The Bombay High Court has set aside orders issued by three government banks declaring chartered accountant Alok Agarwal a wilful defaulter in connection with loan defaults by Parekh Aluminex Ltd, which owes banks at least ₹2,762 crore.
Parekh Aluminex Ltd had defaulted on loan taken from Banks and Banks declared CA also as wilful defaulter. CA moved the Bombay High Court saying that Banks can’t declare him wilful defaulter.
A division bench of justices Bharati Dangre and Manjusha Deshpande ruled that as an independent director, Agarwal could not be held liable for the company’s loan defaults. The Reserve Bank of India has clarified that non-whole-time directors, including nominee and independent directors, cannot be treated as wilful defaulters for a company’s repayment failures.
Agarwal had resigned from the board on November 22, 2014, well before the alleged default period. “The petitioner being an independent director, admittedly, cannot be classified as a defaulter, despite the default committed by the borrower company,” the court observed.
The bench directed South Indian Bank, Union Bank of India and Bank of Baroda to withdraw notifications issued to CIBIL naming Agarwal as a wilful defaulter and to stop proceedings initiated against him.
During the hearing, Union Bank conceded that Agarwal had been wrongly notified in view of the RBI’s clarification. However, South Indian Bank and Bank of Baroda argued that he remained liable despite being an independent director, a stand the court rejected.
Case Background
A loss of Rs.2,296 Crore was reported by Indian Overseas Bank and sixteen other banks. A money laundering case was filed against by M/s Parekh Aluminex Limited (PAL) and others.
ED investigation revealed that PAL fraudulently obtained loans from a consortium of banks by submitting inflated stock and debtor statements and later, loan accounts of PAL were declared NPA for an amount of approx. Rs. 2296 Crore.
