Banks Can Exclude Such Borrowers From OTS Scheme From Whom Chances Of Recovery Are High: Jammu & Kashmir High Court

The Jammu and Kashmir and Ladakh High Court has ruled that a banking company enjoys the discretion to formulate policies and exclude from its One Time Settlement Scheme such borrowers, who have a higher chance of recovery.

A bench comprising Justice Sanjay Dhar observed,

"A banking company is free to make policies and issue guidelines so as to differentiate the cases of those borrowers where the chances of recovery are bright from those where the chances of recovery are bleak. Merely because a banking company has formulated a scheme excluding the cases of borrowers where the chances of recovery are bright, it cannot be stated that such a scheme or such covenants of the scheme are discriminatory in nature against the excluded borrowers."

As per the Court, a bank would be justified in refusing to grant the benefit under the OTS Scheme to a particular class of borrowers where it is of the opinion that recovery of the dues can be effected by sale of mortgaged property or that there are higher chances of recovery keeping in view the financial health of the borrower.

The observations were made while hearing the plea of a loan defaulter, whose case was excluded from Special OTS Scheme 2022 floated by J&K Bank, in view of recovery proceedings initiated under Section 14 of the SARFAESI Act.

The petitioner argued that the scheme is arbitrary and against the public policy declared by RBI. The respondent-bank on the other hand submitted that JKB Special OTS 2022 provides that those compromise cases where the offer amount is on higher side vis-à-vis the OTS amount prescribed under the scheme, are not eligible to be covered under the scheme.

The bank said since the offer of the petitioner to settle his loan account at Rs.6.80 crores is on higher side than what his entitlement would have been under JKB Special OTS, 2022, as such, his case was found to be ineligible, the respondent argued.

After perusing the covenants of the scheme, the court said,

"Merely because a banking company has formulated a scheme excluding the cases of borrowers where the chances of recovery are bright, it cannot be stated that such a scheme or such covenants of the scheme are discriminatory in nature against the excluded borrowers", the bench underscored.

Dealing with the contention of the petitioner that by excluding it from OTS Scheme 2022, an honest borrower has been discriminated against, the court said that if the argument is accepted, then even a borrower who is regularly paying his EMIs can feel discriminated against if the scheme of OTS is not made applicable to his case by claiming that despite being an honest borrower, he is not being extended the benefit of the OTS Scheme.

"The OTS schemes offered by the banks in accordance with the guidelines of the Reserve Bank of India are in nature of concessions offered to defaulting borrowers with an aim to recover the dues from the borrowers whose accounts have been rendered as Non-performing Assets. Even amongst such borrowers, a financial institution would be well within its jurisdiction to segregate those NPA accounts where chances of recovery are high and those where the chances of recovery are poor", the bench explained.

The court noted that the petitioner had offered a higher amount to the Bank under the General OTS scheme, which is currently under process. This suggests that the Bank has a good chance of recovering a higher amount than what can be obtained from the petitioner under the OTS Scheme of 2022 and therefore, the Bank cannot be compelled to accept a lower amount under the Special OTS Scheme, 2022, as it would go against the financial prudence of the Bank, which deals with public funds, the court reasoned.

In view of the same the bench found the petition devoid of any merit and dismissed the same.

Case Title: Ghulam Ahmad Mir Vs J&K Bank & Ors.

Citation: 2023 LiveLaw (JKL) 114

Counsel For Petitioner: Mr. Altaf Haqani, Sr. Adv. with Mr. Shakir Haqani, Advocate & Mr. Aasif Wani, Advocate.

Counsel For Respondent: Mr. Z. A. Shah, Sr. Advocate with Mr. A. Hana, Advocate.

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