The Delhi High Court has upheld a single judge’s decision to quash the classification of businessman Ratul Puri and his mother, Nita Puri, as “wilful defaulters” by the Bank of Baroda and the Punjab National Bank. A division bench comprising Justice C. Hari Shankar and Justice Ajay Digpaul dismissed the appeals filed by the banks, affirming that the process adopted to declare the Puris as wilful defaulters did not comply with the procedural and evidentiary requirements laid down under the Reserve Bank of India’s 2015 Master Circular on Wilful Defaulters.
The case arose after both banks had issued notices declaring Ratul Puri and Nita Puri as wilful defaulters in connection with alleged loan defaults. The single judge had earlier held that such a declaration had far-reaching civil and criminal consequences, including severe reputational damage and disqualification from accessing future credit. It was therefore essential that the identification and review process strictly follow the safeguards outlined in the RBI guidelines. These guidelines require a high degree of circumspection, careful evaluation, and the establishment of intent or deliberate default before such a classification is made.
In its judgment, the division bench endorsed the single judge’s findings that the banks had failed to adhere to these mandatory procedures. It was noted that the decision to declare the Puris as wilful defaulters was based largely on isolated findings, including reliance on a forensic audit report, without a comprehensive assessment of the facts and circumstances. The court emphasized that a forensic audit report, while useful, cannot form the sole basis for such a serious classification, as it does not in itself prove deliberate default or malafide intent.
The court also underlined that natural justice principles must be scrupulously observed in such matters. This includes providing the borrower with a proper opportunity to be heard, ensuring that the identification committee considers all relevant materials objectively, and avoiding reliance on predetermined conclusions. The bench noted that procedural lapses in this process can render the entire declaration invalid, regardless of the underlying allegations.
The judgment reaffirmed that the “wilful defaulter” tag is not merely a banking classification but one with substantial consequences under law. Such a label affects a borrower’s business prospects, creditworthiness, and personal reputation, and can lead to restrictions on participation in corporate management or borrowing from financial institutions. Given these severe implications, the court stressed that banks must exercise extreme caution and ensure that the decision is supported by cogent evidence and a proper decision-making process.
By dismissing the banks’ appeals, the High Court confirmed that the earlier order quashing the classification of Ratul Puri and Nita Puri as wilful defaulters would stand. The ruling serves as a reminder to financial institutions that adherence to the RBI’s procedural safeguards is not optional, and any deviation can result in judicial intervention to protect the rights of the individuals concerned.
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