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WILFUL DEFAULTERS AND ACTION THERE AGAINST

Reserve Bank of India has defined the term Willful Default and communicated the

guidelines laying down a system to identify and report periodically the particulars of thewillful defaulters to RBI/ CIBI !Credit Information Bureau !India" td# $heseguidelines already circulated vide %aster Circular &o# '()/Recovery/ Cir*+/,--. dated)#0#,--. are as under 1

Definitions:

i) Willful Defaulter :

' willful default would 2e deemed to have occurred if any of the following eventsnoted 1 *

a" $he unit has defaulted in meeting its payment / repayment o2ligations to the lendereven when it has the capacity to honour the said o2ligations#

2" $he unit has defaulted in meeting its payment / repayment o2ligations to the lenderand has not utili3ed the finance from the lender for the specific purposes for whichfinance was availed of 2ut has dierted t!e fundsfor other purposes#

c" $he unit has defaulted in meeting its payment / repayment o2ligations to the lenderand has si"!oned off t!e fundsso that the funds have not 2een utili3ed for thespecific purpose for which finance was availed of4 nor are the funds availa2le withthe unit in the form of other assets#

ii) Diersion of funds :

Diversion of funds would 2e construed to include any one of the undernotedoccurrences 1

a" 5tilisation of short*term working capital funds for long*term purposes not inconformity with the terms of sanction1

2" Deploying 2orrowed funds for purposes/ activities or creation of assets other thanthose for which the loan was sanctioned6

c" $ransferring funds to the su2sidiaries / 7roup companies or other corporates 2ywhatever modalities6

d" Routing of funds through any 2ank other than the lender 2ank or mem2ers ofconsortium without prior permission of the lender6

e" Investment in other companies 2y way of ac8uiring e8uities / de2t instrumentswithout approval of lenders6

f" 9hortfall in deployment of funds vis*:*vis the amounts dis2ursed / drawn and thedifference not 2eing accounted for#

iii) Si"!onin# of funds:

9iphoning of funds4 should 2e construed to occur if any funds 2orrowed from2anks/ ;Is are utili3ed for purposes un*related to the operations of the 2orrower4 tothe detriment of the financial health of the entity or of the lender# $he decision as to

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whether a particular instance amounts to siphoning of funds would have to 2e a

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While considering compromise proposals4 the following aspects should 2e scrupulouslyensured#

a" $he proposals will 2e considered 2y the competent 'uthority within whose powerthe sacrifice/waiver amount falls su2

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l" Refund of interest wrongly charged in e=cess of the normal applica2le lending rateis not to 2e construed as a sacrifice on the part of the 2ank#