CFM ASSET RECONSTRUCTION PRIVATE LIMITED

“POLICY FOR DECLARATION OF WILLFUL DEFAULTERS”

Duly approved by the Board of Directors in meeting dated 20th April 2019

INTRODUCTION:

Pursuance to instructions of the Central Vigilance Commission (CVC) to put in place a

system to disseminate credit information pertaining to willful defaulters for cautioning banks
and financial institutions so as to ensure that further bank finance is not made available to
them.

The Scheme of collection of information about Wilful Defaulters of Banks/Financial

Institutions was introduced by Reserve Bank of India with effect from 1st April 1999 under
which all the Banks and Financial Institutions were advised to follow the laid down procedure
and submit the information to Reserve Bank of India, which was then amalgamated and
circulated to all the Banks & Financial Institutions to ensure that further bank finance is not
made available to them. These guidelines are made applicable to the Asset Reconstruction
Companies (ARCs) in 2014 and consolidated instructions were issued vide RBI Master
Circular RBI/2015-16/100 dated July 1,2015

Accordingly, the necessity is felt to formulate a policy by CFM Asset Reconstruction Private
Limited (the Company) in consonance with the currently prevailing norms & guidelines issued
by RBI.

This Policy may be called “The policy for declaration of willful defaulters” and shall come
into force and become applicable from the date of approval by Board of Directors of the
company.

CHAPTER - I
SCOPE:

The term Wilful Defaults broadly covers the following:

a) Deliberate non-payment of the dues despite adequate cash flow and good net worth.
b) Siphoning off of funds to detriment of the defaulting unit.
c) Assets financed either not been purchased or been sold and proceeds have been
misutilized.
d) Misrepresentation/falsification of records.
e) Disposal/removal of securities without bank’s and /or CFMARC knowledge.
f) Fraudulent transactions by the Borrower.

All Wilful Defaults occurred or detected after acquisition by CFMARC are reported to
Reserve Bank of India on quarterly basis by the respective Banks/FIs. It covered all non-
performing borrowal accounts with outstanding (funded facilities and such non-funded
facilities which are converted into funded facilities) aggregating Rs. 25 lacs and above
identified as Wilful Default by a Screening & Identification Committee of Higher functionaries
headed by Chief Executive Officer (CEO) and two senior officials of the President/SVP/VP
level for screening and identification of potential cases.

Simultaneously, the Banks/FIs ARCs were advised that they should examine all cases of
Wilful Defaults of Rs. 1.00 crores (Rupees One Crore only) and above for filing suits and also
consider criminal action wherever instances of cheating/fraud by defaulting borrowers were

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detected. In case of consortium/multiple lending banks and FIs were advised that they report
Wilful Defaults to other banks participating/financing banks also.

The definition of ‘Wilful Defaulters’ given in RBI in its latest Master Circular No.RBI/2015-
16/100 DBR. No. CID.BC.22/20.16.003/2015-16 dated 01.07.2015 is as under:

‘’2.1.3 Wilful Default: A ‘wilful default’ would be deemed to have occurred if any of the
following events is noted:
(a) The unit has defaulted in meeting its payment / repayment obligations to the lender
even when it has the capacity to honour the said obligations.
(b) The unit has defaulted in meeting its payment / repayment obligations to the lender
and has not utilised the finance from the lender for the specific purposes for which finance
was availed of but has diverted the funds for other purposes.
(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 utilised for the specific
purpose for which finance was availed of, nor are the funds available with the unit in the
form of other assets.
(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 for the purpose of securing a term loan without the knowledge of the bank / lender.’’

Diversion and Siphoning off of funds:

Diversion of funds referred to in the definitions of willful default as mentioned at above should
be construe, to mean any of the following:

a) Utilization of short-term working capital funds for long term purposes not in
conformity with the terms of sanction.
b) Deploying borrowed funds for purposes/activities or creation of assets other
than those for which the loan was sanctioned.
c) Transferring funds to the subsidiaries/Group companies or other corporate by
whatever modalities;
d) Routing of funds through any bank other than the lender bank or members of
consortium without prior permission of the lender.
e) Investment in other companies by way of acquiring equities/debt instruments
without prior approval of lenders.
f) Shortfall in deployment of funds vis-à-vis the accounts disbursed/drawn
and the difference not accounted for.

Siphoning of funds, referred in (c) in the above definition of ‘wilful default’, should be
construed to occur if any funds borrowed from banks/FIs are utilized for purposes un-related
to the operations of the borrower, to the detriment of the financial health of the entity or of the
lender. The decision as to whether a particular instance amounts to siphoning of funds would
have to be a judgment of the lenders based on objective facts & circumstances of the case.

