Punjab-Haryana High Court
Hardyal Singh Cheema vs State Bank Ofindia And Anr on 12 July, 2022
CWP-7097-2022 -1-
IN THE HIGH COURT OF PUNJAB AND HARYANA AT
CHANDIGARH
CWP-7097-2022 (O&M)
Reserved on: 31.05.2022
Date of Decision: 12.07.2022
Hardyal Singh Cheema . . . . Petitioner
Vs.
State Bank of India and another . . . . Respondents
****
CORAM: HON'BLE MR JUSTICE M.S. RAMACHANDRA RAO
HON'BLE MR JUSTICE H.S. MADAAN
****
Present: - Ms.Munisha Gandhi, Sr. Advocate, assisted by
Mr.Vaibhav Sharma, Advocate, for the petitioner.
Ms.Madhu Dayal, Advocate,
for the respondent no.1/Bank-SBI.
Mr.A.P.S. Madaan, Advocate,
for the respondent No.2 Company.
****
M.S. RAMACHANDRA RAO, J.
The Background facts
Petitioner is a guarantor to the loan taken by the Cheema
Spintex Limited (for short 'the Company') from the State Bank of India
(for short 'the Bank').
In 1997, the Company had obtained certain facilities from
the Bank and at that time the petitioner, who was also a Director of the
Company, stood as a guarantor and pledged his assets in support of the
loan.
According to the petitioner, on account of the reasons
beyond the control of the Company, it could not meet its repayment
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obligations and came to be classified as Non Performing Asset on
13.03.2016.
After the Covid-19 Pandemic started in 2020, the Bank
floated an OTS scheme called 'SBI OTS Scheme 2020' and pursuant
thereto the Bank itself issued a letter dt.26.10.2020 (P1) informing the
Company that it is eligible for settlement under the said scheme. In that
letter dt. 26.10.2020, OTS amount was fixed at `2,96,53,886.98. The
Company had to deposit minimum of 5% of the OTS amount along
with its application and on 21.11.2020 vide letter (P-2), the Company
submitted a response agreeing to the terms set forth in ( P1)letter dt.
26.10.2020 and also made the deposit of 5% of the OTS amount.
Thereafter the Bank issued a letter dt. 23.11.2020 (P-3)
confirming the acceptance of OTS. The said OTS sanction letter
dt. 23.11.2020 (P3) provided that balance amount should be paid within
8 months from the date of the letter.
The Company could make the following payment towards
the OTS by way of RTGS before 22.7.2020, the last date of the
payment as per the OTS: -
Date Amount deposited (in `)
21.11.2020 14,82,700/-
23.11.2020 19,00,000/-
24.12.2020 10,65,400/-
22.01.2021 29,65,400/-
30.03.2021 37,00,000/-
30.04.2021 30,00,000/-
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In the months of April-July 2021, according to the
petitioner, there was a second wave of Covid-19 Pandemic which lead
to huge disruptions in business and the ability of the Company to
generate funds was severely diminished. Petitioner also claims to be
actively following up with the Bank and was requesting for a short
extension in the time frame granted for the OTS on account of the
second wave of Covid-19 Pandemic prevalent at that time.
According to the petitioner, the Bank was orally promising
the petitioner that an extension would be granted on account of the
prevailing circumstances.
However, on 21.07.2021, the Company allegedly got a
letter from the Bank stating that it had received only `1,41,13,500/- out
of `2,96,53,886.98 and balance of `1,55,40,386.98 plus interest was yet
to be paid and that the last date for payment was 22.07.2021.
Petitioner claims that he immediately got in touch with the
officials of the Bank seeking a short extension since there was only one
day left to make the balance payment. Thereafter, vide Annexure P5
dt.30.07.2021, a Whatsapp message communicated to the petitioner. It
was informed that petitioner should deposit `1,61,05,000/-, that the said
amount would remain in Bank's Parking Account and would be
appropriated towards the OTS settlement only after they got
confirmation from their controller.
Petitioner contends that he was also asked to deposit
remaining amount with interest for the extra 7 days i.e.`1,61,05,000/-
which had accrued from 23.07.2021 onwards.
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Petitioner then transferred `41,05,000/- on 30.07.2021 and
a further amount of `1,20,00,000/- on 30.07.2021 complying with the
deposit of the entire OTS amount. After the amount was remitted,
petitioner claims that he was asked to write a letter to the Bank stating
that the Company was willing to enter into what was called a
compromise settlement and because of the delay of 7 days, petitioner
has to do so for the Bank to process the existing OTS.
Petitioner addressed a letter on 30.07.2021 (P6) informing
about the deposit of the amount of `1,61,05,000/- specifically stating
that the amount was paid against the 'SBI OTS Scheme 2020' and as
directed they are submitting the compromise settlement as well so that
the amount would be adjusted against the settlement.
Petitioner contends that he went to the Bank to request for
issuance of a No Due Certificate on 02.08.2021 and at that time he was
made to sign a document (P7) that he wished to offer a compromise
proposal of `1,61,05,000/-. Petitioner claims that he was assured by
the officials of the Bank that this amount would be considered as a full
and final payment of the existing OTS and the account would be closed
shortly and No Due Certificate would be issued.
Petitioner alleges that there was no further response by the
Bank and he again sent a letter and email on 02.09.2021 vide Annexure
P8 requesting the Bank to issue No Due Certificate, but the Bank vide
Annexure P9 dt. 06.09.2021 informed the petitioner that the earlier
OTS was cancelled on account of payment delay of 7 days, that it was
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the petitioner, who made the fresh compromise proposal on 02.08.2021,
which was under consideration.
