Borrower Cannot Claim Extension Of Time Period Under OTS Scheme As A Matter Of Right : Supreme Court

The Supreme Court observed that a borrower cannot claim extension of time period under One Time Settlement Scheme as a matter of right.

The bench of Justices MR Shah and Krishna Murari observed said that a High Court cannot invoke writ jurisdiction to extend the time period under the OTS scheme. Directing the Bank to reschedule the payment under OTS would tantamount to modification of the contract, it added.

Allowing a writ petition filed by a Borrower, the Punjab and Haryana High Court extended time by a further period of six weeks to make the payment of the balance amount which was due and payable under the sanctioned OTS Scheme. Aggreived with this order, the State Bank of India approached the Apex Court contending that the High Court under Article 226 of the Constitution of India cannot direct rescheduling the payment under the OTS as it amounts to modification of the contract which can be done by mutual consent under Section 62 of the Indian Contract Act. Opposing this appeal, the borrower contended that the High Court had the power to do so.

The bench noticed that in a recent judgment Bijnor Urban Cooperative Bank Limited, Bijnor and Others vs. Meenal Agarwal and Others, (2021) SCC Online SC 1255, the Supreme Court had held that (i) no borrower can, as a matter of right pray for a grant for the benefit of one­time settlement scheme; (ii) No writ of mandamus can be issued by the High Court in exercise of Article 226 of the Constitution of India, directing the financial institution/bank to positively grant a benefit of OTS to a borrower; (iii) The grant of benefit of OTS Scheme is subject to the eligibility criteria and the guidelines issued from time to time.

The bench further noticed that the High Court did not follow the decision in Bijnor Urban Cooperative Bank Limited (supra) observing that the earlier decision of this Court in the case of Sardar Associates (supra) is more elaborate

"We do not approve such an observation by the High Court and not following the subsequent binding decision of this Court which as such was on the point. Being a subsequent decision on the point/issue, the High Court was bound to follow the same. Even otherwise it is required to be noted that the decision of this Court in the case of Sardar Associates (supra) is distinguishable on facts. In the case of Sardar Associates (supra) it was found that the Bank deviated from the OTS guidelines issued by the Reserve Bank of India and therefore this Hon'ble Court held that the RBI Guidelines are binding on the bank and that the bank shall deal with the case of the borrower under the RBI Guidelines on OTS. Therefore, even otherwise on facts the said decision was not applicable at all.", the court said.

While setting aside the High Court judgment, the bench observed:

The borrower as a matter of right cannot claim that though it has not made the payment as per the sanctioned OTS Scheme still it be granted further extension as a matter of right. There cannot be any negative discrimination claimed. The borrower has to establish any right in their favour to claim the extension as a matter of right.

Case details

State Bank of India vs Arvindra Electronics Pvt. Ltd. 2022 LiveLaw (SC) 908 | CA 6954 OF 2022 | 4 November 2022 | Justices MR Shah and Krishna Murari\

For Appellant(s) Mr. Sanjay Kapur, AOR Ms. Megha Karnwal, Adv. Mr. Arjun Bhatia, Adv. Ms. Akshata Joshi, Adv.

For Respondent(s) Mr. D.P. Singh, Adv. Ms. Sonam Gupta, AOR Bahuli Sharma, Adv. Taranjit Singh, Adv

Headnotes

One Time Settlement Scheme - The borrower as a matter of right cannot claim that though it has not made the payment as per the sanctioned OTS Scheme still it be granted further extension as a matter of right - Bank mutually can agree to extend the time which is permissible under Section 62 of the 18 Indian Contract Act. 

Constitution of India, 1950 ; Article 226 - High Court ought not to have granted further extension de hors the sanctioned OTS Scheme exercising the powers under Article 226 of the Constitution of India - Directing the Bank to reschedule the payment under OTS would tantamount to modification of the contract which can be done by mutual consent under Section 62 of the Indian Contract Act.

Precedent - High Court bound to follow subsequent decision of Supreme Court on the point/issue. 

 Click here to Read/Download Judgment