Borrowers Breaching Terms & Conditions Of OTS Scheme Cannot Seek Direction From Court To Compel Bank To Honour Obligations: Kerala High Court

The present appeals were filed by the State Bank of India, aggrieved by the orders in the writ petitions where benefits under the OTS Schemes were given to the respondents despite making lapses in discharging their obligations under the Scheme.

The Division Bench of Chief Justice Nitin Jamdar and Justice S Manu found that borrowers in all these appeals have failed to discharge their obligations under the OTS Scheme. The Court observed thus:

“Banks provide special schemes such as One Time Settlement Schemes to enable defaulters to wipe off the liabilities. Terms and conditions of such schemes are formulated on the basis of commercial prudence. Often, waiver of penal interest or other components is offered as benefit to the borrowers. A borrower availing the benefit of the Scheme is bound by terms and conditions of the Scheme in its entirety. If the borrower is not in a position to or unwilling to act in accordance with any of the terms and conditions of the OTS Scheme or committed breach of the terms he cannot be permitted to seek direction from the Court to compel the bank to honour its obligations. If such pleas are acceded to, that will definitely amount to re-writing of the agreement between the creditor and the borrower.”

In the first writ appeal, the issue under consideration was the bank's right to deny the benefits of the OTS Scheme due to the borrower's failure to make the second installment payment on time. The bank argued that the remittance could not be accounted for under the special OTS scheme, and that the borrower either needed to seek a refund of the amount or enter into a new compromise settlement due to the default in payment.

The second writ appeal dealt with a challenge to the order passed in a writ petition, where the bank was directed to accept the payment towards full and final settlement of the dues and refrain from initiating coercive actions. In this case, the bank had initiated SARFAESI proceedings against the borrower, who had violated the compromise settlement reached in the Debt Recovery Tribunal (DRT).

In the third writ appeal, the bank contended that the borrower was not entitled to the benefits under the OTS scheme due to their violation of the terms and conditions of the scheme.

The bank submitted before the Court that in all these appeals, the borrowers cannot claim benefits under the OTS scheme since they have failed to discharge their obligations as per the terms and conditions of the scheme. It was thus argued that the High Court would not be justified in interfering with SARFAESI proceedings in writ petitions under Article 226 of the Constitution.

The Court noted that several borrowers approach Court by filing writ petitions for resolving disputes concerning OTS Scheme. Relying upon Apex Court decisions in Union Bank of India v Panchanan Subudhi (2010), State Bank of India v Arvindra Electronics (2013), Bijnor Urban Coop. Bank Ltd. v Meenal Agarwal (2023), it was improper to issue orders in writ petitions and the scope of intervention was limited in disputes regarding OTS Schemes.

As such, the Court set aside the orders in writ petitions and allowed the writ appeal.

Case Number: WA NO. 1275 OF 2024 & Other Cases

Case Title: State Bank of India v Sham PS & Other Cases

Citation: 2024 LiveLaw (Ker) 787

Click here to Read/Download Order