28 April, 2015
The RBI on January 7, 2015 after receiving references from banks and other agencies, modified the Master Circular on Willful Defaulters dated July 1, 2014. Though most of the modifications in these guidelines are definitional and clarificatory in nature, certain substantive changes have been made to bring in greater transparency and accountability. The main changes stipulated under the circular are as follows:
i. a covenant should be incorporated in the loan agreement with any borrowing company in which the banks or financial institutions have a significant stake, to the effect that such borrowing company should not induct on its board a person whose name appears in the list of willful defaulters and that in case such a person is found to be on its board, it will take expeditious and effective steps for the removal of the person from its board.
ii. the evidence of willful default on the part of a borrowing company and its promoter or whole time director is to be examined by a committee headed by an executive director and consisting of two other senior officers of the rank of general manager or deputy general manager. If the committee concludes that a willful default has occurred, it will issue a show cause notice to the concerned entity / individual and call for their submissions, and a notice of willful default will be issued only after recording the fact. Further, the order of the committee should be reviewed by another committee headed by the chairman or managing director and consisting in addition of two independent directors of the bank and the order will be final only after it is confirmed by the said review committee.
iii. a non whole time director will not be considered as a willful defaulter unless it is conclusively established that, he was aware of the fact of the willful default by the borrower by virtue of any proceedings recorded in minutes of the board or a committee of the board and had not recorded his objection to the same in the minutes or the willful default had taken place with his consent or connivance.
For further information, please contact:
Zia Mody, AZB & Partners
zia.mody@azbpartners.com
Abhijit Joshi, AZB & Partners
abhijit.joshi@azbpartners.com
Shuva Mandal, AZB & Partners
shuva.mandal@azbpartners.com
Samir Gandhi, AZB & Partners
samir.gandhi@azbpartners.com
Percy Billimoria, AZB & Partners
percy.billimoria@azbpartners.com
Aditya Bhat, AZB & Partners
aditya.bhat@azbpartners.com
