LAW FOR ALL

The Master Circular on Wilful Defaulters (for short “the Master Circular”) contained instructions of the RBI to banks and financial institutions regarding reporting of wilful defaulters to other banks and financial institutions and the measures to be imposed on wilful defaulters by such banks and financial institutions.By letter dated 22.10.2008, the appellant intimated the respondent no.1 that it had classified the respondent no.1 as a wilful defaulter as it had defaulted to pay an amount of Rs.2,76,01,908.79 and interest thereon totalling to Rs.14,62,61,186.69 and respondent no.1 by its replies dated 04.11.2008 and 21.11.2008 through its Advocate contended that neither the appellant was a “lender” nor the respondent no.1 was a “borrower” within the meaning of “wilful default” in the Master Circular and, therefore, action under the Master Circular cannot be taken against the respondent no.1. = Apex court held that the Master Circular covers not only wilful defaults of dues by a borrower to the bank but also covers wilful defaults of dues by a client of the bank under other banking transactions such as bank guarantees and derivative transactions In the result, we hold that wilful defaults of parties of dues under a derivative transaction with a bank are covered by the Master Circular and this we hold not because the RBI wants us to take this view, because this is our judicial interpretation of the Master Circular. The impugned judgment of the Calcutta High Court is set aside and the impugned judgment of the Bombay High Court is sustained. We make it clear that we have not expressed any opinion on the individual transactions between the bank and the parties and our judgment is based solely on the interpretation of the Master Circular. Accordingly, the appeal filed by Kotak Mahindra Bank Ltd. against the judgment of the Calcutta High Court is allowed and the appeals filed against the judgment of the Bombay High Court by different parties are dismissed. The parties, however, shall bear their own costs. .