The Supreme Court has held that a borrower in default does not have a legal right to claim benefit under a bank’s One Time Settlement (OTS) scheme unless all of the scheme’s stipulated conditions are strictly complied with. In the case at hand, the Court allowed a Special Leave Petition filed by the State Bank of India (SBI), setting aside judgments of the Andhra Pradesh High Court which had directed SBI to reconsider the borrower’s OTS application despite non-compliance by the borrower with essential preconditions.
The case involved Tanya Energy Enterprises, which had obtained credit facilities from SBI by mortgaging seven immovable properties. The borrower defaulted on the repayment schedule; the account was classified as a non-performing asset, and recovery measures were initiated under the SARFAESI Act. At a point, a “compromise sanction letter” was issued in 2018 for settlement of dues, but the borrower failed to honour that compromise leading to its cancellation. Later, SBI introduced its OTS 2020 Scheme to settle outstanding dues in certain accounts, including the respondent’s. Tanya Energy Enterprises applied under this scheme but did not make the mandatory upfront payment of 5% of the outstanding dues (which was required under clause 4(i) of the OTS 2020 Scheme). SBI rejected the OTS application citing among other things the non-payment of this upfront amount, suppression of material facts, and ongoing litigation before the Debt Recovery Tribunal.
The High Court, first by a Single Judge and then by a Division Bench, had ruled in favour of the borrower, directing SBI to reconsider the application under the OTS 2020 Scheme. The High Court had taken the view that the borrower was not disqualified under clause 2.1 of the scheme (which enumerates cases not eligible). It had overlooked or not given sufficient weight to the requirement of upfront payment.
On appeal, the Supreme Court observed that eligibility under the scheme is only the first hurdle; crossing eligibility by itself does not entitle a borrower to the benefit if other mandatory conditions are not met. The Court emphasized that clause 4(i) of the OTS 2020 Scheme clearly states that any application submitted without the required upfront payment is “not required to be processed,” making the application itself invalid or incomplete in law. In this case, the respondent had not deposited even a single paisa of the 5% upfront requirement and hence the application was incomplete and ineligible for processing under the scheme.
The Supreme Court also noted that though SBI’s rejection letter did not specifically cite non-payment of upfront amount as a ground, that did not preclude the Court from considering that omission as a valid ground for rejecting the application, particularly as the terms were part of the scheme published and known. The Court held that in appropriate cases, courts can rely on alternative grounds found in the factual record, even if such grounds were not explicitly mentioned in the rejection decision, provided that the affected party is put on notice and allowed to respond.
Accordingly, the Supreme Court allowed SBI’s appeal, set aside the High Court orders directing reconsideration, and held that the bank was justified in rejecting the respondent’s application under the OTS 2020 Scheme on account of non-compliance with the upfront payment requirement. The Court also permitted Tanya Energy Enterprises to submit a fresh proposal (but not under the OTS 2020 Scheme), which SBI may consider afresh if the terms and conditions proposed are reasonable and acceptable.
In summary, the judgment reiterates that OTS schemes are discretionary concessions by banks, not rights of borrowers; fulfilling eligibility criteria is necessary, but by itself not sufficient—compliance with all conditions, including mandatory payments like upfront amounts, is essential.
0 Comments
Thank you for your response. It will help us to improve in the future.