1. Vidyasaqar Prachuri v. 1. Punjab National Bank, ReP

HON'BLE SRI JUSTICE NAGESH BHEEMAPAKA WRIT PEtITION No. 11515 OF 2025 ot.L2.20/25 Between: Vidyasagar Parchuri & another And Punjab National Bank Rep. by General Manager & tv,o others. . Petitioners Respondents ORDER: Petitioners state that show cause notice dated

22.Ol.2OLS as well as subsequent notice dated 20.O2.2O 16, are fundamentally-defective and illegal as they were not issued by the Identification Committee as mandated by the RBI Master Circular on Wilful Defaulters. According to them, these notices were issued by an officer who was not a member of the Identification Committee, and neither notice bears the signatures or approval of the Committee members. They further contend that the notices do rrot disclose any reasons, material particulars, or independent findings of the Committee. They assert that no deliberations of the Committee preceded the 2 (i issuance of these notices, thereby demonstrating total non- application of mind and rendering the entire exercise contrary to the mandatory procedural framework prescribed by the RBI.

1. 1 . Petitioners state that they are members of the suspencled management of Respondent No. 2 company, which has been admitted into Corporate lnsolvency Resolution Process (CIRP) in CP(IB) No. 645/HDBl2O18 by order dated 05.06.2023 of the NCLT, Hyderabad Bench. They further point out that due to deficiencies in the public announcement and other procedural aspects, the NCLT restarted the CIRP on 2L.O2.2O25. The Petitioners contend that the branding of the suspended management as wilful defaulters directly affects their rights under the Insolvency and Bankruptcy Code, including their to submit a resolution plan for the MSME. They assert "figiUitity that such a classification has the effect of disqualifying them from participating in the resolution of the very company whose operations they managed, causing serious civil and commercial prejudice.

1.2. It is stated, the default in servicing loans occurred due to circumstances entirely beyond their control. Respondent No. 2 is a hybrid seed manufacturing company whose operations depend heavily on climatic conditions. During the agricultural year 2012-13, severe drought occurred, adversely 3 affecting seed production and leading to steep financial losses and liquidity constraints. They assert that the drought caused a massive disruption in the entire seed industry and that company's inability to meet repayment obligations resulted directly from this natural calamit5r, not from any deliberate or wilful act on their part.

1.3. Petitioners further state that at the critical time when the company was attempting to revive and restructure operations, the consortium lenders, including Respondent No. 1, failed to release sanctioned and essential working capital. They allege that the consortium did not release the Pre-CDR PD amounts in 2012, delayed the approval of the qDR package, delayed execution of the Master Restructrrring Agreement, and even after approval, sanctioned funds were only partially released. They also contend that some member banks did not participate in the PDR. They state that the banks refused to release Rs. 15 crores required for packing and placing seeds in the market during 2013 and. 2014, which led to inability to place stocks on time, high sales returns, accumulation of inventory, severe cash flow deterioration, loss of manpower, and eventual disruption of operations:

1.4. Petitioners state that there was no dishonest intention, diversion of funds, or siphoning of money as alleged a, \ t: 4 by the Bank. Prior to the drought, the company had consistently t serviced its loan obligations. They further submit that group- company transactions referred to by the Bank were genuine commercial transactions involving other seed apd biotechnolory companies within their group, and these entities had substantial operations, dealer networks, and longstanding involvement in agricultural research. The Petitioners claim that such inter-company transactions were legitimate, commercially justified, and were well within the knowledge of the consortium lenders.

1.5. It is explained that routing of funds through Bank of Baroda and RBL Bank occurred only due to the attachment of the company's TRA and consortium accounts by the Income Tax D6partment by order dated 27.03.2013. They state that this compelled temporary routing of funds through those banks. It is stated, the relevant bank statements were shared with the lead bank SBI and other lenders through an e mail dated

22.09.2014, and that during a Joint Lenders' Meeting held on

26.09.2014, lenders acknowledged receipt of such statements. They therefore, assert that there was no concealment, irregular diversion, or breach of consortium terms.

