Punjab National Bank v. Ratul Puri

JUDGMENT

.0 8 .2025

C. HARI SHANKAR, J.

¶1These apeals asail substantialy similar judgments pased by a learned Single Judge of this Court in writ petitions which raised substantialy similar chalenges. They are, therefore, being disposed of by this comon judgment. However, for the sake of convenience, we propose to treat LPA 396/2024 as the lead case and to extrapolate our decision in that apeal to the other apeals before us.

LPA 294/2024 and other conected maters

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LPA 396/2024 [ Bank of Baroda v Ratul Puri ]

The lis

¶2The Bank of Baroda 1 asails judgment dated 29 February 2024

pased by a learned Single Judge of this Court in WP

(C) 4181/2023 2 .

¶3By the impugned judgment, the order dated 23 March 2023 pased by the Review Comite of the BOB, declaring the respondent to be a —wilful defaulte Clause

2.1.3 of the Master Circular on Wilful Defaulters, 2015 3 , isued by the Reserve Bank of India 4 , has ben set aside.

Background

¶4Moser B ae r India Ltd 5 availed loans from various banks. These included a loan from BOB, which was sanctioned vide leters dated 12 December 206 and 24 April 2010. At the time of availing of the loan, the respondent Ratul Puri was a whole - time director of MBIL. In 2010, he decided to exit from MBIL, though he continued to rem a in a director on its board.

¶5Folowing the decline in the fortunes of MBIL, BOB and other

1 —BOB" hereinafter

2 Ratul Puri v Bank of Baroda

3 —Master Circular" hereinafter

4 —RBI" hereinafter

5 —MBIL" hereinafter

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lenders, which lent monies to MBIL , found MBIL to be a fit case to consider debt restructuring. A Joint Lenders Met 6 , of al lenders of MBIL, therefore, was convened on 3 February 2012. Among the lenders who participated in the JLM was BOB. MBIL placed a restructuring plan before the JLM. The JLM, after considering the plan, decided to admit MBIL for Corporate Debt Restructuring 7 , in acordance with the CDR Master Circular isued by the RBI.

¶6To ascertain sustainability of the CDR, MBIL was required to submit a Flash Report, which would set out the reasons for its decline, its viability and its plan for revival. The Flash Report was intended to be forwarded by the lenders of MBIL to an independent agency for obtaining a Techno Economic Viability Report 8 , which would indicate whether the restructuring plan proposed by MBIL was financialy viable.

¶7In terms of the aforesaid directions, MBIL submited a F lash R eport with the CDR cel of the lender bank s on 18 February 2012. Among the reasons cited in the F lash R eport to which the financial decline of MBIL was atributable , was the inability of MBIL to realise investments made in its two subsidiaries, Moser B ae r Photo V olt aic

Ltd 9 and Moser B ae r Solar Ltd 10 . MBPV was later renamed Helios Photo V olta ic Ltd 1 .

6 —JLM" hereinafter

7 —CDR" hereinafter

8 —TEV Report" hereinafter

9 —MBPV" hereinafter

10 —MBSL" hereinafter

1 —HPVL" hereinafter

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¶8After perusing the flash report submited by MBIL, the CDR Empowered Group 12 decided, on February 2012, to admit the proposal of MBIL for restructuring. In the decision, MBIL was placed in the Clas - B category under the CDR Scheme, which covered —Corporates / p romoters afected by external factors and also having weak resources, inadequate vision and not having suport of professional management".

¶9The monitoring bank of the lenders was the Central Bank of India 13 . On 4 April 2012, MBIL informed the Central Bank that the respondent was no longer asociated with the day - to - day functioning of the MBIL. It was pointed out that he had exited MBIL and it was requested that the CDR proposal submited by MBIL be considered taking into acount this fact.

10.

On 30 April 2012, the respondent resigned as Executive Director of MBIL and submited Form - 32 with the Registrar of Companies 14 to that efect. He also, therefore, ceased to be a shareholder of MBIL and transfered his shareholding in MBIL to his father.

1.

The lender banks forwarded the flash report submited by MBIL to an external agency Ernst and Young 15 for examination. E & Y submited its detailed T EV R eport on 9 June 2012, which opined that MBIL was considered to be viable.

