High Court in Delhi maintains the annulment of the label of intentional debtor for Ratul Puri and Nita Puri.
In a significant ruling, the Delhi High Court has upheld Single Judge orders that set aside the classification of Ratul Puri and Nita Puri as wilful defaulters by the Reserve Bank of India (RBI). The court dismissed the banks’ appeals, finding that the banks failed to prove any intentional diversion or siphoning off of the borrowed funds by Ratul Puri and Nita Puri.
The investments in subsidiaries such as Helios Photo Voltaic Ltd (HPVL) were funded from internal accruals, private equity infusions, and foreign currency convertible bonds, and were considered strategic. Moser Baer India Ltd (MBIL) and its subsidiary Moser Baer Solar Ltd (MBSL) had availed credit facilities from a consortium of banks, including BoB and PNB.
The court's ruling underscores the serious civil and commercial consequences of a wilful defaulter label, referring to it as a "civil death." It emphasized that every default is not a wilful default; the misconduct must be intentional, deliberate, and calculated. The Court questioned whether forensic audit reports prepared by GSA & Associates (for MBIL) and Haribhakti & Co LLP (for MBSL) can be relied on to declare the Puris as wilful defaulters, as they admitted that the source of funds for the investments had not been verified.
The Division Bench of Justices C Hari Shankar and Ajay Digpaul made the ruling. Advocates Rajeev Goyal, Vaibhav Mishra, Anshul Mishra, Ekansh Mishra, Manu Krishnan, Devika Mohan, and Vikram Choudhary appeared for Ratul Puri and Nita Puri. Advocates Sanjay Bajaj, Shivam Takkar, and Sarthak Sehgal appeared for Punjab National Bank.
The court noted that the lenders' own Final Restructuring Schemes (FRS) documents acknowledged that the investments in subsidiaries were funded from "substantial cash surplus" and not from bank borrowings. Decisions regarding wilful defaulters must be based on objective facts and circumstances of the case and the borrower's overall track record.
In summary, the Delhi High Court confirmed that the "wilful defaulter" tag requires proof of deliberate intent to default or misapply funds. The banks failed to meet this burden of proof, and therefore, Ratul Puri and Nita Puri’s wilful defaulter status was rightfully quashed and upheld by the court. The ruling dismisses appeals filed by Bank of Baroda (BoB) and Punjab National Bank (PNB) in the matter.
Business decisions relating to the investments in subsidiaries were unequivocally not funded by bank borrowings, as stated in the lenders' Final Restructuring Schemes (FRS) documents. The finance sector must base wilful defaulter decisions on objective facts and the borrower's overall track record, as emphasized by the court.
