lawyer for cross-examining the
witnesses. There was no legal complexity in the case. We do not,
B
therefore, accede to the contention that the absence of a lawyer
deprived the appellant of a reasonable opportunity to defend
himself.”
20. Also, in National Seeds Corporation Ltd. v. K.V. Rama
Reddy, (2006) 11 SCC 645, this Court laid down:
C
“7. The law in this country does not concede an absolute right of
representation to an employee in domestic enquiries as part of his
right to be heard and that there is no right to representation by
somebody else unless the rules or regulation and standing orders,
if any, regulating the conduct of disciplinary proceedings specifically
recognise such a right and provide for such representation: see D
Kalindi v. Tata Locomotive & Engg. Co. Ltd. [(1960) 3 SCR
407 : AIR 1960 SC 914], Dunlop Rubber Co. v. Workmen [(1965)
2 SCR 139 : AIR 1965 SC 1392], Crescent Dyes and Chemicals
Ltd. v. Ram Naresh Tripathi [(1993) 2 SCC 115 : 1993 SCC
(L&S) 360] and Indian Overseas Bank v. Officers’ Assn. [(2001) E
9 SCC 540 : 2002 SCC (L&S) 1043].”
The Court then held:
“10. Learned counsel for the appellant Corporation has brought
to our notice office memorandum dated 21-11-2003 by which the
prayer to engage a legal practitioner to act as a defence assistant F
was rejected. Reference was made to the Rules, though no specific
reference has been made to the discretion available to be exercised
in particular circumstances of a case. The same has to be noted
in the background of the basis of prayer made for the purpose.
The reasons indicated by the respondent for the purpose were: G
(a) amount alleged to have been misappropriated is Rs 63.67 lakhs,
(b) a number of documents and number of witnesses are relied
on by the respondent, and (c) the prayer for availing services of
the retired employee has been rejected and the respondent is unable
to get any assistance to get any other able co-worker. None of
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722 SUPREME COURT REPORTS [2019] 7 S.C.R.
A these factors are really relevant for the purpose of deciding as to
whether he should be granted permission to engage the legal
practitioner. As noted earlier, he had to explain the factual position
with reference to the documents sought to be utilised against him.
A legal practitioner would not be in a position to assist the
respondent in this regard. It has not been shown as to how a legal
B
practitioner would be in a better position to assist the respondent
so far as the documents in question are concerned. As a matter
of fact, he would be in a better position to explain and throw light
on the question of acceptability or otherwise and the relevance of
the documents in question. The High Court has not considered
C these aspects and has been swayed by the fact that the respondent
was physically handicapped person and the amount involved is
very huge. As option to be assisted by another employee is given
to the respondent, he was in no way prejudiced by the refusal to
permit engagement of a legal practitioner. The High Court’s order
is, therefore, unsustainable and is set aside.”
D
21. Given the above conspectus of case law, we are of the view
that there is no right to be represented by a lawyer in the in-house
proceedings contained in paragraph 3 of the Revised Circular dated
01.07.2015, as it is clear that the events of wilful default as mentioned in
paragraph 2.1.3 would only relate to the individual facts of each case.
E What has typically to be discovered is whether a unit has defaulted in
making its payment obligations even when it has the capacity to honour
the said obligations; or that it has borrowed funds which are diverted for
other purposes, or siphoned off funds so that the funds have not been
utilised for the specific purpose for which the finance was made available.
F Whether a default is intentional, deliberate, and calculated is again a
question of fact which the lender may put to the borrower in a show
cause notice to elicit the borrower’s submissions on the same. However,
we are of the view that Article 19(1)(g) is attracted in the facts of the
present case as the moment a person is declared to be a wilful defaulter,
the impact on its fundamental right to carry on business is direct and
G immediate. This is for the reason that no additional facilities can be granted
by any bank/financial institutions, and entrepreneurs/promoters would
be barred from institutional finance for five years. Banks/financial
institutions can even change the management of the wilful defaulter, and
a promoter/director of a wilful defaulter cannot be made promoter or
H director of any other borrower company. Equally, under Section 29A of
STATE BANK OF INDIA v. M/S. JAH DEVELOPERS PVT. LTD. 723
[R. F. NARIMAN, J.]
the Insolvency and Bankruptcy Code, 2016, a wilful defaulter cannot A
even apply to be a resolution applicant. Given these drastic consequences,
it is clear that the Revised Circular, being in public interest, must be
construed reasonably. This being so, and given the fact that paragraph 3
of the Master Circular dated 01.07.2013 permitted the borrower to make
a representation within 15 days of the preliminary decision of the First
B
Committee, we are of the view that first and foremost, the Committee
comprising of the Executive Director and two other senior officials, being
the First Committee, after following paragraph 3(b) of the Revised Circular
dated 01.07.2015, must give its order to the borrower as soon as it is
made. The borrower can then represent against such order within a
period of 15 days to the Review Committee. Such written representation C
can be a full representation on facts and law (if any). The Review
Committee must then pass a reasoned order on such representation which
must then be served on the borrower. Given the fact that the earlier
Master Circular dated 01.07.2013 itself considered such steps to be
reasonable, we incorporate all these steps into the Revised Circular dated
D
01.07.2015. The impugned judgment is, therefore, set aside, and the
appeals are allowed in terms of our judgment. We thank the learned
Amicus Curiae, Shri Parag Tripathi, for his valuable assistance to this
Court.
E
Divya Pandey Appeals allowed.
F
G
H
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