12 —CDR - EG" hereinafter

13 —Central Bank" hereinafter

14 —ROC" hereinafter

15 —E & Y" hereinafter

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12.

On 20 July 2012, another JLM was convened of al the lender banks, including BOB. The JLM considered the F lash R eport submited by MBIL , the TEV report of E & Y and a stock audit report of RCA & Asociates, and isued a Final Restructuring Scheme dated 20 July 2012.

13.

In acordance with the FRS, MBIL and the Consortium of Banks, including BOB and the Central Bank as the monitoring institution , signed a Master Restructuring Agrement 17 dated 27 December 2012 for implementation of the CDR package agred betwen the parties. Clause 6.1 (iv) of the MRA required MBIL to execute a Trust and Retention Acount 18 . Consequent to execution of the TRA agrement, MBIL was required to transact , for its day - to - day functioning, only through the TRA acount.

14.

On 16 November 2012, the respondent resigned as Director of MBIL and filed Form - 32 to that efect, with the ROC. This constituted complete exit , by the respondent , from MBIL.

15.

In terms of clause 6.1(iv) of the MRA, the TRA Agrement was executed betwen the lender banks and the MBIL on 12 February 2013.

16.

Despite al these eforts, MBIL was u nable to repay the loan

16 —FRS" hereinafter

17 —MRA" hereinafter

18 —TRA" hereinafter

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amounts and comited defaults. On acount of these defaults, the lender banks decided to exit from the aproved CDR Scheme on 10 October 2016.

17.

In 2017, Alchemist Aset Reconstruction Company Ltd., one of the financial creditors of MBIL, filed an aplication before the National Company Law Tribunal 19 under Section 7

(1) 20 of the Insolvency and Bankruptcy Code 2016 21 for trigering the C orporate I nsolvency R esolution P roces 2 of MBIL. Vide its order dated 14 November 2017, the NCLT apointed one Mr. Anil Kohli as the Interim Resolution Profesional 23 of MBIL. The IRP directed M/s. GSA Asociates, Chartered Acountants to conduct a forensic audit of MBIL. GSA Asociates submited its Forensic Audit Report 24 on 3 June 2019.

19 —NCLT", hereinafter

20 7.

Initiation of corporate insolvency resolution proces by financial creditor . œ

(1)

A financial creditor either by itself or jointly with other financial creditors, or any other person on behalf of the financial creditor, as may be notified by the Central Government, may file an aplication for initiating corporate insolvency resolution proces against a corporate debtor before the Adjudicating Authority when a default has ocured:

Provided that for the financial creditors, refered to in clauses (a) and (b) of sub - section (6 - A) of Section 21, an aplication for initiating corporate insolvency resolution proces against the corporate debtor shal be filed jointly by not les than one hundred of such creditors in the same clas or not les than ten per cent. of the total number of such creditors in the same clas, whichever is les:

Provided further that for financial creditors who are alotes under a real estate project, an aplication for initiating corporate insolvency resolution proces against the corporate debtor shal be filed jointly by not les than one hundred of such alotes under the same real estate project or not les than ten per cent. of the total number of such alotes under the same real estate project, whichever is les:

Provided also that where an aplication for initiating the corporate insolvency resolution proces against a corporate debtor has ben filed by a financial creditor refered to in the first and second provisos and has not ben admited by the Adjudicating Authority before the comencement of the Insolvency and Bankruptcy Code (Amendment) Act, 2020, such aplication shal be modified to comply with the requirements of the first or second proviso within thirty days of the comencement of the said Act, failing which the aplication shal be demed to be withdrawn before its admision.

Explanation . –For the purposes of this sub - section, a default includes a default in respect of a financial debt owed not only to the aplicant financial creditor but to any other financial creditor of the corporate debtor.

21 —IBC", hereinafter

2 —CIRP", hereinafter

23 —IRP", hereinafter

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18.

On 13 March 2020, BOB isued a show cause notice to the respondent to show cause as to why he be not declared a wilful defaulter under the Master Circular. The show cause notice contain ed six alegations against the respondent . Alegations 2 to 6 were subsequently droped, and the present dispute , therefore, esentialy concern s A legation 1 , which read:

—MBIL has made substantial investment in subsidiaries and related entities amounting to Rs.1586.75 Cr as on 31.12.13. During the

period from 01.04.13 to 31.03.15 provision and write of made

amounting to Rs.287.03 Cr . "

19.

