Forensic Audit & Wilful Default: High Court Case

Forensic Audit & Wilful Default: High Court Case

Whether the observations made in the Forensic Audit Report can be the sole basis for Bank to conclude an event of Wilful Default? –  High Court

In this case, the petitioner is challenging an order from the Punjab National Bank (Respondent Bank) that declared them a “Wilful Defaulter” under the “Master Circular on Wilful Defaulters, 2015” issued by the Reserve Bank of India. The petitioner, who is the Chairman of Hindustan Power Projects Pvt. Ltd., had availed significant loan facilities from banks and claims there was no default in servicing the debt. The person who’s complaining is the Chairman of a company called Hindustan Power Projects Pvt. Ltd. They borrowed a lot of money from banks and say they always paid it back on time.

The problem started when the Respondent Bank wanted to call this person a Wilful Defaulter because of their involvement with another company called Moser Baer Solar Ltd. (MBSL). MBSL was having money problems, so the banks agreed to change its loan terms under a program called Corporate Debt Restructuring (CDR). But the person who’s complaining says they had nothing to do with MBSL’s problems. They say they quit being a director of MBSL and gave their shares to their father. Even after doing this, the Respondent Bank still said they were a Wilful Defaulter.

During the process of restructuring MBSL’s debt, the banks were told that this person wasn’t involved and didn’t give any personal guarantee for the loans. But the Respondent Bank kept sending them notices and eventually declared them a Wilful Defaulter. So, this person went to court and filed a Writ Petition to challenge the bank’s decision. The court said the bank can’t enforce its decision until the case is resolved.

In this case, the court had to decide if a bank can declare someone a Wilful Defaulter based solely on findings from a Forensic Audit Report. The person involved, Ratul Puri, was challenging the Punjab National Bank’s decision. The Delhi High Court made a judgment on March 15, 2024. They said that the findings in a Forensic Audit Report alone cannot be enough for the bank to decide someone is a Wilful Defaulter. The court stated that there needs to be more evidence and proper consideration of all facts before making such a serious decision. This judgment means that banks cannot rely solely on Forensic Audit Reports to label someone a Wilful Defaulter without proper investigation and evidence.