HUDCO loan recovery upheld with reduced 14% simple interest rate after prolonged litigation dispute

Delhi HC disposed of petition regarding HUDCO loan recovery and OTS scheme benefits. Petitioners contested matters across multiple forums over 15 years, mounting dues significantly. Court upheld validity of recovery certificate dated April 1, 2016 with February 20, 2019 default clause, noting contractual interest rate of 15.5% per annum with quarterly rests. Petitioners missed four-month OTS acceptance period and cannot claim benefits post-default. However, considering prolonged litigation, HC reduced interest to simple rate of 14% per annum on outstanding amount until petition notice date of January 23, 2020, which petitioners agreed to pay.

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1. ISSUES PRESENTED and CONSIDERED

(a) Whether the Petitioners are entitled to the benefit of the One Time Settlement (OTS) Scheme offered by HUDCO in respect of the outstanding loan dues.

(b) The applicability and interpretation of the recovery certificate issued by the Debt Recovery Tribunal (DRT) and the modification thereof by the Debt Recovery Appellate Tribunal (DRAT), particularly concerning the rate of interest and default clauses.

(c) Whether the Petitioners can challenge the rate of interest stipulated in the recovery certificate and seek reduction of the same under the writ jurisdiction of the High Court.

(d) The maintainability of the writ petition in light of alternate remedies available before the Debt Recovery Tribunal and other forums.

(e) The effect of the Petitioners' defaults on their entitlement to any concession or settlement, including the impact of non-renewal of lease and auction proceedings.

(f) The permissibility of HUDCO initiating precipitative steps under the Insolvency and Bankruptcy Code (IBC) during the pendency of settlement negotiations and writ proceedings.

(g) The quantum of outstanding dues payable by the Petitioners, including principal, interest, and costs, and the applicable rate of interest during pendency of litigation.

2. ISSUE-WISE DETAILED ANALYSIS

(a) Entitlement to OTS Scheme and Settlement Proposals

The legal framework involves HUDCO's OTS Scheme of 2014 and 2019, which set out conditions under which borrowers may settle dues. The Petitioners sought directions to compel HUDCO to accept their OTS offer, asserting that their case did not fall under the exclusion clause (Clause 6.4.1 of 2014 Scheme, Clause 6.5 of 2019 Scheme) that barred decreed cases from availing the scheme.

The Court examined the factual matrix showing the Petitioners' repeated defaults and the history of litigation. HUDCO consistently rejected the OTS proposals on grounds of erroneous calculations and entitlement to recover the full amount under the recovery certificate. The Court noted that the Petitioners had approached various forums, including the DRT, DRAT, NCLAT, and this Court, seeking relief and settlement.

The Court directed HUDCO to consider the fresh settlement proposal dispassionately but did not express any opinion on its merits. Ultimately, HUDCO rejected the OTS proposal, leading to adjudication on merits.

(b) Interpretation and Effect of Recovery Certificate and Interest Rate

The recovery certificate dated 12th August 2015, and its modification by DRAT on 1st April 2016, formed the core legal document defining the amount recoverable, interest rate, and default consequences. The DRAT had allowed four months' time to the Petitioners to pay the dues with simple interest @14% p.a., with a default clause that failure would entitle HUDCO to recover at contractual interest of 15.5% p.a. with quarterly rests.

The Court held that the recovery certificate and its modification are binding and final. It is not open to the Court in writ jurisdiction to reinterpret or go behind the recovery certificate to alter contractual terms. The Petitioners' failure to pay within the stipulated period disentitles them from claiming concessional interest rates thereafter.

HUDCO's Board had fixed the base rate at 15.5% as of 1st April 2013, with subsequent increases, which when applied with contractual terms, resulted in a significantly higher amount due. The Petitioners' contention that RBI circulars and fair practice codes should influence interest calculation was considered, but the Court noted that such circulars do not apply to decreed cases where recovery certificates have been issued.

(c) Power of the Court to Reduce Rate of Interest under Writ Jurisdiction

The Petitioners relied on Supreme Court and High Court precedents that courts can exercise discretion under writ jurisdiction to reduce interest rates, especially considering hardships such as the COVID-19 pandemic and RBI guidelines encouraging OTS and remission for MSMEs.

The Court acknowledged these precedents but emphasized the unique facts of the case, including the long delay, repeated defaults, and the public money involved. The Court balanced these factors by allowing a concessional simple interest rate of 14% p.a. on the amount due up to the date of issuance of the writ petition notice (23rd January 2020), while affirming that the contractual rate of 15.5% p.a. with quarterly rests applies thereafter if payment is not made by the stipulated deadline.

(d) Maintainability of the Writ Petition

HUDCO and an intervenor argued that the writ petition was not maintainable as alternate efficacious remedies existed before the DRT, especially in light of the Supreme Court judgment in South Indian Bank Ltd. vs. Naveen Mathew Philip, which restricts writ jurisdiction in matters where statutory remedies are available.