The respondent responded to the aforesaid show cause notice on 30 March 2020 and 12 August 2020. T he respondent sought to be suplied the documents on the basis of which it was proposed to declare him a wilful defaulter. In response thereto, BOB on 1 January 2021 forwarded a copy of the FAR to the respondent. Vide

comunication dated 2 June 2021, the respondent submited that the FAR did not disclose any event of wilful default on his part.

20.

This was folowed by an oportunity of personal hearing which the respondent availed on 5 August 2021 folowing which he submited writen submision s on September 2021. In the said writen submisions, apart from pointing out that he had nothing to do with the afairs of the MBIL during the period in question, it was further submited that investments of MBIL in its subsidiaries were made from its internal acruals, and not from b orowed funds and that therefore, these investment s could not be used as a justification to

24 —FAR", hereinafter

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declare the respondent to be a wilful defaulter. It was further pointed out that the details of these investments had ben disclosed in the audited financial statements of MBIL, which had ben submited to al lenders including BOB.

21.

The Identification Comite of the BOB proceded to pas order dated 19 August 202 declaring the respondent to be a wilful defaulter in terms of the Master Circular. Of the six alegations against the respondent in the show cause notice dated 13 March 2020, A legation s 2 to 6 were droped. Alegation 1 was, however, confirmed and , consequently, the respondent was declared as a wilful defaulter in terms of the Master Circular. In ariving at this conclusion, the Identification Comite observed that during the period when the funds had ben invested by MBIL in its subsidiaries , which constituted diversion and siphoning of funds in terms of the Master Circular, the respondent was a whole time Director in MBIL and in complete control of its afairs. It was further opined by the Identification Comite that the investments made by the MBIL in its subsidiaries, which trigered a shortage of funds, amounted to diversion of funds in terms of Clause 2.1.3 (b) and (c) of the Master Circular. Folowing these findings, the Identification Comite held the respondent to be a wilful defaulter.

2.

The respondent filed a Review Petition chalenging the findings of the Identification Comite, on 2 September 202.

23.

The Review Comite by order dated 23 March 2023

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confirmed the findings of the Identification Comite.

24.

Agrieved thereby, the respondent aproached this Court by means of WP

(C) 4181/2023. The prayer clause in the writ petition read thus:

—Hence, in view of the circumstances m Petitioner herein most respectfuly pray that this Hon'ble Court may graciously be pleased to:

a.

Isue a writ/ order/ direction of mandamus and/or certiorari quashing/seting aside the Order pased by the Review Comite of the Respondent Bank in its meting held on 23.03.2023 (impugned order), by which order it has arbitrarily, unfairly and unreasonably declared the name of the Petitioner as a Wilful Defaulter.

b.

Isue a writ/ order/ direction prohibiting the Respondent and or/its servants, agents, asigns and oficers and/or anyone claiming through or under them from giving any efect and/or further efect and/or taking any steps and/or acting in furtherance of the Review Comite Order dated 23.03.2023, in any maner whatsoever.

Pas such other orders as may be demed fair and equitable in the facts of the case and in the

25.

By the impugned judgment, the learned Single Judge has alowed WP(C) 4181/2023. The present apeal, at the instance of the BOB, chalenges the said decision.

The Impugned Judgment

26.

The findings of the learned Single Judge may be enumerated thus:

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(i)

The Master Circular was isued by the RBI in exercise of the powers confered by Sections 21 and 35 A of the Banking Regulation Act, 1949. Clause 2.1.3 thereof read thus:

—2.1.3 Wilful Default: A 'wilful default' would be demed to have ocured if any of the folowing events is noted:

*

(b)

The unit has defaulted in meting its payment / repayment obligations to the lender and has not utilised the finance from the lender for the specific purposes for which finance was availed of

but has diverted the funds for other purposes.

(c)

The unit has defaulted in meting its payment / repayment obligations to the. lender and has siphoned of the funds so that the funds have not ben utilised for the specific purpose for which

finance was availed of, nor are the funds available with the unit in the form of other asets.

*

The identification of the wilful default should be made keping in view the track record of the borowers and should not be decided on the basis of isolated transactions/incidents. The default to be categorised as wilful must be intentional, deliberate and calculated."

