2021 (12) TMI 669 - SC - Indian Laws

Granting One Time Settlement is bank discretion; wilful defaulters and NPA accounts ineligible; banks must set advisory committees.

SC held that grant of One Time Settlement (OTS) is discretionary and subject to scheme eligibility; wilful defaulters and accounts declared NPA are ... One Time Settlement (OTS) - Non-Performing Asset, (NPA) - It appears that to come out of NPA eligibility, the original writ petitioner deposited a sum of ₹ 60 lakhs on 02.03.2020, i.e., after rejection of her earlier application on the ground that as her loan account is “NPA’, she is not eligible for OTS Scheme - HELD THAT:- As per the guidelines issued, the grant of benefit of OTS Scheme cannot be prayed as a matter of right and the same is subject to fulfilling the eligibility criteria mentioned in the scheme. The defaulters who are ineligible under the OTS Scheme are mentioned in clause 2. A wilful defaulter in repayment of loan and a person who has not paid even a single installment after taking the loan and will not be able to pay the loan will be considered in the category of “defaulter” and shall not be eligible for grant of benefit under the OTS Scheme. Similarly, a person whose account is declared as “NPA” shall also not be eligible. As per the guidelines, the Bank is required to constitute a Settlement Advisory Committee for the purpose of examining the applications received and thereafter the said Committee has to take a decision after considering whether a defaulter is entitled to the benefit of OTS or not after considering the eligibility as per the OTS Scheme. Even otherwise, no borrower can, as a matter of right, pray for grant of benefit of One Time Settlement Scheme. In a given case, it may happen that a person would borrow a huge amount, for example ₹ 100 crores. After availing the loan, he may deliberately not pay any amount towards installments, though able to make the payment. He would wait for the OTS Scheme and then pray for grant of benefit under the OTS Scheme under which, always a lesser amount than the amount due and payable under the loan account will have to be paid. The sum and substance of the discussion would be that no writ of mandamus can be issued by the High Court in exercise of powers under Article 226 of the Constitution of India, directing a financial institution/bank to positively grant the benefit of OTS to a borrower. The grant of benefit under the OTS is always subject to the eligibility criteria mentioned under the OTS Scheme and the guidelines issued from time to time - Ultimately, such a decision should be left to the commercial wisdom of the bank whose amount is involved and it is always to be presumed that the financial institution/bank shall take a prudent decision whether to grant the benefit or not under the OTS Scheme, having regard to the public interest involved and having regard to the factors. The High Court, in the present case, has materially erred and has exceeded in its jurisdiction in issuing a writ of mandamus in exercise of its powers under Article 226 of the Constitution of India by directing the appellant-Bank to positively consider/grant the benefit of OTS to the original writ petitioner - Appeal allowed - decided in favor of appellant. Issues Involved:1. Whether the benefit under the One Time Settlement (OTS) Scheme can be prayed for as a matter of right.2. Whether the High Court, in exercise of powers under Article 226 of the Constitution of India, can issue a writ of mandamus directing the Bank to positively consider the grant of benefit under the OTS Scheme, especially when the eligibility criteria mentioned under the OTS Scheme are not met.Issue-wise Detailed Analysis:1. Whether the benefit under the One Time Settlement (OTS) Scheme can be prayed for as a matter of right:The Supreme Court emphasized that the benefit under the OTS Scheme cannot be claimed as a matter of right by any borrower. The OTS Scheme is subject to specific eligibility criteria, and not all defaulters are eligible. The Court referred to the guidelines which explicitly state that willful defaulters and those whose accounts are declared as Non-Performing Assets (NPA) are not eligible for the OTS Scheme. The Court highlighted that the Settlement Advisory Committee must consider whether efforts have been made to recover the loan amount and if there is a possibility of recovery through auctioning the mortgaged property before granting the benefit under the OTS Scheme. The Court concluded that granting the benefit under the OTS Scheme should be left to the commercial wisdom of the bank, which should take a prudent decision in its own interest and public interest.2. Whether the High Court, in exercise of powers under Article 226 of the Constitution of India, can issue a writ of mandamus directing the Bank to positively consider the grant of benefit under the OTS Scheme, especially when the eligibility criteria mentioned under the OTS Scheme are not met:The Supreme Court held that the High Court exceeded its jurisdiction by issuing a writ of mandamus directing the Bank to consider the writ petitioner's application for the OTS Scheme. The Court noted that the High Court failed to consider the specific circumstances and the eligibility criteria under the OTS Scheme. The High Court's direction was based on the assumption that the benefit under the OTS Scheme could be claimed as a matter of right, which is not the case. The Supreme Court observed that the Bank and the Settlement Advisory Committee had taken a conscious decision, considering the RBI guidelines and the OTS Scheme, and had afforded a personal hearing to the writ petitioner. The Court emphasized that the decision of the Bank and the Settlement Advisory Committee was in consonance with the guidelines and should not have been set aside by the High Court. The Supreme Court concluded that the High Court's order was unsustainable and quashed it, allowing the appeal by the Bank.Conclusion:The Supreme Court concluded that no borrower can claim the benefit under the OTS Scheme as a matter of right, and the High Court cannot issue a writ of mandamus directing the Bank to grant such benefit if the eligibility criteria are not met. The decision to grant or deny the benefit under the OTS Scheme should be left to the commercial wisdom of the Bank, considering the guidelines and the specific circumstances of each case. The appeal by the Bank was allowed, and the High Court's judgment was set aside.