STATE BANK OF INDIA versus M/S. JAH DEVELOPERS PVT. LTD. & ORS. on 8 May 2019

[2019] 7 S.C.R. 701

STATE BANK OF INDIA

v.

M/S. JAH DEVELOPERS PVT. LTD. & ORS.

(Civil Appeal No. 4776 of 2019)

MAY 08, 2019

[R. F. NARIMAN AND VINEET SARAN, JJ.]

Advocates Act, 1961 – s.30 – Master Circular dtd. 01.07.13issued by RBI inter alia setting out mechanism for identification ofwilful defaulters, entrusted cases of wilful default to a Committeeof higher functionaries, which would then take a preliminarydecision – Thereafter, the borrower should be provided 15 days’time for making representation to the Grievance Redressal Committeeheaded by the Chairman and the Managing Director and consistingof two other senior officers– Such Committee must give hearing tothe borrower if he represents that he has been wrongly classified asa wilful defaulter, and it is only after such hearing that a finaldeclaration as wilful defaulter should be made – Revised Circulardtd. 01.07.15 issued by RBI, replaced the aforesaid scheme by makingan Executive Director and two other senior officers examineevidence of wilful default on the part of the borrower – If this FirstCommittee finds that an event of wilful default has occurred, it shouldfirst issue show cause notice to the borrower and call for hissubmissions, and after considering his submissions, issue an orderrecording the fact of wilful default and reasons for the same –Personal hearing can be given only if the Committee feels that suchhearing is necessary – Order of the Committee to be reviewed byanother Committee (Review Committee) – Issue as to whether alawyer ought to be allowed to represent the borrower before theFirst Committee and/or Review Committee under the Revised Circular– High Court held that the two in-house committees can beconsidered to be tribunals, and therefore, a lawyer has the right torepresent his client before such in-house committees – On appeal,held: In-house committees appointed under the Revised Circularare not vested with any judicial power at all, their powers beingadministrative powers, to gather facts and then arrive at a result –No lawyer has any right u/s.30 to appear before the in-house

701

A

B

CDE

FG

H

Acommittees – Said committees are also not persons legally authorisedto take evidence by statute/subordinate legislation – On this scorealso, no lawyer would have any right u/s.30 to appear before thesame – However, Art.19(1)(g) is attracted in the facts of the presentcase as the moment a person is declared wilful defaulter, the impacton its fundamental right to carry on business is direct and immediateB– Given the drastic consequences, the Revised Circular, being inpublic interest, construed reasonably – Committee comprising ofthe Executive Director and two other senior officials, being the FirstCommittee must give its order to the borrower as soon as it is made– Borrower can represent against such order within 15 days to theCReview Committee – Review Committee must then pass a reasonedorder which must then be served on the borrower – All these stepsincorporated into the Revised Circular – Impugned judgment setaside – Constitution of India – Art.19(1)(g) – Principles of naturaljustice – Committees – Insolvency and Bankruptcy Code, 2016 –s.29A.D

Committees – When not tribunal – Held: Before a body canbe said to be a “tribunal”, it must be invested with the judicialpower of the State to decide a lis arising before it, must be legallyauthorised to take evidence by statute/subordinate legislation orotherwise.E

Conclusion

Principles of natural justice – Revised Circular issued by RBIreplacing the mechanism for identification of wilful defaulters asprovided in the earlier Circular – In-house committees referred toin the Circular – Right of oral hearing before such committees, ifany – Held: Given the scheme of the Revised Circular, it is difficultFto state that oral hearing is mandatory – Natural justice is a flexibletool used in order that a person or authority arrives at a just result– Such result can be arrived at in many cases without oral hearingbut on written representations given by parties, after consideringwhich, a decision is then arrived at.

G

Allowing the appeals, the Court

HELD:1.1 The earlier Master Circular dated 01.07.2013granted a hearing before the Grievance Redressal Committeeheaded by the Chairman/Managing Director, and also providedthat the borrower should be provided 15 days’ time for making aHrepresentation against the preliminary decision of the First Committee, this situation does not now obtain. Under paragraph3 of the Revised Circular dated 01.07.2015, it is only at the firststage that the First Committee is to issue a show cause noticeand to consider the submissions of the borrower, a discretionbeing left with the aforesaid Committee to give or not to give apersonal hearing. The Review Committee consisting of the higherofficials and independent directors is completely in-house. Neitherdoes the order of the First Committee have to be given to theborrower, nor is any representation required against the aforesaidorder, nor is there any personal hearing before the ReviewCommittee, which goes through the First Committee’s order byitself and then comes to a conclusion without involving theborrower at all. Serious consequences follow after a person hasbeen classified as a wilful defaulter. These consequences are asfollows: (a) No additional facilities to be granted by any bank/financial institution [paragraph 2.5(a)]; (b) Entrepreneurs/Promoters would be barred from institutional finance for a periodof 5 years [paragraph 2.5(a)]; (c) Any legal proceedings can beinitiated, including criminal complaints [paragraph 2.5(b)]; (d)Banks and financial institutions to adopt proactive approach inchanging the management of the wilful defaulter [paragraph2.5(c)]; (e) Promoter/Director of wilful defaulter shall not beinducted by another borrowing company [paragraph 2.5(d)]; (f)As per section 29A of the Insolvency and Bankruptcy Code, 2016,a wilful defaulter cannot be a resolution applicant.[Paras 7, 8][712-B-H; 713-A]

1.2 The impugned judgment has held that the expression“legally authorised to take evidence” goes with the word“person” and not with the word “tribunal”. While this may becorrect, it is clear that before a body can be said to be a “tribunal”,it must be invested with the judicial power of the State to decidea lis which arises before it. This would necessarily mean that all“tribunals” must be legally authorised to take evidence by statuteor subordinate legislation or otherwise, the judicial power of theState vesting in such tribunal. Applying the tests in Jaswant SugarMills Ltd., Meerut v. Lakshmi Chand and Ors. and EngineeringMazdoor Sabha and Anr. v. Hind Cycles Ltd. to the facts of thepresent case, it cannot be possibly said that either in-housecommittee appointed under the Revised Circular dated AB

CDE

F

GH

[2019] 7 S.C.R.

