Banks can’t be directed by Writ of mandamus to grant ‘one-time settlement’ benefit to a borrower: Supreme Court of India

IN THE CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO. 7411 OF 2021 The Bijnor Urban Cooperative Bank Limited Bijnor & others Meenal Agarwal & others JUDGMENT M.R. SHAH J Feeling aggrieved and dissatisfied with the impugned judgment and order dated 16.08.2021passed by the High Court of Judicature at Allahabad in Writ Petition No. 151921 by which the High Court has allowed the said writ petition preferred by respondent No.1 herein original writ petitioner) and has in exercise of powers under Article 226 of the Constitution of India issued a writ of mandamus directing the appellant Bank to positively consider the original writ petitioner’s application for One Time Settlementthe Bank has preferred the The facts leading to the present appeal in a nutshell are as under That the original writ petitioner had obtained credit facility from the bank of about Rs. 1 crore. The said loan account with the Bank was categorised as “Non Performing Asset Whether the High Court in exercise of powers under Article 226 of the Constitution of India can issue a writ of mandamus directing the Bank to positively consider the grant of benefit under the OTS Scheme and that too de hors the eligibility criteria mentioned under the OTS Scheme 5.1 While considering the aforesaid issues questions the relevant clauses of the OTS Scheme are required to be referred to which are as “Introduction: A large part of various types of loans dispersed from time to time by the urban co operative banks of the state to the institutions members are currently in the form of time less loans has been blocked. Despite all the efforts regarding recovery of such lapsed loans the recovery of loans is not being done for a long time. According to the guidelines issued by the Reserve Bank of India for OTS from time to time it has been decided to implement the revised one time settlement for recovery of non performing assets in the state so that serious timeless debts of the bank can be saved to get maximum recovery Coveragein that account on the date the account is classified as doubtful and loss. If the interest has been charged in such accounts after the date of classification of doubtful loss category then the same can be waived this policy will be applicable to all the borrowers and defaulters alike Under this scheme with the consent of the defaulter the total amount of the settlement will have to be deposited in one lump sum but if the defaulter is unable to deposit all the amount in one lump sum then 25 percent of such amount till the date of the consent letter and for the recovery of remaining 75 percent amount will have to be deposited in three equal installments over a period of one year on which interest will be payable at the rate of minimum loan interest from the date of settlement till the date of final repayment. Penal interest legal expenses and other expenses will be waived. Authority to sanction relief: The Scheme will be first approved by the concerned bank management committee constituted under the provisions contained in the Uttar Pradesh Co operative societies Act and the right to decide on one time settlement cases up to an amount of Rs 5.00 Lakhs will be there s and for the cases involving more than Rs. 5.00 Lakhs prior approval of the Registrar Co operative Societies Uttar Pradesh will have to be obtained. For this purpose the bank will constitute a Settlement Advisory Committee which after examining the applications received will present suitable cases falling within the eligibility before the authority for decision. The bank will abide by the guidelines relating to the settlement with the loan recipients without any discrimination. There will be no deviation from the policies by the Chief Executive Officers Board of Directors. The decision of the Settlement Committee will be confirmed in the next meeting of the management committee or the general body Settlement Advisory Committee. After examining the received cases and presenting the eligible cases before the competent authority it will be as follows 1. Chairman of the bank President 2. Secretary Executive officer concerned Member Convener 3. A Director nominated by the board of Member Directors and one other person and bank officer who have enough experience in the field of banking management or law There will be three members for the purpose of the settlement advisory committee will examine the application received from the member and present it before the board of directors after making its clear recommendation. While making the recommendation the following points will be considered 1. The officer recommending the right off loan should not have 2. The transfer has been granted as per the conditions prescribed by the personally sanctioned the loan. Reserve Bank. 3. Adequate cares have been taken after the delivery of loan. 4. Efforts have been made to recover the loan and the possibility of recovery has been minimized The board of directors after due consideration will approve the one time payment. The decision of the committeewill be reviewed every month by the board of directors and the settlement proceedings will be completed within the prescribed time limit.” 5.2 Therefore as per the guidelines issued the grant of benefit of 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 reproduced hereinabove. A wilful defaulter in repayment of loan and a person who has not paid even a single installment 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 possibility of recovery of the amount either by initiating appropriate proceedings or by auctioning the property mortgaged and or the properties given as a security either by the borrower and or by 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 High Court by way of counter affidavit thatthe recovery proceedings under SARFAESI Act are pending the borrower and her husband have availed two credit facilities and both the loan accounts are maintained regularly and the money is being 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 High Court failed to consider the aforesaid 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 the present case a conscious decision was taken by the Bank as well as the Settlement Advisory Committee which is reflected from the Board’s Resolution dated 28.12.2020 and the decision dated 08.01.2021. Even personal hearing was afforded to the original writ petitioner by the Settlement Advisory Committee on 25.02.2021. The High Court in the impugned judgment and order 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 principle of natural justice 8. While passing the impugned judgment and order the High Court 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 the Bank 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 secured property mortgaged property. When the loan is disbursed by the bank and the outstanding amount is due and payable to the bank it will always take a conscious decision in the interest of the bank and in its commercial wisdom Even otherwise as observed hereinabove no borrower can as a matter of right pray for grant of benefit of One Time Settlement Scheme In a given case it may happen that a person would borrow a huge amount for example Rs. 100 crores. After availing the loan he may deliberately not pay any amount towards installments though able to make the payment. He would wait for the OTS Scheme and then pray for grant of benefit under the OTS Scheme under which always a lesser amount than the amount due and payable under the loan account will have to be paid. This despite there being all possibility for recovery of the entire loan amount which can be realised by selling the mortgaged secured properties. If it is held that the borrower can still as a matter of right pray for benefit under the OTS Scheme in that case it would be giving a premium to a dishonest borrower who despite the fact that he is able to make the payment and the fact that the bank is able to recover the entire loan amount even by selling the mortgaged secured properties either from the borrower and or guarantor. This is because under the OTS Scheme a debtor has to pay a lesser amount than the actual amount due and payable under the loan account. Such cannot be the intention of the bank while offering OTS Scheme and that cannot be purpose of the Scheme which may encourage such a dishonesty. If a prayer is entertained on the part of the defaulting unit person to compel or direct the financial corporation bank to enter into a one time settlement on the terms proposed by it him then every defaulting unit person which who is capable of paying its his dues as per the terms of the agreement entered into by it him would like to get one time settlement in its his favour. Who would not like to get his liability reduced and pay lesser amount than the amount he she is liable to pay under the loan account In the present case it is noted that the original writ petitioner and her husband are making the payments regularly in two other loan accounts and those accounts are regularised. Meaning thereby they have the capacity to make the payment even with respect to the present loan account and despite the said fact not a single amount installment has been paid in the present loan account for which original petitioner is praying for the benefit under the OTS Scheme 11. The sum and substance of the aforesaid discussion would be that no writ of mandamus can be issued by the High Court in exercise of powers under Article 226 of the Constitution of India directing a financial institution bank to positively grant the benefit of OTS to a borrower. 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 loanee 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 loanee and or guarantor the bank would be justified in refusing to grant the benefit under the OTS Scheme. 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 the OTS Scheme having regard to the public interest involved and having regard to the factors which are narrated hereinabove In view of the aforesaid discussion and for the reasons stated above we are of the firm opinion that the High Court in the present case has materially erred and has exceeded in its jurisdiction in issuing a writ of mandamus in 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. The impugned judgment and order passed by the High Court is hence unsustainable and deserves to be quashed and set aside and is accordingly quashed and set aside 13. The present appeal is accordingly allowed. However in the facts and circumstances of the case there shall be no order as to costs NEW DELHI DECEMBER 15 2021 

