LPA 294/2024 and other connected maters Page 1 of 65 $~ * IN THE HIGH COURT OF DELHI AT NEW DELHI Reserved on : 3 July 2025 Pronounced on: 8 August 2025 + LPA 294/2024 PUNJAB NATIONAL BANK ...Appellant Through: Mr. Sanjay Bajaj, Mr. Shivam Takkar and Mr. Sarthak Sehgal, Advs. versus NITA PURI ...Respondent Through: Mr. Rajev Goyal, Mr. Vaibhav Mishra, Mr. Anshul Mis h ra, Mr. Ekansh Mishra and Mr. Manu Krishnan, Ms. Devika Mohan, Mr. Vikram Cho u dhary, Advs. + LPA 357/2024 PUNJAB NATIONAL BANK ...Appellant Through: Mr. Sanjay Bajaj, Mr. Shivam Takkar and Mr. Sarthak Sehgal, Advs. versus RATUL PURI ...Respondent Through: Mr. Rajev Goyal, Mr. Vaibhav Mishra, Mr. Anshul Mis h ra, Mr. Ekansh Mishra and Mr. Manu Krishnan, Ms. Devika Mohan, Mr. Vikram Cho u dhary, Advs. + LPA 396/2024 & CM APL. 30156/2024 BANK OF BARODA ...Appellant Through: Mr. Kush Sharma, Mr. Nishchaya Nigam and Ms. Vagmi Singh, Advs. versus LPA 294/2024 and other connected maters Page 2 of 65 RATUL PURI ...Respondent Through: Mr. Rajev Goyal, Mr. Vaibhav Mishra, Mr. Anshul Mis h ra, Mr. Ekansh Mishra and Mr. Manu Krishnan, Ms. Devika Mohan, Mr. Vikram Cho u dhary, Advs. + LPA 398/2024 & CM APL. 30171/2024 BANK OF BARODA ...Appellant Through: Mr. Kush Sharma, Mr. Nishchaya Nigam and Ms. Vagmi Singh, Advs. versus RATUL PURI ...Respondent Through: Mr. Rajev Goyal, Mr. Vaibhav Mishra, Mr. Anshul Mis h ra, Mr. Ekansh Mishra and Mr. Manu Krishnan, Ms. Devika Mohan, Mr. Vikram Cho u dhary, Advs. CORAM: HON'BLE MR. JUSTICE C. HARI SHANKAR HON'BLE MR. JUSTICE AJAY DIGPAUL % JUDGMENT 08 .0 8 .2025 C. HARI SHANKAR, J. 1. These appeals assail substantially similar judgments passed by a learned Single Judge of this Court in writ petitions which raised substantially similar challenges. They are, therefore, being disposed of by this comon judgment. However, for the sake of convenience, we propose to treat LPA 396/2024 as the lead case and to extrapolate our decision in that appeal to the other appeals before us. LPA 294/2024 and other connected maters Page 3 of 65 LPA 396/2024 [ Bank of Baroda v Ratul Puri ] The lis 2. The Bank of Baroda 1 assails judgment dated 29 February 2024 passed by a learned Single Judge of this Court in WP (C) 4181/2023 2 . 3. By the impugned judgment, the order dated 23 March 2023 passed by the Review Comittee of the BOB, declaring the UHVSRQGHQW WR EH D ³ZLOIXO GHIDXOWH Clause 2.1.3 of the Master Circular on Wilful Defaulters, 2015 3 , issued by the Reserve Bank of India 4 , has ben set aside. Background 4. Moser B ae r India Ltd 5 availed loans from various banks. These included a loan from BOB, which was sanctioned vide letters dated 12 December 2006 and 24 April 2010. At the time of availing of the loan, the respondent Ratul Puri was a whole - time director of MBIL. In 2010, he decided to exit from MBIL, though he continued to rem a in a director on its board. 5. Following the decline in the fortunes of MBIL, BOB and other 1 ³%2%´KHUHLQDIWHU 2 Ratul Puri v Bank of Baroda 3 ³0DVWHU&LUFXODU´KHUHLQDIWHU 4 ³5%,´KHUHLQDIWHU 5 ³0%,/´KHUHLQDIWHU LPA 294/2024 and other connected maters Page 4 of 65 lenders, which lent monies to MBIL , found MBIL to be a fit case to consider debt restructuring. A Joint Lenders Met 6 , of all lenders of MBIL, therefore, was convened on 3 February 2012. Among the lenders who participated in the JLM was BOB. MBIL placed a restructuring plan before the JLM. The JLM, after considering the plan, decided to admit MBIL for Corporate Debt Restructuring 7 , in acordance with the CDR Master Circular isued by the RBI. 6. To ascertain sustainability of the CDR, MBIL was required to submit a Flash Report, which would set out the reasons for its decline, its viability and its plan for revival. The Flash Report was intended to be forwarded by the lenders of MBIL to an independent agency for obtaining a Techno Economic Viability Report 8 , which would indicate whether the restructuring plan proposed by MBIL was financially viable. 7. In terms of the aforesaid directions, MBIL submitted a F lash R eport with the CDR cell of the lender bank s on 18 February 2012. Among the reasons cited in the F lash R eport to which the financial decline of MBIL was attributable , was the inability of MBIL to realise investments made in its two subsidiaries, Moser B ae r Photo V olt aic Ltd 9 and Moser B ae r Solar Ltd 10 . MBPV was later renamed Helios Photo V olta ic Ltd 11 . 