Petitioner contends that there is a reference in the letter
dt. 06.09.2021 (P9) to a letter of the Bank dt. 02.08.2021 allegedly
issued to the petitioner on the basis of which the fresh proposal was to
be made by the petitioner, but no such letter was issued to the petitioner
or served on the petitioner; and only on the basis of oral direction of the
officials of the Bank, petitioner had given the letter dt. 02.08.2021.
Petitioner contends that 02.08.2021 cannot be construed as a request for
a fresh compromise and the conduct of the Bank is mala fide.
Counsel for the petitioner contended that admittedly the
Company/petitioner had already deposited not just the OTS amount
agreed to between the parties, but also the extra amount of `5,64,614/-
in order to compensate the Bank for small delay of 7 days which
occurred in meeting the deadlines set by the Bank; during April-July
2021, the country was facing an unprecedented situation on account of
the second wave brought on by Covid-19 Pandemic; the family of the
petitioner also suffered during that time and there was also a medical
emergency and they could not meet payment obligations to the Bank;
that during the validity of the OTS i.e. from 23.11.2020 to 23.07.2021,
the company had deposited `1,41,13,500/- out of the total amount of
`2,96,53,886.98 and even balance amount with interest was paid on
30.07.2021 and in all fairness, the Bank should have granted the small
extension for the OTS, issued a No Due Certificate and returned the
security document to the Company.
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It is also pointed out that after 30.07.2021, the Bank kept
quiet till 06.09.2021 and for the first time raised the plea that the OTS
stood cancelled. He also contends that the Bank had mislead him and
made him sign the letter dt.02.08.2021 under false pretenses and is now
attempting to use it to deny his legitimate right.
Reliance is placed on the judgments of this Court in Anu
Bhalla and another Vs. District Magistrate, Pathankot1 and
Hindustan Trading Company and others Vs. Indian Overseas Bank2,
and it is contended that this Court in cases where parties had suffered
on account of the Covid-19 Pandemic extended the OTS period even by
a few months, and in the petitioner's case on account of a delay of a
mere 7 days that too on account of the just cause for which the Bank
was already compensated by payment of interest, the petitioner should
be granted relief of extension of the OTS.
The stand of the Bank
Reply is filed by the Bank.
It is contended by the Bank that the Company in which the
petitioner is a director had not made full payment within the stipulated
date of 22.07.2021 and the Writ Petition was not maintainable as the
terms and conditions of OTS had been accepted unconditionally and
absolutely by the Company and non-adherence thereto constitutes
breach of the OTS.
It is contended that the Company had paid `1,41,13,500/-
out of `2,96,53,886.98 by 22.07.2021, and the balance amount of
Manu/PH/1689/2020
Manu/PH/0411/2022
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`1,61,05,000/- which had to be paid by 22.07.2021 was remitted late on
30.07.2021 i.e. after the expiry of the stipulated period under the 'SBI
OTS Scheme 2020'.
It is contended that there is no violation of any
fundamental right and so the Writ Petition itself is not maintainable.
It is also contended that the petitioner cannot invoke Writ
jurisdiction of this Court in a contractual matter and reliance is placed
on the decision of the Supreme Court in Satish Chandra Anand Vs.
Union of India 3and National Highways Authority of India Vs. Ganga
Enterprises4.
It is contended that the 'SBI OTS Scheme 2020' was
non-discriminatory and non-discretionary and it does not give any room
for discretion for the Bank with respect to the terms and conditions of
the 'SBI OTS Scheme 2020' between the parties.
According to the Bank, the terms and conditions of the
OTS make time of utmost essence, and a party, in order to avail
benefits under the OTS had to make the payment in a time bound
manner as prescribed by the OTS; any deviation from the same would
render the OTS failed and infructuous; and this had also been informed
to the petitioner/the Company on 26.10.2020 and the OTS was entered
into the parties on 23.11.2020.
It is contended that the petitioner was informed under the
said proceedings that if there is a failure to adhere to the terms qua
1953 SCR 65
AIR 2003 SC 3823
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payment of amount, the OTS sanction will be rendered infructuous and
treated as failed.
Reliance is placed on the judgment of the Supreme Court
in Citadel Fine Pharmaceuticals Vs. Ramaniyam Real Estates Private
Limited and another5 and it is stated that where time is essence of the
contract, the failure to discharge obligation of paying balance OTS
would render the OTS cancelled and unenforceable resulting the
accrual of a right to avoid OTS in favour of the Bank in terms of
Section 55 of the Contract Act.
It is contended that the petitioner, having accepted the
terms of the OTS, is estopped from seeking extension of time by its
conduct.
Reliance is placed on the decision of the Supreme Court in
Suptd. of Taxes Vs. Onkarmal Nathmal Trust6 and Rajasthan State
Industrial Development & Investment Corp. Vs. Diamond and Gem
Development Corpn. Ltd.7.
It is contended that once OTS failed, petitioner has a
liability of `26,04,89,757/- as on 31.10.2021 after deducting
`1,41,13,500/- already paid under the OTS, and he should pay the said
amount along with interest.
It is contended that the amount of `1,61,05,000/- was not
accepted by the Bank as it was made after the validity of the OTS
sanction which ended on 22.07.2021, and any remittance made
(2011) 9 SCC 147
(1976) 1 SCC 766
(2013) 5 SCC 470
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thereafter cannot be treated as part payment under 'SBI OTS Scheme
2020'. It is stated that the said amount was parked by the Bank in its
No Lien Account.
