- 1 - HC-KAR NC: 2026:KHC:31180 WP No. 18612 of 2015 C/W WP No. 19011 of 2015 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 23RD DAY OF JUNE, 2026 BEFORE THE HON'BLE MR. JUSTICE M.G.S. KAMAL WRIT PETITION NO. 18612 OF 2015 (GM-RES) C/W WRIT PETITION NO. 19011 OF 2015 (GM-RES) IN WP No. 18612/2015 BETWEEN: MR. SANJAY KULKARNI AGED ABOUT 44 YEARS, S/O SH.SHAMRAO KULKARNI, NO. 42, YOJAK, ARTEK APARTMETNS, M KALELKAR MARG, KALA NAGAR, BANDRA (E), MUMBAI-400 025. …PETITIONER (BY SRI. MANU P. KULKARNI.,ADVOCATE) AND: STATE BANK OF INDIA HAIVNG ITS REGISTERED OFFICE AT CORPORATE CENTRE, STATE BANK BHAVAN MADAM CAMA ROAD MUMBAI-400 005. AND HAVING ITS BRANCH OFFICE AT STRESSED ASSETS MANAGEMENT BRANCH 2ND FLOOR, OFFICE COMPLEX BUILIDNG Digitally signed by SUMA B N Location: HIGH COURT OF KARNATAKA - 2 - HC-KAR NC: 2026:KHC:31180 WP No. 18612 of 2015 C/W WP No. 19011 of 2015 LHO CAMPUS, NO.65, ST.MARKS ROAD, BENGALURU -560 001. …RESPONDENT (BY SRI. MADHUKAR DESHPANDE.,ADVOCATE) THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND 227 OF THE CONSTITUTION OF INDIA, PRAYING TO QUASH THE ORDER OF THE RESPONDENT DATED 31.12.2014 VIDE ANNEXURE-A; QUASH THE DECISION TAKEN IN THE RESPONDENT'S MEETING DATED 18.09.2014 VIDE ANNEXURE-B. IN WP NO. 19011/2015 BETWEEN: MR TARUN JHUNJHUNWALA AGED ABOUT 60 YEASR, S/O LATE GHANSWHYAM DAS JHUNJHUNWALA PERMANENTLY RESIDING AT 2003/04, CHAITANYA TOWERS B-WING, A S MARATHE MARG, PRAHBADEVI, MUMBAI - 400 025 AND CURRENTLY RESIDING IN KOLKATA AT NO.7, WOOD STREET, KOLKATA-700 016. ...PETITIONER (BY SRI. MANU P KULKARNI.,ADVOCATE) AND: STATE BANK OF INDIA HAVING ITS REGISTERED OFFICE AT CORPORATE CENTRE, STATE BANK BHAVAN, MADAM CAMA ROAD, MUMBAI - 400 005 AND HAVING ITS BRANCH OFFICE AT STRESSED ASSETS MANAGEMENT BRANCH, 2ND FLOOR, OFFICE COMPLEX BUILDING - 3 - HC-KAR NC: 2026:KHC:31180 WP No. 18612 of 2015 C/W WP No. 19011 of 2015 LHO CAMPUS, NO.65 ST MARKS ROAD, BENGALURU - 560 001. ...RESPONDENT (BY SRI. MADHUKAR DESHPANDE.,ADVOCATE) THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND 227 OF THE CONSTITUTION OF INDIA, PRAYING TO QUASH THE ORDER OF THE RESPONDENT DATED 31.12.2014 VIDE ANN-A; QUASH THE DECISION TAKEN IN THE RESPONDENT'S MEETING DATED 18.09.2014 VIDE ANN-B. THESE PETITIONS, COMING ON FOR PRELIMINARY HEARING IN 'B' GROUP, THIS DAY, ORDER WAS MADE THEREIN AS UNDER: CORAM: HON'BLE MR. JUSTICE M.G.S. KAMAL ORAL ORDER 1. Petitioners in these petitions claim to have been appointed as nominee directors of Deccan Cargo and Express Logistics Pvt. Ltd. (hereinafter referred to as company) pursuant to share holder agreement dated 15.04.2010, who have been classified as willful defaulters by respondents are before this Court seeking following reliefs; IN W.P.NO.18612/2015 Issue a writ, order or direction in the nature of certiorari quashing the order of the Respondent dated 31.12.2014 bearing reference no. DGM/SAMB/BKK/1006 (Annexure 'A'); - 4 - HC-KAR NC: 2026:KHC:31180 WP No. 18612 of 2015 C/W WP No. 19011 of 2015 ii) Issue a writ, order or direction in the nature of certiorari quashing the decision taken in the Respondent's meeting dated 18.09.2014 (Annexure 'B'). iii) Grant such other and further reliefs as may be necessary in the interest of justice. IN WRIT PETITION NO.19011/2015 i) Issue a writ, order or direction in the nature of certiorari quashing the order of the Respondent dated 31.12.2014 bearing reference no. DGM/SAMB/BKK/1006 (Annexure 'A'); ii) Issue a writ, order or direction in the nature of certiorari quashing the decision taken in the Respondent's meeting dated 18.09.2014 (Annexure 'B'). iii) Grant such other and further reliefs as may be necessary in the interest of justice." 2. That on 05.07.2013 petitioners received the letter from the respondent-State Bank of India informing him and the other directors regarding company having defaulted in repayment of facilities as per agreed terms. A reply dated 16.07.2013 was issued by Captain G. R.Gopinath- another director of the Company requesting not to go ahead with the threatened action. A hearing on the said letter was scheduled on 17.02.2014. The respondent by letter dated 31.05.2014 had informed the company and its directors regarding rejection of the request made by said Captain G. R. Gopinath. - 5 - HC-KAR NC: 2026:KHC:31180 WP No. 18612 of 2015 C/W WP No. 19011 of 2015 3. Things stood thus, Reserve Bank of India issued a Master Circular on willful defaulters on 02.07.2012. A challenge to the said circular was mounted before the High Court of Gujarat in the case of IONIC METALLIKS V. UNION OF INDIA AND OTHERS reported in MANU/GJ/0683/2014 wherein referring to portion of the said circular to the extent making it applicable to, "all directors of the company was held to be arbitrary and unreasonable", and accordingly partly quashed the same. 4. Relying upon the said order, petitioners claiming to be the nominee directors of the company made representations. That respondent-Bank in its meeting held on 18.09.2014 has rejected the applications made by the petitioners and declared nominated directors and independent directors as willful defaulters as per RBI Guidelines. Being aggrieved, petitioners are before this Court. 