High Courts Are Empowered To Extend The One Time Settlement Time Period: Punjab & Haryana High Court

Facts Of The Case

Two proprietary firms were being run by the Petitioner and his brother to carry out business. Both these firms had availed loan from DCB Bank ("Respondent No.1/Bank") amounting to Rs. 67 Lakh in 2013. The loan was against property, and in 2015 it was enhanced to Rs. 95 Lakh. The Petitioner also stood as a personal guarantor to the credit facility by mortgaging his property in favour of Respondent No. 1.

The loan account of the Petitioner was declared Non-Performing Asset (NPA) 01.12.2018 when EMIs were not paid on time. Accordingly, notices under Section 13(2) of the Securitization & Reconstruction of Financial Assets & Enforcement of Security Interest Act, 2002 ("SARFAESI Act") were issued.

The Petitioner had submitted its first One Time Settlement ("OTS") proposal to the Bank on 22.08.2019, along with a Demand Draft ("DD") of Rs. 10 Lakh, which was to be encashed subject to acceptance of the proposal. The Bank encashed the DD but did not accept the proposal. The Petitioner and his brother made a joint settlement proposal on 18.06.2020, offering Rs. 75.32 Lakh to the Bank; however the same was also not accepted. After that, the Petitioner submitted a revised proposal on 16.07.2020 offering Rs. 85 Lakh, which was accepted by the Bank and a sanction letter was issued on 25.07.2020. The OTS was payable in three instalments, i.e., Rs. 25 Lakh was payable by 31.07.2020, Rs. 20 Lakh by 30.08.2020 and Rs. 40 lakh by 30.09.2020.

Till 30.09.2020, the Petitioner had paid Rs. 49 Lakhs against the total OTS amount and was unable to raise the balance amount of Rs. 36 Lakh. Therefore, it requested the Bank for an extension of 90 days for paying the balance amount. The third instalment had got delayed since the purchaser to whom the Petitioner had sold his property had not made payment of Rs. 40 Lakh in time, which was to be paid by the said purchaser by 28.09.2020. Due to Covid-19 and resultant slow down in business, the purchaser of the property was unable to make full payment on time. The Petitioner had also addressed a representation to the Bank on 31.12.2020 through Registered Post requesting extension of time, to which no response was received.

Thereafter, the Petitioner filed a writ petition before the Punjab and Haryana High Court seeking direction to the Respondents to accept the balance amount of Rs. 36 lakh along with interest at 9% p.a. w.e.f. 01.10.2020 to 31.12.2020.

Contentions Of The Petitioner

The Petitioner contended that since a substantial payment of Rs. 49 Lakhs was already made towards the OTS; an extension of time should be granted for the balance payment, which remained unpaid due to unavoidable circumstances. The Petitioner also apprised the Court that the Petitioner had already deposited the sum of Rs. 36 Lakh in the Punjab and Sindh Bank by way of a Fixed Deposit on 25.03.2021.

The Petitioner placed reliance on the Division Bench judgment of Punjab and Haryana High Court passed in Anu Bhalla and another vs District Magistrate, Pathankot, 2021 (1) RCR (Civil) and in Aseem Gaind Vs. Axis Bank, Retail Assets Centre, CWP-32015-2019. It was further argued that the OTS policy of the Bank was issued pursuant to the circular issued by the RBI on 04.10.2007 and 21.06.2010, and Clause 6.9 of the said Policy contemplated even delayed payment of OTS by extending timelines subject to approval by the sanctioning authority.

Contentions Of The Respondents

The Respondents contended that the writ petition is not maintainable as Petitioner has not exhausted an equally efficacious remedy under Section 17 of the SARFAESI Act. Further, it was argued that the Bank received only the OTS proposal dated 22.08.2019 and admittedly the DD amounting to Rs. 10 Lakhs was encashed by the Bank. The Respondents argued that Petitioner failed to dispense its obligations as per the OTS, hence, the OTS lapsed and became invalid. The Bank had accordingly informed the Petitioner that it would not receive the balance amount of Rs. 36 Lakhs.

Observations Made By The Court

The Bench observed that the DCB Bank is a Scheduled Bank mentioned in the Schedule of the Reserve Bank of India Act, 1934 and is governed by the Banking Regulation Act, 1949 ("1949 Act"). Admittedly, the OTS policy framed by the Bank was pursuant to circulars issued by the RBI. The guidelines issued by the RBI are binding on all Scheduled Banks as per the decision of the Supreme Court in Central Bank of India vs Ravindra, 2002 (1) SCC 367.

Power To Issue A Writ Of Mandamus

The Bench relied on the judgment of Sardar Associates and others vs Punjab and Sind Bank and others, 2009(8) SCC 257, wherein the Supreme Court has held that the RBI, under Section 21 of the 1949 Act, is empowered to formulate policies which banking companies are bound to follow. It was observed that the OTS scheme framed by a bank could not violate the guidelines framed by RBI. If in terms of guidelines issued by the RBI, a right is created in a borrower, a Writ of Mandamus can also be issued since such guidelines have a statutory flavour.