Reliance is also placed on the submission of the
application dt.02.08.2021 by the petitioner for fresh compromise
settlement and it is alleged that the petitioner did not cooperate to
obtain a fresh valuation and so the impugned proceeding dt. 06.09.2021
(P8) was issued cancelling the OTS and informing that the Bank would
proceed with legal action for recovery of its dues.
It is further submitted that NCLT, Chandigarh vide order
of admission on 06.10.2021 had ordered moratorium under Section 14
of the Insolvency and Bankruptcy Code, 2016 [for short 'the IBC'], that
the provisions of the IBC are in force after pronouncement of
admission of CIRP and so the Directors of the suspended Board are not
authorised to represent the corporate debtor before the High Court
during the CIRP period or to make any
commitment/decision/agreement on behalf of the corporate debtor.
Reliance is also placed on the decision of the Supreme
Court in the Bijnor Urban Cooperative Bank Ltd., Bijnor and others
Vs. Meenal Agarwal and others8 wherein, according to the Bank, it
was heldthat no Mandamus under Article 226 of the Constitution of
India can be issued directing the Bank to consider or grant benefit of
OTS. It is contended that the Company did not comply with the
repayment obligations after 2016 when it was declared as an NPA on
Civil Appeal No.7411 of 2021 dt.15.12.2021 (SC)
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13.03.2016 and the petitioner is only taking advantage of Covid-19
Pandemic which broke out in 2020 to justify non-payment of
obligations by the Company from 2016 till 2020. It is denied that the
Bank ever promised the petitioner that extension would be granted.
According to the Bank, email sent by the Bank is dt.21.06.2021 and not
21.07.2021 and 30 days time was granted and not one day as is alleged
by the petitioner.
Counsel for the respective parties reiterated the stand of
their clients.
Points for consideration
From the respective pleadings and contentions of the
parties, the following points arise for consideration: -
(a) Whether the petitioner, in his capacity as a
director/guarantor, can maintain this Writ
Petition?
(b) Whether the Writ Petition under Article 226 of the
Constitution of India is maintainable in
contractual matters?
(c) Whether this Court, in exercise of its power under
Article 226 of the Constitution of India, can extend
the time granted for payment of amount under the
OTS by a Bank/secured creditor and if so in what
circumstances?
(d) Whether in the facts and circumstances of the case,
the petitioner is entitled to relief in the instant
case?
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Point (a)
We shall first consider the point:
"Whether the petitioner, in his capacity as a
director/guarantor, can maintain this Writ Petition?"
It is the contention of the Bank that the Writ Petition is not
maintainable at the instance of the petitioner because the NCLT,
Chandigarh vide its order of CIRP admission dt. 16.10.2021 had
ordered a moratorium under Section 14 of the Insolvency and
Bankruptcy Code, 2016 [for short 'the IBC']; that provisions of the
IBC are in force; that the directors of the suspended Board of the
Company are not authorised to represent the corporate debtor before
this Court during the CIRP period; and they are not authorised to
undertake any commitment/decision/agreement on behalf of the
corporate debtor.
But the Counsel for the petitioner has placed before us
order dt.30.05.2022 passed by the NCLT, Chandigarh in IA
No.510/2021, 527/2021, 591/2021 & 605/2021 in CP (IB)
No.352/Chd/CHD/2018 wherein the IRP appointed for the
Company/corporate debtor had filed IA 510/2021 under Section 12A of
the IBC praying for approval of the withdrawal of the CP filed under
Section 9 of the IBC by M/s Kotak Commodity Services Pvt. Ltd. and
M/s Kotak Ginning and Pressing Industries against the
Company,which had been admitted on 06.10.2021; for discharge of the
IRP; for restoration of the suspended Board of Directors etc.
The said application was allowed on 30.05.2022 and the
main CP under Section 9 was dismissed as withdrawn and the
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Corporate-debtor/the Company was released from all the rigors of the
IBC and regulations made thereunder subject to reimbursement of the
expenses of the IRP, and the IRP was also discharged.
This is not disputed by counsel for the Bank.
It is not in dispute that the Company had filed CWP-
18570-2021 before this Court challenging the action of the respondent
No1-Bank in reneging from the OTS.
While the said Writ Petition was pending, the -Company
was admitted to Corporate Insolvency Resolution Process (CIRP) under
the IBC on 06.10.2021 by virtue of the order passed by the NCLT,
Chandigarh Bench. The Resolution Professional then withdrew the said
Writ Petition on 31.01.2022.
In that Writ Petition, the petitioner herein had also filed
CM-17896-CWP-2021. But when the said Writ Petition was
withdrawn, the said application was also withdrawn with liberty to take
appropriate steps to protect his interest.
Thereafter, the instant Writ Petition was filed by the
petitioner in his capacity as a guarantor of the loans given to the
Company by the Bank.