1.6. Petitioners state that material documents required for submitting a meaningful response were not supplied to \,- ./ 5 (@ them, particularly the forensic audit report which was relied upon in the show cause notice. They state that they repeatedly requested the said report between 14.O8.2O20 and 16.03.2021, and that it was furnished only after this Court's direction in Writ Petition No. 6544 of 2021 dated L6.O4.2021, whereafter the report was supptied on LI.05.2O21. It is also stated, due to Covid restrictions, their auditors were unable to inspect the company's godown and locations for reconciliation, therefore sought reasonable time to prepare an effective response.

1.7. Petitioners highlight that the chronologr of events demonstrates a clear pattern of procedural violation. They refer to issuance of SCN dated 22.O1.2OL5, their representations dated 2a.O1.2O15, 04.O2.2O15 and 07.O2.2O15, the second SCN dated 20.02.2016, their reply dated 28.02.2016, and finally the communication dated 28.05.2019, through which they were informed for the first time that the Committee had classified them as willful defaulters on O5.06:2018. They contend that Bank never communicated any reasoned order of the Identification Committee nor the order of the Review Committee, thereby violating mandatory requirements of the Master Circular t: 6 (-l i.8. Petitioners state that their explanations regarding receivables from group companies, reconciliation difficulties due to the rvithholding of stock by C&F agents, and issues arising from time-barred claims under the Limitatiqn Act were not considered by the Bank at any stage of the proceedings. Classification as willful defaulters has profound adverse consequences, including serious reputational harm, denial of access to credit, restrictions from the banking system, and statutory disqualifications under the IBC. They contend that such classification operates as a continuing tort under Section 22 of the Limitation Act, as the adverse civil consequences persist on a daily basis. Petitioners further state that only three consortium banks SBI, IDBI and Respondent No. 1, classified t6em as willful defaulters, whereas the remaining consortium members did not do So, which according to them reflects arbitrariness and non-uniformity in lender conduct.

1.9. Petitioners state that their earlier Writ Petition No. 27759 of 2024 was withdrawn on 30. L2.2O24 with liberty to frle a fresh one due to technical defects. The present Writ Petition was filed in accordance with such liberty and that challenge is bona -fide and not intended to delay the CIRP. Finally, Plitio.rer" state that the entire exercise undertaken by Respondent No. 1 is arbitrary, lacks authority of law, violates 7 m the RBI Master Circulars, breaches the principles of natural justice, and. infringes their fundamental rights under Articles 14 and, 21. They therefore seek quashing of the communications dated 20.o2.2016 and 28.O5.2O19 and consequential relief.

2.RespondentNo.lstatesthat,WritPetitionis barred by delay and laches. It is stated, Petitioners were classified as willful defaulters by the ldentification Committee on 05.O6.2OI8, which classification was communicated to them through the letter dated 28.05.2019. Further, in accordance with the RBI Master Circular, Petitioners photographs were published in newspapers on 15.O6 .2}lg. Despite being aware of these actions since 2olg, Petitioners approached this court after several years, and no satisfactory explanation is offered for the long detay. It is stated, extensive recovery proceedings were already instituted well before and during the willful defaulter process. The consortium of lenders led by SBI filed OA No' 417 of. 2016 before the DRT, subseqrrently renumbered as TA No. 2556 of 2017. The Bank also refers to independent recovery actions taken by other lenders, specifically pointing out that al Bank obtained a decree on 11'05'2018 for Rs. 76.78 crores. These proceedings demonstrate longstanding defautts and a continuous failure by the Petitioners to regulariz'e dues. I 8 (\