The identification of the Wilful Default should be made keeping in view the track record of the
borrowers and should not be decided on the basis of isolated transactions/incidents. The
default to be categorized as Wilful must be intentional, deliberate and calculated.

Cut-Off Limits:

While the penal measures indicated below would be normally be attracted by all the
borrowers identified as Wilful Defaulters or the promoters involved in diversion/siphoning of

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funds, keeping in view the present limit of Rs. 25 lacs fixed by CVC for reporting of cases of
Wilful Default by Bank/FIs/ARCs to RBI, any Wilful Defaulter with an outstanding balance of
Rs. 25 lacs or more, would attract the penal measures stipulated below. The limit of Rs. 25
lacs may also be applied for the purpose of taking cognizance of the instances of
“Siphoning”/”Diversion” of funds.

End-Use of Funds:

In cases of project financing, the banks/FIs seek to ensure end use of funds by, inter alia,
obtaining certification form the Chartered Accountants for the purpose. In case of short-term
corporate/clean loans, such an approach ought to be supplemented by ‘due diligence’ on the
part of lenders themselves, and to the extent possible, such loans should be limited to only
those borrowers whose integrity and reliability are above board. The banks and FIs,
therefore, should not depend entirely on the certificates issued by the Chartered Accountants
but strengthen their internal controls and the credit risk management system to enhance the
quality of their loan portfolio.

Needless to say, ensuring end-use of funds by the banks and FIs should form a part of their
loan policy document for which appropriate measures should be put in place. The following
are some of the illustrative measures that could be taken by the lenders for monitoring and
ensuring end-use of funds:

a) Meaningful scrutinies of quarterly progress report/operating statements/balance

sheets of the borrowers;
b) Regular inspection of borrowers’ assets charged to the lenders as security;
c) Periodical scrutiny of borrowers’ books of accounts and the no-lien accounts
maintained with other banks;
d) Periodical visits to the assisted units;
e) System of periodical stock audit; in case of working capital finance;
f) Periodical comprehensive management audit of the ‘Credit’ function of the lenders,
so as to identify the systemic-weakness in the credit-administration.

(It may be kept in mind that this list of measures is only illustrative and by no means
exhaustive.)

Penal Measures:

Now CFM ARC (the Company) should also initiate t// ensure he following measures against
Wilful Defaulters identified as per the definition indicated above.

a) No additional facilities should be granted by any Bank/FI to the listed willful

defaulters. In addition, 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 scheduled commercial banks, Development Financial Institutions, Government
owned NBFCs investment institutions etc. for floating new ventures for a period of five
years from the date the name of Wilful Defaulter is published in the list of Wilful
defaulters by RBI/CIC.
b) The legal process wherever warranted against the borrowers / guarantors and
foreclosure of recovery of dues should be initiated expeditiously. The lenders may
initiate criminal proceedings against Wilful Defaulters, wherever necessary.
c) Wherever, possible the banks & FIs should adopt a proactive approach for a change
of management of the wilfully defaulting borrower unit.

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 d) A covenant in the loan agreements, with the companies in which the banks/notified
FIs have significant stake, should be incorporated by the banks/FIs/ARCs to the
effect that the borrowing company should not induct a person who is a promoter or
director on the Board of a company which has been identified as a Wilful Defaulter
and that in case, such a person is found to be on the Board of the borrower company,
it would take expeditious and effective steps for removal of the person from its board.

It would be imperative on the part of the Banks and FIs as well as CFMARC to put in place a
transparent mechanism for the entire process so that the penal provisions are not misused
and the scope of discretionary powers are kept to the barest minimum. It should also be
ensured that a solitary and isolated instance is not made the basis for imposing the penal
action.

In order to prevent the access to the capital markets by Wilful Defaulters, a copy of the list of
Wilful Defaulters (non-suit filed accounts) and list of Wilful Defaulters (suit filed accounts) are
forwarded to Securities & Exchange Board of India (SEBI) by Reserve Bank of India and
Credit Information Bureau (India) Ltd. (CIBIL) respectively.

Guarantees Furnished by Group Companies

While dealing with wilful default of a single borrowing company in a group the banks/FIs as
well as CFMARC should consider the track record of the individual company, with reference
to its repayment performance to its lenders. However, in cases where a letter of comfort
and/or the guarantees furnished by the companies within the group on behalf of the wilfully
defaulting units are not honoured, when invoked by the banks/FIs and CFMARC, such group
companies should also be reckoned as wilful defaulters.