In Kedar Nath Agrawal v. Dhanraji Devi9, the Supreme
Court, after considering several of its earlier judgments, held that it is
the power and duty of the Court to consider changed circumstances. It
held:
(2004) 8 SCC 76, at page 82
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"16. In our opinion, by not taking into account the subsequent
event, the High Court has committed an error of law and also
an error of jurisdiction. In our judgment, the law is well
settled on the point, and it is this: the basic rule is that the
rights of the parties should be determined on the basis of the
date of institution of the suit or proceeding and the suit/action
should be tried at all stages on the cause of action as it
existed at the commencement of the suit/action. This,
however, does not mean that events happening after
institution of a suit/proceeding, cannot be considered at all. It
is the power and duty of the court to consider changed
circumstances. A court of law may take into account
subsequent events inter alia in the following circumstances:
(i) the relief claimed originally has by reason of subsequent
change of circumstances become inappropriate; or
(ii) it is necessary to take notice of subsequent events in order
to shorten litigation; or
(iii) it is necessary to do so in order to do complete justice
between the parties.
(Re Shikharchand Jain v. Digamber Jain PrabandKarini
Sabha10, SCC p. 681, para 10.)"
(emphasis supplied)"
Having regard to this legal position, though when this
Writ Petition was filed in March 2022, the order dt.06.10.2021 of the
NCLT under Section 14 of the IBC was in force, once the CP itself was
withdrawn and the provisions of the IBC ceased to apply in view of the
order dt. 30.05.2022 passed by the NCLT, there is no impediment to
entertain and grant relief to the petitioner if he is otherwise entitled to it
as per law.
(1974) 1 SCC 675
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So we find no substance in the plea of the Bank regarding
maintainability of the Writ Petition at the instance of the petitioner
since this Court can take cognizance of subsequent events in exercise of
its jurisdiction under Article 226 of the Constitution of India.
Point (b)
We shall now consider point (b) which is as under:
"Whether the Writ Petition under Article 226 of the
Constitution of India is maintainable in contractual
matters?"
Counsel for the Bank relied upon the decisions in Satish
Chandra Anand (3 Supra) and in National Highways Authority of
India (4 Supra) to contend that disputes relating to contracts cannot be
agitated under Article 226 of the Constitution of India.
But there is no such absolute Rule. The Supreme Court in
other cases has held that there is no absolute bar for entertaining a Writ
Petition even if the same arises out of a contractual obligation and/or
involves some disputed questions of fact.
In ABL International Ltd. v. Export Credit Guarantee Corpn.
of India Ltd.11 , the Supreme Court held:
"19. Therefore, it is clear from the above enunciation of
law that merely because one of the parties to the litigation
raises a dispute in regard to the facts of the case, the court
entertaining such petition under Article 226 of the
Constitution is not always bound to relegate the parties to
a suit. In the above case of Gunwant Kaur12 this Court
even went to the extent of holding that in a writ petition, if
(2004) 3 SCC 553, at page 569
1969(3) SCC 769
14 of 33
the facts require, even oral evidence can be taken. This
clearly shows that in an appropriate case, the writ court
has the jurisdiction to entertain a writ petition involving
disputed questions of fact and there is no absolute bar for
entertaining a writ petition even if the same arises out of a
contractual obligation and/or involves some disputed
questions of fact.
20......
21.....
22......
23. It is clear from the above observations of this Court,
once the State or an instrumentality of the State is a party
of the contract, it has an obligation in law to act fairly,
justly and reasonably which is the requirement of Article
14 of the Constitution of India. Therefore, if by the
impugned repudiation of the claim of the appellants the
first respondent as an instrumentality of the State has
acted in contravention of the abovesaid requirement of
Article 14, then we have no hesitation in holding that a
writ court can issue suitable directions to set right the
arbitrary actions of the first respondent.
.......
28. However, while entertaining an objection as to the
maintainability of a writ petition under Article 226 of the
Constitution of India, the court should bear in mind the
fact that the power to issue prerogative writs under Article
226 of the Constitution is plenary in nature and is not
limited by any other provisions of the Constitution. The
High Court having regard to the facts of the case, has a
discretion to entertain or not to entertain a writ petition.
The Court has imposed upon itself certain restrictions in
the exercise of this power. (See Whirlpool Corpn. v.
Registrar of Trade Marks13.) And this plenary right of the
High Court to issue a prerogative writ will not normally
be exercised by the Court to the exclusion of other
(1998)8 SCC 1
15 of 33
available remedies unless such action of the State or its
instrumentality is arbitrary and unreasonable so as to
violate the constitutional mandate of Article 14 or for
other valid and legitimate reasons, for which the Court
thinks it necessary to exercise the said jurisdiction.
(Emphasis Supplied)"
This principle was reiterated by 2 three judge Benches of
the Supreme Court in State of UP Vs. Sudhir Kumar14and Popatrao
Vynkatrao Patil Vs. State of Maharashtra15 and also by a two Judge
Bench of Supreme Court in Unitech Limited and others Vs.
Telangana State Industrial Infrastructure Corporation (TSIIC) &
Ors16.
Therefore, the objection raised in this regard about
maintainability of this Writ Petition with regard to contractual matters
is also rejected.
Point (c)
We shall now consider the following point: -
"Whether this Court, in exercise of its power under Article
226 of the Constitution of India, can extend the time
granted for payment of amount under the OTS by a
Bank/secured creditor and if so in what circumstances?"
