Failure to Apply Clause 3(d) of RBI's Master Circular: Calcutta HC Sets Aside Wilful Defaulter Tag by SBI on Non‑Executive Director [Read Order]

The Calcutta High Court sets aside the wilful defaulter tag on a non-executive director of a company, holding that there was a failure on the part of the Review Committee (RC) to apply Clause 3(d) of the Reserve Bank of India’s (RBI) Master Circular.

Shrivardhan Goenka, the petitioner, was a Non‑Executive Director of Duncans Industries Limited. He was declared a wilful defaulter by the State Bank of India’s (SBI)Identification Committee (IC). This decision was subsequently affirmed by the RC. He challenged this decision before the High Court.

The counsel for the petitioner argued that Clause 3(d) specifically protects Non‑Whole Time Directors from being branded wilful defaulters. They can only do the same if it was established that the directors were aware of defaults through board or committee minutes, failed to record objections, or consented to or connived in the default.

The petitioner contended that he was neither a promoter nor a whole-time director. It was also argued that he had resigned from the company in October 2015, before the period of default (2015–16 to 2017–18). He further contended that he was not part of the audit committee and thus he had no role in financial transactions. Also, it was pointed that another Non‑Executive Independent Director, R.K. Bhargava, was exempted from the wilful defaulter list, raising questions of parity.

The bench of Justice Sabyasachi Bhattacharyya observed that the bank had failed to produce minutes of meetings or other records showing goenka’s awareness of defaults, his failure to object or his consent

Also the RC despite the petitioner’s raising Clause 3(d) as a jurisdictional bar, the RC did not address it in its order. It was also noted that another Non‑Executive Independent Director, R.K. Bhargava, was exempted from the wilful defaulter. Thus making the petitioner too to be let off.

If not will result in violation of equitable principles.

The Court set aside the RC’s order dated April 18, 2023, and consequently nullified the IC’s declaration, since the latter attains finality only upon RC affirmation. SBI was directed to immediately remove Goenka’s name from the CentralInformation Companies (CIC) list of wilful defaulters and reverse any consequential steps within one month.

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