In case of guarantors where the guarantee furnished by them is invoked and the said
guarantor(s) refuses to comply with the demand made by the creditor / ARC, despite having
sufficient means to make payment of the dues, such guarantor would also be treated as a
wilful defaulter.
This treatment should also be applied wef 09/9/2014 to non-group companies and individuals

Role of Auditors

In case any falsification of accounts on the part of the borrowers is observed by the
banks/FIs/ CFMARC, and if it is observed that the auditors were negligent or deficient in
conducting the audit, they should lodge a formal complaint against the auditors of the
borrowers with the Institute of Chartered Accountants of India (ICAI) to enable the ICAI to
examine and fix accountability of the auditors. Pending disciplinary action by ICAI, the
complaints may also be forwarded to the RBI (Department of Banking supervision, Central
office) and IBA for records. IBA would circulate the names of the CA firms against whom
many complaints have been received amongst all banks who should consider this aspect
before assigning any work to them. RBI would also share such information with other
financial sector regulators/Ministry of Corporate Affairs (MCA)/Comptroller and Auditor
General (CAG).

With a view to monitoring the end-use of funds, if the lenders desire a specific certification
from the borrowers’ auditors regarding diversion/siphoning of funds by the borrower, the
lender should award a separate mandate to the auditors for the purpose. To facilitate such
certification by the auditors the banks and FIs will also need to ensure that appropriate
covenants in the loan agreements are incorporated to enable award of such a mandate by
the lenders to the borrowers/auditors.

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In addition to the above, banks are advised that with a view to ensuring proper end-use of
funds and preventing diversion / siphoning of funds by the borrowers, lenders could consider
engaging their own auditors for such specific certification purpose without relying on
certification given by borrower’s auditors. However, this cannot substitute bank’s basic
minimum own diligence in the matter.

Role of Internal Audit/ Inspection

The aspect of diversion of funds by the borrowers should be adequately looked into while
conducting internal audit/inspection of their offices/branches and periodical reviews on cases
on wilful defaults should be submitted to the Audit Committee of the bank and CFMARC.

Reporting to RBI/ Credit Information Companies

a) Banks/FIs and CFMARC should submit the list of suit-filed accounts of wilful
defaulters of Rs 25 lakh and above on a monthly or more frequent basis to any of the
credit information company which has obtained certificate of registration from RBI in
terms of Section 5 of the Credit Information Company (Regulation) Act, 2005 and of
which it is a member.

Reserve Bank of India has, in exercise of the powers conferred by sec 5 of

CIC(Regulation)Act and the Rules and Regulations framed thereunder, granted
Certificate of Registration to (i) Experian Credit Information Company of India Private
Limited, (ii) Equifax Credit Information Services Private Limited, (iii) High Mark Credit
Information Services Private Limited and (iv) Credit Information Bureau (India)
Limited (CIBIL) to commence/carry on the business of credit information.

Credit Information Companies (CICs) have also been advised to disseminate the
information pertaining to suit filed accounts of Wilful Defaulters on their respective
websites.

b) Banks/FIs and CFMARC should, however, submit the quarterly list of wilful defaulters
where suits have not been filed, only to RBI in the given format.

c) In order to make the current system of banks/FIs including CFMARC, reporting

names of suit filed accounts and non-suit filed accounts of wilful defaulters and its
availability to the banks by CICs/RBI as current as possible, banks/FIs and CFMARC
are advised to forward data on wilful defaulters to the CICs/Reserve Bank at the
earliest but not later than a month from the reporting date.

EXPLANATION
In this connection, it is clarified that banks need not report cases where:

i. Outstanding amount falls below Rs. 25 Lakh and

ii. In respect of cases where banks have agreed for a compromise settlement and the
borrower has fully paid the compromised amount.

Criminal Action Against Wilful Defaulters

J.P.C. Recommendations

Reserve Bank examined, the issues relating to restraining wilful defaults in consultation with
the Standing Technical Advisory Committee on Financial Regulation in the context of the
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following recommendations of the JPC and in particular, on the need for initiating criminal
action against concerned borrowers, viz.

a) It is essential that offences of breach of trust or cheating construed to have been

committed in the case of loans should be clearly defined under the existing statutes
governing the banks, providing for criminal action in all cases where the borrowers
divert the funds with malafide intentions.
b) It is essential that banks closely monitor the end-use of funds and obtain certificates
from the borrowers certifying that the funds have been used for the purpose for which
these were obtained.
c) Wrong certification should attract criminal action against the defaulting borrower.

