The Delhi High Court issued a significant ruling, declaring the classification of Ratul Puri, former director of Moser Baer India Limited, and his mother, Nita Puri, as "wilful defaulters" under the Reserve Bank of India’s (RBI) Master Circular on Wilful Defaulters as "legally unsustainable." The verdict, delivered by a division bench comprising Justices C Hari Shankar and Ajay Digpaul, dismissed appeals filed by the Bank of Baroda (BoB) and Punjab National Bank (PNB), marking a critical development in the high-profile case.

The court’s decision stemmed from the banks’ failure to substantiate their claims with "verified and objective material" demonstrating that the Puris had intentionally diverted or siphoned off borrowed funds. The bench underscored the gravity of a wilful defaulter declaration, describing it as tantamount to a "civil death" due to its severe consequences, including restricted access to credit and significant reputational damage. The justices emphasized that such a classification must be supported by concrete evidence, taking into account the borrower’s overall financial track record and the specific circumstances of the case.

The case originated from allegations by BoB and PNB, which accused Ratul Puri and Nita Puri of defaulting on loans extended to Moser Baer India Limited, a company once prominent in the optical storage media industry. The banks had classified the Puris as wilful defaulters under the RBI’s Master Circular, which defines wilful default as deliberate non-payment despite the ability to pay, or the diversion of funds for purposes other than those for which the loan was granted. However, a single-judge bench of the Delhi High Court had previously ruled that the banks failed to meet the essential criteria for such a classification, prompting their appeals to the division bench.

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In their detailed judgment, Justices Shankar and Digpaul reiterated that the RBI’s framework requires rigorous evidence to justify a wilful defaulter tag. The court found that the banks’ submissions lacked specific proof of fund diversion or intentional mismanagement, rendering their appeals untenable. The bench also highlighted the need for procedural fairness, noting that authorities must exercise caution to avoid unjustly penalizing borrowers, particularly when the consequences are as severe as those associated with a wilful defaulter status.

The ruling has significant implications for India’s banking sector, reinforcing the judiciary’s role in ensuring that financial institutions adhere to strict evidential standards before imposing punitive measures. For Ratul Puri, who has faced multiple legal battles in recent years, including investigations related to other financial irregularities, the decision offers a reprieve from one of the more severe financial sanctions. The court’s emphasis on objective evidence and due process may also set a precedent for similar cases, potentially influencing how banks approach wilful defaulter classifications in the future.

The Delhi High Court’s verdict underscores the balance between holding borrowers accountable and protecting them from arbitrary or inadequately substantiated penalties, marking a pivotal moment in the intersection of financial regulation and judicial oversight.

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