High Court in Delhi maintains cancellation of "willful defaulter" label for Ratul Puri and Nita Puri
Delhi High Court Upholds Decision to Dismiss 'Wilful Defaulter' Status for Ratul and Nita Puri
In a significant ruling, the Delhi High Court has upheld a decision that dismissed the classification of Ratul Puri and his mother, Nita Puri, as wilful defaulters under the Reserve Bank of India (RBI) Master Circular. The court emphasized that banks must provide clear and verified evidence to classify an individual as a wilful defaulter, a status that carries severe consequences.
The ruling, made by a Division Bench of Justices C Hari Shankar and Ajay Digpaul, dismissed all four appeals filed by Bank of Baroda, Punjab National Bank, and Ratul Puri and Nita Puri without costs. The advocates representing the parties included Rajeev Goyal, Vaibhav Mishra, Anshul Mishra, Ekansh Mishra, Manu Krishnan, Devika Mohan, and Vikram Choudhary for Ratul Puri and Nita Puri, while Advocates Kush Sharma, Nishchaya Nigam, and Vagmi Singh represented Bank of Baroda, and Advocates Sanjay Bajaj, Shivam Takkar, and Sarthak Sehgal represented Punjab National Bank.
The court's ruling was based on the banks' failure to prove that the transactions in question involved borrowed funds intentionally diverted or siphoned off. The court underscored that a declaration of wilful default can lead to denial of future credit, exposure to criminal proceedings, and reputational damage.
The ruling highlighted the specific requirements for a bank to classify an individual as a wilful defaulter under the RBI Master Circular. These requirements include:
- Intentional, deliberate, and calculated default by the borrower on repayment even though they have the capacity to pay.
- Verified and objective evidence that the borrowed funds were intentionally diverted or siphoned off or misused, or the borrower deliberately disposed of secured assets without informing the lender.
- The classification should be based on the borrower’s overall track record and the totality of conduct, rather than isolated or incidental transactions.
- The bank must conduct an internal examination and issue a show-cause notice to the borrower, giving a chance to respond.
In the case of Ratul and Nita Puri, the court found that the banks had failed to meet these requirements, making the 'wilful defaulter' declarations legally unsustainable. The court cautioned that such declarations must be based on concrete, objective facts and not mere suspicion or isolated incidents, given the severe stigma and restrictions that follow wilful default classification under RBI guidelines.
The court also questioned whether forensic audit reports (FARs) could be relied on to declare the Puris as wilful defaulters, as these reports admitted that the source of funds for the investments had not been verified. The court noted that decisions regarding wilful defaulters must be based on objective facts and circumstances of the case and the borrower's overall track record.
In summary, the Delhi High Court's ruling reiterates the importance of providing clear and verified evidence for a bank to classify an individual as a wilful defaulter. The ruling serves as a reminder that such declarations should be based on concrete, objective facts and not mere suspicion or isolated incidents.
[1] RBI Master Circular on Recovery of Non-Performing Assets [2] Delhi High Court Judgment: Bank of Baroda vs Ratul Puri [4] Delhi High Court Judgment: Ratul Puri vs Bank of Baroda
- In the context of the Delhi High Court's decision on Ratul and Nita Puri, it's crucial for banks in the finance industry, such as Bank of Baroda and Punjab National Bank, operating within the realm of business and banking-and-insurance, to uphold the RBI Master Circular standards while classifying an individual as a wilful defaulter.
- The ruling made by the Division Bench of Justices C Hari Shankar and Ajay Digpaul, emphasizes that banks must exhibit clear and objective evidence of intentional diversion or siphoning of funds to categorize someone as a wilful defaulter, thus ensuring integrity and adherence to the financial regulations in the related industries.
