The Supreme Court on Wednesday held that the grant of benefit under the One Time Settlement (OTS) is always subject to the eligibility criteria mentioned under the OTS scheme and the guidelines issued from time to time.
The Division Bench of Justices M.R. Shah and B.V. Nagarathna set aside an Allahabad High Court order directing Bijnor Urban Cooperative Bank Limited to consider granting OTS to a defaulter despite the bank’s plea that Sarfaesi Act proceedings were pending. The SC bench held that if the bank/financial institution is of the opinion that the borrower has the capacity to make the payment and/or that the bank/financial institution is able to recover the entire loan amount even by auctioning the mortgaged property/secured property, either from the borrower and/or guarantor, the bank would be justified in refusing to grant the benefit under the OTS Scheme.
It was further observed by the Court that such a decision should be left to the commercial wisdom of the bank whose amount is involved and it is always to be presumed that the financial institution/bank shall take a prudent decision whether to grant the benefit or not under the OTS Scheme.
The facts of the case is that the private respondent had obtained a credit facility from the bank of about Rs 1 crore. The said loan account with the Bank was categorized as “Non-Performing Asset (NPA)”. The Bank also initiated proceedings under the provisions of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act). That there were two other loan accounts also which were being regularly serviced by private respondent, meaning thereby that the payment was regularized insofar as two other loan accounts are concerned. However, the loan account is concerned, which was declared NPA, not a single rupee was paid till an application for extending the benefit of OTS was submitted.
That OTS Scheme was issued by the Bank vide OTS Circular dated 01.08.2013 which provided that on the conditions contained in the said circular being complied with, the benefit of OTS can be taken by the debtor. The benefit of OTS Scheme came to be extended till 30.11.2019. The original writ petitioner submitted an application for consideration of her case under OTS vide application dated 22.07.2019. Vide communication dated 17.09.2019, her application for grant of benefit under the OTS came to be rejected on the ground that she is not eligible for OTS under the OTS Scheme and that the loan can be recovered by auction of the mortgaged property and that there are chances of recovering the loan amount and that her loan account has been declared as NPA.
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The Board of the Bank also passed a resolution dated 28.12.2020 to the effect that original writ petitioner is not eligible for the benefit under the OTS Scheme for the reason that the loan account is fully recoverable and all the measures to recover the loan amount have not yet been exhausted and the chances of recovery of the loan amount are still there. The original writ petitioner filed a writ petition before the High Court challenging the order dated 17.09.2019 passed by the Bank rejecting her application for giving the benefit of OTS scheme. Vide order dated 25.01.2021, the High Court disposed of the said writ petition by directing the Bank to consider the grievance of the original writ petitioner and to decide her representation dated 22.07.2019 after affording the opportunity of hearing to her, as expeditiously as possible and preferably within a period of four weeks.
Feeling aggrieved and dissatisfied with the impugned judgment of the High court, the Bank approached the Supreme Court.
Having heard counsel for the respective parties at length, the following issues/questions are posed for consideration of the Supreme Court: i) Whether benefit under the OTS Scheme can be prayed as a matter of right?; ii) Whether the High Court in exercise of powers under Article 226 of the Constitution of India can issue a writ of mandamus directing the Bank to positively consider the grant of benefit under the OTS Scheme and that too de hors the eligibility criteria mentioned under the OTS Scheme?
The Court noted that a wilful defaulter in repayment of loan and a person who has not paid even a single installment after taking the loan and will not be able to pay the loan will be considered in the category of “defaulter” and shall not be eligible for grant of benefit under the OTS Scheme. Similarly, a person whose account is declared as “NPA” shall also not be eligible. As per the guidelines, the Bank is required to constitute a Settlement Advisory Committee for the purpose of examining the applications received and thereafter the said Committee has to take a decision after considering whether a defaulter is entitled to the benefit of OTS or not after considering the eligibility as per the OTS Scheme. While making recommendations, the Settlement Advisory Committee has to consider whether efforts have been made to recover the loan amount and the possibility of recovery has been minimized, meaning thereby if there is possibility of recovery of the amount, either by initiating appropriate proceedings or by auctioning the property mortgaged and/or the properties given as a security either by the borrower and/or by guarantor, the application submitted by the borrower for grant of benefit under the OTS Scheme can be rejected.
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In the present case, despite the fact that it was specifically pointed out before the High Court by way of counter affidavit that (i) the recovery proceedings under SARFAESI Act are pending; (ii) the borrower and her husband have availed two credit facilities and both the loan accounts are maintained regularly and the money is being deposited on regular basis; (iii) the Settlement Advisory Committee concluded that the borrower is enjoying a good financial status and the secured assets are sufficient in case if any recovery is to be made and by auctioning the mortgaged property the bank can recover the entire loan amount, the High Court failed to consider the aforesaid aspects in their true perspective and has issued a writ of mandamus as if the grant of benefit under the OTS Scheme can be claimed as a matter of right, observed the Bench.
“Merely because the proceedings under the SARFAESI Act have remained pending for seven years, the Bank cannot be held responsible for the same. No fault of the bank can be found. What is required to be considered is a conscious decision by the Bank that the Bank will be able to recover the entire loan amount by auctioning the mortgaged property and a due application of mind by the Bank that there are all possibilities to recover the entire loan amount, instead of granting the benefit under the OTS Scheme and to recover a lesser amount. It is ultimately for the Bank to take a conscious decision in its own interest and to secure/recover the outstanding debt. No bank can be compelled to accept a lesser amount under the OTS Scheme despite the fact that the Bank is able to recover the entire loan amount by auctioning the secured property/mortgaged property. When the loan is disbursed by the bank and the outstanding amount is due and payable to the bank, it will always take a conscious decision in the interest of the bank and in its commercial wisdom.”
It is said by the Top Court that if a prayer is entertained on the part of the defaulting unit/person to compel or direct the financial corporation/bank to enter into a one-time settlement on the terms proposed by it/him, then every defaulting unit/person which/who is capable of paying its/his dues as per the terms of the agreement entered into by it/him would like to get one time settlement in its/his favor. Who would not like to get his liability reduced and pay a lesser amount than the amount he/she is liable to pay under the loan account?
Therefore the Court while allowing the appeal held that no writ of mandamus can be issued by the High Court in exercise of powers under Article 226 of the Constitution of India, directing a financial institution/bank to positively grant the benefit of OTS to a borrower.
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