 "Mallya take note: Gujarat HC just struck down part of RBI default note")
The Gujarat High Court has partially struck down the Reserve Bank of India (RBI) circular on wilful defaulters.
The RBI notice on wilful defaulters debars all directors of defaulting companies from banking services for any other ventures for five years.
The court found RBI’s restrictions “arbitrary and unreasonable.”
RBI’s master circular on wilful default lists siphoning off funds, misrepresentation/falsification of records and fraudulent entry of transactions.
According to a report in CNBC-TV18, the Gujarat High Court made a distinction between promoter directors vs nominee and independent directors of a company and said that the directors who are not involved in the day to day functioning of a company cannot be restricted to avail of bank capital for new ventures. And so, the court has held that this restriction on all directors is violative of their right to do business under the Constitution.
According to a report in DNA, the HC judgement opens up a debate on defining the role of a company director versus that of entrepreneurs or promoters and Vijay Mallya will surely take cover under the law.
United Bank of India had declared Kingfisher as wilful defaulter, which was contested by the airline. In a communication to the Bombay Stock Exchange, cash-starved Kingfisher Airlines said “none of the parameters constituting wilful default governed by the Master Circular issued by the RBI, apply to the company and the company is in the process of seeking legal recourse against action of UB.”
However, Kingfisher was denied any relief from the Supreme Court which refused to interfere with the order of Grievance Redressal Committee of United Bank of India (UBI) declaring it and its promotor Vijay Mallya as wilful defaulter.
While the Gujarat HC judgment won’t ease Mallya’s troubles, there could be the hope that the wilful defaulter tag might not stop him from doing new businesses in future, if he manages to argue that singling him out as a promoter vis-a-vis directors is an unfair distinction.
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