5. Learned counsel appearing for the petitioners taking this Court through the records submits; (a) that pursuant to the orders passed by High Court of Gujarat in the case of Ionic Metallic (supra), the RBI - 6 - HC-KAR NC: 2026:KHC:31180 WP No. 18612 of 2015 C/W WP No. 19011 of 2015 issued another Master Circular dated 01.07.2014 (updated upto 07.01.2015). (b) Drawing attention of this Court to Clause 3(d)(i)(ii)(iii) of the Master Circular on willful defaulters, learned counsel for the petitioners submits that the Master Circular provides for a mechanism to identify the willful defaulters. It also provides for classification of the directors, that the names of non-whole time directors could be included only in the rarest of rare cases, if it was established that such non-whole time director was unaware of the fact of willful default by the borrower or the willful default had taken place with his connivance. Thus, he submits if the respondent-State Bank of India were to sustain the names of the petitioners herein in the list of willful defaulters, the procedure contemplated under the Modified Master Circular has to be mandatorily complied with. (c) His second submission is that in the light of Master Circular dated 02.07.2012, having been quashed to the extent of nominee directors, even the proceedings - 7 - HC-KAR NC: 2026:KHC:31180 WP No. 18612 of 2015 C/W WP No. 19011 of 2015 contemplated under the Master Circular dated 01.07.2014 need not be undertaken. Therefore, he submits the impugned order refusing to delete the names of the petitioners from the willful defaulters be quashed. 6. In response, learned counsel appearing for the respondent-bank, submits; (a) that Master Circular was issued on 02.07.2012. Modified Master Circular was issued on 01.07.2014 (updated upto 07.01.2015). The accounts of the company of which the petitioners were the directors were declared as non-performing asset on 28.08.2012. (b) Notice to the petitioners herein were issued on 05.07.2013 and the orders of Gujarat High Court was passed on 09.09.2014. Therefore, even before the order passed by the Gujarat High Court, the proceedings were already initiated and they culminated in the final order dated 18.09.2014 as per Annexure-B. (c) that the contention of the petitioners being merely nominee directors having nothing to do with the affairs of - 8 - HC-KAR NC: 2026:KHC:31180 WP No. 18612 of 2015 C/W WP No. 19011 of 2015 the company has been negated. Therefore, the petitioners cannot seek to derive any benefit of the order passed by the Gujarat High Court. (d) However, he fairly submits that in the light of the Master Circular dated 01.07.2014 produced at Annexure- C, providing mechanism for identification of willful defaulters, which is a procedural aspect, case of the petitioners will be reconsidered and appropriate orders in this regard will be passed. 7. Heard. Perused the records. 8. In the light of the aforesaid facts and submissions made by the counsel for the parties, the second submission of the counsel to the petitioners of allowing the petitions without subjecting the petitioners to go through the mechanism for identification of willful defaulters provided under the Master Circular cannot be accepted. This is for the reason that in the order passed by the Division Bench of the Gujarat High Court, even while holding part of the Circular to be arbitrary, unreasonable, a further observation is made that the said declaration will not - 9 - HC-KAR NC: 2026:KHC:31180 WP No. 18612 of 2015 C/W WP No. 19011 of 2015 apply to the 'promoters or entrepreneurs'. Therefore, the factual question with regard to the role of the petitioners in the affairs of the company requires adjudication/ scrutiny as provided under the Master Circular dated 01.07.2014 at Annexure-C. 9. It is relevant therefore to extract paragraph 3 of the said Circular; "3. Mechanism for identification of Wilful Defaulters The transparent mechanism referred to in paragraph 2.5(d) above should include the following: (a) The evidence of wilful default on the part of the borrowing company and its promoter/whole-time director at the relevant time should be examined by a Committee headed by an Executive Director and consisting of two other senior officers of the rank of GM/DGM. (b) If the Committee concludes that an event of wilful default has occurred, it shall issue a Show Cause Notice to the concerned borrower and the promoter/whole- time director and call for their submissions and after considering their submissions issue an order recording the fact of wilful default and the reasons for the same. An