SC: Lawyers can’t appear before a body not vested with judicial power

The Hon’ble Supreme Court, on 8th May 2019, in the matter of State Bank of India v. M/S. Jah Developers Pvt. Ltd. & Ors.observed that no lawyer has any right under Section 30 of the Advocates Act to appear before the in-house committee of banks appointed for the purpose of determining whether a borrower is a wilful defaulter or not.

The Hon’ble Supreme Court observed that:

Before a body can be said to be a “tribunal”, it must be invested with the judicial power of the State to decide a lis which arises before it. This would necessarily mean that all “tribunals” must be legally authorised to take evidence by statute or subordinate legislation or otherwise, the judicial power of the State vesting in such tribunal. (Para 11)

An in-house committee of banks appointed for the purpose of determining whether a borrower is a wilful defaulter or not cannot be possible said to be vested with the judicial power of the State. (This inference has been drawn on the basis of Para 12)

The State’s judicial powers the power to decide a lis between the parties after gathering evidence and applying the law, as a result of which, a binding decision is then reached. (Para 12)

No lawyer has any right under Section 30 of the Advocates Act to appear before the in-house committee of banks appointed for the purpose of determining whether a borrower is a wilful defaulter or not. (This inference has been drawn on the basis of Para 12)

Where persons are not legally authorised to take evidence by statute or subordinate legislation, no lawyer would have any right under Section 30 of the Advocates Act to appear before the same. (This inference has been drawn on the basis of Para 12)

Natural justice is a flexible tool that is used in order that a person or authority arrive at a just result. Such result can be arrived at in many cases without oral hearing but on written representations given by parties, after considering which, a decision is then arrived at. (Para 13)

While determining whether there is wilful default or not, what has typically to be discovered is whether a unit has defaulted in making its payment obligations even when it has the capacity to honour the said obligations; or that it has borrowed funds which are diverted for other purposes, or siphoned off funds so that the funds have not been utilised for the specific purpose for which the finance was made available. Whether a default is intentional, deliberate, and calculated is again a question of fact which the lender may put to the borrower in a show cause notice to elicit the borrower’s submissions on the same. (This inference has been drawn on the basis of Para 21)

As the moment a person is declared to be a wilful defaulter, the impact on its fundamental right to carry on business is direct and immediate. This is for the reason that no additional facilities can be granted by any bank/financial institutions, and entrepreneurs/promoters would be barred from institutional finance for five years. Banks/financial institutions can even change the management of the wilful defaulter, and a promoter/director of a wilful defaulter cannot be made promoter or director of any other borrower company. (Para 21)

Under Section 29A of the Insolvency and Bankruptcy Code, 2016, a wilful defaulter cannot even apply to be a resolution applicant. (Para 21)

Copy of judgement: Judgement_08-May-2019

-Tushar Kaushik

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