On 4th November 2022, the Supreme Court in a Division Bench comprising of Justice M.R. Shah and Justice Krishna Murari observed that the borrower as a matter of right cannot claim that though it has not made the payment as per the sanctioned OTS Scheme still it be granted further extension as a matter of right. Moreover, the HC u/A 226 cannot direct payment rescheduling under OTS as it amounts to modification of the contract u/s 62 of the Indian Contract Act. (State Bank of India Vs. Arvindra Electronics Pvt. Ltd.)
Facts of the Case:
The State Bank of India sanctioned a cash credit in favour of the respondent (Borrower). The Bank came out with one time settlement (OTS) dated 01.09.2017. It specially provided for making payment as settled under the OTS scheme within six months from the date of sanction, else infructuous. The Bank sent OTS offer to the borrower for OTS and ledger outstanding as on 31.03.2017 was Rs.13,99,89,273.99. The amount payable was,75,069.74. The same was accepted and amount of Rs.1.40 crores was deposited on 31.10.2017. Under the sanctioned OTS the borrower was required to deposit 25% of the OTS amount by 21.12.2017 and the balance amount to be deposited within six months. The borrower deposited amounts of Rs.4,51,45,000/- on 31.12.2017/21.05.2018. The borrower agreed/committed to pay Rs.3.50 crores on 21.05.2018 and requested extension of 8-9 months for repayment of the balance amount of Rs.2.50 crores but the same was rejected by the Bank and it was directed to make the payment of 2.52 crores by 21.05.2018. So, a writ petition was filed by the borrower for extension of 8-9 months.
Thereafter, another OTS Scheme was floated by bank for settlement of outstanding payment of Rs.9,48,39,614/- for an amount of Rs.4,48,79,711/- which was not opted by respondent. Another Scheme was floated where borrower was offered to settle for an amount of Rs.4,11,13,953/- against outstanding amount of Rs. 5,98,39,614/- which was again rejected. Vide communication dated 24.02.2021, bank rejected the OTS offer of Rs.2.05 crores. The same was set aside by the HC, granting 6 weeks’ time to the borrower to make the payment of Rs. 2.02 crores. Aggrieved by the same, present appeal was filed.
Contentions of the Appellant:
The counsel for the appellant submitted that “in case of Bijnor Urban Cooperative Bank Limited, Bijnor and Others vs. Meenal Agarwal and Others, the grant of benefit of OTS Scheme cannot be claimed as a matter of right and shall always be subject to fulfilling the eligibility criteria mentioned in the scheme. The borrower was required to fulfil the terms and conditions of the OTS and was required to make the payment as per the schedule mentioned in the sanctioned letter of OTS.
Any deviation from making the payment as per the sanctioned OTS Scheme would render the OTS sanction infructuous, as per the sanction letter dated 21.11.2017. The HC u/A 226 cannot direct rescheduling the payment under the OTS as it amounts to modification of the contract which can be done by mutual consent under Section 62 of the Contract Act. The HC ought to have appreciated that the OTS does not involve any public element and the OTS is/was non-discriminatory and non-discretionary and shall be applicable uniformly to all borrowers. The HC has rewritten the contract which is not permissible that too while exercising the powers under Article 226.” The case of Sardar Associates versus Punjab & Sind Bank and Others was referred by the court.
Contentions of the Respondent:
The counsel for the respondent submitted that “the Bank arbitrarily and without just cause or explanation rejected the respondent’s request for extension while extending the benefit of extension of OTS to other borrowers. The refusal was because the OTS is non-discretionary and non-discriminatory. However, at the same time the Bank has been granting time to other such borrowers who are similarly placed at the respondents. The differential treatment by the Bank to the similarly placed borrowers is nothing but an arbitrary action and therefore the HC has wrongly granted further six weeks’ time to the borrower to make the payment of balance amount under the OTS Scheme.
Even the action of the Bank is contrary to the spirit of the guidelines of the Reserve Bank of India. Bank has not set any eligibility criteria under any policy or under any OTS Scheme under which it can or cannot grant extension. In absence of any criterion and an arbitrary rejection by the Bank, the HC has rightly allowed the prayer of the borrower for extension of time. The HC has rightly observed that the decision of the case of Bijnor Urban Cooperative Bank Limited is distinguishable since it deals with the issue of grant of OTS and not extension of time once OTS has already been granted and acted upon by the parties. Moreover, the equities are in favour of the respondent.” The case of Anu Bhalla and Another vs. District Magistrate, Pathankot and Another was referred by the court.
Observations and Judgment of the Court:
The hon’ble court observed that “On a detail analysis of the OTS Scheme, (i) no borrower can, as a matter of right pray for a grant for the benefit of one-time settlement scheme; (ii) No writ of mandamus can be issued by the High Court in exercise of Article 226 of the Constitution of India, directing the financial institution/bank to positively grant a benefit of OTS to a borrower; (iii) The grant of benefit of OTS Scheme is subject to the eligibility criteria and the guidelines issued from time to time. The HC instead following the binding decision of this Court in the case of Bijnor Urban Cooperative Bank Limited has not followed the same by observing that the earlier decision of this Court in the case of Sardar Associates is more elaborate.
We do not approve such an observation by the HC and not following the subsequent binding decision of this Court which as such was on the point. In the sanctioned letter dated 21.11.2017 it was specifically mentioned in Clause (iv) that the entire payment under the OTS Scheme was to be made by 21.05.2018, otherwise OTS would be rendered infructuous.
Therefore, borrowers were bound to make the payment as per the sanctioned OTS Scheme. In view of the direct decision of this Court in the case of Bijnor Urban Cooperative Bank Limited the decision of this Court would be binding on the High Court.”
The instant appeal was allowed holding that “the Judgment and Order passed by the High Court is accordingly set aside”.
Case: State Bank of India Vs. Arvindra Electronics Pvt. Ltd.
Citation: Civil Appeal No. 6954 Of 2022
Bench: Justice M.R. Shah and Justice Krishna Murari
Date: November 04, 2022
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