Borrowers Enter OTS ; Supreme Court Directs Bank To Re-Consider Decision Of Wilful Default

Background Facts

Orbitz Irrigation Pvt. Ltd. (“Petitioner”) had availed financial facilities from Bank of Baroda (erstwhile Vijaya Bank) from 2013 onwards. The account of the Petitioner was declared Non Performing Asset (NPA) in 2019 and recovery proceedings were initiated by the Bank before the Debt Recovery Tribunal.

In 2021, while One Time Settlement (“OTS”) Proposal of the Petitioner was under consideration, the Committee of Executives on Wilful Defaulters (“First Committee”) had issued a Show Cause Notice (“SCN”) to the Petitioner on 08.03.2021. On 26.03.2021 the Petitioner responded to the SCN bringing on record that an OTS proposal was being negotiated upon and amounts were being paid to the Bank.

The First Committee had granted the Petitioner Company an opportunity for personal hearing, which was to be conducted in another city in July 2021. The Petitioner Company had sought adjournment of personal hearing due to ongoing fatal second wave of COVID-19 and vulnerable medical conditions of its representatives. The First Committee did not respond to the adjournment request and hence no personal hearing could be conducted on the due date. While the Petitioner was paying further amounts towards OTS proposal, the First Committee vide its order dated 29.07.2021 had declared the Petitioners as wilful defaulters. The Petitioner requested the First Committee to first conduct a personal hearing and consider the Petitioner’s response dated 26.03.2021 before arriving upon any decision. However, the requests were not taken into account.

On 18.10.2021, the Review Committee affirmed the First Committee’s Order and declared Petitioner as wilful defaulter. Thereafter, the Petitioner challenged the Orders dated 29.07.2021 and 18.10.2021 before the Allahabad High Court under Article 226 of the Constitution of India.

The writ petition was dismissed on 23.05.2022. Subsequently, the Petitioner Company entered into a consolidated One Time Settlement with the Bank on 18.06.2022 and had started making payments towards the same.

The Petitioner challenged the Order dated 23.05.2022 of the Allahabad High Court before the Supreme Court by way of a Special Leave Petition.

Contentions Of The Petitioner

The Petitioners contended that the Orders declaring them wilful defaulter were unreasoned; failed to disclose the coram of committees; did not weigh their defences against the allegations; and did not disclose the evidence or documents relied upon for arriving at the decision. Further, the Review Committee’s Order was passed in contravention to the Supreme Court judgment in State Bank of India v Jah Developers, (2019) 6 SCC 787, which mandates the Review Committee to pass a reasoned order. It was submitted that the Petitioners had sought adjournment to the personal hearing over genuine medical grounds. Hence, a fair opportunity of personal hearing could not be denied to them.

It was contended that the Petitioners had shown their bona fide to repay and have been paying sums towards sanctioned OTS. Therefore, Petitioner cannot be declared a wilful defaulter in absence of any ‘wilful’ element in default.

Decision Of The Court

The Bench observed that after being declared wilful defaulters, the Petitioners had entered into OTS with the Bank and have deposited Rs.1.17 Crores and 55 Thousands so far (amount incorrectly mentioned as 17 crores in order) so far. It was further observed that in light of the changed circumstances and subsequent events, the Petitioners are well within their right to represent the Bank for reconsideration of its earlier decision whereby the petitioners have classified as “Willful defaulters”.

“We thus deem it appropriate to dispose of the Special Leave Petition at this stage, without expressing any views on the merits, with liberty to the petitioners to make a representation to the Bank to review/reconsider its previous decision whereby they have been categorized as “Willful defaulters” and if any such representation is made by the petitioners, the same shall be considered by the Bank/Regional Stressed Asset Recovery Branch within a period of two weeks from the date of its submission. The petitioners shall be at liberty to avail their legal remedy if the decision to be taken by the Bank is not favourable to them.”

The Bench has directed the Bank to reconsider its decision of declaring the Petitioner Company, its Directors and Guarantors as wilful defaulters, if a representation is made by them to the Bank. Further liberty has been granted to the Petitioners to avail legal remedy if the Bank’s decision on the representation is not favourable to them.

Case Title: Orbitz Irrigation Pvt. Ltd. & Ors. v Bank Of Baroda & Anr.

Case No.: Special Leave to Appeal (C) No.15751/2022

Counsel for Petitioners: Adv. Charu Ambwani (AOR) and Adv. Pallavi Mishra.

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