State Bank of India vs M/s Jah Developers Pvt. Ltd. - Supreme Court Important Judgment 2019

State Bank of India vs M/s Jah Developers Pvt. Ltd. - Supreme Court Important Judgment 2019 - 

On 8th May, 2019, in the case of State Bank of India v. M/s Jah Developers Pvt. Ltd. & Ors. [Civil Appeal No.4776 of 2019], the question for consideration was whether a lawyer can be allowed to represent a borrower before the in-house Commitees referred to in the Revised Reserve Bank of India (RBI) Circular dated 01.07.2015 with regard to wilful defaulters.

The Supreme Court held that “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”, their powers being administrative powers “to gather facts and then arrive at a result” and thus, “no lawyer has any right under Section 30 of the Advocates Act to appear before the in-house committees so mentioned.” It was held that since “the said committees are also not persons legally authorised to take evidence by statute or subordinate legislation, on this score also, no lawyer would have any right under Section 30 of the Advocates Act to appear before the same.”

The Supreme Court observed that “when it comes to whether the borrower can, given the 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.”

In the case at hand, the Supreme Court was 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” and “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, the Supreme Court was also of the view that Article 19(1)(g) of the Constitution of India was “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 immediate” and “given these drastic consequences”, “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 Committee”, the Supreme Court was 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 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”, the Supreme Court incorporated “all these steps into the Revised Circular dated 01.07.2015.”