High Courts Are Empowered To Extend The OTS Period

The Bench observed that in the case of Anu Bhalla and Anr v District Magistrate, Pathankot, 2021 (1) RCR (Civil), it has already been held that under Article 226 of the Constitution of India, High Courts would have the jurisdiction to extend the period of settlement as originally provided for in the OTS letter, subject to specific guidelines laid down in the said judgment. It was further held in the said case that OTS is not cloaked with rigorous principles, which may not permit an extension of the period to pay the balance settlement amount. Willful defaulters and fraudsters would not be entitled to such extension. However, in the case of a deserving borrower, the Court can consider extending the period to achieve the ultimate aim of such settlement, if the following conditions (as per the Anu Bhalla case) are met:

1. Duration of OTS is short and nor excessive;
2. Substantial amount paid to the creditor under the OTS and for some remaining amounts a reasonable extension is being sought;
3. Non-payment of balance amount due to circumstances beyond control;
4. Payments accepted by the bank even after stipulated date, which shows time was not the essence of the contract;
5. Bona fide intent of the borrower;
6. Reasonable time period demanded by the borrower to pay remaining amount and compensation to the creditor with interest for the delay period;
7. Attending factors and circumstances such as COVID-19 pandemic or natural disasters; and
8. Irreparable loss and injury to the borrower.

Banks Cannot Blindly Reject The Request For An Extension

The Bench rejected the contention of the Respondent that the Court cannot grant an extension of time for completion of the payment under the OTS. It was held that "such a power undoubtedly exists, though not as a matter of right, and must be exercised by a High Court keeping in mind the above guidelines/principles." It was further held that the request for extension of time of OTS period could not be blindly rejected by the Bank, as it was duty-bound to consider whether the request made by the Petitioner on 30.09.2020 for extension of time by 90 days is justified or not.

The Bench held that the Bank had acted contrary to the terms of its own OTS policy, framed as per the RBI directives, and it is a right created in the Petitioner which is certainly enforceable by way of a Writ Petition under Article 226 of the Constitution of India. The plea of the Respondents that the petition is not maintainable was rejected.

Section 17 Of The SARFAESI Act Is Not An Alternate Remedy

The plea of the Respondents that an alternate remedy under Section 17 of the SARFAESI Act is available to the Petitioner was declared untenable. It was clarified that under Section 17 of the SARFAESI Act, the Debt Recovery Tribunal ("DRT") is empowered to deal with applications against the measures to recover secured debts taken by the Secured Creditor and consider whether such measures are in accordance with the provisions of this SARFAESI Act or not. In cases like the instant one, where such measures have not been initiated yet, the remedy under Section 17(1) of the SARFAESI Act cannot be availed prima facie. Also, whether an extension of time for OTS is to be granted or not is an issue generally within the purview of the DRT having regard to the language contained in Section 17 of the SARFAESI Act.

Grounds Considered By The Bench For Granting Extension

The Bench observed that the Petitioner had deposited a substantial amount of Rs. 49 Lakhs out of the total Rs. 85 Lakhs sanctioned as OTS by 30.09.2020, which proved its bona fide. The Bench also found substance in the Petitioner's reasoning for delay in payment. It was observed that the difficulties caused to borrowers on account of the Covid-19 Pandemic in the year 2020 and 2021, the slowing down of the economy are matters of common knowledge. The difficulties faced by the Petitioner cannot be brushed aside lightly and ought to be sympathetically considered by this Court, keeping in mind that only two months and five days were given for payment of the entire OTS amount, i.e. a very short time, and only 90 days extension was being sought for payment of the balance amount of Rs. 36 Lakh, which the Petitioner already arranged with interest by 31.12.2020.

The Bench was satisfied that the material on record indicates that the case of the Petitioner falls within the parameters fixed in the decision of Anu Bhalla and that in the interest of justice and equity, the time for payment of the balance OTS amount ought to be extended. It further opined that the non-acceptance of the amount of Rs. 36 Lakh with interest offered by the Petitioner on 31.12.2020/02.01.2021 by the Respondents is arbitrary and illegal, and violative of Article 14 of the Constitution of India. The Bank's own OTS policy in Clause 6.9 contemplates extension of timelines for payment of the sanctioned OTS.

Decision Of The Court

The Bench allowed the writ petition and passed the following order:

"Since the pendency of this Writ Petition till date cannot be to the prejudice of the Petitioner, the Petitioner is directed to deposit the sum of '36 lakh plus interest thereon at 9% per annum from 30.09.2020 till 02.01.2021 only within ten days from the date of receipt of a copy of this order; and the respondents are directed to adjust the same towards the OTS sanctioned on 25.07.2020 vide Annexure P-5, release the securities, if any, to the Petitioner within two weeks of receipt of the above payment. Writ petition is allowed accordingly. No costs."

Case Title: Amrik Singh vs DCB Bank Ltd. and Another, CWP-4631-2021.

Citation: 2022 LiveLaw (PH) 77

Counsel for Petitioner: Adv. Jyoti Sareen

Counsel for Respondent: Adv. A.D.S Sukhija

Click Here To Read/Download order