Accordingly, Banks/FIs/CFMARC has to take further steps as under: -

Monitoring of End-Use

Banks/FIs should have closely monitor the end-use of funds and obtain the certificates from
borrowers certifying that the funds are utilized for the purpose for which they were obtained.
In case of wrong certification by the borrowers, banks/FIs and CFMARC may consider
appropriate legal proceedings, including criminal action wherever necessary, against the
borrowers/guarantors.

Criminal Action by banks/FIs and CFMARC

It is essential to recognise that there is scope even under the existing legislations to initiate
criminal action for dishonest against wilful defaulters depending upon the facts and
circumstances of the cases under the provisions of Section 403 and 415 of the Indian Penal
Code (IPC) 1860 for misappropriation of properties and cheating. Banks/FIs

and now CFMARC have been, therefore, consider seriously and promptly consider initiating
criminal actions against criminal defaulters or wrong certification by borrowers, wherever
considered necessary, based on the facts and circumstances of each case under the above
provisions of the IPC to comply with RBI instructions and the recommendations of JPC.

It should also be ensured that the penal provisions are used effectively and determinedly but
after careful consideration and due caution. Towards this end, banks/FIs and CFMARC are
advised to put in place a transparent mechanism, with the approval their Board, for initiating
criminal proceedings based on the facts of individual case.

REPORTING NAMES OF DIRECTORS

Need for Ensuring Accuracy

Credit Information Companies disseminate information on non-suit filed and suit filed
accounts respectively, as reported to them by the banks / FIs /CFMARC and responsibility
for reporting correct information and also accuracy of facts and figures rests with the
concerned banks and financial institutions. Therefore, banks and financial
institutions/CFMARC should take immediate steps to up-date their records and ensure that
the names of current directors are reported. In addition to reporting the names of current
directors, it is necessary to furnish information about directors who were associated with the
company at the time the account was classified as defaulter, to put the other banks and

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financial institutions on guard. Banks and FIs may also ensure the facts about directors,
wherever possible, by cross-checking with Registrar of Companies.

Position regarding Guarantors

Banks / FIs /CFMARC may take due care to follow the provisions set out in paragraph 3 of
the RBI circular in identifying and reporting instances of wilful default in respect of guarantors
also. While reporting such names to RBI, banks/FIs may include ‘Guar’ in brackets i.e. (Guar)
against the name of the guarantor and report the same in the Director column

Position regarding Independent and Nominee directors

Professional Directors who associate with companies for their expert knowledge act as
independent directors. Such independent directors apart from receiving director's
remuneration do not have any material pecuniary relationship or transactions with the
company, its promoters, its management or its subsidiaries, which in the judgment of Board
may affect their independent judgment. As a guiding principle of disclosure, no material fact
should be suppressed while disclosing the names of a company that is a defaulter and the
names of all directors should be published. However, while doing so, a suitable
distinguishing remark should be made clarifying that the concerned person was an
independent director. Similarly the names of directors who are nominees of government or
financial institutions should also be reported but a suitable remark 'nominee director' should
be incorporated.

Therefore, against the names of Independent Directors and Nominee Directors, they should
indicate the abbreviations “Ind" and "Nom" respectively in brackets to distinguish them from
other directors.

Government Undertakings

In the case of Government undertakings, it should be ensured that the names of directors are
not to be reported. Instead, a legend "Government of -------- undertaking" should be added.

Inclusion of Director Identification Number (DIN)

Ministry of Corporate Affairs had introduced the concept of a Director Identification Number
(DIN) with the insertion of Sections 266A to 266G of Companies (Amendment) Act, 2006. In
order to ensure that directors are correctly identified and in no case, persons whose names
appear to be similar to the names of directors appearing in the list of wilful defaulters, are
wrongfully denied credit facilities on such grounds, banks/FIs and CFMARC have been
advised to include the Director Identification Number (DIN) as one of the fields in the data
submitted by them to Reserve Bank of India / Credit Information Companies.

It is reiterated that while carrying out the appraisal for preparing Resolution Plan, banks
should verify as to whether the names of any of the directors of the companies appear in the
list of defaulters/ wilful defaulters by way of reference to DIN/PAN etc. Further, in case of any
doubt arising on account of identical names, banks should use independent sources for
confirmation of the identity of directors rather than seeking declaration from the borrowing
company.