AB

CDE

F

GH

[2019] 7 S.C.R.

A01.07.2015 is vested with the judicial power of the State. Theimpugned judgment’s conclusion that such Circulars havestatutory force, as a result of which the State’s judicial power hasbeen vested in the two committees, is wholly incorrect. First andforemost, the State’s judicial power, as understood by severaljudgments of this Court, is the power to decide a lis between theBparties after gathering evidence and applying the law, as a resultof which, a binding decision is then reached. This is far from thepresent case as the in-house committees are not vested with anyjudicial power at all, their powers being administrative powersgiven to in-house committees to gather facts and then arrive at aCresult. Secondly, it cannot be said that the Circulars in any mannervest the State’s judicial power in such in-house committees.Therefore, the view of High Court is not correct, and no lawyerhas any right under Section 30 of the Advocates Act, 1961 toappear before the in-house committees so mentioned. Further, the said committees are also not persons legally authorised toDtake evidence by statute or subordinate legislation, and on thisscore also, no lawyer would have any right under Section 30 ofthe Advocates Act to appear before the same. [Paras 11, 12][713-F-H; 715-A; D-G]

1.3 Given the scheme of the Revised Circular, it is difficultEto state that oral hearing is mandatory. It is even more difficult tostate that in all cases oral hearings must be given, or else theprinciples of natural justice are breached. A number of judgmentshave held that natural justice is a flexible tool that is used inorder that a person or authority arrive at a just result. Such resultFcan be arrived at in many cases without oral hearing but on writtenrepresentations given by parties, after considering which, adecision is then arrived at. [Para 13] [716-A-C]

1.4 There is no right to be represented by a lawyer in thein-house proceedings contained in paragraph 3 of the RevisedGCircular dated 01.07.2015, as it is clear that the events of wilfuldefault as mentioned in paragraph 2.1.3 would only relate to theindividual facts of each case. Whether a default is intentional,deliberate, and calculated is again a question of fact which thelender may put to the borrower in a show cause notice to elicitthe borrower’s submissions on the same. However, ArticleH

19(1)(g) is attracted in the facts of the present case as the momenta person is declared to be a wilful defaulter, the impact on itsfundamental right to carry on business is direct and immediate.This is for the reason that no additional facilities can be grantedby any bank/financial institutions, and entrepreneurs/promoterswould be barred from institutional finance for five years. Banks/financial institutions can even change the management of the wilfuldefaulter, and a promoter/director of a wilful defaulter cannot bemade promoter or director of any other borrower company.Equally, under Section 29A of the Insolvency and BankruptcyCode, 2016, a wilful defaulter cannot even apply to be a resolutionapplicant. Given these drastic consequences, it is clear that theRevised Circular, being in public interest, must be construedreasonably. This being so, and given the fact that paragraph 3 ofthe Master Circular dated 01.07.2013 permitted the borrower tomake a representation within 15 days of the preliminary decisionof the First Committee, first and foremost, the Committeecomprising of the Executive Director and two other seniorofficials, being the First Committee, after following paragraph3(b) of the Revised Circular dated 01.07.2015, must give its orderto the borrower as soon as it is made. The borrower can thenrepresent against such order within a period of 15 days to theReview Committee. Such written representation can be a fullrepresentation on facts and law (if any). The Review Committeemust then pass a reasoned order on such representation whichmust then be served on the borrower. Given the fact that theearlier Master Circular dated 01.07.2013 itself considered suchsteps to be reasonable, all these steps are incorporated into theRevised Circular dated 01.07.2015. The impugned judgment is,therefore, set aside. [Para 21] [722-D-H; 723-A-D]

Jaswant Sugar Mills Ltd., Meerut v. Lakshmi Chandand Ors., [1963] Supp. 1 SCR 242 ; EngineeringMazdoor Sabha and Anr. v. Hind Cycles Ltd., [1963]Supp. 1 SCR 625 ; Associated Cement Companies Ltd.v. P.N. Sharma and Anr., [1965] 2 SCR 366 ; GorkhaSecurity Services v. Govt. (NCT of Delhi) and Ors.(2014) 9 SCC 105 ; Mohinder Singh Gill and Anr. v.Chief Election Commissioner, New Delhi and Ors.

AB

CDE

F

G

H

SUPREME COURT REPORTS

A(1978) 1 SCC 405 : [1978] 2 SCR 272 ; Kavita v. Stateof Maharashtra and Ors. (I), (1981) 3 SCC 558 : [1982]1 SCR 138 ; J.K. Aggarwal v. Haryana SeedsDevelopment Corporation Ltd. and Ors. (1991) 2 SCC283 : [1990] 3 Suppl. SCR 13; Crescent Dyes andChemicals Ltd. v. Ram Naresh Tripathi (1993) 2 SCCB115 : [1992] 3 Supp. SCR 559 ; D.G., Railway ProtectionForce and Ors. v. K. Raghuram Babu (2008) 4 SCC406 : [2008] 3 SCR 752 ; Krishna Chandra Tandon v.Union of India, (1974) 4 SCC 374 ; National SeedsCorporation Ltd. v. K.V. Rama Reddy, (2006) 11 SCCC645 : [2006] 6 Suppl. SCR 725 – relied on.

