Issuance of Wilful Defaulter Show Cause Notice by Subordinate Officer Pursuant to Committee Recommendation is Valid

The petitioners, owners of various cashew and yajammana industries, challenged a Show Cause Notice dated June 6, 2024, issued by the Chief General Manager of Canara Bank, seeking to declare them "Willful Defaulters".

They also challenged a Forensic Audit Notice dated December 3, 2025.

The petitioners contended that their accounts were declared NPAs without considering RBI’s COVID-19 relief frameworks and MSME guidelines.

Procedurally, the petitioners argued that the Show Cause Notice was invalid because it was signed by the Chief General Manager rather than the Identification Committee itself.

The bank countered that a properly constituted Committee, headed by an Executive Director, had indeed deliberated on March 12, 2024, found evidence of diversion of funds and unauthorized disposal of assets, and subsequently directed the issuance of the notice.

1. Whether a Show Cause Notice for the declaration of a willful defaulter is legally infirm if signed by a Chief General Manager instead of the Identification Committee itself, despite being based on the Committee's recommendations.

2. Whether the Forensic Audit Notice and Willful Defaulter proceedings were issued in violation of the RBI Master Circular on Wilful Defaulters dated July 1, 2015.

RBI Master Circular on ‘Wilful Defaulters’ dated July 1, 2015, specifically Clause 3, which mandates a two-tier committee process: an Identification Committee (headed by an Executive Director) to examine evidence and issue a show cause notice, and a Review Committee to confirm the order.

The precedent in State Bank of India v. M/s Jah Developers Pvt. Ltd., which held that the right to carry on business is affected by such declarations, requiring the bank to follow a transparent, reasoned process including the right to representation.

The Court distinguished the High Court's own precedent in B.G. Chandrashekar v. Authorised Officer, Canara Bank, where a notice was quashed due to an improperly constituted committee.

The Court analyzed the distinction between the "decision-making" and "ministerial" acts of the bank. While the petitioners argued that the Chief General Manager lacked the authority to sign the notice under Clause 3 of the RBI Circular, the Court found that the Identification Committee was, in fact, duly constituted as per the guidelines and had held a meeting on March 12, 2024.

This Committee recorded specific findings regarding the siphoning of funds and recommended the issuance of the 15-day show cause notice.

The Court reasoned that the Chief General Manager was merely performing an administrative action under the direction and authority of the Committee.

Furthermore, the Court held that the petitioners failed to demonstrate any "prejudice" caused by the signature of the Manager, emphasizing that the substantive decision-making power remained with the legally mandated Committee and that the notice itself was only a preliminary step.

The Court dismissed the writ petition and declined to quash the Show Cause Notice or the Forensic Audit Notice; the petitioners are required to submit their replies to the Committee for final determination and all pending interlocutory applications were closed.