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 CHAPTER - II

PROCEDURE FOR DECLARATION OF WILFUL DEFAULTERS:

STAGE I:
In accordance with RBI directives, the following transparent procedure is adopted by the
CFM ARC for declaring defaulting borrowers as ‘WILFUL DEFAULTERS’.

All NPA accounts which are acquired from banks have first to be scrutinized whether they
are already classified as willful defaulters by the concerned assignor bank/FIs. If so they shall
continue to be classified as willful defaulters. Remaining accounts which are not classified as
willful defaulters and which are treated as potential viable units and CFM ARC has decided
to restructure them for revival should not be classified as willful defaulters. For balance
accounts the procedure for declaration of willful defaulters as given hereinafter should be
followed.

If, in a borrowal account (with outstanding dues of Rs. 25 lakhs or more) and any of the four
events mentioned in the definition of “willful default” occurs, then such a borrowal account
should be identified for declaration as Wilful Defaulter and borrower’s profile should be
submitted to CEO in the prescribed format duly recommended by concern SVP/VP handling
the particular account / NPA for initiating the process of willful Defaulters. The suggested
format for profile/note (Format– WD-1) is attached in Annexure 1.

Delegates should exercise restraint while declaring any borrower/guarantor as willful

Defaulters and they should go strictly by the definition of Wilful Defaulter given by RBI.

At Desk officer level, the profile is scrutinized and presented / put up before a committee
named – Screening and Identification Committee, headed by CEO and two senior
officials of the President/SVP/VP level for screening/identification of potential cases
and after its recommendations the concerned desk officer handling the account would
issue a show cause notice to the borrowing unit and its proprietor/partners/directors etc, as
well as to their guarantors at their last known addresses (as available in record as well as on
MCA site); informing them about CFMARC intention to declare them as willful defaulters. The
reason / grounds for such decision should also be mentioned in the notice and give them
fifteen days’ time to make representation there against, if they so desire. The suggested
format for show cause notice (Format– WD-2) is attached in Annexure 2. Upon issuance of
the said notice the borrower account is said to be in stage I. The Notice should be sent by
Registered post / Speed Post with A.D./ Email and the original receipt and acknowledgement
by the recipients should be preserved safely with office copy of notice as evidence of notice.

STAGE II : FINAL DECLARATION WHERE NO REPRESENTATION IS RECEIVED OR

WHERE NOTICE HAS BEEN RECEIVED BACK UNDELIVERED:

On the expiry of the notice period, if no representations are received from

borrowers/guarantors, concern officer will submit copies of following documents to CEO.

1. Copies of notices to borrower/guarantors.

2. Copy of postal receipt.
3. Copy of acknowledgement received, if any.
4. In case of notices returned undelivered (RUD), the envelope containing the said
notice and having remarks of postal authorities.

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The concerned desk officer has to confirm and show that the Notices were issued / sent
through Registered post / Speed Post with A.D./ Email on the last known addresses of the
Borrowers (as available in record as well as on MCA site). In case the notices are returned
undelivered then reasonable efforts should be made to find out whether the borrowers are
still at the same address and have been intentionally avoiding the receipt of the notice. In
such cases, the documents mentioned above at Sr. No.1, 2 and reason for return of notice
as mentioned by the postal authorities on the envelope containing the said notice along with
details of further efforts made to serve the same by alternate means/address should be put
up before CEO seeking approval / advise for taking further steps for completion of the
process of Wilful Defaulters. The envelope containing the said notice which has been
returned undelivered (RUD) shall also be preserved in original.

On receipt of the above documents, after being satisfied with grounds and completion of all
procedural requirements, the Screening and Identification Committee will approve the
proposal to be put before the Declaration of Willful Defaulter Committee headed by
Chairman / CEO and two independent directors / non-executive directors. to take the
final call on declaring the defaulting borrower as well as their partners/directors and
guarantors as ‘willful defaulter and include their names in the quarterly report to Reserve
Bank of India (non-suit filed accounts) / CIBIL (suit filed accounts).