6 ³-/0´KHUHLQDIWHU 7 ³&'5´KHUHLQDIWHU 8 ³7(95HSRUW´KHUHLQDIWHU 9 ³0%39´KHUHLQDIWHU 10 ³0%6/´KHUHLQDIWHU 1 ³+39/´KHUHLQDIWHU LPA 294/2024 and other connected maters Page 5 of 65 8. After perusing the flash report submitted by MBIL, the CDR Empowered Group 12 decided, on 24 February 2012, to admit the proposal of MBIL for restructuring. In the decision, MBIL was placed in the Class - B category under the CDR Scheme, which covered ³Corporates / p romoters afected by external factors and also having weak resources, inadequate vision and not having support of SURIHVVLRQDOPDQDJHPHQW´ 9. The monitoring bank of the lenders was the Central Bank of India 13 . On 4 April 2012, MBIL informed the Central Bank that the respondent was no longer associated with the day - to - day functioning of the MBIL. It was pointed out that he had exited MBIL and it was requested that the CDR proposal submitted by MBIL be considered taking into acount this fact. 10. On 30 April 2012, the respondent resigned as Executive Director of MBIL and submitted Form - 32 with the Registrar of Companies 14 to that efect. He also, therefore, ceased to be a shareholder of MBIL and transfered his shareholding in MBIL to his father. 11. The lender banks forwarded the flash report submitted by MBIL to an external agency Ernst and Young 15 for examination. E & Y submitted its detailed T EV R eport on 9 June 2012, which opined that MBIL was considered to be viable. 12 ³&'5 - (*´KHUHLQDIWHU 13 ³&HQWUDO%DQN´KHUHLQDIWHU 14 ³52&´KHUHLQDIWHU 15 ³( <´KHUHLQDIWHU LPA 294/2024 and other connected maters Page 6 of 65 12. On 20 July 2012, another JLM was convened of all the lender banks, including BOB. The JLM considered the F lash R eport submitted by MBIL , the TEV report of E & Y and a stock audit report of RCA & Associates, and issued a Final Restructuring Scheme 16 dated 20 July 2012. 13. In acordance with the FRS, MBIL and the Consortium of Banks, including BOB and the Central Bank as the monitoring institution , signed a Master Restructuring Agrement 17 dated 27 December 2012 for implementation of the CDR package agred between the parties. Clause 6.1 (iv) of the MRA required MBIL to execute a Trust and Retention Acount 18 . Consequent to execution of the TRA agrement, MBIL was required to transact , for its day - to - day functioning, only through the TRA acount. 14. On 16 November 2012, the respondent resigned as Director of MBIL and filed Form - 32 to that efect, with the ROC. This constituted complete exit , by the respondent , from MBIL. 15. In terms of clause 6.1(iv) of the MRA, the TRA Agrement was executed betwen the lender banks and the MBIL on 12 February 2013. 16. Despite all these eforts, MBIL was u nable to repay the loan 16 ³)56´KHUHLQDIWHU 17 ³05$´KHUHLQDIWHU 18 ³75$´KHUHLQDIWHU LPA 294/2024 and other connected maters Page 7 of 65 amounts and committed defaults. On account of these defaults, the lender banks decided to exit from the approved CDR Scheme on 10 October 2016. 17. In 2017, Alchemist Asset Reconstruction Company Ltd., one of the financial creditors of MBIL, filed an application before the National Company Law Tribunal 19 under Section 7 (1) 20 of the Insolvency and Bankruptcy Code 2016 21 for triggering the C orporate I nsolvency R esolution P rocess 22 of MBIL. Vide its order dated 14 November 2017, the NCLT appointed one Mr. Anil Kohli as the Interim Resolution Professional 23 of MBIL. The IRP directed M/s. GSA Associates, Chartered Acountants to conduct a forensic audit of MBIL. GSA Associates submitted its Forensic Audit Report 24 on 3 June 2019. 19 ³1&/7´KHUHLQDIWHU 20 7. Initiation of corporate insolvency resolution proces by financial creditor . ± (1) A financial creditor either by itself or jointly with other financial creditors, or any other person on behalf of the financial creditor, as may be notified by the Central Government, may file an application for initiating corporate insolvency resolution proces against a corporate debtor before the Adjudicating Authority when a default has occured: Provided that for the financial creditors, refered to in clauses (a) and (b) of sub - section (6 - A) of Section 21, an application for initiating corporate insolvency resolution proces against the corporate debtor shal be filed jointly by not less than one hundred of such creditors in the same class or not less than ten per cent. of the total number of such creditors in the same class, whichever is les: Provided further that for financial creditors who are alotees under a real estate project, an application for initiating corporate insolvency resolution proces