State Bank of India v. M/s. Jah Developers Pvt. Ltd.and Ors. Decision of Delhi High Court in LPA No.113 of 2015 ; Kingfisher Airlines Ltd. v. Union of Indiaand Ors. Decision of Bombay High Court in WP (L)DNo. 1684 of 2015 ; Kingfisher Airlines Ltd. v. Union ofIndia and Ors. Decision of Calcutta High Court in ASTNo. 320 of 2014 ; Nand Lal Bajaj v. State ofPunjab and Anr. (1981) 4 SCC 327 : [1982] 1 SCR718 – referred to.

Case Law Reference

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 4776of 2019.

From the Judgment and Order dated 17.12.2015 of the HighCourt of Delhi at New Delhi in LPA No. 113 of 2015.

With

Civil Appeal Nos. 4777, 4778 of 2019.

Parag P. Tripathi, Sr. Adv., Lalltaksh Doshi, Adv. (A.C.)

N. K. Kaul, B. B. Sawhney, Preetesh Kapur, Sr. Advs., SanjayKapur, Bharath Gangadharan, Ms. Megha Karnwal, Ms. Shubhra Kapur,Vipin Kumar Jai, Rakesh Kumar, Ms. Preeti Kashyap, Saurabh Mishra,Shibashish Misra, Mrs. Kanchan Kaur Dhodi, Advs. for the appearingparties.

The Judgment of the Court was delivered by

R. F. NARIMAN, J. 1. Leave granted.

2. The question that arises in the present appeals is whether, whena person is declared to be a wilful defaulter under the Circulars of theReserve Bank of India [“RBI”], such person is entitled to be representedby a lawyer of its choice before such declaration is made.

3. The RBI Circular dated 01.07.2013 is described as a “MasterCircular on Wilful Defaulters” [“Master Circular”] and is addressedto all scheduled commercial banks (excluding Regional Rural Banks(RRBs) and Local Area Banks (LABs)), and to All India NotifiedFinancial Institutions. The purpose of the said Master Circular is statedas follows:

“Purpose:

To put in place a system to disseminate credit informationpertaining to wilful defaulters for cautioning banks and financialinstitutions so as to ensure that further bank finance is not madeavailable to them.”

Under this Master Circular, “wilful default” has been defined asfollows:

“2.1. Definition of wilful default

The term “wilful default” has been redefined in supersession ofthe earlier definition as under:

A

B

C

D

E

F

G

H

AA “wilful default” would be deemed to have occurred if any ofthe following events is noted:- (a) The unit has defaulted in meeting its payment/repaymentobligations to the lender even when it has the capacity tohonour the said obligations.

B

(b) The unit has defaulted in meeting its payment/repaymentobligations to the lender and has not utilised the financefrom the lender for the specific purposes for which financewas availed of but has diverted the funds for otherpurposes.

C

(c) The unit has defaulted in meeting its payment/repaymentobligations to the lender and has siphoned off the funds sothat the funds have not been utilised for the specific purposefor which finance was availed of, nor are the fundsavailable with the unit in the form of other assets.

D

(d) The unit has defaulted in meeting its payment/repaymentobligations to the lender and has also disposed off orremoved the movable fixed assets or immovable propertygiven by him or it for the purpose of securing a term loanwithout the knowledge of the bank/lender.”

EThe Grievance Redressal Mechanism is set out in paragraph 3 ofthe Master Circular as follows:

“3. Grievance Redressal Mechanism

Banks/FIs should take the following measures in identifying andreporting instances of wilful default:

F

(i) With a view to imparting more objectivity in identifyingcases of wilful default, decisions to classify the borroweras wilful defaulter should be entrusted to a Committee ofhigher functionaries headed by the Executive Director andconsisting of two GMs/DGMs as decided by the Board ofGthe concerned bank/FI.

(ii) The decision taken on classification of wilful defaultersshould be well documented and supported by requisiteevidence. The decision should clearly spell out the reasonsfor which the borrower has been declared as wilfulHdefaulter vis-à-vis RBI guidelines.

(iii) The borrower should thereafter be suitably advised aboutAthe proposal to classify him as wilful defaulter along withthe reasons therefor. The concerned borrower should beprovided reasonable time (say 15 days) for makingrepresentation against such decision, if he so desires, to aGrievance Redressal Committee headed by the ChairmanBand Managing Director and consisting of two other seniorofficials.

A

(iv) Further, the above Grievance Redressal Committee shouldalso give a hearing to the borrower if he represents thathe has been wrongly classified as wilful defaulter.

C

(v) A final declaration as ‘wilful defaulter’ should be madeafter a view is taken by the Committee on therepresentation and the borrower should be suitablyadvised.”

4. On 01.07.2015, the RBI issued another Master Circularconsolidating instructions on how all scheduled commercial banks andnotified financial institutions are to deal with wilful defaulters [“RevisedCircular”]. The definition of “wilful default” is substantially the sameas in the earlier Master Circular. However, the mechanism foridentification of wilful defaulters has been substituted as follows:

D

E

“3. Mechanism for identification of Wilful Defaulters The mechanism referred to in paragraph 2.5 above should generallyinclude the following:

(a) The evidence of wilful default on the part of the borrowingcompany and its promoter/whole-time director at therelevant time should be examined by a Committee headedby an Executive Director or equivalent and consisting oftwo other senior officers of the rank of GM/DGM.

F

(b) If the Committee concludes that an event of wilful defaulthas occurred, it shall issue a Show Cause Notice to theGconcerned borrower and the promoter/whole-time directorand call for their submissions and after considering theirsubmissions issue an order recording the fact of wilfuldefault and the reasons for the same. An opportunityshould be given to the borrower and the promoter/whole H

710SUPREME COURT REPORTS

Atime director for a personal hearing if the Committee feelssuch an opportunity is necessary.