opportunity should be given to the borrower and the promoter/whole-time director for a personal hearing if the Committee feels such an opportunity is necessary. c) The Order of the Committee should be reviewed by another Committee headed by the Chairman / CEO and MD and consisting, in addition, of two dependent directors of the Bank and the Order shall become final only after it is confirmed by the said Review Committee. (d) As regard a non-promoter/non-whole time director, it should be kept in mind that Section 2(60) of the - 10 - HC-KAR NC: 2026:KHC:31180 WP No. 18612 of 2015 C/W WP No. 19011 of 2015 Companies Act, 2013 defines an officer who is in default to mean only the following categories of directors: i) Whole-time director (ii) where there is no key managerial personnel, such director or directors as specified by the Board in this behalf and who has or have given his or their consent in writing to the Board to such specification, or all the directors, if no director is so specified; (iii) every director, in respect of a contravention of any of the provisions of this Act, who is aware of such contravention by virtue of the receipt by him of any proceedings of the Board or participation in such proceedings and who has not objected to the same, or where such contravention had taken place with his consent or connivance. Therefore, except in very rare cases, a non-whole time director should not be considered as a wilful defaulter unless it is conclusively established that I. he was aware of the fact of wilful default by the borrower by virtue of any proceedings recorded in the Minutes of the Board or a Committee of the Board and has not recorded his objection to the same in the Minutes, or, II. the wilful default had taken place with his consent or connivance. A similar process as detailed in sub paras (a) to (c) above should be followed when identifying a non-promoter/non-whole time director as a wilful defaulter." 10. Perusal of the aforesaid clause indicates that it is only in the rare cases that the non-whole time director should not be considered as a willful defaulter. What is a rare case and how it is to be found out is provided under the said clause itself. - 11 - HC-KAR NC: 2026:KHC:31180 WP No. 18612 of 2015 C/W WP No. 19011 of 2015 11. Perusal of the impugned order at Annexure-B indicate that the petitioners herein had submitted objection as that of one Capt.G.R.Gopinath and Capt. K.J.Samuel, who had claimed that he was appointed as a nominee or a non-executive director on the board of company namely, Deccan Cargo and Express Private Limited with effect from 30.09.2010 and he had also provided certain details of his role and responsibility, which has been declined by the respondent-authorities. Though the reason for the same is not forthcoming, the fact remains the claim of mere nominee director has been declined. 12. Counsel for the respondents, at this juncture brings to the notice of this Court, the observation made at column 3 of the impugned order pertained to the petitioners herein, wherein the following is observed; " As per the RBI Master Circular, any director/nominee director of the company as on the date of account becoming NPA is liable to be classified as Willful defaulter. However, due notation indicating the Director as a Nominee director will be provided in the disclosure." - 12 - HC-KAR NC: 2026:KHC:31180 WP No. 18612 of 2015 C/W WP No. 19011 of 2015 13. Referring to the above, he submitted that due notation indicating director as a nominee director will be provided in the disclosure even in the case of the petitioners. 14. The aforesaid stand of respondent -Bank cannot be accepted inasmuch as already noted above, it is only in the rare case a non-whole time director could be consider as a will defaulter subject to proof of the fact that such willful default has taken place with his consent and connivance as indicated in the mechanism for identification of willful defaulters. 15. In the light of the aforesaid facts and the provisions of the Master Circular and in view of the submissions, the petitions are partly allowed. 16. The impugned orders dated 18.09.2014 as per Annexure- B in these petitions to the extent declaring the petitioners as willful defaulters are quashed. 17. The respondent-Bank is directed to reconsider the matter keeping in mind the mechanism provided for declaration - 13 - HC-KAR NC: 2026:KHC:31180 WP No. 18612 of 2015 C/W WP No. 19011 of 2015 of willful defaulters as provided in para 3(d)(i)(ii)(iii) of the Master Circular on willful defaulters. 18. Petitioners are at liberty to submit additional submission/ documents if any. 19. The respondent-Bank shall, after affording sufficient opportunity including personal hearing, pass appropriate order within an outer limit of 3 months from the date of receipt of certified copy of this order. SD/- (M.G.S. KAMAL) JUDGE RU, List No.: 1 Sl No.: 23