The Calcutta High Court has invalidated the classification of directors as wilful defaulters after finding that the Reserve Bank of India’s procedural safeguards were systematically breached. The judgment underscores the non-negotiable requirement of an independent review mechanism and the duty to issue reasoned orders in administrative actions affecting financial reputation.
Background & Facts
The Dispute
The petitioners - Mahendra Kumar Gupta and three others - were directors or former directors of M/s Gupta Power Infrastructure Limited, a company that availed credit facilities aggregating to Rs. 3570.90 crores from a consortium of 11 banks, including UCO Bank. The bank initiated proceedings under the Reserve Bank of India’s Master Directions on Treatment of Wilful Defaulters and Large Defaulters dated 30th July, 2024, to classify the petitioners as wilful defaulters based on alleged diversion of funds and fraudulent transactions.
Key Facts
- The company defaulted on repayment obligations following financial distress.
- A forensic audit was conducted, alleging diversion of Rs. 976.97 crores and improper party transactions.
- The petitioners were not parties to the forensic audit proceedings but were later targeted as promoters/directors under the RBI framework.
- The show cause notice dated 30.05.2025 was issued to the petitioners, giving them 21 days to respond.
- The petitioners submitted a detailed written reply on 15.07.2025, challenging the allegations, procedural irregularities, and lack of evidence.
- The Identification Committee, chaired by an Executive Director and including two senior officers, issued a proposal on 17.11.2025 to declare the petitioners as wilful defaulters.
- The Review Committee, chaired by the MD & CEO and including two Independent Directors, issued its final order on 28.01.2026, confirming the classification.
- A notice dated 06.03.2026 was issued by UCO Bank, threatening to publish the petitioners’ photographs in newspapers if dues were not repaid within 15 days.
Procedural History
- 30.05.2025: Show cause notice issued by UCO Bank under RBI Master Directions.
- 15.07.2025: Petitioners submitted detailed written reply.
- 17.11.2025: Identification Committee proposed classification as wilful defaulters.
- 23.12.2025: Review Committee issued notice for personal hearing scheduled for 24.12.2025.
- 28.01.2026: Review Committee passed final order declaring petitioners as wilful defaulters.
- 06.03.2026: UCO Bank issued notice threatening public exposure of petitioners’ photographs.
- 20.04.2026: Judgment delivered by the Calcutta High Court.
The Parties' Positions
Petitioners: Argued that the Identification Committee and Review Committee were not independent, as the same officer - Deputy General Manager (Recovery and Law) - served as convener for both. They contended that the Review Committee merely replicated the show cause notice and Identification Committee’s report without engaging with their written submissions or assigning reasons.
Respondent (UCO Bank): Contended that both committees were properly constituted, that the petitioners’ reply was considered, and that the Review Committee acted independently. They also challenged maintainability, arguing that the liquidated respondent no.6 should not have been impleaded.
Relief Sought
The petitioners sought quashing of:
- The show cause notice dated 30.05.2025
- The Identification Committee’s order dated 17.11.2025
- The Review Committee’s order dated 28.01.2026
- The notice dated 06.03.2026 threatening public exposure They also sought restoration of their reputational standing and prohibition of any further action under the Master Directions until compliance with due process.
The Legal Issue
The central question was whether the Review Committee, under the RBI Master Directions dated 30.07.2024, can lawfully be chaired by the same officer who served as convener of the Identification Committee, and whether a final order declaring a person a wilful defaulter can be passed without assigning reasons or addressing written submissions.
Arguments Presented
For the Petitioner
Mr. Krishnaraj Thaker, Senior Advocate, relied on Narendra Seoomal Sabnani v. State Bank of India and Amit Kumar Kejriwal v. Bank of India to argue that the Review Committee must be functionally and compositionally independent from the Identification Committee. He emphasized that Clause 3(r)(v) of the Master Directions explicitly prohibits overlap in membership. He further contended that Clause 4(a)(vii) and (ix) mandate a personal hearing and a reasoned order, which were entirely disregarded. The identical verbatim copying of allegations across all three documents demonstrated mechanical compliance, not independent review.
For the Respondent
Mr. Shiv Mangal Singh argued that the Deputy General Manager was merely a convener performing administrative duties and did not influence decision-making. He claimed the Review Committee had considered the petitioners’ reply, citing pages 5 - 9 of its order. He also challenged the maintainability of the writ petition due to the non-joinder of the liquidator and Canara Bank.
The Court's Analysis
The Court conducted a meticulous textual analysis of the RBI Master Directions. It observed that Clause 3(r)(v) is unambiguous: "The Review Committee shall not be comprised of members who are the part of the Identification Committee." The Court held that this is not a mere procedural suggestion but a substantive safeguard to ensure impartiality.
"The convener of the Identification Committee, who issues the show cause notice, compiles the evidence, and recommends the proposal, cannot be the same person who later reviews that very proposal. To permit this is to allow self-review, which defeats the very purpose of a review mechanism."
The Court noted that the Deputy General Manager (Recovery and Law) performed all key functions for both committees: issuing the notice, compiling the report, and signing the final order. This rendered the Review Committee’s function a nullity.
The Court further held that Clause 4(a)(ix) requires a "reasoned order." The Review Committee’s order, while acknowledging receipt of the petitioners’ reply, failed to address any of the legal or factual objections raised. The identical language across all documents confirmed that no independent assessment occurred.
"A decision that merely parrots the show cause notice and the Identification Committee’s report, without engaging with the rebuttal, is not a reasoned order. It is a rubber stamp."
The Court rejected the respondent’s argument that the reply was "considered" merely because it was mentioned. Consideration requires analysis, not citation. The failure to assign reasons violated the principles of natural justice and rendered the order void.
The Court also noted that the threat of publishing photographs under the 06.03.2026 notice was an unlawful extension of the impugned order and was quashed as consequential to the invalid classification.
The Verdict
The petitioners succeeded. The Calcutta High Court set aside and quashed:
- The show cause notice dated 30.05.2025
- The Identification Committee’s order dated 17.11.2025
- The Review Committee’s order dated 28.01.2026
- The notice dated 06.03.2026 threatening public exposure of photographs
The Court directed that the respondent bank may initiate fresh proceedings only after constituting a new Identification Committee and a completely independent Review Committee, with no overlapping personnel, and after providing a full opportunity of hearing and issuing a reasoned order in compliance with the RBI Master Directions. The petitioners are entitled to have their reputational status restored pending any lawful re-initiation of proceedings.
What This Means For Similar Cases
Independent Review Is Non-Negotiable
- Practitioners must challenge any wilful defaulter classification where the same officer or departmental official serves in both Identification and Review Committees.
- The RBI’s prohibition on overlapping membership is a mandatory condition, not a guideline.
- Any order issued by a Review Committee with shared personnel is void ab initio.
Reasoned Orders Are Mandatory, Not Discretionary
- Merely acknowledging receipt of a written reply is insufficient.
- The order must specifically address each material objection raised, with reasoning.
- Blanket reiteration of allegations without rebuttal constitutes a violation of natural justice.
- Courts will not defer to bank committees when statutory mandates for reasoned decisions are ignored.
Public Exposure Is Not a Permissible Enforcement Tool
- Threats to publish photographs or personal details without a statutory mandate are ultra vires.
- Such actions, even if issued post-order, are ancillary to the main illegality and must be quashed.
- Banks must rely only on legally prescribed remedies under the SARFAESI Act or civil recovery.