(c) The order of the Committee should be reviewed by anotherCommittee headed by the Chairman/Chairman &Managing Director or the Managing Director & ChiefBExecutive Officer/CEOs and consisting, in addition, to twoindependent directors/non-executive directors of the bankand the Order shall become final only after it is confirmedby the said Review Committee. However, if theidentification Committee does not pass an order declaringa borrower as a wilful defaulter, then the ReviewCCommittee need not be set up to review such decisions.

xxx xxx xxx”

xxx xxx xxx”

5. Considering that nobody appeared on behalf of the respondentsin the Civil Appeal arising out of SLP (C) No. 8591 of 2016, we appointedDShri Parag Tripathi, learned Senior Advocate, to assist us as AmicusCuriae. Shri Tripathi has forcefully argued that Section 30 of theAdvocates Act, 1961 [“Advocates Act”] makes it clear that an advocatehas the right to practice before any tribunal or person legally authorisedto take evidence. Secondly, he spoke about the consequences, both civiland criminal, of being classified as a wilful defaulter, and stated that asEserious consequences ensue, the fundamental right of the borrower underArticle 19(1)(g) of the Constitution of India would be impacted, as aresult of which, it would be necessary to read into the aforesaid guidelinesa right to be represented by a lawyer. The only possible objection thatbanks can have is that lawyers might unnecessarily delay the process ofFdeclaration of a borrower as a wilful defaulter by seeking adjournmentsand otherwise protracting arguments. He submitted that this can becurtailed and it can be made clear that no adjournment under anycircumstances shall be given and a maximum period of half an hour forargument may be given. According to him, the borrower may not becompetent to represent himself and issues of discrimination may alsoGarise. He therefore supported the impugned judgment of the Delhi HighCourt in State Bank of India v. M/s. Jah Developers Pvt. Ltd. andOrs., LPA No. 113 of 2015. He pointed out that the Bombay High Court,in Kingfisher Airlines Ltd. v. Union of India and Ors., WP (L) No.1684 of 2015, and the Calcutta High Court, in Kingfisher AirlinesHLtd. v. Union of India and Ors., AST No. 320 of 2014, have taken a different view which was not in consonance with the Delhi High Court’sview and the Delhi High Court’s view ought to prevail. Shri Tripathi’ssubmission was supported by Shri Rakesh Kumar, learned Advocateappearing on behalf of the respondent in Civil Appeal arising out of SLP(C) No. 10008 of 2017.

6. On the other hand, Shri Neeraj Kishan Kaul and Shri B.B.Sawhney, learned Senior Advocates appearing on behalf of the appellantsin Civil Appeals arising out of SLP (C.) No. 8591 of 2016 and SLP (C.)No. 10008 of 2017 respectively, and Shri Preetesh Kapur, learned SeniorAdvocate appearing on behalf of the intervenor in Civil Appeal arisingout of SLP (C.) No. 26329 of 2017, cited a number of judgments toshow that the right to legal representation is no part of the right of naturaljustice. They also assailed the judgment of the Delhi High Court, statingthat by no stretch of imagination could the in-house committees referredto in the RBI Circulars be said to be “tribunals” inasmuch as there is noinvestment of any judicial power by the State in these in-housecommittees. They buttressed this submission also by reference to severaljudgments. According to them, therefore, the Calcutta and Bombay HighCourts’ view is preferable to the Delhi High Court’s view. It will benoted that the Master Circular dated 01.07.2013 first entrusted cases ofwilful default to a Committee of higher functionaries, which Committeewould then take a preliminary decision which should be well documentedand supported by evidence [“First Committee”]. Thereafter, theconcerned borrower should be provided 15 days’ time for making arepresentation to the Grievance Redressal Committee headed by theChairman and the Managing Director and consisting of two other seniorofficers [“Review Committee”]. Further, such Committee must givea hearing to the borrower if he represents that he has been wronglyclassified as a wilful defaulter, and it is only after such hearing that afinal declaration as wilful defaulter should be made. On the other hand,the Revised Circular dated 01.07.2015 circumscribes the right ofborrowers, as paragraph 3 of the Revised Circular replaces the aforesaidscheme by making an Executive Director and two other senior officersexamine evidence of wilful default on the part of the borrower. If thisCommittee finds that an event of wilful default has occurred, it shouldfirst issue a show cause notice to the concerned borrower and call forhis submissions, and after considering his submissions, issue an orderrecording the fact of wilful default and reasons for the same; a personalhearing can be given only if the Committee feels that such hearing is A

B

C

D

E

F

GH

Anecessary. Thereafter, the order of the Committee is to be reviewed byanother Committee headed by the Chairman/Chairman and ManagingDirector or CEO, in addition to two independent directors/non-executivedirectors of the bank and the order will become final only after it isconfirmed by the said Review Committee.

B7. It will be noted that whereas the earlier Master Circular dated01.07.2013 granted a hearing before the Grievance Redressal Committeeheaded by the Chairman/Managing Director, and also provided that theborrower should be provided 15 days’ time for making a representationagainst the preliminary decision of the First Committee, this situationdoes not now obtain. Under paragraph 3 of the Revised Circular datedC01.07.2015, it is only at the first stage that the First Committee is to issue

a show cause notice and to consider the submissions of the borrower, adiscretion being left with the aforesaid Committee to give or not to givea personal hearing. It may be noticed that the Review Committeeconsisting of the higher officials and independent directors is completelyDin-house. Neither does the order of the First Committee have to be givento the borrower, nor is any representation required against the aforesaidorder, nor is there any personal hearing before the Review Committee,which goes through the First Committee’s order by itself and then comesto a conclusion without involving the borrower at all.