STAGE III : FINAL DECLARATION WHERE REPRESENTATION IS RECEIVED:

A. In case representation/s are received from borrower/guarantor, ( without seeking

personal hearing the same should be carefully examined and if Screening and
Identification Committee is not satisfied about the reasons and contentions made by
the borrower /guarantors etc against notice issued by CFMARC to classify them as
Wilful Defaulter, then a rebuttal letter has to be sent to the borrowers /guarantors etc
who have represented against CFMARC’s intention to declare them as Wilful Defaulter
intimating them the grounds / reasons as to why CFMARC does not agree with their
contention/reasoning. This rebuttal should invariably inform them about CFMARC
decision to go ahead with declaring them as Wilful Defaulters. Borrower should not be
given further time, nor the borrower should be asked to respond to our said rebuttal.
Such rebuttal letter should also be sent by registered post with acknowledgement /speed
post /Email due and proof of dispatch and delivery be kept on record. Immediately after
the issue of rebuttal following documents along with a note should be submitted to CEO
in the suggested format (format WD-3 in Annexure 3) for final decision after completing
the process for declaring defaulting borrowers/guarantors etc. as Wilful Defaulter:

 Copies of notices to borrower/guarantors;

 Copy of postal receipt;
 Copy of acknowledgement received;
 Copy of the representative received;
 Copy of the rebuttal issued with copy of postal receipt and acknowledgement.
 The Note duly completed along with latest position of the recovery process & litigation
before Court/DRT such as last date of hearing with the purpose of hearing, date of
next hearing and purpose etc. and action under SARFAESI Act, 2002 and cases
related thereto, if any. Concern SVP/VP should diarize the dates of hearing and
purpose, which should be conveyed to CEO from time to time till they receive final
information from CEO that these borrowers have been finally approved for inclusion
in the list of Wilful Defaulters.

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 On receipt of the above documents and after being satisfied with grounds and
completion of all procedural requirements, the Declaration of Willful Defaulter
Committee will approve the proposal to declare the defaulting borrower as well as
their partners/directors and guarantors as ‘willful defaulter and to include their names
in its quarterly report to Reserve Bank of India (non-suit filed accounts) / CIBIL (suit
filed accounts).

B. In case, the borrower makes representation and seeks personal hearing, the same
should be informed to Screening and Identification Committee and a status note
should be submitted for placing the same before Declaration of Willful Defaulter
Committee headed by Chairman / CEO and two independent directors / non-
executive directors. After providing the personal hearing, if Declaration of Willful
defaulter committee is not satisfied with the reasons given by the defaulting
borrowers, the borrower will be suitably advised about CFMARC decision to declare
them as Willful Defaulters and insertion of their names in Wilful Defaulters list for
RBI/CIBIL.

On receipt of the above decision the Concerned SVP/VP / the desk officer shall
intimate to the borrowers/guarantors etc about the decision of committee. The desk
officer shall also initiate further necessary action and inclusion of names of borrowers
in the list to be sent to RBI/CIBIL as per norms.

It is expected that once the account is identified by the Committee, the concerned official
shall submit action taken report to CEO immediately and kept him appraised with the
developments taking place in the matter from time to time.

On receipt of consolidated list from RBI, the list of Wilful Defaulters (non-suit filed) accounts
the concerned desk officer will circulate the same to all the officers and shall also be put up
on the website of the company.

STAGE IV: DELETION OF NAME FROM LIST OF WILFUL

DEAFAULTERS/DISCONTINUATION OF PROCESS OF WILFUL DEFAULTER:

 In case CFM ARC has received full repayment of contractual dues / full payment
under the compromise / settlement and account has not been finally declared as
Wilful Defaulter i.e. when the process for declaration of willful defaulter is still in Stage
I/II, further Process of Willful Defaulter should be discontinued
 Where borrower has already been declared as Wilful Defaulter, and CFM ARC has
subsequently received full repayment of contractual dues / full payment under the
compromise, the name of the borrower should be deleted from list of Wilful Defaulters
– Suit Filed / Non-suit filed accounts communicated to CIBIL/RBI.

The concerned desk officer/ President/VP concern should ensure that names of Wilful
Defaulters, who have adjusted their account by repayment either with contractual dues or
through compromise, should be deleted from the list of Wilful Defaulters conveyed to
RBI/CIBIL within reasonable time. For this purpose, President/VP is required to submit the
proposal in the suggested format (Format– WD-4 in Annexure 4) duly filled in along with their
recommendations to Screening & Identification Committee.

Periodical review and updating the policy

This policy for declaration of willful defaulters shall be reviewed and updated as and when
there is any change in any legal and/or regulatory framework. The policy after such review
shall be placed before the Board of Directors of CFMARC for necessary directions and
approval.
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List of Annexures to Policy:
The suggested formats as referred in the policy are attached to this policy document to be
followed subject to the suitable/appropriate changes in view of the facts and events of
defaults etc.