The decision of the Supreme court in P.Vijayakumari
We may point out that in P.Vijayakumariv. Indian
Bank17, there was a settlement which had taken place on 10.09.2004
between the appellants and the Indian Bank whereby the parties had
2020 SCC Online SC 847
Civil Appeal No.1600 of 2000
Civil Appeal No.317 of 2021 dt.17.2.2021
AIR 2018 SC 759
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agreed that an amount of `34.50 Lakhs was to be paid by the appellants
within three months. There was also a clause in the settlement that the
Bank had a right to recover the full amount due in the event of default
on the part of the appellants. The appellants could not pay within the
stipulated time period but paid `3 Lakhs on 08.02.2005 and a further
sum of `35 Lakhs on 17.10.2006 in terms of a conditional order passed
by the Debt Recovery Appellate Tribunal (DRAT) while staying the
auction of the mortgaged property. Another sum of `3 Lakh was paid
on 29.10.2006, with which the total amount paid by the appellant came
to `41 Lakhs by 29.10.2006. Thus, as against the original period of 3
months, the appellant therein had taken about 2 years to deposit
the said amount. Aggrieved by the conditional interim order of deposit
passed by the DRAT, the Bank approached the High Court, which
allowed the petition and set aside the order of the DRAT. The order
passed by the High Court was challenged in the Supreme Court by the
borrower and she prayed for condonation of delay for having paid the
settlement amount with delay. The Supreme Court accepted her plea
and set aside the order of the High Court subject to certain terms. The
Supreme Court held :
"8. We have considered the matter. There was
undoubtedly some delay in payment of the amount due as per
the terms of the settlement reached in the Lok Adalat. It was
also agreed by and between the parties that if the terms of
payment including the time schedule of payment is not
adhered to, the respondent Bank will be at liberty to recover
the entire amount due. DRAT in the impugned order had
considered the matter and had taken the view that even on the
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face of the express terms between the parties that the bank
would have a right to recover the full amount due in the event
of default on the part of the appellants, the same was not the
only course of action or the sole option and that on the
grounds shown for the delay the same is liable to be
understood in favour of the borrower. Accordingly, the matter
was closed. In the writ petition filed by the Bank the position
was reversed.
9.In the facts of the present case, the view taken by the
learned Appellate Tribunal (DRAT), as noted above, cannot
be said to be so wholly unreasonable or unsustainable so as
to justify interference by the High Court. If the agreed amount
stood paid though with some delay, condonation of the delay
is a possible course of action, if the grounds for delay justified
a departure from what was also agreed upon i.e. the right of a
Bank to recover the entire dues. All would depend on the facts
of each case. Having regard to the totality of the facts of the
present case, we are of the view that the ends of justice would
be met if for the delay that had occurred, the appellants are
made liable to pay simple interest @ 24% p.a. on the amount
of Rs 34.5 lakhs (as agreed to in the Lok Adalat) for the
period from the date of the award of Lok Adalat i.e. 10-9-
2004 to the date of last payment i.e. 29-10-2006. In addition,
a further amount of Rs 10 lakhs to be paid by the appellants
to the respondent Bank as compensation and costs.
10. The above amounts will be paid by the appellants to
the respondent Bank within a period of 45 days from today
failing which the respondent Bank may understand the
present order to be recalled and the mortgaged property to be
open for auction/disposal in accordance with law.
11. Consequently, the appeal shall stand allowed to the
extent indicated above. The impugned order passed by the
High Court1 is set aside."
(Emphasis supplied)
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The decision of this Court in Anu Bhalla
A coordinate Bench of this Court in the case of Anu
Bhalla and Another (1 supra) followed the decision in P.
Vijayakumari ( 17 supra)..
In that the case, the Division Bench specifically held that
in exercise of the jurisdiction under Article 226 of the Constitution of
India, the High Courts would have the jurisdiction to extend the period
of settlement as originally provided for in OTS letter, but laid down
certain guidelines to be followed.
It held that One Time Settlement is not cloaked with
rigorous principles which may not permit extension of period to pay the
remaining/balance settlement amount; and in fact OTS policies of
certain Banks themselves contain provisions for extension for the time
period in their respective settlement Policies.
Once this is so, the Bench held that there is no reason to
hold that the Courts, in exercise of their equitable jurisdiction under
Article 226 of the Constitution of India, cannot extend such time period
of settlement.
It held that the willful defaulters and fraudsters would not
be entitled to such extension, and in the case of a deserving borrower,
who has deposited substantial amount within the original stipulated
period of settlement, and proved his bona fides, and is willing to clear
the remaining amount in a reasonable period and also compensate the
creditor with interest for the period of delay, the Court can consider
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extending the period with some flexibility to achieve the ultimate aim
of such settlement.
It laid down certain illustrative guidelines which are
required to be considered cumulatively or individually on case to case
basis to decide whether in a given case an applicant would be entitled
for the extension of OTS.
They are as under:-
A. The original time provided in the Settlement:-
If the time period originally stipulated in the settlement
letter to pay off the settlement amount is short or is not
excessive, the case for extension could be considered, and
reasonable time must be given to the borrower to arrange
the funds to clear off the OTS.
B. Extent of payments already deposited under the
settlement or before filing of the petition:-
If the borrower has already paid substantial amounts to the
creditor under the OTS, and for some remaining amounts,
is seeking a reasonable extension, such request can be
considered favourably.
C. Reasons which led to delay in payment -
If the borrower was prevented by certain reasons or
circumstances beyond his control, it could be a reason to
consider an extension favourably. It would be imperative
for the borrower to show that he made his best efforts to
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ensure that the requisite amounts are arranged within the
specified time, but in spite of all his best efforts, he could
not arrange for the same.
D. Payments having been accepted by the Bank/Financial
Institution, after the stipulated date:-
If some payments were accepted by the Bank even after
the stipulated period of time, it would show that the time
was not the essence of contract, and it would be apparent
from such conduct, that certain amount of relaxation or
flexibility in making the payment of OTS amount is
reserved between the parties.
