The then Finance Minister P Chidambaram advised public sector banks to take action against Wilful defaulters, especially in the case where the ‘promoter is prosperous but the company is sick”
As per RBI guidelines, a wilful default is deemed to have occurred if–
(a) The unit has defaulted in meeting its payment / repayment obligations to the lender even when it has the capacity to honor the said obligations. Or
(b) The unit has defaulted in meeting its payment / repayment obligations to the lender and has not utilized the finance from the lender for the specific purposes for which financewas availed of but has diverted the funds for other purposes Or
(c) The unit has defaulted in meeting its payment / repayment obligations to the lender and has siphoned off the funds so that the funds have not been utilized for the specific purpose for which finance was availed of, nor are the funds available with the unit in the form of other assets Or
(d) The unit has defaulted in meeting its payment / repayment obligations to the lender and has also disposed off or removed the movable fixed assets or immovable property given by him or it for the purpose of securing a term loan without the knowledge of the bank/lender.
Penalty for willful defaulters
- RBI will forward the information about Wilful defaulter to market regulatory SEBI and CIBIL (Credit Information Bureau (India) Ltd) to prevent access to the capital market by the willful defaulters.
- A company which is declared a Wilful defaulter by a bank stands to lose all future funding from the entire banking industry.
- All other companies associated with the promoter also will face difficulty in accessing future bank funding.
- The entrepreneurs / promoters of companies where banks / FIs have identified siphoning / diversion of funds, misrepresentation, falsification of accounts and fraudulent transactions should be debarred from institutional finance from the scheduled commercial banks, Development Financial institutions, Government owned NBFCs, investment institutions etc. for floating new ventures for a period of 5 years from the date the name of the willful defaulter is published in the list of willful defaulters by the RBI
- Initiation of legal process including criminal proceedings, wherever necessary against such company and its directors.
Who decides that the company is a Wilful defaulter?
Mr. Deepak Narang, Executive Director of United Bank of India said in a TV Interview that “They (the company) think that it’s a judicial process but it is not a judicial process; it’s a simple committee which has to look into the evidence which we have with us. We have shared our side of evidence with them and now they have to come back to us telling us whether or not we should declare them or not and they will take a call on that”
For all practical purposes, we can consider that no recovery of money will happen; the company and the promoters will fly free, leaving the lenders at ticket counter of Bangalore Airport! However,I will write about this case as and when some development takes place.
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Thought for the day
Sometimes people don’t want to hear the truth, because they don’t want their illusions destroyed.