Unlike the other cases wilful defaulters are those lenders who may repay the loans but are refuse to do so as explained in the master curricular[1] on willful defaulter published by the RBI of which rule 2.1 defines the willful defaulters.

According the circular a person or company could be termed as wilful defaulter if it fails to repay the obligated amount even though it has the amount or has used the capital for some other purpose than the purpose it was specifically financed[2] these principals were relied upon and elaborated by justice RF Nariman in the case of State Bank of India Vs. Jah Developers Pvt. Ltd. and Ors[3].

In these cases, one will be declared as a wilful defaulter as elucidated in the 3rd rule of the master circular,[4] the process starts with entrusting it to a committee of higher officials, headed by the Executive Director and should be comprising of two GMs/DGMs, as agreed by the board of the bank or the financial institution concerned. The decision will be taken to identify wilful defaulters needed to be well known and substantiated by the relevant evidence.

The decision should explicitly state the reasons why the borrower was considered to be a wilful default on the RBI Guidelines. This should be followed by informing the borrower properly of the plan to classify him, along with the reasons for it, as a wilful defaulter.

The borrower concerned should be given sufficient time to represent a committee headed by the Chairman and Managing Director, if he so wishes, against such a decision. Finally, after a view is taken by the Committee on the representation, and a final declaration as 'wilful defaulter' should be made and the borrower should be suitably informed.

The declaration of wilful defaulters in public took a tangle in 2015 as due dilemma that due public revelation may not backlash the repayment of the loans and also demotivate the companies from expanding business the supreme court also asked the RBI to follow the general protocol and reveal the names of the wilful defaulters in public.[5]

One who has been declared as a wilful defaulter shall be criminally liable depending upon the facts and circumstances in the case, according to the Sec 403 and 415 of the Indian Penal Code (IPC) 1860.

The RBI regulation as mentioned the in the master circular rule 4[6], elaborates this further in detail. Further, no extended services shall be provided to the wilful defaulters by any bank / FI and entrepreneurs/promoters of companies where banks/FIs have detected siphoning/diversion of funds, misrepresentation, falsification of accounts and fraudulent transactions from scheduled commercial banks will be debarred from institutional finance, etc. Also, a wilful defaulter cannot be a settlement claimant under section 29A of the Insolvency and Bankruptcy Code, 2016.[7]

End-Notes:

1. Rule 2.1, Master Circular on Wilful Defaulters, https://www.rbi.org.in/Scripts/BS_ViewMasterCirculars.aspx?Id=3670&Mode=0#end
2. ibid
3. State Bank of India Vs. Jah Developers Pvt. Ltd. and Ors , AIR 2019 SC 2854
4. Rule 3, Master Circular on Wilful Defaulters, https://www.rbi.org.in/Scripts/BS_ViewMasterCirculars.aspx?Id=3670&Mode=0#end
5. Wilful on defaulters? : On rbi, https://www.thehindu.com/opinion/editorial/wilful-on-defaulters/article25429665.ece (last visited Feb 20, 2021)
6. Rule 4, Master Circular on Wilful Defaulters, https://www.rbi.org.in/Scripts/BS_ViewMasterCirculars.aspx?Id=3670&Mode=0#end
7. Overview Of The Master Circular On Wilful Defaulters And Consequences Of Being Declared As A Wilful Defaulter - Finance and Banking - India Welcome to Mondaq, https://www.mondaq.com/india/financial-services/900720/overview-of-the-master-circular-on-wilful-defaulters-and-consequences-of-being-declared-as-a-wilful-defaulter (last visited Feb 20, 2021)