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Vijay Mallya not a defaulter: Kolkata High Court

Court sets aside United Bank decision on technical ground

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Even as Reserve Bank of India (RBI) governor Raghuram Rajan recently upped the tempo in the war against loan defaulters, Vijay Mallya and his grounded Kingfisher Airlines have won a major victory in the legal fight against United Bank of India, with the Kolkata high court rejecting the bank's decision to declare it as wilful defaulter.

While the Kolkata-based bank can still pursue to declare Mallya and several Kingfisher directors wilful defaulters, the court, in a ruling with wide-ranging implications for Corporate India, has turned down the proclamation of the grievance redressal committee of the bank taken in September.
"The decisions of the identification committee and the grievance redressal committee are quashed," judge Debangsu Basak pronounced in a ruling on Wednesday.

What was the court's argument?
The court ruling to turn down the decision of the bank's committees was more technical. The identification committee, formed to identify wilful defaulters, held a meeting on May 22. It consisted of four members – an executive chairman, a chief general manager and two general managers. The court said this violated an RBI rule, which prescribes only three members.

What was the court ruling?
"This (four members) is in excess of the number of three personnel prescribed in Regulation 3(i) of the Master Circular on wilful defaulters issued by the RBI. In such circumstances, the decision by the identification committee is a nullity. Consequently, all steps taken by United Bank of India, subsequent to such so-called identification are also a nullity," the judge said.

What do regulations say?
Regulations require a bank to set up a two-tier mechanism to identify wilful defaulters. The first tier is the identification committee, which will identify wilful defaulters on the basis of cogent evidence. Its finding is then required to be considered by the second tier, the grievance redressal committee, after affording the defaulting borrower a reasonable opportunity of hearing.

What is United Bank saying?
United Bank sounded hopeful and said the ruling will only delay and not stop the process. "The ruling doesn't say that Kingfisher wasn't a wilful defaulter. We can again reconvene committees. This order will only delay the process of declaring Kingfisher and its directors wilful defaulters," United Bank executive director Sanjay Arya said.

Will banks be able to move against Mallya now?
While giving Kingfisher a reprieve in its legal battle against United Bank, the court rejected a contention of Kingfisher that could have frustrated the attempt of the banking industry as a whole, including lead banker SBI, to renew its attempt to permanently put the wilful defaulter tag on Mallya.

What did the court say on an earlier SBI letter?
The court refused to give any importance to a letter by SBI in January 2012 to RBI, stating that Kingfisher was making every effort to achieve satisfactory performance of its operations and mentioned various reasons due to which the company's account became irregular. Mallya's counsel had argued these were factors external to the management and hence doesn't fall within the definition of wilful default.

What did the judge say on the letter?
"The letter dated January 31, 2012, cannot be stretched to mean to be a Holy Grail which absolves all sins of wilful defaults in terms of the Master Circular of the Reserve Bank of India for all times to come in respect of all the writ petitioners or any of them," the judge said. The judge also observed that the grievance redressal committee too consisted of four members in violation of Regulation 3(iii) of the Master Circular of RBI.

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