The Court, while noting these submissions, proceeded to hear the matter on merits, given the complex factual and procedural history and the ongoing litigation in multiple fora. The Court also clarified that the parties remain free to place the order before other forums for appropriate directions.

(e) Effect of Defaults, Non-renewal of Lease, and Auction Proceedings

The Petitioners' failure to renew the lease of the Noida property led to its termination by the Noida Authority, which was a material factor affecting the status of the property and the Petitioners' rights. The Court made it clear that unless the lease was restored, it would not entertain applications related to the property.

The auction notice issued by HUDCO was stayed by the Supreme Court and this Court during pendency of the writ petition and settlement negotiations. However, the Court observed that the Petitioners' repeated defaults and failure to comply with lease obligations undermined their position.

The Court directed the Petitioners to deposit substantial sums as a demonstration of bona fide and restrained HUDCO from initiating precipitative proceedings under the Insolvency and Bankruptcy Code while settlement offers were under consideration.

(f) Initiation of Precipitative Steps under IBC

The Court held that once it granted time to HUDCO to consider the Petitioners' settlement proposal, HUDCO ought not to have initiated precipitative steps under IBC. The Court directed the Petitioners to deposit Rs. 20 crores in two installments as a condition to HUDCO's continued forbearance and to demonstrate bona fide intent to settle.

HUDCO's rejection of the OTS proposal after such consideration led the Court to proceed with adjudication on merits.

(g) Quantum of Outstanding Dues and Interest Calculation

The Court directed both parties to place on record the statement of accounts reflecting disbursements, payments, and outstanding dues as per the recovery certificate and loan agreement.

The Petitioners contended that they had paid Rs. 135.38 crores against the disbursed Rs. 62.38 crores and sought interest calculation based on RBI base rates plus 1%, resulting in a lower outstanding amount.

HUDCO contended that applying the contractual rate of 15.5% p.a. with quarterly rests resulted in dues exceeding Rs. 200 crores.

Balancing these contentions, the Court held that the amount due as on 31st March 2025 was Rs. 150.18 crores, comprising principal of approximately Rs. 86.99 crores and interest of Rs. 63.19 crores at 14% p.a. till 23rd January 2020. The Rs. 20.61 crores deposited with the Court was to be released to HUDCO, leaving a net outstanding of Rs. 130.07 crores to be paid by 30th September 2025, including litigation costs of Rs. 50 lakhs.

The Court further directed that if the Petitioners failed to pay by the deadline, the full contractual interest rate of 15.5% p.a. with quarterly rests and costs would apply.

3. SIGNIFICANT HOLDINGS

"The final recovery certificate, which is still valid and has not been challenged by the Petitioners, is the order dated 1st April, 2016 along with the default clause as recognized by the recovery certificate dated 20th February, 2019."

"In terms of the said recovery certificate, in fact, the Petitioners are liable to pay the contractual rate of interest, which is 15.5% per annum with quarterly rests. The recovery certificate has clearly captured the contractual rate of interest itself and therefore, this Court is of the opinion that the Court cannot go behind the recovery certificate and look at the contractual clauses and interpret the same in this writ petition."

"The initial period of four months, which was granted for accepting the settlement under the OTS proposal has also lapsed. Thus, the Petitioners cannot in fact, claim any benefit after having defaulted and not paid within the four month period."

"Keeping in mind the prevalent rates of interest, the high rate of 15.5% with quarterly rests ought not be payable pendente lite, i.e., during the time when the present writ petition was pending. Some benefit in interest amount can be extended to the Petitioners to bring the matter to a closure."

"Accordingly, it is directed that on the due amount, which is calculated in terms of the recovery certificate till the date of issuance of notice in this writ petition, interest @14% per annum shall be paid by the Petitioners."

"If the amounts are not paid by 30th September, 2025, the Petitioners would then be liable to pay the entire amount in terms of the recovery certificate that would be @15.5% per annum with quarterly rests for the entire period along with the costs imposed today."

"Once this Court had, on 16.07.2024 acceded to the respondents' request for time to consider the petitioners' offer for settlement and had consequently given a short date with the hope that the parties will at least endeavour to explore the possibility of a settlement, the respondents ought to have restrained from initiating precipitative steps against the petitioners."

Core principles established include the binding nature of recovery certificates and appellate modifications thereof, the limited scope of writ jurisdiction in interfering with contractual interest rates where alternate remedies exist, and the Court's discretion to grant interim relief on interest rates to facilitate settlement and closure in long-drawn financial disputes involving public funds.

The final determinations include the dismissal of the Petitioners' claim to the OTS benefit post-default, affirmation of the contractual interest rate for dues post-notice date, directions for payment of outstanding amounts with adjusted interest, imposition of litigation costs, and conditional restraint on HUDCO's recovery actions pending payment and settlement efforts.

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