E. Bona fide Intent of the borrower to pay the remaining
amounts under the settlement -
The bonafide intention of such an applicant could
reasonably be tested by asking such an applicant to deposit
some further amount, towards the balance amount before
calling upon the Bank to consider the issue of extension. If
such amounts are deposited under the orders of Court and
the bonafides are established, such an applicant would be
entitled for a favourable consideration of an application for
extension.
F. Time period being demanded by the applicant to clear
the remaining / balance settlement amount.
An applicant whose intention would be to clear the
balance settlement amounts, would not claim an
unreasonable period of time extension, as otherwise, the
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intention would be to gain more time, without any actual
intent to clear the settlement. In the facts and
circumstances of each case, the Courts would therefore
determine a reasonable period, to enable the borrower to
clear the remaining settlement amount, subject of course,
to payment of reasonable interest for the delayed period, to
balance the equities.
G. Attending factors and circumstances-
Illustrations of such factors could be the situation created
by COVID-19 pandemic, and the difficulties in arranging
the amounts could be taken note of while determining the
period of extension to be granted to an applicant.
Likewise, losses suffered on account of natural calamities,
unfortunate accidents, fire incidents, thefts, damage by
floods, storms etc. could also be the factors to be taken
into account for extension of time.
H. Irreparable loss and injury to the applicant
The Division Bench in Anu Bhalla(1 Supra) clarified that
the guidelines/factors are not exhaustive but only
illustrative for the guidance of the parties and the Courts,
while considering the prayer by the borrower for extension
of the time under OTS on case to case basis. It also held
that the Courts would be free to consider the credentials of
the borrower as well, being an equitable and discretionary
relief.
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Several decisions rendered by different High Courts and
Supreme Court were considered by the said Division Bench while
rendering the above judgment.
The decision in Anu Bhalla (1 Supra) is binding on this
Bench.
Therefore, the contention of the respondent-Bank that in
no circumstance can the Court grant extension of time for completion
of the payment under the OTS, cannot be countenanced. Such a power
undoubtedly exists, though not as a matter of right, and must be
exercised by a High Court keeping in mind the above
guidelines/principles.
Counsel for the respondent-Bank, however, sought to
contend that the said judgment deals with only cases of settlement other
than under the OTS scheme, and would have no application to
settlement entered into under the OTS scheme, and sought to
distinguish Anu Bhalla (1 Supra).
We may point out that in Anu Bhalla (1 Supra), the Court
had framed the specific issue in Para 14 "as to whether this Court, in
exercise of its jurisdiction under Article 226 of the Constitution of
India, has the jurisdiction to extend the period of OTS", and then said
Bench answered the said issue in Para No.24 in the affirmative. So the
plea raised by the Bank has no substance.
The Division Bench of this Court in Anu Bhalla (1 Supra)
followed the decision of the Supreme Court in State Bank of India Vs.
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Vijay Kumar18 wherein the Supreme Court dismissed the appeal filed
by the State Bank of India, which had challenged an order of the High
Court granting extension to the borrower to make payment of balance
settlement amount. It also relied on decisions of the Division Benches
of this Court in Sat Kartar Ice and General Mills Vs. Punjab
Financial Corporation19, M/s Lord Budha Society and others Vs.
State Bank of Patiala20, M/s A-One Megamart Pvt. Ltd. Vs. HDF
Bank and another21 and M/s Malhan Industries Vs. Punjab National
Bank22.
Though counsel for the Bank relied on the decision in M/s
MilkhiRam BhagwanDass Vs. District Magistrate and another23of
this Court taking a different view, we are not inclined to follow the
same in view of the decisions cited supra. We are also of the view that
the Bench which decided M/s Milkhi Ram Bhagwan Dass ( 23 supra)
could not have taken a contrary view and if it disagreed with the
principle laid down in Anu Bhalla (1 Supra) it should have referred the
issue for consideration of a Full Bench, and cannot itself overrule it.
Counsel for the respondent-Bank then sought to contend
that the Supreme Court recently in the case of The Bijnor Urban
Cooperative Bank (8 Supra) had taken a view that the High Court
under Article 226 of the Constitution of India cannot direct a Bank to
positively consider or grant benefit of OTS to a borrower, and
AIR 2007 SC 1689
2008 (1) ISJ Banking 248
2013 (3) PLR 146
2013 (1) PLR 688
2015 (67) RCR Civil 782
CWP-327-2020 dt. 23.12.2020
24 of 33
therefore, even extension of time to comply with the OTS, cannot be
granted to a borrower by this Court.
We may point out that in the case of The Bijnor Urban
Cooperative Bank (8 Supra), the Supreme Court was not concerned
with the question of extension of time to comply with an OTS already
sanctioned to a borrower by a Bank. It was dealing with the case of
non-grant of OTS scheme benefit to a borrower. Therefore, the said
decision has no application to the instant case.
In fact, the judgment in The Bijnor Urban Cooperative
Bank (8 Supra) had not taken note of the decision of the Supreme
Court in the case of Sardar Associates Vs. Punjab and Sind Bank24
which had taken a diametrically opposite view.
In Sardar Associates (24 Supra), a borrower of Punjab
and Sind Bank , in terms of RBI guidelines for OTS offered a particular
sum, but the Bank demanded more from the borrower as it had better
security available with it , and defended it's decision saying that it was
a policy decision of it's Board. The Supreme Court rejected the said
plea.