E8. At this stage, it is necessary to mention that seriousconsequences follow after a person has been classified as a wilfuldefaulter. These consequences are as follows:

(a) No additional facilities to be granted by any bank/financialinstitution [paragraph 2.5(a)].

F

(b) Entrepreneurs/Promoters would be barred from institutionalfinance for a period of 5 years [paragraph 2.5(a)].

(c) Any legal proceedings can be initiated, including criminalcomplaints [paragraph 2.5(b)].

(d) Banks and financial institutions to adopt proactive approachGin changing the management of the wilful defaulter[paragraph 2.5(c)].

(e) Promoter/Director of wilful defaulter shall not be inductedby another borrowing company [paragraph 2.5(d)].

(f) As per section 29A of the Insolvency and Bankruptcy Code,2016, a wilful defaulter cannot be a resolution applicant.

9. It is in this background that we have to consider the question asto whether a lawyer ought to be allowed to represent the borrower beforethe First Committee and/or Review Committee under the Revised Circulardated 01.07.2015.

10. Since the judgment of the Delhi High Court has held that thetwo in-house committees can be considered to be tribunals, and thattherefore, a lawyer has the right to represent his client before such in-house committees, it is first necessary to determine whether these in-house committees can be said to be tribunals for the purpose of Section30 of the Advocates Act. Section 30 of the Advocates Act reads asfollows:

“30. Right of advocates to practise.—Subject to the provisionsof this Act, every advocate whose name is entered in the Stateroll shall be entitled as of right to practise throughout the territoriesto which this Act extends,—

(i) in all courts including the Supreme Court;

(ii) before any tribunal or person legally authorised to takeevidence; and

(iii) before any other authority or person before whom suchadvocate is by or under any law for the time being in forceentitled to practise.”

11. The impugned judgment has held that the expression “legallyauthorised to take evidence” goes with the word “person” and not withthe word “tribunal”. While this may be correct, it is clear that before abody can be said to be a “tribunal”, it must be invested with the judicialpower of the State to decide a lis which arises before it. This wouldnecessarily mean that all “tribunals” must be legally authorised to takeevidence by statute or subordinate legislation or otherwise, the judicialpower of the State vesting in such tribunal. This Court, in Jaswant SugarMills Ltd., Meerut v. Lakshmi Chand and Ors., [1963] Supp (1)SCR 242, held that a Conciliation Officer under clause 29 of an Orderpromulgated under the U.P. Industrial Disputes Act, 1947, has to actjudicially. However, he cannot be regarded as a “tribunal” within the A

B

C

D

E

F

G

H

A

B

C

D

E

F

G

H

Ameaning of Article 136 of the Constitution of India as such tribunal mustbe a body invested with the judicial power of the State, which aConciliation Officer was not so invested with. Similarly, in EngineeringMazdoor Sabha and Anr. v. Hind Cycles Ltd., [1963] Supp (1) SCR625, this Court held that an arbitrator appointed under Section 10-A ofthe Industrial Disputes Act, 1947 could not be said to be a tribunal becauseBthe State has not invested him with judicial power. His position may bestated to be higher than that of a private arbitrator, but lower than that ofa tribunal.

12. Similarly, in Associated Cement Companies Ltd. v. P.N.Sharma and Anr., [1965] 2 SCR 366, this Court held that the State ofCPunjab is a tribunal when it exercises its authority under Rule 6(6) of thePunjab Welfare Officers Recruitment and Conditions of Service Rules,1952. Hence, an order passed by the State of Punjab would be appealable,as the State of Punjab is a “tribunal” within the meaning of Article 136(1)of the Constitution of India. The majority judgment, throughDGajendragadkar, C.J., held that the basic test is whether the adjudicatingpower which a particular authority is empowered to exercise, has beenconferred on it by a statute and can be described as a part of the State’sinherent power exercised in discharging its judicial function, can be saidto be satisfied on the facts of the case. In a separate concurring judgment,Bachawat, J., held:E

“44. An authority other than a Court may be vested by statutewith judicial power in widely different circumstances, which itwould be impossible and indeed inadvisable to attempt to defineexhaustively. The proper thing is to examine each case as it arises,and to ascertain whether the powers vested in the authority canFbe truly described as judicial functions or judicial powers of theState. For the purpose of this case, it is sufficient to say that anyoutside authority empowered by the State to determineconclusively the rights of two or more contending parties withregard to any matter in controversy between them satisfies theGtest of an authority vested with the judicial powers of the Stateand may be regarded as a tribunal within the meaning of Article136. Such a power of adjudication implies that the authority mustact judicially and must determine the dispute by ascertainment ofthe relevant facts on the materials before it and by application ofthe relevant law to those facts. This test of a tribunal is not meant H

to be exhaustive, and it may be that other bodies not satisfyingthis test are also tribunals. In order to be a tribunal, it is essentialthat the power of adjudication must be derived from a statute or astatutory rule. An authority or body deriving its power ofadjudication from an agreement of the parties, such as a privatearbitrator or a tribunal acting under Section 10-A of the IndustrialDisputes Act, 1947, does not satisfy the test of a tribunal withinArticle 136. It matters little that such a body or authority is vestedwith the trappings of a Court. The Arbitration Act, 1940 vests anarbitrator with some of the trappings of a Court, so also the Industrial Disputes Act, 1947 vests an authorityacting under Section 10-A of the Act with many of such trappings,and yet, such bodies and authorities are not tribunals.”

