The Calcutta High Court has set aside the declaration of petitioners as wilful defaulters by Canara Bank, holding that such a serious adverse determination cannot be made without disclosing the documents relied upon or providing any reasons for the decision. This judgment reinforces the foundational principle of natural justice in administrative actions by financial institutions.
Background & Facts
The Dispute
The petitioners, Mahendra Kumar Gupta and others, are guarantors of M/s Gupta Power Infrastructure Limited, the borrower. Petitioner No. 1 is also the Managing Director of the borrower company. The respondent bank, Canara Bank, initiated proceedings under its internal guidelines to declare the petitioners as wilful defaulters based on alleged default by the borrower. The petitioners were not provided with the documents forming the basis of the show cause notice, nor were they given any reasoned order before being declared wilful defaulters.
Key Facts
- The borrower, M/s Gupta Power Infrastructure Limited, has its registered office at EN-62, Sector-V, 7th Floor, Salt Lake City, Kolkata - 700091, West Bengal.
- Petitioner No. 1, though residing in Bhubaneswar, is the Managing Director of the borrower company.
- Show cause notice dated 08.08.2024 was issued to the petitioners, citing their liability as guarantors.
- The petitioners submitted a reply on 24.08.2024, explicitly stating that the documents relied upon by the bank had not been supplied and that they could not respond meaningfully without them.
- A personal hearing notice was issued on 13.09.2024, with hearing scheduled for 24.09.2024.
- On 21.09.2024, the petitioners again requested disclosure of documents, reiterating their inability to prepare for the hearing.
- On 25.09.2024, the bank issued a further notice demanding detailed financial documents including stock/receivables statements, audited balance sheets, and access to accounting systems.
- On 05.10.2024, the petitioners requested an extension of time to comply.
- On 01.10.2024, the Identification Committee passed an order declaring the borrower, directors, and guarantors as wilful defaulters.
- The order dated 28.10.2024 communicated this decision to the petitioners without attaching the Identification Committee’s order or disclosing the documents.
- The petitioners filed an appeal on 09.11.2024.
- The Review Committee rejected the appeal on 30.08.2025 without addressing the petitioners’ grievance regarding non-disclosure of documents or providing any reasons for rejection.
Procedural History
- 08.08.2024: Show cause notice issued by Canara Bank, Bhubaneswar Branch.
- 24.08.2024: Petitioners’ reply submitted, requesting disclosure of documents.
- 13.09.2024: Notice for personal hearing issued.
- 21.09.2024: Petitioners again requested document disclosure.
- 25.09.2024: Bank issued additional document request.
- 05.10.2024: Petitioners requested extension of time.
- 01.10.2024: Identification Committee passed order declaring petitioners as wilful defaulters.
- 28.10.2024: Communication of Identification Committee’s decision sent to petitioners.
- 09.11.2024: Appeal filed against Identification Committee’s order.
- 30.08.2025: Review Committee rejected appeal without reasons or consideration of document disclosure grievance.
- 25.12.2025: Writ Petition filed before Calcutta High Court.
- 16.02.2026: Hearing concluded.
- 18.03.2026: Judgment delivered.
The Parties' Positions
Petitioners: Argued that the bank violated principles of natural justice by failing to disclose documents relied upon in the show cause notice, denying them a fair opportunity to respond. They emphasized that the Identification Committee and Review Committee passed orders without any reasoning, rendering the decisions arbitrary and illegal.
Respondent Bank: Contended that the writ petition was not maintainable as the cause of action arose in Bhubaneswar, where the petitioners resided and the branch issued the notices. They relied on precedents limiting territorial jurisdiction under Article 226.
Relief Sought
The petitioners sought quashing of the orders dated 01.10.2024 and 30.08.2025, declaration that the wilful defaulter classification was illegal, and directions to the bank to disclose documents, afford a fair hearing, and reconsider the matter in accordance with law.
The Legal Issue
The central question was whether the declaration of a person as a wilful defaulter by a banking institution violates the principles of natural justice when the documents relied upon are not disclosed and no reasons are given for the decision.
