Process of Collection and Dissemination of Information on Wilful Defaulters

RBI/2014–15/566 DBR.No.CID.BC.90/20.16.003/2014–15

April 23, 2015

Please refer to the Mas­ter Cir­cu­lar on Wil­ful Default­ers DBR.No.CID.BC.57/20.16.003/2014–15 dat­ed Jan­u­ary 7, 2015.

2. Para­graph 3 of the Cir­cu­lar has been amend­ed as fol­lows (amend­ed por­tion in bold italics):

“3. Mech­a­nism for iden­ti­fi­ca­tion of Wil­ful Defaulters

The trans­par­ent mech­a­nism referred to in para­graph 2.5(d) in the above Mas­ter Cir­cu­lar on Wil­ful Default­ers should gen­er­al­ly include the following:

(a) The evi­dence of wil­ful default on the part of the bor­row­ing com­pa­ny and its pro­moter/w­hole-time direc­tor at the rel­e­vant time should be exam­ined by a Com­mit­tee head­ed by an Exec­u­tive Direc­tor and con­sist­ing of two oth­er senior offi­cers of the rank of GM/DGM.

(b) If the Com­mit­tee con­cludes that an event of wil­ful default has occurred, it shall issue a Show Cause Notice to the con­cerned bor­row­er and the pro­moter/w­hole-time direc­tor and call for their sub­mis­sions and after con­sid­er­ing their sub­mis­sions issue an order record­ing the fact of wil­ful default and the rea­sons for the same. An oppor­tu­ni­ty should be giv­en to the bor­row­er and the pro­moter/w­hole-time direc­tor for a per­son­al hear­ing if the Com­mit­tee feels such an oppor­tu­ni­ty is necessary.

© The Order of the Com­mit­tee should be reviewed by anoth­er Com­mit­tee head­ed by the Chair­man / CEO and MD and con­sist­ing, in addi­tion, of two inde­pen­dent direc­tors of the Bank and the Order shall become final only after it is con­firmed by the said Review Committee.

(d) As regard a non-pro­moter/non-whole time direc­tor, it should be kept in mind that Sec­tion 2(60) of the Com­pa­nies Act, 2013 defines an offi­cer who is in default to mean only the fol­low­ing cat­e­gories of directors:

(i) Whole-time director

(ii) where there is no key man­age­r­i­al per­son­nel, such direc­tor or direc­tors as spec­i­fied by the Board in this behalf and who has or have giv­en his or their con­sent in writ­ing to the Board to such spec­i­fi­ca­tion, or all the direc­tors, if no direc­tor is so specified;

(iii) every direc­tor, in respect of a con­tra­ven­tion of any of the pro­vi­sions of this Act, who is aware of such con­tra­ven­tion by virtue of the receipt by him of any pro­ceed­ings of the Board or par­tic­i­pa­tion in such pro­ceed­ings and who has not object­ed to the same, or where such con­tra­ven­tion had tak­en place with his con­sent or connivance.

(iv) There­fore, except in very rare cas­es, a non-whole time direc­tor should not be con­sid­ered as a wil­ful default­er unless it is con­clu­sive­ly estab­lished that

I. he was aware of the fact of wil­ful default by the bor­row­er by virtue of any pro­ceed­ings record­ed in the Min­utes of the Board or a Com­mit­tee of the Board and has not record­ed his objec­tion to the same in the Min­utes, or,

II. the wil­ful default had tak­en place with his con­sent or connivance.

How­ev­er, the above excep­tion will not apply to a pro­mot­er direc­tor even if not a whole time director.

(e) A sim­i­lar process as detailed in sub paras (a) to © above should be fol­lowed when iden­ti­fy­ing a non-whole time direc­tor oth­er than a pro­mot­er direc­tor as a wil­ful defaulter.”

Yours faith­ful­ly

(Rajin­der Kumar)
Chief Gen­er­al Manager