Sr No Format no Subject matter

1 WD-1 Note to committee on willful defaulters with profile of borrower /

accounts proposed to be declared as - wilful defaulters
2 WD-2 Draft for Show Cause Notice

3 WD-3 Note to committee on willful defaulters with – reply of the

defaulting borrowers in response to our Show Cause Notice
4 WD-4 on resolution of event of default draft for note to committee on
willful defaulters – for deleting the name of the defaulting
borrowers.

_________________________________

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 Annexure-1
(WD-1)

CFM ASSET RECONSTRUCTION PRIVATE LIMITED

PROFILE OF WILFUL DEFAULTERS

Sr.No. Particulars

1 Name of the Borrower

2 Name of the Bank from we obtain the

account
3 Registered Address of the Borrower (as available in record as well as on MCA
(Name of the State & Pin Code) site)
4 Name of the Activity

5 Name of the Partners/Directors &

their worth (Initials are not sufficient,
please provide full / expanded
names)
5(a) Director’s Identification No. (DIN)

6 Name of the Guarantors &their worth

7 Bank’s Exposure:- Limits Outstanding Total Cost of

Purchase
a) Fund Based

b) Non-fund based

Total

8 Primary Security/ Nature of Security

& value
9 Collateral Security / Nature of
Security & value
10 Date of NPA with the Bank

11 Asset classification

12 Provision held on

13 Brief History

14 If account is Suit Filed, Date of suit,

Amount, Details of suit.
15 Current Status of Suit

16 Action taken under Securitization

17 If referred to BIFR (Date &

Development)
18 Status of ECGC claim

19 Date of Purchase

12
 Purchase - Whether cash or SR
basis
20 Action plan for recovery and up
gradation
21 Is there any scope for recovery
through Compromise
22 If Consortium advance / multiple
finance, name of other Banks
23 Reason of account becoming NPA
(Please co-relate the reasons with
grounds for declaring the borrower as
Wilful Defaulter as mentioned in item
24 below.
24 Reason for reporting as Wilful Please tick the appropriate column a, b, c
Defaulter to RBI or d
a) The unit has defaulted in meeting its payment / repayment obligations to
the lender even when it has the capacity to honour the said obligations.
b) The unit has defaulted in meetings its payment / repayment obligations
to the lender has not utilized the funds for the purpose for which finance
was availed but has diverted the funds for other purposes.
c) The unit has defaulted in meetings its payment / repayment obligations
to the Bank and has siphoned off the funds so that funds have not been
utilized for the purpose for which the finance was availed off, nor are the
funds available with unit in the form of other assets.
d) The unit has defaulted in meetings 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.

DESK OFFICER President/VP (Acquisition & Resolution)

Screening & Identification Committee on Wilful defaulter

Member -1 Member - 2 Member - 3

_____________________________________

13
 Annexure-2
(WD-2)

REF: CFMARC/2019-20 / Date:

SHOW CAUSE NOTICE

Through Regd (AD) / Speed Post/email

Without prejudice
To,

The Borrower:

The Guarantors:

Sub: Show Cause Notice for declaring as Willful defaulter as per RBI Master circular on
Willful Defaulters dated July 1, 2015 read with all previous extant guidelines issued on the
subject

Dear Sir,

1. CFM Asset Reconstruction Pvt Ltd (CFMARC) is a Company registered under the
Companies Act, 2013 and registered with Reserve Bank of India as an Asset Reconstruction
Company pursuant to section 3 of the SARFAESI Act, 2002 and having its registered office
at A-3, 5TH Floor, Safal Profitaire, near Prahlad Nagar Garden, Ahmedabad – 380015 and
corporate office at 1st Floor, Wakefield House, Sprott House, Balllard Estate, Mumbai
400038.

2. We refer to the credit facilities provided to you at Sr. No. 1 to 3 by I__________ Bank
under various agreements (hereinafter referred as “Borrowers”). Further you at Sr. No. 4 to 9
have executed various deeds of guarantee and personally guaranteed repayment of loans
availed by the Borrower (hereinafter referred as “Guarantors”).

3. After availing the loans, you did not adhere to the terms & conditions of the sanction and
defaulted in the repayment of the facilities as per the agreed terms and accordingly the loan
account has been classified by the Indian Bank as Non-Performing Asset (NPA) on
________.

4. By the virtue of registered Assignment Agreement dated _______ 2019, Indian Bank has
assigned the debts due from the account mentioned at Sr. No. 1, 2 and 3 aggregating to Rs.
14.53 crores (as on cut-off date of __________) along with underlying financial documents
together with Indian Bank’s rights, benefits and obligations there under to CFMARC acting in
capacity of Trustee of CFMARC Trust -1 …… formed in accordance with the Indian Trusts
Act, 1882 and SARFAESI Act, 2002.