The Supreme Court in Sardar Associates (24 Supra) held
that the Reserve Bank of India is a statutory authority, that it exercises
supervisory power in the matter of functioning of the Scheduled Banks,
and that matters relating to supervision of the Scheduled Banks are also
governed by the Reserve Bank of India Act, 1934. It held that
guidelines have been issued by the Reserve Bank of India through a
2009 (8) SCC 257
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letter dt.03.09.2005 addressed to the Chairman/Managing Director of
all Public Sector Banks; that the said letter refers to circular
dt.19.08.2005 issued by the Reserve Bank of India; in terms of the said
circular, guidelines for grant of OTS scheme for recovery NPAs below
`10 crore were laid down; and the letter dt.03.09.2005 categorically
stated that such OTS scheme had to be implemented by all Public
Sector Banks and the guidelines were non-discretionary and non-
discriminatory in SME Sector.
It held that the Public Sector Banks have to implement the
guidelines of the RBI relating to the OTS as per it's decision in Central
Bank of India v. Ravindra25, that the Board of Directors of the Bank in
the Sardar Associates (24 Supra) could not have deviated from the said
guidelines, and it's conduct was violative of the equality Clause
contained in the RBI guidelines and also Article 14 of the Constitution
of India.
It held that the Bank itself had made an offer to accept the
proposal of the appellant in regard to enforcement of OTS pursuant to
the RBI guidelines, and it was certainly aware of the amount of
securities lying with it. It declared that if in terms of the guidelines
issued by the RBI, a right is created in a borrower, even a writ of
Mandamus can be issued.
In the decision of the Full Bench of this Court in the case
of M/s Indo Swiss Time Ltd. Vs. Umarao and Others26 , it was held
that if there is direct conflict between the decisions of the Supreme
2002 (1) SCC 367
AIR 1981 Punjab 213
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Court rendered by two equal Benches, the High Court must follow the
judgment which appears to lay down the law more elaborately and
more accurately; and that mere incidence of time-whether judgment is
earlier or later, could hardly be relevant.
We are of the view that in the case of Sardar Associates
(24 Supra) the Court had elaborately considered the issue of grant of
OTS rather than in case of The Bijnor Urban Cooperative Bank (8
Supra) and the decision in Sardar Associates (24 Supra) was not
noticed by the Supreme Court in the The Bijnor Urban Cooperative
Bank (8 Supra) case. So we prefer to follow the decision in Sardar
Associates (24 Supra) and hold that it would not be open to a Bank to
decline OTS sought by a borrower, provided he falls within the OTS
policy being followed by the said Bank.
We also hold that the decision in the case of The Bijnor
Urban Cooperative Bank (8 Supra) cannot be interpreted to the effect
that in all circumstances the High Court is helpless to extend the OTS
scheme offered by a schedule Bank, since the said issue did not arise
for consideration in that case.
The reliance placed by the Bank on Section 55 of the
Contract Act, 1872 and the decisions of the Supreme Court in Citadel
Fine Pharmaceuticals (5 Supra) and Gomathinayagam Pillai and
Others Vs. Palaniswami Nadar27 is misplaced. Those were cases
where relief of specific performance of agreements of sale relating to
immovable property was sought and the Supreme Court therein dealt
AIR 1967 SC 868
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with terms and conditions of agreements of sale and interpreted time
was of essence in certain situations and non-compliance by a party to
the agreement might deny him the relief of specific performance.
These decisions are rendered in a totally different context
and have no application in the instant case.
In P. Vijayakumari (17 supra), the Supreme Court did not
take the view that 'time is of essence' in OTS agreements. On the
contrary it took the view that condonation of delay in payment under
the OTS is a possible course of action, if the grounds for delay justified
a departure from what was agreed upon i.e the right of the bank to
recover the entire dues.
Therefore, we answer Point (c) also in favour of the
petitioner and hold that this Court, in exercise of its jurisdiction under
Article 226 of the Constitution of India, would have the jurisdiction to
extend the period of settlement as originally provided for in the OTS
letter in view of the decision of the Anu Bhalla (1 Supra) and other
decisions cited above.
Point (d)
Now we shall consider the Point (d) which is as under:
"Whether in the facts and circumstances of the
case, the petitioner is entitled to relief in the
instant case?"
The facts narrated above show that the Company was
offered by the Bank an OTS as per the SBI-OTS-2020 on 26.10.2020
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for `2,96,53,886.98 ps. which was to be paid in 8 months. It no doubt
contained terms to the effect that if the payment is not made within the
time mentioned for deposit of various installments, the OTS sanction
will be rendered infructuous and the OTS would be treated as having
failed.
There is no dispute that Company had accepted the said
terms and had deposited on 21.11.2020, 5% of the OTS amounting to
`14,82,700/-. Thereafter it also deposited further amounts and had in all
deposited `1,41,13,500/- by 21.07.2021 leaving a balance of
`1,55,40,386.98 ps. Thus, almost 50% of the OTS amount was paid by
the Company to the Bank, which is a substantial payment.
No doubt the Bank sent an email dt.21.06.2021 (P-4)
informing the petitioner to pay the balance by 22.07.2021 pointing out
that the 8 month period would expire and the sanction would be
rendered infructuous and treated as failed.
On 30.07.2021, petitioner deposited `1,61,05,000/-
comprising of the balance payment of `1,55,40,386.98 ps. and also an
additional amount `5,64,614/- comprising interest on the said amount
of `1.55 Crores for a period of 7 days delay in paying the balance OTS
amount.
