Right of Lenders to Publish Photgraphs of Wilful Defaulters in Newspapers

Reserve Bank of India guidelines in this regard stipulates that a lending institution can consider publication of the photographs of those borrowers, including proprietors/ partners /directors / guarantors of borrower firms/ companies, who have been declared as wilful defaulters following the mechanism set out in the RBI instructions stipulated in its Master Circular on Wilful Defaulters DBR.CID.BC.No.22/20.16.003/2015-16 dated July 1, 2015. However such publications of the details of the Wilful Defaulters by the Banks have been quite often dragged to the corridors of the Courts and unfortunately there have been conflicting decisions given by various High Courts in this regard.

In the past, while the Bombay[1], Madras and Madhya Pradesh[2] HCs had allowed banks to publish the names and photographs of defaulters, the Calcutta[3] and Kerala[4] HCs held such moves as unconstitutional and impermissible in law. 

However a clarified picture was brought in this regard by the ApexCourt[5], when it upheld the decision of Bombay High Court in D.J.EximIndia P Ltd v SBI, in the Appeal filed by the Petitioners. A bench headed by justice Fakkir Mohamed Ibrahim Kalifulla upheld the Bombay High Courts Order allowing the Lender to publish names and photographs of directors and guarantors of defaulter firm in newspapers on the grounds that Rule 8 framed under the SARFAESI Act specifically authorised the banks to publish the names and addresses of wilful defaulters and there is also no legal bar that prohibits them from publishing such information. The Supreme Court had accepted the view that there is no legal bar either in the said rule or under any provisions of the Act which expressly prohibits the bank from publication of photographs and therefore, the action of the bank in publishing the photographs cannot be held to be ultravires. From the banks point of view, the duty to maintain secrecy is superseded by a larger public interest as well as by the banks own interest under certain circumstances, it held.

Recently the Division Bench of Hon’ble Madras High Court elaborately discussed this matter while deciding M.R.Motor Company vFederal Bank. The High Court concurred with the views expressed by the Bombay High Court, which was upheld by Supreme Court that the banks have the right to publish the name of the defaulters by giving their names and addresses which serves the two fold purpose of notifying the public that these persons are wilful defaulters and to caution the prospective buyers who may be offered the property which is mortgaged by these defaulters with the bank. The Court held that this being the primary objective for the publication of the notice, there would be no impediment in publication of photographs of wilful defaulters and particularly those defaulters who have committed various acts of misfeasance.

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[1] D.J.Exim India P Ltd v SBI [(2015)1CompLJ138(Bom)]

[2] M/S Prakash Granite Industries vs. The Punjab National Bank

[3] Ujjal Kumar Das and Another v. State Bank of India

[4] Venu. P.R Vs. SBI [[2013(3) KLT 691]]

[5] Special Leave to Appeal (C) No. 37726 of 2013 with T.P.(C) No. 691 of 2014, dated 14/7/2014, reported in CDJ 2014 SC 617

No right for Defendants to demand the Cross Examination of a person whose affidavit is not filed before the DRT – Mumbai High Court

Noting that the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act, 2002) and the Debts Recovery Tribunal (Procedure) Rules, 1993 envisages summary procedures for an early disposal of applications before DRT, High Court of Bombay, in Sonu Textiles v Punjab National Bank [Manu/MH/2703/2016] upheld the view extended by DRT - I Mumbai that the defendants have no right to demand the examination of a particular witness or a particular person whose affidavit is not filed for the purpose of cross-examination.

Hon’ble High Court agreed with the views of DRT that the procedure provided for disposal of the application under RDDB Act is summary in nature and the Tribunals are disposing of the matters by receiving documentary evidence along with the supporting claim affidavits of the respective parties. However, in necessary circumstances and in exceptional cases on the application of the parties, the witnesses are also tendered for oral examination. Since the claim of the Bank is mostly basing on the documents, the above procedure was prescribed and provided under the Act for speedy disposal of claims relating to Bank and Public Financial Institution. Even otherwise it is the prerogative of the applicant or plaintiff to lead evidence according to his choice as he being the dominus litis of its case. The plaintiff has to either stand or fall down on the strength of his own case and evidence. The defendants have no right to demand the examination of a particular witness or a particular person whose affidavit is not filed for the purpose of cross-examination.

It was held by the High Court that the Court needs to consider the facts and circumstances in hand, keeping in mind the purpose and object of the SARFAESI Act, 2002. These provisions are with intent to expedite the procedure for early disposal of such application which is summary in nature but by keeping in mind the principles of natural justice. The provision and the power of Tribunal to call a witness and/or issue summons and/or issue appropriate order, or directions to creditors as well as borrowers and equally situated persons. However, this is always subject to the nature of application as well as purpose of such application including the conduct of the parties.

Rules on the Powers of NCLT to sanction Compromise or Arrangement proposals of Companies with Creditors Notified

Under Section 230 of the Companies Act, 2013, National Company Law Tribunal (NCLT) was vested with the powers to issue appropriate Orders regarding the proposal of a Company on a compromise or arrangement including, a reorganisation of the company's share capital by the consolidation of shares of different classes or by the division of shares into shares of different classes, or by both of those methods. NCLT was given the powers to issue Orders to provide for all or any of the following matters namely -

 (a) where the compromise or arrangement provides for conversion of preference shares into equity shares, such preference shareholders shall be given an option to either obtain arrears of dividend in cash or accept equity shares equal to the value of the dividend payable;

(b) the protection of any class of creditors;

(c) if the compromise or arrangement results in the variation of the shareholders' rights, it shall be given effect to under the provisions of section 48;

(d) if the compromise or arrangement is agreed to by the creditors under sub-section (6), any proceedings pending before the Board for Industrial and Financial Reconstruction established under section 4 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986) shall abate;

(e) such other matters including exit offer to dissenting shareholders, if any, as are in the opinion of the Tribunal necessary to effectively implement the terms of the compromise or arrangement:

Provided that no compromise or arrangement shall be sanctioned by the Tribunal unless a certificate by the company's auditor has been filed with the Tribunal to the effect that the accounting treatment, if any, proposed in the scheme of compromise or arrangement is in conformity with the accounting standards prescribed under section 133.

Presently the Ministry of Corporate Affairs has notified the Companies (Compromises, Arrangements and Amalgamations) Rules,2016, laying down the procedures to be followed in this regards. The Rules shall now govern any application under the Act or any reference to NCLT for the restructuring or compromise or any such arrangement, under the Bankruptcy Code.