Court Criticizes Lack of Specificity and Vague Allegations in RBI Circular Compliance
In a significant ruling, the Calcutta High Court has quashed the show cause notice issued to BSCPL Infrastructure Limited and others by SREI Equipment Finance Limited, citing the notice's failure to adhere to the principles of natural justice due to its vague and nonspecific allegations. The Division Bench, comprising Justices Shampa Sarkar and Ajay Kumar Gupta, delivered the judgment on July 14, 2026, setting aside the actions of the Wilful Defaulter Identification Committee under the RBI Master Circular.
The case, "SREI Equipment Finance Limited v. BSCPL Infrastructure Limited," revolved around allegations of wilful default by the respondents, who were accused of failing to honour corporate and personal guarantees despite having the means to pay. The Identification Committee had issued a show cause notice based on a CIBIL report and notices dated February 6, 2025, and August 13, 2025. However, the court found that the notice lacked specific incidents and detailed evidence required for such a serious classification.
The court emphasized that any notice under the RBI's Master Circular must include precise incidents and factual circumstances leading to a prima facie conclusion of wilful default. The judgment highlighted that vague allegations without material particulars violate the principles of natural justice, thereby invalidating the show cause notice.
Senior Advocate Ranjan Kumar Bachawat, representing SREI, argued that the respondents had failed to make payments despite servicing other loans, justifying the wilful defaulter proceedings. However, the court held that the Identification Committee's reliance on a 100-page CIBIL report without pinpointing specific evidence against the respondents rendered the notice ineffective.
The ruling clarified that proceedings for wilful default could continue independently of arbitration proceedings but mandated that any show cause notice must provide adequate particulars, allowing respondents a fair opportunity to defend themselves.
The court's decision mandates that the Identification Committee reassess the evidence and, if satisfied, issue a fresh notice that complies with the detailed requirements of the RBI Master Circular.
Bottom line:-
A show cause notice issued under the Master Circular of RBI for declaring an entity as a wilful defaulter must specifically state the incidents, events, and factual circumstances that led the Identification Committee to a prima facie conclusion of wilful default. Vague or omnibus allegations and lack of material particulars in the show cause notice amount to a violation of the principles of natural justice.
Statutory provision(s): Clause 5 of RBI Master Circular, Arbitration and Conciliation Act, 1996, Insolvency and Bankruptcy Code, 2016, Clause 3 (XVIII)(B) of the Master Circular