Summary: 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 OTS to a borrower. 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. Such an observation was made by the Hon’ble Supreme Court of India before Hon’ble Justice M.R. SHAH &amp; Hon’ble Justice B.V. NAGARATHNA in the matter of The Bijnor Urban Cooperative Bank Limited vs Meenal Agarwal &amp; ors [CIVIL APPEAL NO. 7411 OF 2021] 
The facts of the case were that the respondent had obtained a credit facility from the bank of about Rs. 1 crore. The said loan account with the Bank was categorized as “Non-Performing Asset, (NPA)”. The Bank also initiated proceedings under the provisions of the SARFAESI Act, 2002. There were two other loan accounts also which were being regularly serviced by respondent no.1, meaning thereby that the payment was regularised insofar as two other loan accounts are concerned. However, so far as the present loan account is concerned, which was declared as NPA, not a single amount was paid till an application for extending the benefit of OTS was submitted but her application for the grant of OTS was rejected. Aggrieved the respondent preferred a writ petition before the High court challenging the order dated 17.09.2019 passed by the Bank rejecting her application for giving the benefit of the OTS scheme. Vide order dated 25.01.2021, the High Court disposed of the said writ petition by directing the Bank to consider the grievance of the original writ petitioner and to decide her representation dated 22.07.2019 after affording due opportunity of hearing to her, as expeditiously as possible and preferably within a period of four weeks. Subsequently, her application was again rejected. Aggrieved the respondent again preferred a writ petition before the High court in which by the impugned judgment and order and in the exercise of powers under Article 226 of the Constitution of India, the High Court has issued a writ of mandamus and has directed the Bank to positively consider her application for grant of benefit under the OTS Scheme. Feeling aggrieved and dissatisfied the bank preferred the instant appeal.