2.1. Respondent No- 1 states that petitioners are chronic defaulters since classification of the account as NpA and have not demonstrated bona fid.e intent to repay. It is contended that Petitioners repeatedly resorted to various litigations across fora including DRT, NCLT and earlier writ proceedings, not for genuine grievance redressal but to obstruct and delay recovery. The Bank asserts that petitioners were given sufficient opportunities to respond to the allegations of wiltful default. It is stated that show cause notices were issued, and Petitioners submitted several replies and representations in 2015 and 2oL6, all of which were placed before the Identification committee. Respondent No. 1 states that the committee considered petitioners' replies, examined the entire retord and thereafter, recordecl a specific finding that there was diversion of funds and violation of lending conditions. It is asserted that the committee reached its conclusions after due deliberation and satisfaction, and that petitioners' allegation of non-application of mind is unfounded. 2.2- Respondent No. 1 states that the entire process of classification was undertaken strictly in accordance with the RBI Master circular dated 01.02.2015. The mandatory procedures relating to issuance of notice, consideration of t)tri"", examination of materials and final decision making were 9 () fully adhered to and that there was no procedural irregularit5r or breach of natural justice. Respondent No. 1 further states that Petitioners did not avail the remedy of review that was available to them under the Master Circular. According to the Bank, Petitioners chose not to submit a representation to the Review Committee and instead continued initiating litigation to delay and derail recovery mechanisms. It is contended, Petitioners have repeatedly adopted a litigation strategr aimed at stalling CIRP proceedings also. They did not cooperate in the CIRP initiated by lenders and have been attempting to delay or obstruct lender actions initiated before the NCLT. Bank further states that all the findings of willful default were based on material duly verified by lenders, including findings relating to routing of funds outside consortium accounts, failure to deposit sale proceeds as required, and non-recovery of receivables from related entities. These facts, according to Respondent, clearly meet the parameters of willful default under the RBI Master Circular.

2.3. Respondent No. 1 finally submits that this Writ Petition was filed only with the intention of circumventing statutory ineligibilities arising under Section 29A(b) of the IBC, as persons classified as willful defaulters are barred from submitting resolution plans. The Bank therefore, contends that \r \ il] 10 ('i. the petition is an attempt to evade statutory consequences, lacks merit, and is liable to be dismissed with costs as no grounds exist for interference with the classification. 3. Heard Sri Dharmesh D.K. Jaiswal, Iearned counsel for petitioners, Smt. Kalpana Ekbote, learned counsel for the 1st respondent, M/s N Legal Hyderabad, learned counsel for the 3rd respondent, Sri G.P. Yash Vardhan, learned counsel for the 2nd respondent.

4. Upon considering the pleadings, rival submissions, and material placed on record, the chronologr of events demonstrates that willful defaulter proceedings began with issuance of show cause notice dated 22.ol.2ors, folowed by the subsequent notice dated 20.o2.2o16. petitioners were later inlormed through the communication dated 2a.os.2olg that Identification committee had classified them as willful defaulters on 05.06.2018, and such classification was thereafter, published in newspapers on 1s.o6.2019. Despite these events having occurred years earlier, petitioners approached this court only in 2o2s.The explanation submitted for the delay, including withdrawal of writ petition No. 2zzs9 of 2024 on 30. L2.2024 with liberty, does not satisfactorily account to. period of inaction. :"-O.olonged e/ 11 o

5. Petitioners have raised several objections regarding the validity of the proceedings, including that the show cause notices were not issued by the ldentification Committee, were unsigned, lacked reasons, and were unsupported by any Committee deliberations. They assert that material documents such as forensic audit report were not furnished, thereby denying them a fair opportunity to respond. They further contend that the company's defaults were attributable to a severe drought, non-release of sanctioned working capital by lenders, inability to obtain Pre-CDR PD funding, delay in approval of the CDR package, and failure of the banks to release the required Rs. 15 crores for packing and marketing seeds. They also maintain that there was no dishonest diversion of funds; that transactions with group companies were genuine and known to lenders; and that routing of funds through Bank of Baroda and RBL Bank occurred only because consortium accounts had been attached by the Income Tax Department. They therefore, assert that the classification is arbitrary, violative of natural justice, and contrary to the RBI Master Circular.