against the corporate debtor shal be filed jointly by not less than one hundred of such alotees under the same real estate project or not less than ten per cent. of the total number of such alotees under the same real estate project, whichever is les: Provided also that where an application for initiating the corporate insolvency resolution proces against a corporate debtor has been filed by a financial creditor refered to in the first and second provisos and has not been admitted by the Adjudicating Authority before the commencement of the Insolvency and Bankruptcy Code (Amendment) Act, 2020, such application shal be modified to comply with the requirements of the first or second proviso within thirty days of the commencement of the said Act, failing which the application shal be deemed to be withdrawn before its admision. Explanation . ²For the purposes of this sub - section, a default includes a default in respect of a financial debt owed not only to the applicant financial creditor but to any other financial creditor of the corporate debtor. 21 ³,%&´KHUHLQDIWHU 2 ³&,53´KHUHLQDIWHU 23 ³,53´KHUHLQDIWHU LPA 294/2024 and other connected maters Page 8 of 65 18. On 13 March 2020, BOB issued a show cause notice to the respondent to show cause as to why he be not declared a wilful defaulter under the Master Circular. The show cause notice contain ed six allegations against the respondent . Allegations 2 to 6 were subsequently dropped, and the present dispute , therefore, essentially concern s A llegation 1 , which read: ³MBIL has made substantial investment in subsidiaries and related entities amounting to Rs.1586.75 Cr as on 31.12.13. During the period from 01.04.13 to 31.03.15 provision and write of made amounting to Rs.287.03 Cr . ´ 19. The respondent responded to the aforesaid show cause notice on 30 March 2020 and 12 August 2020. T he respondent sought to be supplied the documents on the basis of which it was proposed to declare him a wilful defaulter. In response thereto, BOB on 11 January 2021 forwarded a copy of the FAR to the respondent. Vide comunication dated 2 June 2021, the respondent submitted that the FAR did not disclose any event of wilful default on his part. 20. This was followed by an opportunity of personal hearing which the respondent availed on 5 August 2021 following which he submitted written submission s on 4 September 2021. In the said written submissions, apart from pointing out that he had nothing to do with the afairs of the MBIL during the period in question, it was further submitted that investments of MBIL in its subsidiaries were made from its internal acruals, and not from b orowed funds and that therefore, these investment s could not be used as a justification to 24 ³)$5´KHUHLQDIWHU LPA 294/2024 and other connected maters Page 9 of 65 declare the respondent to be a wilful defaulter. It was further pointed out that the details of these investments had ben disclosed in the audited financial statements of MBIL, which had been submitted to all lenders including BOB. 21. The Identification Comitte of the BOB proceeded to pass order dated 19 August 2022 declaring the respondent to be a wilful defaulter in terms of the Master Circular. Of the six allegations against the respondent in the show cause notice dated 13 March 2020, A llegation s 2 to 6 were dropped. Allegation 1 was, however, confirmed and , consequently, the respondent was declared as a wilful defaulter in terms of the Master Circular. In ariving at this conclusion, the Identification Comitte observed that during the period when the funds had been invested by MBIL in its subsidiaries , which constituted diversion and siphoning of funds in terms of the Master Circular, the respondent was a whole time Director in MBIL and in complete control of its afairs. It was further opined by the Identification Comittee that the investments made by the MBIL in its subsidiaries, which triggered a shortage of funds, amounted to diversion of funds in terms of Clause 2.1.3 (b) and (c) of the Master Circular. Following these findings, the Identification Committe held the respondent to be a wilful defaulter. 22. The respondent filed a Review Petition challenging the findings of the Identification Comittee, on 22 September 2022. 23. The Review Committe by order dated 23 March 2023 LPA 294/2024 and other connected maters Page 10 of 65 confirmed the findings of the Identification Comitte. 