Arguments Presented
For the Petitioner
Mr. Jishnu Chowdhury, Senior Advocate, argued that the right to be heard includes the right to know the case against one. The petitioners had repeatedly requested the documents forming the basis of the show cause notice, yet the bank ignored these requests. The Identification Committee’s order was a non-speaking order, devoid of any analysis of the petitioners’ reply or the documents. The Review Committee similarly failed to address the grievance. He cited State of U.P. v. Mohammad Noor and A.K. Kraipak v. Union of India to establish that natural justice is a mandatory requirement in quasi-judicial proceedings, even by private entities performing public functions.
For the Respondent
Mr. Supriyo Ranjan Mahapatra contended that the writ petition was not maintainable before the Calcutta High Court as the cause of action arose in Bhubaneswar, where the petitioners resided and the bank branch operated. He relied on Kusum Ingots and Alloys Ltd. v. Union of India, State of Goa v. Summit Online Trade Solutions, and Pintu Mohanta v. Union of India to argue that territorial jurisdiction must be strictly construed and that convenience of parties is a relevant factor. He submitted that the mere fact that notices were sent to the registered office of the borrower in Kolkata did not create a cause of action within the jurisdiction.
The Court's Analysis
The Court first addressed the issue of jurisdiction. It held that while the petitioners resided in Bhubaneswar, Petitioner No. 1 is the Managing Director of the borrower company whose registered office is in Kolkata. All notices, including the show cause notice and the order declaring wilful default, were served upon the petitioners through the company’s registered address in Kolkata. The Court observed that when an act takes effect within the territorial jurisdiction of the High Court, even if the respondent resides elsewhere, the writ petition is maintainable. The Court distinguished the cited precedents, noting that in those cases, no part of the cause of action arose within the jurisdiction, whereas here, the communication of the impugned orders occurred in Kolkata.
"It is settled that when the impugned act of the respondents takes effect within the territorial jurisdiction of a particular High Court, it may entertain the writ petition of the person aggrieved notwithstanding that the respondents have the offices or residences outside its territorial jurisdiction."
The Court then turned to the merits. It emphasized that declaring someone a wilful defaulter carries severe consequences, including damage to creditworthiness, restrictions on future credit, and reputational harm. Such a determination must be made in accordance with the principles of natural justice.
The Court found that the bank’s failure to supply documents was a fatal flaw. The petitioners had repeatedly requested the documents, yet the bank did not respond. The Identification Committee’s order did not mention the petitioners’ request for documents, nor did it explain why the reply was rejected. The Review Committee similarly remained silent.
"The decision of the Identification Committee as well as the Review Committee are without any reasons, thus the decision taken by the Identification Committee dated 1st October, 2024 and the order of the Review Committee dated 30th August, 2025, are set aside and quashed."
The Court held that a non-speaking order, especially in the context of a serious adverse finding, is legally unsustainable. The right to a fair hearing is not a formality but a substantive right.
The Verdict
The petitioners succeeded. The Court set aside the Identification Committee’s order dated 01.10.2024 and the Review Committee’s order dated 30.08.2025. The bank is directed to supply the documents relied upon in the show cause notice within two weeks. If the documents are voluminous, the petitioners shall be permitted to inspect them within two weeks of receipt, and complete inspection within the following two weeks. Within three weeks of completion of inspection, the petitioners may file a supplementary reply. The bank shall take a fresh decision within three weeks of receiving the supplementary reply. The petition is disposed of.
What This Means For Similar Cases
Document Disclosure Is Non-Negotiable in Wilful Defaulter Proceedings
- Practitioners must now insist on disclosure of all documents relied upon in show cause notices before any adverse determination.
- Banks cannot rely on generic allegations; they must specify the factual basis and provide access to supporting records.
- Failure to disclose documents renders the entire proceeding void ab initio.
Non-Speaking Orders Are Invalid Even in Internal Bank Proceedings
- Internal committees of banks are bound by principles of natural justice.
- Orders must contain reasoning, address submissions, and explain why objections were rejected.
- Courts will not uphold decisions that are silent on material submissions or procedural grievances.
Jurisdiction Can Be Established Through Service at Registered Office
- Even if a person resides elsewhere, service of notices at the registered office of a company where they hold a directorial position can establish territorial jurisdiction for writ petitions.
- This is particularly relevant for directors and guarantors of companies with registered offices in different states.