6. Respondent No. 1, on the other hand, placed on record that Petitioners submitted several replies in 2015 and 2OL6; the tdentification Committee considered the material 7: t2 placed before it and recorded findings of diversion of funds and {a-. related-party issues; and that all steps were undertaken in accordance with the Master Circular. The Bank submits that extensive recovery proceed.ings were instituted, jncluding OA No. 417 of 2016 (later renumbered as TA No. 255612017), and that standalone suits resulted in decrees, including a decree dated

11.05.2018 in favour of Punjab National Bank for Rs. T618 crores- Respondent No. 1 contends that Petitioners failed to avail the remedy of review available under the RBI circular, chose instead to engage in repeated litigation, and now seek to reopen settled issues after an inordinate delay. The Bank also asserts that Petitioners' attempt to challenge' the willful defaulter classification is motivated by their desire to overcome irieligibility under Section 29A(b) of the IBC.

7. With respect to the scope of judicial review, this court is guided by the principle that though action of banks taken pursuant to binding RBI directions may be subject to judicial scrutiny, as recognized in sardar Associctes a. htnjab & sind Bank, the court's jurisdiction is supervisory in nature. Judicial review does not entail re-appreciation of factual Iindings or substitution of the court's conclusions for those of the expert committees constituted under the Master circular. Interference is warranted only where there exists a jurisdictional l3 o error, a substantial violation of mandatory procedure, or perversiqr in the decision-making process.

8. Examining the matter on merits, this Court finds no material to indicate that Identification Committee acted without jurisdiction; Petitioners were denied an opportunit5r of responding to the notices, or that the Committee's conclusions were unsupported by the material placed before it. Petitioners' allegations regarding drought, non-release of funds by lenders, and historical functioning of group companies pertain to factual issues that were already within their knowledge at the time of the proceedings and were capable of being placed before the Committee. Petitioners have not produced material demonstrating that the Committee disregarded their replies, considered extraneous factors, or failed to consider relevant aspects. The mere assertion that notices were unsigned or that documents were not furnished is insufficient to establish procedural illegality of such magnitude as to vitiate the entire proceedings, particularly when Respondent No. t has shown that notices were issued and replies were. received contemporaneous[y.

9. The aspect of delay and laches further weighs heavily against the Petitioners. Petitioners were aware of the classifieqLtion communicated on 28.O5.2019 and of the \ 4z l4 publication on 15.o6.2019. They did not challenge these actions within a reasonable time. The contention that declaration constitutes a continuing wrong cannot revive or extend the limitation lbr challenging proceedings that attained finality years ago. Petitioners have not demonstrated any diligence or compelling reason for their prolonged silence.

10. In view of the above and upon a comprehensive assessment o[ the facts, submissions and materials placed on record, this Court hnds no jurisdictional infirmit5r, no substantial procedural irregularity, and no perversity in the decision-making process. Petitioners failed to establish any ground warranting interference with the actioh taken by Respondent No. 1 under the RBI Master Circular. li. For the reasons discussed hereinabove, this Court is of the view that Petitioners failed to establish any jurisdictional infirmity, substantive procedural violation, or perversity in the proceedings undertaken by Respondent No. 1. The challenge is vitiated not only by the absence of merit but also by the unexplained and considerable delay in approaching this court. Petitioners have not demonstrated any legal ground warranting interference in exercise of supervisory jurisdiction under Article 226 ofthe Constitution of India. t5 r': L2. costs.

13. Accordingly, the Writ Petition stands dismissed. No Consequently, the miscellaneous Applications, if any shall stand closed. /-.. K.BHAVANI SWAMY ISTANT REG //TRUE COPY// To

1. One CC to SRI DHARMESH D.K.JAISWAL, 2. One CC to SMT. KALPANA EKBOTE, Advocate tOpUCI 3. One CC to SRI G.P. YASH VARDHAN, Advocate tOpUCI 4. One CC to M/s. N. LEGAL HYDERABAD, Advocate [OpUC] 5. Two CD Copies y:w IoPUCI OFFICER HIGH COURT DATED i0111212025 1HE S () 13 0Et MT * * ORDER WP.No.11615 of 2025 DISMISSING THE WRIT PE ON WITHOUT COSTS L\ L