Through the judgment in the case of Bijnor Urban Co-operative Bank Ltd. and Others v. Meenal Agarwal & Others, Justices M.R. Shah and B.V. Nagarathna at the Supreme Court, have ruled that,
“no writ of mandamus can be issued by the High Court in the exercise of powers under Article 226 of the Constitution of India, directing a financial institution/bank to positively grant the benefit of One Time Settlement (OTS) to a borrower."
The Court has made it further clear that the grant of benefit under the OTS is always subject to the eligibility criteria mentioned under the OTS Scheme and the guidelines issued from time to time. 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.
According to the SC, ultimately, 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 OTS Scheme, having regard to the public interest involved and having regard to the other related factors.
AS per the guidelines issued, the grant of benefit of the OTS Scheme cannot be prayed as a matter of right and the same is subject to fulfilling the eligibility criteria mentioned in the Scheme. The defaulters who are ineligible under the OTS Scheme are mentioned in clause 2. A willful defaulter in repayment of the loan and a person who has not paid even a single instalment 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 the possibility of recovery of the amount, either by initiating appropriate proceedings or by auctioning the property mortgaged and/or the properties given as security either by the borrower and /or by a guarantor, the application submitted by the borrower for grant of benefit under the OTS Scheme can be rejected.
In the present case, despite the fact that it was specifically pointed out before the HC 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 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 HC failed to consider these 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.
In this case, a conscious decision was taken by the Bank as well as the Settlement Advisory Committee which is reflected from the Board’s Resolution of December 28, 2020, and the decision of January 8, 2021. Even a personal hearing was afforded to the original writ petitioner by the S.A. Committee on February 25, 2021. In the impugned judgment and the order, the HC has observed that no opportunity was given to the original writ petitioner, which is factually incorrect. Therefore, the decision cannot be said to be in violation of the principles of natural justice.
While passing the impugned judgment and order, the HC, in response to the submissions on behalf of the Bank that, there are all possibilities of recovery of the loan amount and the efforts are being made to recover the amount by initiating proceedings under the SARFAESI Act and that the properties mortgaged can be auctioned, has observed that the proceedings under the SARFAESI Act have remained pending for seven years and the Bank has been unable to recover its dues and therefore, the hope of recovery is illusory.
This conclusion is not supported by any material on record. 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 it 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 said property/mortgaged property. When the loan is disbursed by the bank and the outstanding amount is due and payable to it, it will always make a conscious decision in the interest of the Bank and in its commercial wisdom. Even otherwise, no borrower can, as a matter of right, pray for a grant of the One Time Settlement (OTS) Scheme.
In the context of the facts of this case, the Supreme Court has stated in its “firm opinion” that the Allahabad High Court has materially erred and has exceeded in its jurisdiction in issuing a writ of mandamus in the exercise of its powers under Article 226 of the Constitution of India by directing the appellant-Bank to positively consider/ grant the benefit of OTS to the original writ petitioner (borrower). With these observations, the Supreme Court has quashed and set aside the impugned judgment and order passed by the High Court holding these unsustainable.
Case Details
Case Name: Bijnor Urban Co-operative Bank Ltd. and Others v. Meenal Agarwal & Others
Bench: Justices M.R. Shah and B.V. Nagarathna
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