Applying the aforesaid tests to the facts of the present case, itcannot be possibly said that either in-house committee appointed underthe Revised Circular dated 01.07.2015 is vested with the judicial powerof the State. The impugned judgment’s conclusion that such Circularshave statutory force, as a result of which the State’s judicial power hasbeen vested in the two committees, is wholly incorrect. First and foremost,the State’s judicial power, as understood by several judgments of thisCourt, is the power to decide a lis between the parties after gatheringevidence and applying the law, as a result of which, a binding decision isthen reached. This is far from the present case as the in-house committeesare not vested with any judicial power at all, their powers beingadministrative powers given to in-house committees to gather facts andthen arrive at a result. Secondly, it cannot be said that the Circulars inany manner vests the State’s judicial power in such in-house committees.On this ground, therefore, the view of Delhi High Court is not correct,and no lawyer has any right under Section 30 of the Advocates Act toappear before the in-house committees so mentioned. Further, the saidcommittees are also not persons legally authorised to take evidence bystatute or subordinate legislation, and on this score also, no lawyer wouldhave any right under Section 30 of the Advocates Act to appear beforethe same.

13. The next question that arises is whether an oral hearing isrequired under the Revised Circular dated 01.07.2015. We have alreadyseen that the said Circular makes a departure from the earlier Master AB

C

D

E

F

G

H

ACircular in that an oral hearing may only be given by the First Committeeat the first stage if it is so found necessary. Given the scheme of theRevised Circular, it is difficult to state that oral hearing is mandatory. Itis even more difficult to state that in all cases oral hearings must begiven, or else the principles of natural justice are breached. A number ofjudgments have held that natural justice is a flexible tool that is used inBorder that a person or authority arrive at a just result. Such result can bearrived at in many cases without oral hearing but on writtenrepresentations given by parties, after considering which, a decision isthen arrived at. Indeed, in a recent judgment in Gorkha SecurityServices v. Govt. (NCT of Delhi) and Ors., (2014) 9 SCC 105, thisCCourt has held, in a blacklisting case, that where serious consequencesensue, once a show cause notice is issued and opportunity to reply isafforded, natural justice is satisfied and it is not necessary to give oralhearing in such cases [see paragraph 20].

14. When it comes to whether the borrower can, given theDconsequences of being declared a wilful defaulter, be said to have aright to be represented by a lawyer, the judgments of this Court haveheld that there is no such unconditional right, and that it would all dependon the facts and circumstances of each case, given the governing rulesand the fact situation of each case. Thus, in Mohinder Singh Gill andAnr. v. Chief Election Commissioner, New Delhi and Ors., (1978)E1 SCC 405, in the context of election law, this Court held:

Procedure

“63. In Wiseman v. Borneman [(1967) 3 All ER 1945] there wasa hint of the competitive claims of hurry and hearing. Lord Reidsaid: “Even where the decision has to be reached by a body actingjudicially, there must be a balance between the need forFexpedition and the need to give full opportunity to the defendantto see material against him” (emphasis added). We agree that theelaborate and sophisticated methodology of a formalised hearingmay be injurious to promptitude so essential in an election underway. Even so, natural justice is pragmatically flexible and isGamenable to capsulation under the compulsive pressure ofcircumstances. To burke it altogether may not be a stroke offairness except in very exceptional circumstances. Even inWiseman where all that was sought to be done was to see if therewas a prima facie case to proceed with a tax case where, inevitably,a fuller hearing would be extended at a later stage of the H

proceedings, Lord Reid, Lord Morris of Borth-y-Gest and LordWilberforce suggested “that there might be exceptional caseswhere to decide upon it ex parte would be unfair, and it would bethe duty of the tribunal to take appropriate steps to eliminateunfairness” (Lord Denning, M.R., in Howard v. Borneman [(1974)3 WLR 660] summarised the observations of the Law Lords inthis form). No doctrinaire approach is desirable but the Courtmust be anxious to salvage the cardinal rule to the extentpermissible in a given case. After all, it is not obligatory that Counselshould be allowed to appear nor is it compulsory that oral evidenceshould be adduced. Indeed, it is not even imperative that writtenstatements should be called for. Disclosure of the prominentcircumstances and asking for an immediate explanation orally orotherwise may, in many cases, be sufficient compliance. It is evenconceivable that an urgent meeting with the concerned partiessummoned at an hour’s notice, or in a crisis, even a telephonecall, may suffice. ……”

(emphasis in original)

15. In Kavita v. State of Maharashtra and Ors. (I), (1981) 3SCC 558 [“Kavita”], this Court held, in the context of preventivedetention, that even when a detenu makes a request for legal assistancebefore the Advisory Board, the Advisory Board is vested with a discretionwhether to allow or disallow such legal assistance. This was despite thefact that adequate legal assistance may be essential for the protection ofthe fundamental right to life and personal liberty guaranteed by Article21 of the Constitution. On facts, it was held that since the detenu had notmade any request to the Advisory Board for any such permission, theCourt was not prepared to hold that the detenu was denied the assistanceof counsel so as to lead to the conclusion that procedural fairness underArticle 21 of the Constitution was denied to him. Likewise, in Nand LalBajaj v. State of Punjab and Anr., (1981) 4 SCC 327, this Court referredto Article 22(3)(b) of the Constitution of India which states that the rightto consult and be defended by a legal practitioner of his choice is deniedto a person who is arrested or detained under any law providing forpreventive detention. This Court then went on to hold that normally,lawyers have no place in proceedings before the Advisory Board, andthen went on to refer to Kavita (supra). It was finally held that since thedetaining authority was allowed to be represented by counsel before the AB

C

D

E

F

G

H

AAdvisory Board, whereas the detenu was not, the order of detentionwould be quashed as this would be discriminatory.

