In a judgment that will give boost to the loan recovery process of banks, the Supreme Court has restrained high courts from directing financial institutions/banks to grant benefits of one-time settlement (OTS) schemes to borrowers, saying its not permissible as it would amount to rewriting the contract or the terms of the OTS.
“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. There cannot be any negative discrimination claimed. The borrower has to establish any right in its favour to claim the extension as a matter of right,” a bench led by Justice MR Shah said.
However, it added that the banks mutually can agree to extend the time of OTS scheme, which is permissible under Section 62 of the Indian Contract Act.
The grant of benefit is subject to the eligibility criteria and the guidelines issued from time to time, the apex court order said.
It accepted SBI’s stand that any deviation from making the payment as per the sanctioned OTS scheme would render the OTS sanction infructuous.
SBI had appealed against the Punjab and Haryana HC’s order that granted further six weeks’ time to Arvindra Electronics, the borrower, to make the payment under the OTS scheme which was due and payable in 2017.
SBI counsel Sanjay Kapur had argued that the HC had committed a very serious error in granting time to the borrower to make the payment of balance amount due under the OTS and the HC could not have directed rescheduling the payment under the OTS as it amounted to modification of the contract which can be done by mutual consent only. He further said that the OTS does not involve any public element and is non-discriminatory and non-discretionary and is applicable uniformly to all borrowers.
In this case, SBI had sanctioned a cash credit in favour Arvindra Electronics in 2012. However, its account was classified as NPA in 2015. The bank in 2017 came out with OTS scheme which specifically provided for making payment within six months from the date of sanction. While the borrower accepted the OTS offer initially, it sought extension of time which was declined by the lender. During the pendency of the writ petition in the HC, there were as many as three different OTS floated by the bank and it also offered the borrower to settle the outstanding payment under the scheme. However, the borrower did not opt for any of the schemes.
Counsel DP Singh, appearing for the borrower, submitted that the SBI being a state-run bank is duty bound to act in a fair, transparent and nondiscriminatory manner and any arbitrary action of the bank is amenable to the writ jurisdiction of the HC.
The bank arbitrarily and without just cause or explanation rejected its request for extension while extending the benefit of extension of OTS to other borrowers, Arvindra Electronics stated in its appeal.