The practice of RBI allowing banks to publish the names of wilful defaulters has come under the Supreme Court’s scrutiny for its alleged circumvention of the judicial process and legislative supervision.
On a petition by a Nasik-based company, DSL Enterprises Pvt Ltd, the apex court has sought replies from the finance ministry, RBI, Credit Information Bureau India (CIBIL), Bank of Maharashta and Dena Bank as to why they should be allowed to “play havoc with the firm’s social and business standing” by making its name public as a wilful defaulter. The petitioner contended that passing such judgements on the character of a person pre-eminently falls within the domain of the legislature as it involves one’s fundamental right to good reputation and challenged RBI’s giving such powers to itself.
In 2004, RBI authorised CIBIL to publish a list of defaulters of Rs 1 crore and above and also give out details of wilful defaulters of Rs 25 lakh and above against whom suits have been filed. The measure that followed the 2002 scheme that defined ‘wilful defaulters’ and terms like ‘diversion of funds’ and ‘siphoning of funds,’ was aimed at exerting moral pressure on the defaulter.
Under the securitisation ordinance, banks have the right to acquire assets of wilful defaulters. RBI later expanded the definition of wilful defaulters by including companies that try to dispose of mortgaged properties without the knowledge of the lenders. In July this year, RBI issued a master circular combining all its instructions and directions in this regard, with a view to making available credit information pertaining to willful defaulters to banks and blocking further bank finance to these firms.
DSL has challenged the legality and validity of various RBI circulars and certain provisions of the Companies (Regulation) Act 2005 that allow the banks to declare the names of defaulters on the CIBIL website. “These draconian powers given by RBI to the banks play with a person’s fundamental right to the good reputation,” the firm alleged, adding that there is an implied duty of utmost care imposed on a banker before disclosing the credit assessment