Mechanism for Identification and Classification of Wilful Defaulters ( Guidelines issued on 30.07.2024)
A lender shall identify and classify a person as a 'wilful defaulter' by following the procedure enumerated in these Directions. The identification of the wilful default should be made keeping in view the track record of the borrowers and should not be decided on the basis of isolated transactions/ incidents. The default to be categorised as wilful must be intentional, deliberate, calculated and meeting the conditions set out in para 3 (1) (t) above.
(a) (i) The evidence of wilful default shall be examined by an Identification Committee.
(ii) If the Identification Committee is satisfied that an event of wilful default has occurred, it shall issue a show-cause notice to borrower/ guarantor/ promoter/ director/ persons who are in charge and responsible for the management of the affairs of the entity, and call for the submissions from them within 21 days of issuance of show cause notice. Lenders shall disclose to them all materials and information on which show cause notice is based.
Explanation: Director (s)/ persons who are in charge and responsible for the management of the affairs of the entity means who were associated with the company/ entity at the time when the acts of omission or commission by the company/ entity led to the default.
(iii) After considering the submissions and where satisfied, the Identification Committee shall make a proposal to the Review Committee for classification as a wilful defaulter by explaining the reasons in writing.
(iv) The borrower/ guarantor/ promoter/ director/ persons who are in charge and responsible for the management of the affairs of the entity shall thereafter be suitably advised about the proposal to classify them as wilful defaulter along with the reasons therefor.
(v) An opportunity shall be provided to borrower/ guarantor/ promoter/ director/ persons who are in charge and responsible for the management of the affairs of the entity for making a written representation to Review Committee within 15 days of such a proposal from the Identification Committee.
(vi) The proposal of the Identification Committee along with the written representation received shall be considered by the Review Committee.
(vii) The Review Committee shall provide an opportunity for a personal hearing also to the borrower/ guarantor/ promoter/ director/ persons who are in charge and responsible for the management of the affairs of the entity. However, if the opportunity is not availed or if the personal hearing is not attended by the borrower/ guarantor/ promoter/ director/ persons who are in charge and responsible for the management of the affairs of the entity, the Review Committee shall, after assessing the facts or material on record, including written representation, if any, consider the proposal of the Identification Committee and take a decision.
(viii) As the above classification process is an in-house proceeding, the borrower/ guarantor/ promoter/ director/ persons in charge and responsible for the management of affairs shall not have the right to be represented by a lawyer.
(ix) The Review Committee shall pass a reasoned order and the same shall be communicated to the wilful defaulter.
Explanation: If the Identification Committee concludes that the borrower/ guarantor/ promoter/ director/ persons who are in charge and responsible for the management of the affairs of the entity, do not qualify for classification as a wilful defaulter, such cases need not be referred to the Review Committee.
(b) (i) Lenders shall formulate the guidelines, based on their board-approved policy, designating rank of the official, who would issue the show cause notice and serve written order on behalf of the Identification Committee and Review Committee respectively.
(ii) The show-cause notice and the order served by the designated official shall clearly state that this has the approval of the competent authority, i.e., Identification/ Review Committee and must identify its members.
(c) A director other than whole-time director, including an independent director/ nominee director, shall not be considered as wilful defaulter unless it is conclusively established that:
(i) the wilful default by the borrower or the guarantor has taken place with their consent or connivance or
(ii) he/ she was aware of the fact of wilful default by the borrower or the guarantor, as revealed from the proceedings recorded in the minutes of the meeting of the Board or a Committee of the Board, but has not recorded his/ her objections to the same.
(d) The name of a non-whole-time director/ independent director/ nominee director who has been classified as a wilful defaulter shall be reported in Annex II indicating that he is a non-whole-time director/ independent director/ nominee director.