16. In J.K. Aggarwal v. Haryana Seeds DevelopmentCorporation Ltd. and Ors., (1991) 2 SCC 283, this Court, afterdiscussing the case law, held in paragraph 4, that the right of representationBby a lawyer cannot be held to be a part of natural justice. No generalprinciple valid in all cases can be enunciated. In the last analysis, a decisionhas to be reached on a case to case basis on situational particularitiesand the special requirements of justice of the case [see paragraph 8].

17. In Crescent Dyes and Chemicals Ltd. v. Ram NareshCTripathi, (1993) 2 SCC 115, this Court held that a workman under theIndustrial Disputes Act, 1947 has no right, under principles of naturaljustice, that he must be represented by counsel. After discussing severaljudgments, this Court concluded:

“12. From the above decisions of the English Courts it seemsDclear to us that the right to be represented by a counsel or agentof one’s own choice is not an absolute right and can be controlled,restricted or regulated by law, rules or regulations. However, ifthe charge is of a serious and complex nature, the delinquent’srequest to be represented through a counsel or agent could beconceded.

E

13. The law in India also does not concede an absolute right ofrepresentation as an aspect of the right to be heard, one of theelements of principle of natural justice. It has been ruled by thisCourt in (i) Kalindi (N) v. Tata Locomotive & Engineering Co.Ltd., Jamshedpur [(1960) 3 SCR 407 : AIR 1960 SC 914], (ii)FBrooke Bond India (P) Ltd. v. Subba Raman (S.) [(1961) 2LLJ 417] and (iii) Dunlop Rubber Co. v. Workmen [(1965) 2SCR 139 : AIR 1965 SC 1392] that there is no right to representationas such unless the company by its Standing Orders recognisessuch a right.”

Gxxx xxx xxx

“17. It is, therefore, clear from the above case-law that the rightto be represented through counsel or agent can be restricted,controlled or regulated by statute, rules, regulations or StandingOrders. A delinquent has no right to be represented through counsel H

or agent unless the law specifically confers such a right. Therequirement of the rule of natural justice insofar as the delinquent’sright of hearing is concerned, cannot and does not extend to aright to be represented through counsel or agent. In the instantcase the delinquent’s right of representation was regulated by theStanding Orders which permitted a clerk or a workman workingwith him in the same department to represent him and this rightstood expanded on Sections 21 and 22(ii) permitting representationthrough an officer, staff-member or a member of the union, albeiton being authorised by the State Government. The object andpurpose of such provisions is to ensure that the domestic enquiryis completed with despatch and is not prolonged endlessly.Secondly, when the person defending the delinquent is from thedepartment or establishment in which the delinquent is workinghe would be well conversant with the working of that departmentand the relevant rules and would, therefore, be able to rendersatisfactory service to the delinquent. Thirdly, not only would theentire proceedings be completed quickly but also inexpensively. Itis, therefore, not correct to contend that the Standing Order orSection 22(ii) of the Act conflicts with the principles of naturaljustice.”

18. In D.G., Railway Protection Force and Ors. v. K.Raghuram Babu, (2008) 4 SCC 406, this Court, in the context of adomestic/departmental enquiry held:

“9. It is well settled that ordinarily in a domestic/departmentalenquiry the person accused of misconduct has to conduct his owncase vide N. Kalindi v. Tata Locomotive and Engg. Co. Ltd.[AIR 1960 SC 914]. Such an inquiry is not a suit or criminal trialwhere a party has a right to be represented by a lawyer. It is onlyif there is some rule which permits the accused to be representedby someone else, that he can claim to be so represented in aninquiry vide Brooke Bond India (P) Ltd. v. Subba Raman[(1961) 2 LLJ 417 (SC)].

10. Similarly, in Cipla Ltd. v. Ripu Daman Bhanot [(1999) 4SCC 188 : 1999 SCC (L&S) 847] it was held by this Court thatrepresentation could not be claimed as of right. This decisionfollowed the earlier decision Bharat Petroleum Corpn. Ltd. v.

AB

C

D

E

F

G

H

A

B

C

D

E

F

G

H

Maharashtra General Kamgar Union [(1999) 1 SCC 626 : 1999SCC (L&S) 361] in which the whole case law has been reviewedby this Court.

11. Following the above decision it has to be held that there is novested or absolute right in any charge-sheeted employee torepresentation either through a counsel or through any other personunless the statute or rules/standing orders provide for such a right.Moreover, the right to representation through someone, even ifgranted by the rules, can be granted as a restricted or controlledright. Refusal to grant representation through an agent does notviolate the principles of natural justice.”

Ultimately, the Court upheld the validity of Rule 153.8 of theRailway Protection Force Rules, 1987, which permitted a friend toaccompany a delinquent, who will not, however, be allowed to addressthe inquiry officer or be allowed to cross-examine witnesses.

19. It has also been argued before us that the present case, beinga case where “wilful default” consists of facts which are known to theborrower, and as “wilful default” would only be the borrower’s versionof facts, no lawyer is needed as no complicated questions of law need tobe presented before the in-house committees. Thus, in Krishna ChandraTandon v. Union of India, (1974) 4 SCC 374, this Court held:

“17. It was next argued that the appellant had asked for theassistance of an advocate but the same was refused. It wassubmitted that having regard to the intricacies of the case andparticularly the ill-health of the appellant, he should have beengiven the assistance of an advocate, and since that was not giventhere was no reasonable opportunity to defend. The High Courthas rejected this submission and we think for good reasons. Theappellant was not entitled under the Rules to the assistance of anadvocate during the course of the enquiry. The learned Judgeswere right in pointing out that all that the appellant had to do in thecourse of the enquiry was to defend the correctness of hisassessment orders. Clear indications had been given in the chargeswith regard to the unusual conduct he displayed in disposing ofthe assessment cases and the various flaws and defaults whichwere apparent on the face of the assessment records themselves.The appellant was the best person to give proper explanations.