5. We refer to our letter no. _________ dated ________ inter alia notifying you that CFM
Asset Reconstruction Pvt Ltd acting in capacity of Trustee of CFMARC Trust -1 …..has
acquired the captioned account at Sr. No. 1, 2 and 3 from ___________ Bank.

14
6. The Borrowers continued to be in default of its loans to CFMARC, despite various follow
ups.

7. On the basis of the available documents/records, we observe that you are in receipt of
rental income from the charged assets leased to _______________ and others. The last
rental receipt deposited in the loan account with Indian Bank amounted Rs. ______ dated
__________ 2017. However, no rental receipts were deposited with CFMARC during the
year 2018 and 2019. Thus, you might have received rent over Rs.____________ lakhs
during the said period.

8. In terms of the RBI Master circular on Willful Defaulters dated July 1, 2015 read with all
previous extant guidelines issued (by RBI) in connection with the same, a proposal for
classification as Willful Defaulter was placed before the Willful Defaulter Committee of
CFMARC (WDC). The WDC observed that prime facie the Borrower and Guarantors have
defaulted in making payment to CFMARC. The WDC is also of the opinion that the Borrower
and Guarantors have committed following default:

a. Deliberately failed to repay the dues of CFMARC having capacity to honour

the said obligations
b. ____
c. ____
d. -------

9. In view of the above, you are hereby called upon to show cause and make submissions in
writing within 15 days from the date of receipt of this letter, as to why your name at Sr.No.1 to
3 and Guarantors at Sr. No. 4 to 9 should not be forwarded to RBI/CIBIL for inclusion in the
list of willful defaulters as per the guidelines.

10. If we do not hear from you within the above timeframe i.e. by ____________, we will
presume that you have nothing to say in the matter and will proceed accordingly.

11. Please also note that the notice is issued to you without prejudice to the rights available
to CFMARC in law and/or contract

For CFM Asset Reconstruction Pvt Ltd

(acting in capacity of Trustee of CFMARC Trust -1 ____)

Authorized Signatory

_____________________________________

15
 Annexure-3
(WD-3)

DETAILS OF CASES TO BE FINALLY DECIDED BY THE COMMITTEE FOR GRIEVANCE

REDRESSAL

Name

Bank Name, Date Of Purchase & Amount

Purchase - Whether Cash or SR Basis

Regd. Address Of Borrower With Pin Code & State (As Available In Record As Well As On
Mca Site)
Amount Due

Date Of NPA Asset Class.

If Suit Filed, No., Date & Amount Of Suit With Current

Status Of The Suit.
Action Under SARFAESI
Date Of Notice, Possession, Auction, Recovery, Any
Other Case Related To SARFAESI Act, Etc.

Securities Details

Nature Description Date Of Valuation

Valuation
MARKET VALUE FORCED SALE
VALUE
Prime Given Here 2.1.1.5 2.1.1.6
Brief
Description
Such as Survey
No., House/Flat
No., Area Etc.
Collateral

Stage I Approval Notice Dated

Date
Representation Date Rebuttal
Dated
Grounds on which Gist of party’s reply Comments of SVP/VP
account identified as
Wilful Defaulter
Mention here the reasons Mention here briefly the points Give here brief point wise
(a), (b), (c) or (d) as per RBI raised by the Borrower in its rebuttal issued and
guidelines. reply. recommendation of the
VP/SVP for declaring the
borrower as Wilful Defaulter.

DESK OFFICER President/VP(Acquisition & Resolution)

Declaration of Wilful defaulter Committee

16
Member-1 Member -2 Member - 3

17
 Annexure-4
(WD-4)
CFM ASSETRECONSTRUCTION PRIVATE LIMITED

FORMAT FOR DELETION OF NAME/DISCONTINUATION OF PROCESS OF WILFUL

DEFAULTERS

Sr.No. Requirements Particulars

1 Name of the Borrower

2 Name of the Bank, Date and Amount

of Purchase
3 Sr. No. of Wilful Defaulter/Stage I
Identification date
4 Amount in default

5 Details of compromise sanctioned

(Sanctioning Authority, Compromise
amount, letter reference etc.) Encl.
Process Note copy.
6 Payment details like date of payment,
amount paid, interest amount etc.
7 Compliance of terms and conditions

8 Any other information

9 Recommendation of the VP/SVP

DESK OFFICER President/VP (Acquisition & Resolution)

Declaration of Wilful defaulter Committee

Member -1 Member - 2 Member – 3

18