The Hon’ble Supreme Court observed that 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.

Additionally, the Hon’ble Supreme Court also observed that the High Court in the impugned judgment and order 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 principle of natural justice. 

Furthermore, the Hon’ble Supreme Court held that “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 the Bank 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 secured property/mortgaged property. ”

Finally, the Hon’ble Supreme Court allowed the instant appeal and firmly held that the 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.
Click Here To Read The Judgment
Judgment Reviewed by: Rohan Kumar Thakur
 The facts of the case were that the respondent had obtained a credit facility from the bank of about Rs. 1 crore. The said loan account with the Bank was categorized as “Non-Performing Asset, (NPA)”. The Bank also initiated proceedings under the provisions of the SARFAESI Act, 2002. There were two other loan accounts also which were being regularly serviced by respondent no.1, meaning thereby that the payment was regularised insofar as two other loan accounts are concerned. However, so far as the present loan account is concerned, which was declared as NPA, not a single amount was paid till an application for extending the benefit of OTS was submitted but her application for the grant of OTS was rejected. Aggrieved the respondent preferred a writ petition before the High court challenging the order dated 17.09.2019 passed by the Bank rejecting her application for giving the benefit of the OTS scheme. Vide order dated 25.01.2021, the High Court disposed of the said writ petition by directing the Bank to consider the grievance of the original writ petitioner and to decide her representation dated 22.07.2019 after affording due opportunity of hearing to her, as expeditiously as possible and preferably within a period of four weeks. Subsequently, her application was again rejected. Aggrieved the respondent again preferred a writ petition before the High court in which by the impugned judgment and order and in the exercise of powers under Article 226 of the Constitution of India, the High Court has issued a writ of mandamus and has directed the Bank to positively consider her application for grant of benefit under the OTS Scheme. Feeling aggrieved and dissatisfied the bank preferred the instant appeal. 
The Hon’ble Supreme Court observed that 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.

Additionally, the Hon’ble Supreme Court also observed that the High Court in the impugned judgment and order 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 principle of natural justice. 

Furthermore, the Hon’ble Supreme Court held that “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 the Bank 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 secured property/mortgaged property. ”

Finally, the Hon’ble Supreme Court allowed the instant appeal and firmly held that the 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.
Click Here To Read The Judgment
Judgment Reviewed by: Rohan Kumar Thakur
 The Hon’ble Supreme Court observed that 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. 
Additionally, the Hon’ble Supreme Court also observed that the High Court in the impugned judgment and order 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 principle of natural justice. 

Furthermore, the Hon’ble Supreme Court held that “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 the Bank 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 secured property/mortgaged property. ”

Finally, the Hon’ble Supreme Court allowed the instant appeal and firmly held that the 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.
Click Here To Read The Judgment
Judgment Reviewed by: Rohan Kumar Thakur
 Additionally, the Hon’ble Supreme Court also observed that the High Court in the impugned judgment and order 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 principle of natural justice.  
Furthermore, the Hon’ble Supreme Court held that “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 the Bank 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 secured property/mortgaged property. ”

Finally, the Hon’ble Supreme Court allowed the instant appeal and firmly held that the 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.
Click Here To Read The Judgment
Judgment Reviewed by: Rohan Kumar Thakur
 Furthermore, the Hon’ble Supreme Court held that “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 the Bank 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 secured property/mortgaged property. ” 
Finally, the Hon’ble Supreme Court allowed the instant appeal and firmly held that the 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.
Click Here To Read The Judgment
Judgment Reviewed by: Rohan Kumar Thakur
 Finally, the Hon’ble Supreme Court allowed the instant appeal and firmly held that the 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.