The circumstances in the evidence against him were clearly putto him and he had to give his explanation. An advocate could havehardly helped him in this. It was not a case where oral evidencewas recorded with reference to accounts and the petitionerrequired the services of a trained lawyer for cross-examining thewitnesses. There was no legal complexity in the case. We do not,therefore, accede to the contention that the absence of a lawyerdeprived the appellant of a reasonable opportunity to defendhimself.”

20. Also, in National Seeds Corporation Ltd. v. K.V. RamaReddy, (2006) 11 SCC 645, this Court laid down:

“7. The law in this country does not concede an absolute right ofrepresentation to an employee in domestic enquiries as part of hisright to be heard and that there is no right to representation bysomebody else unless the rules or regulation and standing orders,if any, regulating the conduct of disciplinary proceedings specificallyrecognise such a right and provide for such representation: seeKalindi v. Tata Locomotive & Engg. Co. Ltd. [(1960) 3 SCR407 : AIR 1960 SC 914], Dunlop Rubber Co. v. Workmen [(1965)2 SCR 139 : AIR 1965 SC 1392], Crescent Dyes and ChemicalsLtd. v. Ram Naresh Tripathi [(1993) 2 SCC 115 : 1993 SCC(L&S) 360] and Indian Overseas Bank v. Officers’ Assn. [(2001)9 SCC 540 : 2002 SCC (L&S) 1043].”

The Court then held:

The Court then held:

“10. Learned counsel for the appellant Corporation has broughtto our notice office memorandum dated 21-11-2003 by which theprayer to engage a legal practitioner to act as a defence assistantwas rejected. Reference was made to the Rules, though no specificreference has been made to the discretion available to be exercisedin particular circumstances of a case. The same has to be notedin the background of the basis of prayer made for the purpose.The reasons indicated by the respondent for the purpose were:(a) amount alleged to have been misappropriated is Rs 63.67 lakhs,(b) a number of documents and number of witnesses are reliedon by the respondent, and (c) the prayer for availing services ofthe retired employee has been rejected and the respondent is unableto get any assistance to get any other able co-worker. None of A

B

C

D

E

F

G

H

Athese factors are really relevant for the purpose of deciding as towhether he should be granted permission to engage the legalpractitioner. As noted earlier, he had to explain the factual positionwith reference to the documents sought to be utilised against him.A legal practitioner would not be in a position to assist therespondent in this regard. It has not been shown as to how a legalBpractitioner would be in a better position to assist the respondentso far as the documents in question are concerned. As a matterof fact, he would be in a better position to explain and throw lighton the question of acceptability or otherwise and the relevance ofthe documents in question. The High Court has not consideredCthese aspects and has been swayed by the fact that the respondentwas physically handicapped person and the amount involved isvery huge. As option to be assisted by another employee is givento the respondent, he was in no way prejudiced by the refusal topermit engagement of a legal practitioner. The High Court’s orderis, therefore, unsustainable and is set aside.”D21. Given the above conspectus of case law, we are of the viewthat there is no right to be represented by a lawyer in the in-houseproceedings contained in paragraph 3 of the Revised Circular dated01.07.2015, as it is clear that the events of wilful default as mentioned inparagraph 2.1.3 would only relate to the individual facts of each case.EWhat has typically to be discovered is whether a unit has defaulted inmaking its payment obligations even when it has the capacity to honourthe said obligations; or that it has borrowed funds which are diverted forother purposes, or siphoned off funds so that the funds have not beenutilised for the specific purpose for which the finance was made available.FWhether a default is intentional, deliberate, and calculated is again aquestion of fact which the lender may put to the borrower in a showcause notice to elicit the borrower’s submissions on the same. However,we are of the view that Article 19(1)(g) is attracted in the facts of thepresent case as the moment a person is declared to be a wilful defaulter, the impact on its fundamental right to carry on business is direct andGimmediate. This is for the reason that no additional facilities can be grantedby any bank/financial institutions, and entrepreneurs/promoters wouldbe barred from institutional finance for five years. Banks/financialinstitutions can even change the management of the wilful defaulter, anda promoter/director of a wilful defaulter cannot be made promoter orHdirector of any other borrower company. Equally, under Section 29A of

the Insolvency and Bankruptcy Code, 2016, a wilful defaulter cannoteven apply to be a resolution applicant. Given these drastic consequences,it is clear that the Revised Circular, being in public interest, must beconstrued reasonably. This being so, and given the fact that paragraph 3of the Master Circular dated 01.07.2013 permitted the borrower to makea representation within 15 days of the preliminary decision of the FirstCommittee, we are of the view that first and foremost, the Committeecomprising of the Executive Director and two other senior officials, beingthe First Committee, after following paragraph 3(b) of the Revised Circulardated 01.07.2015, must give its order to the borrower as soon as it ismade. The borrower can then represent against such order within aperiod of 15 days to the Review Committee. Such written representationcan be a full representation on facts and law (if any). The ReviewCommittee must then pass a reasoned order on such representation whichmust then be served on the borrower. Given the fact that the earlierMaster Circular dated 01.07.2013 itself considered such steps to bereasonable, we incorporate all these steps into the Revised Circular dated01.07.2015. The impugned judgment is, therefore, set aside, and theappeals are allowed in terms of our judgment. We thank the learnedAmicus Curiae, Shri Parag Tripathi, for his valuable assistance to thisCourt.

Divya Pandey

Appeals allowed.

AB

C

D

E

F

G

H