24. Aggrieved thereby, the respondent approached this Court by means of WP (C) 4181/2023. The prayer clause in the writ petition read thus: ³+HQFHLQYLHZRIWKHFLUFXPVWDQFHVP Petitioner herein most respectfuly pray that this Hon'ble Court may graciously be pleased to: a. Isue a writ/ order/ direction of mandamus and/or certiorari quashing/seting aside the Order pased by the Review Comitte of the Respondent Bank in its meting held on 23.03.2023 (impugned order), by which order it has arbitrarily, unfairly and unreasonably declared the name of the Petitioner as a Willful Defaulter. b. Isue a writ/ order/ direction prohibiting the Respondent and or/its servants, agents, asigns and oficers and/or anyone claiming through or under them from giving any efect and/or further effect and/or taking any steps and/or acting in furtherance of the Review Comitte Order dated 23.03.2023, in any maner whatsoever. Pas such other orders as may be deemed fair and equitable LQWKHIDFWVRIWKHFDVHDQGLQWKH 25. By the impugned judgment, the learned Single Judge has allowed WP(C) 4181/2023. The present appeal, at the instance of the BOB, challenges the said decision. The Impugned Judgment 26. The findings of the learned Single Judge may be enumerated thus: LPA 294/2024 and other connected maters Page 11 of 65 (i) The Master Circular was issued by the RBI in exercise of the powers conferred by Sections 21 and 35 A of the Banking Regulation Act, 1949. Clause 2.1.3 thereof read thus: ³ Wilful Default: A 'wilful default' would be deemed to have occured if any of the folowing events is noted: * (b) The unit has defaulted in meting its payment / repayment obligations to the lender and has not utilised the finance from the lender for the specific purposes for which finance was availed of but has diverted the funds for other purposes. (c) The unit has defaulted in meting its payment / repayment obligations to the. lender and has siphoned off the funds so that the funds have not been utilised for the specific purpose for which finance was availed of, nor are the funds available with the unit in the form of other asets. * The identification of the wilful default should be made keeping in view the track record of the borowers and should not be decided on the basis of isolated transactions/incidents. The default to be categorised as wilful must be intentional, deliberate DQGFDOFXODWHG´ (ii) Thus, ³wilful default ´ could be said to have taken place only if the loan amount s len t by the bank , which constituted the ³ERUURZHG IXQGV´ w ere diverted or siphoned of by the borrower, for purposes other than those for which the loan was granted. (iii) Clause 2.2 of the Master Circular defined diversion and LPA 294/2024 and other connected maters Page 12 of 65 siphoning off funds thus: ³ Diversion and siphoning of funds: The terms ³GLYHUVLRQ RI IXQGV´ DQG ³VLSKRQLQ construe to mean the folowing: - 2.2.1 Diversion of funds, referred to at para 2.1(b) above, would be construed to include any one of the undernoted occurences: (a) utilisation of short - term working capital funds for long - term purposes not in conformity with the terms of sanction; (b) deploying borowed funds for purposes / activities or creation of asets other than those for which the loan was sanctioned; (c) transferring borowed funds to the subsidiaries / Group companies or other corporates by whatever modalities; (d) routing of funds through any bank other than the lender bank or members of consortium without prior permision of the lender; (e) investment in other companies by way of acquiring equities / debt instruments without aproval of lenders; (f) shortfal in deployment of funds vis - à - vis the amounts disbursed / drawn and the diference not being accounted for. 2.2.2 Siphoning of funds, referred to at para 2.1(c) above, should be construed to occur if any funds borowed from banks / FIs are utilised for purposes un - related to the operations of the borower, to the detriment of the financial health of the entity or of the lender. The decision as to whether a particular instance amounts to siphoning of funds would have to be a judgement of the lenders based on REMHFWLYHIDFWVDQGFLUFXPVWDQFHVRI Again, it was clear from Cl ause 2.2 that funds could be said to LPA 294/2024 and other connected maters Page 13 of 65 have ben diverted or siphoned of only if they were borowed funds. It was only when borowed funds were deployed or used for a purpose other than the purpose for which the loan was sanctioned, that they could be said to have been diverted or siphoned off. Further, the decision regarding diversion or siphoning of