The actual delay being in fact 9 days from 22.7.2021 to
30.7.2021, and not 7 days as believed bonafidely by petitioner, in fact a
further sum of Rs.9219/- is payable by him to the bank to complete the
full OTS payment.
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But this fact was not informed by the Bank to the petitioner
and only during the course of hearing of the Writ Petition on 31.5.2022,
this was informed by the counsel for the bank on a query by the Court.
Undoubtedly during the months of April to July 2021, the
COVID-19 pandemic was raging in the Country and it caused huge
disruptions in business and would have diminished the ability of the
Company to generate funds. So, on account of events beyond the
control of the Company, it was disabled from complying with the terms
of the OTS within the stipulated period i.e. by 22.07.2021. The
petitioner however made almost full payment of OTS plus interest for
the delay of 7 days to compensate the Bank. Thus, the Bank cannot
claim that it had suffered on account of the delay in payment of the full
amount of the OTS and cannot cancel the OTS raising untenable pleas.
In our opinion, this conduct of the Bank is patently arbitrary and
violative of Articles 14 and 300-A of the Constitution of India.
The petitioner even wrote a letter dt.30.07.2021(P-6)
requesting the Bank that the payments made on that day were towards
the OTS only, but the Bank kept the money in a no lien account saying
that it did not get a confirmation from its Controller vide SMS (P-5).
Petitioner contends that when he visited the Bank on
02.08.2021, he was made to sign a document stating that he wished to
offer a compromise proposal for `1,61,05,000/- and the officials of the
Bank had assured that the amount deposited on 30.07.2021 would be
considered as full and final payment of the OTS and the account would
be closed shortly and the no due certificate issued.
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In letter dt.06.09.2021 (P-9), the Bank claims to have
issued a letter No.SAMB/T1/CSL/326 dt.02.08.2021 stating that it had
advised the petitioner to give a fresh application for compromise
settlement, and this corroborates the stand of the petitioner that he was
forced to give the said letter on 02.08.2021.
But for the misleading advice given to the petitioner by the
officials of the Bank, there would have been no occasion for the
petitioner to ask for a fresh settlement, he, having paid almost the full
OTS amount albeit with a small delay of 9 days. Obviously, the
petitioner was arm twisted by officials of the Bank to give such a letter
dt.02.08.2021 seeking a fresh settlement.
Such economic duress has to be presumed in view of the
fact that the Bank could even refuse to receive `1,61,05,000/- just to
harass the petitioner.
So the plea of estoppel raised by the Bank on the basis of
the letter dt.02.08.2021 procured by it from the petitioner has no legs to
stand. We hold that and the fact that petitioner gave the letter dt.
02.08.2021 in no way estops him from seeking relief in this Writ
Petition.
We strongly deprecate the conduct of the Bank in
arbitrarily and illegally refusing a short extension from 21.07.2021 to
30.07.2021 raising untenable pleas and hold that it's actions are
violative of Articles 14 and 300-A of the Constitution of India.
The Bank cannot hide behind the plea that the SBI-OTS -
2020 is 'non-discriminatory and non-discretionary' and it is disabled
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from granting extension to petitioner. The said terms indicate that all
eligible borrowers should be given the benefit of the OTS and the Bank
cannot pick and choose them as per their whims and fancies. This does
not mean that it can deny a reasonable extension of time, if
circumstances warrant, for paying the balance amount as per the OTS.
In any event the said terms cannot prevent this Court in giving relief if
the case of the petitioner falls within the parameters of Anu Bhalla
(1 Supra).
We also find no substance in the plea of the petitioner that
there is no violation of a fundamental right and so the Writ Petition is
not maintainable.
We are of the opinion that the petitioner and the Company
had acted in a bona fide manner, made substantial payments within the
time granted for payment of the full OTS amount and on account, of
COVID-19 and attendant circumstances, there was a very small delay
of 9 days in making the full payment. We hold that the refusal of the
Bank to grant extension of time by 9 days to the petitioner to pay the
balance OTS, in the facts and circumstances of the case, is arbitrary and
unreasonable and violative of Art.14 and 300-A of the Constitution of
India.
It is not proper for the Bank to say that petitioner is trying
to take advantage of COVID-19 pandemic which broke out in 2020 to
justify nonpayment of amounts by the Company from 2016 to 2020.
The COVID-19 is a circumstance which caused the slight delay in
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making payment of the full OTS to the Bank. The question of the
petitioner paying the full dues to the Bank does not arise.
Point (d) is answered accordingly also in favor of the
petitioner.
CONCLUSION
For the aforesaid reasons, the Writ Petition is allowed;
letter dt.6.09.2021 (P9) issued by the Bank treating the OTS entered
into by the Company with it as having failed is declared as arbitrary,
illegal and violative of Articles 14 and 300-A of the Constitution of
India; the petitioner shall pay `9,219/- to the Bank within two weeks
from today towards compensation in the form of interest for the delay
in payment of the OTS amount; immediately on receipt of the same, the
Bank shall treat the entire OTS amount as having been paid and issue
'No due Certificate' to the Company and return the documents
deposited as security with it to the Company. The Bank shall also pay
costs of `50,000/- to the petitioner within 4 weeks from today.
(M.S. Ramachandra Rao)
Judge
12.07.2022 (H.S. Madaan)
Vivek
Judge
1. Whether speaking/reasoned? Yes/No
2. Whether reportable? Yes/No
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