High Court Relief for Non-Executive Directors: Wilful Defaulter Tag Requires Conclusive Evidence of Connivance
The Hon’ble Calcutta High Court has delivered a significant judgment safeguarding the rights of Non-Executive Directors against arbitrary classification as "Wilful Defaulters" by financial institutions. In the case of Shrivardhan Goenka Vs State Bank of India and Others, the Court elucidated the stringent evidentiary standards required under the Reserve Bank of India (RBI) Master Circular on Wilful Defaulters dated July 1, 2015.
The ruling clarifies that mere association with a defaulting company or attendance at board meetings is insufficient to label a Non-Whole Time Director as a wilful defaulter.
Background of the Dispute
The legal challenge was initiated by the petitioner, who served as a Non-Whole Time Non-Executive Director of the borrower entity, Duncans Industries Limited. The State Bank of India (SBI), through its Wilful Defaulter Identification Committee (IC), had classified the petitioner as a wilful defaulter. This classification was subsequently upheld by the Review Committee (RC).
The petitioner contested this designation, arguing that the decision violated the specific protections granted to Non-Executive Directors under the RBI regulations. The core of the dispute revolved around whether the bank had satisfied the criteria laid down in Clause 3(d) of the Master Circular before attaching the stigmatizing label of a wilful defaulter to a director who was not involved in day-to-day executive functions.