Calcutta HC Quashes Vague Wilful Defaulter Show Cause Notice: SREI Equipment Finance Limited Vs BSCPL Infrastructure Limited & Ors.

Background and Context

The Calcutta High Court recently adjudicated an appellate challenge arising from a judgment passed by a learned Single Judge in WPA 3211 of 2026. The Division Bench was called upon to examine whether a show cause notice issued for declaration of certain parties as wilful defaulters met the procedural standards mandated under the RBI Master Circular governing identification and classification of wilful defaulters.

The case involved SREI Equipment Finance Limited (appellant/lender) on one side, and BSCPL Infrastructure Limited along with its personal guarantor on the other. The central dispute revolved around whether the show cause notice dated 15 January 2026 — and the accompanying extract from the Wilful Defaulter Identification Committee (WDIC) meeting held on 18 December 2025 — were legally adequate to initiate wilful defaulter proceedings against the respondents.

Factual Matrix

The respondent No. 1 (BSCPL Infrastructure Limited) was a partner in a joint venture (JV) formed with T&C Constructions Ltd. This JV had availed several credit facilities from SREI Equipment Finance Limited under various loan agreements, against which respondent No. 1 had extended a corporate guarantee. Separately, respondent No. 2 had furnished personal guarantees securing loans advanced to the same JV.

The JV subsequently defaulted on repayment obligations. T&C Constructions Ltd. was admitted into a Corporate Insolvency Resolution Process (CIRP) on or around 14 February 2019 and was eventually directed to undergo liquidation under the Insolvency and Bankruptcy Code, 2016. The appellant had filed a claim in the CIRP proceedings for 50% of the outstanding dues attributable to the JV. Respondent No. 1 thereafter took over the JV's ongoing projects following the admission of T&C into CIRP.

On 6 February 2025, the appellant formally invoked the corporate guarantee furnished by respondent No. 1 in respect of two loan facilities. The invocation notice referred to Agreement No. 123703 (facility amount Rs. 59,78,87,917) and Agreement No. 123346 (facility amount Rs. 55,26,12,083), both dated 5 January 2017. Subsequently, on 13 August 2025, a notice invoking arbitration under Section 21 of the Arbitration and Conciliation Act, 1996 was issued to respondent No. 2 as personal guarantor, demanding payment of Rs. 1,81,66,48,616.09 outstanding across seven contracts.

On 25 February 2025, respondent No. 1 had written to the appellant offering settlement of the loan-related disputes — a communication that the appellant later relied upon as acknowledgment of liability.

The appellant further obtained a CIBIL Report dated 13 November 2025 pertaining to the JV/borrower. On the basis of the two invocation/demand notices and this CIBIL Report, the Identification Committee convened its third meeting on 18 December 2025 and resolved to issue a show cause notice. The notice was accordingly dispatched on 15 January 2026.

The Show Cause Notice and Committee Extract

The show cause notice was a combined communication addressed to the JV (borrower), respondent No. 1 (corporate guarantor/partner), and respondent No. 2 (personal guarantor). It stated that "certain transactions/events/facts/circumstances were identified as amounting to wilful default" by the WDIC and called upon the recipients to submit their response within 21 days.

The extract of the WDIC meeting annexed to the notice identified two proposed grounds:

The notice specified that respondent No. 1 (partner) would be cited under Ground A and respondent No. 2 (guarantor) under Ground B.

Contentions of the Parties

Arguments Advanced by the Appellant