(i)

Thus, —wilful default " could be said to have taken place only if the loan amount s len t by the bank , which constituted the —borrowed funds", w ere diverted or siphoned of by the borower, for purposes other than those for which the loan was granted.

(i)

Clause 2.2 of the Master Circular defined diversion and

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siphoning of funds thus:

—2.2

Diversion and siphoning of funds: The terms —diversion of funds" and —siphonin construe to mean the folowing: -

2.2.1

Diversion of funds, refered to at para 2.1(b) above, would be construed to include any one of the undernoted ocurences:

(a)

utilisation of short - term working capital funds for long - term purposes not in conformity with the terms of sanction;

(b)

deploying borowed funds for purposes / activities or creation of asets other than those for which the loan was sanctioned;

(c)

transfering borowed funds to the subsidiaries / Group companies or other corporates by whatever modalities;

(d)

routing of funds through any bank other than the lender bank or members of consortium without prior permision of the lender;

(e)

investment in other companies by way of acquiring equities / debt instruments without aproval of lenders;

(f)

shortfal in deployment of funds vis - à - vis the amounts disbursed / drawn and the diference not being acounted for.

2.2.2 Siphoning of funds, refered to at para 2.1(c) above, should be construed to ocur if any funds borowed from banks / FIs are utilised for purposes un - related to the operations of the borower, to the detriment of the financial health of the entity or of the lender. The decision as to whether a particular instance amounts to siphoning of funds would have to be a judgement of the lenders based on objective facts and circumstances of

Again, it was clear from Cl ause 2.2 that funds could be said to

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have ben diverted or siphoned of only if they were borowed funds. It was only when borowed funds were deployed or used for a purpose other than the purpose for which the loan was sanctioned, that they could be said to have ben diverted or siphoned of. Further, the decision regarding diversion or siphoning of

LPA 294/2024 and other conected maters Page 1 of * IN THE HIGH COURT OF DELHI AT NEW DELHI Reserved on : 3 July 2025 Pronounced on: 8 August 2025 + LPA 294/2024 PUNJAB NATIONAL BANK .Apelant Through: Mr. Sanjay Bajaj, Mr. Shivam Takar and Mr. Sarthak Sehgal, Advs. versus NITA PURI .Respondent Through: Mr. Rajev Goyal, Mr. Vaibhav Mishra, Mr. Anshul Mis h ra, Mr. Ekansh Mishra and Mr. Manu Krishnan, Ms. Devika Mohan, Mr. Vikram Cho u dhary, Advs. + LPA 357/2024 PUNJAB NATIONAL BANK .Apelant Through: Mr. Sanjay Bajaj, Mr. Shivam Takar and Mr. Sarthak Sehgal, Advs. versus RATUL PURI .Respondent Through: Mr. Rajev Goyal, Mr. Vaibhav Mishra, Mr. Anshul Mis h ra, Mr. Ekansh Mishra and Mr. Manu Krishnan, Ms. Devika Mohan, Mr. Vikram Cho u dhary, Advs. + LPA 396/2024 & CM APL. 30156/2024 BANK OF BARODA .Apelant Through: Mr. Kush Sharma, Mr. Nishchaya Nigam and Ms. Vagmi Singh, Advs. versus LPA 294/2024 and other conected maters Page 2 of RATUL PURI .Respondent Through: Mr. Rajev Goyal, Mr. Vaibhav Mishra, Mr. Anshul Mis h ra, Mr. Ekansh Mishra and Mr. Manu Krishnan, Ms. Devika Mohan, Mr. Vikram Cho u dhary, Advs. + LPA 398/2024 & CM APL. 30171/2024 BANK OF BARODA .Apelant Through: Mr. Kush Sharma, Mr. Nishchaya Nigam and Ms. Vagmi Singh, Advs. versus RATUL PURI .Respondent Through: Mr. Rajev Goyal, Mr. Vaibhav Mishra, Mr. Anshul Mis h ra, Mr. Ekansh Mishra and Mr. Manu Krishnan, Ms. Devika Mohan, Mr. Vikram Cho u dhary, Advs. CORAM: HON'BLE MR. JUSTICE C. HARI SHANKAR HON'BLE MR. JUSTICE AJAY DIGPAUL %