In Case Of Breach Of Terms Of One Time Settlement, Bank Becomes Free To Recover Debt Irrespective Of OTS: Punjab & Haryana High Court

A Division bench of Justice Rajan Gupta and Justice Karamjit Singh further said that in such a case, the Bank becomes free to recover the outstanding amount in accordance with law, irrespective of the OTS.

The Court refused to apply the law laid down by a coordinate Bench of the High Court in Anu Bhalla & Anr. v. District Magistrate & Anr. that "claim for extension of time for payment of balance settlement amount, pursuant to mutually agreed OTS by the borrowers should be considered by the Court, liberally."

The Division Bench was of the opinion that the case at hand was different from the Anu Bhall case inasmuch as in that case extension of OTS was allowed after the defaulter had already repaid over 50% of the settled amount.

In the present case, the Court noted,

"the borrower effected OTS for Rs.1.29 crore and made payment of Rs.51 lakhs only when it defaulted. So, in the present case, the amount paid was just 40% of the settled amount. Also in this case, reasons put forth by the petitioner for failure to pay the balance amount, are not plausible."

The Court proceeded to apply the law laid down by the Allahabad High Court in Union Bank of India & Anr. v. Anil Kumar Wadhera & Ors., where it was held that once a borrower fails to comply with the conditions of OTS within the time specified and there being no order of the Bank to extend the time for deposit, the OTS would fall automatically and it will not be open to the borrower to insist upon the enforcement of such an OTS.

The Division Bench therefore concluded thus,

"no separate orders are required to be passed in the matter of the OTS having become defunct for non-compliance of its conditions by the borrowers and the logical consequence in case of breach of the terms and conditions of the OTS is that the Bank becomes free to recover the money outstanding in accordance with law irrespective of the OTS."

The Bench further opined that the reason provided by the petitioner for failing to pay back the loan was "not plausible."

It noted that sufficient time was given by the Bank to the petitioner for repayment of the loan. However, "The petitioner has failed to convince this Court that he failed to pay the balance amount within the stipulated period due to the reasons beyond his control. The petitioner has also failed to show his bonafide intent to make the payment of balance amount."

Background

The Court was hearing a writ petition filed by M/s. Milkhi Ram Bhagwan Dass, seeking a direction upon the Respondent Bank to grant six months' additional time to it to make the remaining payment as per the OTS.

The Petitioner in this case is a partnership firm which had taken a loan of Rs. 1.55 crores from the Respondent Bank. On the Petitioner's failure to repay the loan, its account was declared as a Non-Performing Asset (NPA) and proceedings under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 were initiated. Following this, the petitioner effected one time settlement, as per which, it was to pay Rs.1.29 crore to the Bank, in 7 installments on or before 30.11.2019

The Petitioner-firm claimed that it had already paid an amount of Rs. 51 lakhs to the Bank, pursuant to the OTS and had been planning to pay back the rest of the loan on time. However, the remaining amount could not be paid within time due to some unavoidable circumstances.

The Petitioner submitted that two persons who had promised to lend some amount to it for payment of OTS were cheated by their accountant for Rs. 15 lakhs and therefore, further payment of Rs. 78 lakhs could not be done.

The petitioner had therefore asked the Bank for extension of the OTS, but this request was promptly denied. Further, the petitioner had paid an amount of Rs. 20 lakhs to the Bank while the present writ petition was pending.

The counsel for the petitioner, Advocate Aalok Jagga, relied on Anu Bhalla's case. He also stated that the petitioner had suffered financial losses due to closure of his business on account of the lockdown imposed by the Central Government and if the lockdown weren't in place, the petitioner would have already paid the balance amount up to June 2020

Moreover, he pointed out that the default on the payment had happened due to an unforeseen circumstance. He further put forth the petitioner's intention to pay back the balance amount within six months, if the OTS is extended. The counsel further contended, "the petitioner being a deserving borrower who is willing to clear his loan account, should be given one opportunity to do so, by extending the time for making the payment of balance settlement amount."

The counsel for the respondents, Advocate D.K Singhal, stated that no such request should be entertained by the Court. He called the petitioner's unforeseen circumstance as "false and frivolous."

He argued that the petitioner paid only Rs.51 lakhs till 31.10.2019 and he failed to make payment of balance amount of Rs.78 lakhs by the stipulated date, i.e. 30.11.2019, without any credible explanation.

Furthermore, it was averred by the counsel that the judgement given in the Anu Bhalla case is totally "misplaced" inasmuch as the Petitioner had paid even a single penny since January 2020 to show its bonafide intention.

Case Title: M/s. Milkhi Ram Bhagwan Dass v. District Magistrate & Anr.

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