2025 (9) TMI 929 - SC - Indian Laws

OTS 2020 eligibility isn't absolute; applicants must pay 5% upfront (15% if wilful), matter sent back for reconsideration

Assistant General Manager State Bank Of India & Anr. Versus Tanya Energy Enterprises Through Its Managing Partner Shri Alluri Lakshmi Narasimha Varma.

SC allowed the appeal, holding that eligibility under the OTS 2020 Scheme is not an absolute right and requires compliance with stipulated conditions ... NPA - Loan repayment default - Entitlement for benefit of One Time Settlement (OTS) - absolute right or not - failure to adhere to the payment schedule and defaulted in its obligation to repay - Rejection of the respondent’s application without due consideration or opportunity of hearing - violaton of principles of natural justice - whether the High Court erred in its interference with the said order of rejection of the respondent’s application under the OTS 2020 Scheme and directing re-consideration thereof? - HELD THAT:- Every borrower in default, to have his application under the OTS 2020 Scheme considered, was required to apply together with an up-front payment of 5% of the OTS amount. The manner of calculation of the OTS amount was provided in clause 3A (v) of the OTS 2020 Scheme. For wilful defaulters, payment of 15% was required. It has not been argued before us that the respondent falls in the category of a ‘wilful defaulter’; however, it is certainly a defaulter. No doubt, clause 2.1 of the OTS 2020 Scheme laying down cases which are “not eligible” had no application qua the respondent but overcoming the “not eligible” criteria did not amount to satisfying the other eligibility criteria. Not being covered by clause 2.1 does not necessarily lead to the conclusion that a defaulting borrower is automatically entitled to have the loan account settled on the basis of the OTS 2020 Scheme. Crossing the hurdle of eligibility per se would not entitle a defaulting borrower to claim consideration of his/its application unless the application itself satisfies the other stipulated conditions. The respondent’s conduct disabled itself to have a fair and objection consideration of its application for OTS. Dismissal of the intra-court appeal of the appellants by the impugned judgment and order of the Division Bench is set aside together with the judgment and order of the Single Judge allowing the respondent’s writ petition because a relevant factor was kept out of its consideration, which has the effect of significantly impacting the outcome of the respondent’s application for OTS. Appeal allowed. 1. ISSUES PRESENTED AND CONSIDERED 1. Whether a borrower's application under a bank's One Time Settlement (OTS) scheme can be judicially enforced by mandamus or direction to consider, where scheme conditions are not satisfied. 2. Whether a writ court may uphold or require re-consideration of an administrative rejection by relying on a ground not expressly stated in the rejection letter but discernible from the scheme and record. 3. Whether failure to make mandatory up-front payment required by an OTS scheme is a valid and independent ground to refuse processing of an OTS application. 4. Whether the existence of prior failed compromise or previous auction proceedings disentitles a borrower per se from consideration under an OTS scheme. 5. Whether the High Court erred in directing re-consideration of an OTS application without noticing or applying the scheme's other eligibility/conditional clauses. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Enforceability of OTS consideration by mandamus Legal framework: OTS schemes are contractual/administrative schemes of a secured creditor; courts cannot compel positive grant of OTS by way of mandamus; grant is subject to scheme eligibility and discretion. Precedent Treatment: The Court follows the principle that no writ can compel grant of OTS; cites earlier decisions holding that mandamus cannot direct a secured creditor to grant OTS and that grant is subject to eligibility (law affirmed in earlier decisions referenced). Interpretation and reasoning: The Court distinguishes between compelling a positive grant and directing reconsideration; it recognises that judicial review may require re-consideration but not an order to grant OTS. Thus, relief limited to ensuring consideration in accordance with law and scheme terms. Ratio vs. Obiter: Ratio - courts cannot issue mandamus to compel grant of OTS; they can, however, require fair consideration consistent with eligibility criteria and natural justice. Conclusions: A writ compelling grant of OTS is impermissible; judicial intervention is limited to ensuring procedural fairness and correct application of scheme terms. Issue 2 - Reliance on grounds not stated in rejection letter Legal framework: Administrative orders must be tested by the grounds stated therein; ordinarily courts should not validate an order by permitting additional grounds raised later; exceptions exist where public interest or alternative grounds appearing from the record justify consideration. Precedent Treatment: The Court analyses and reconciles precedents that restrict courts to grounds in the administrative order (e.g., Commissioner of Police; Mohinder Singh Gill) with later authorities permitting resort to subsequent material in certain contexts; it references decisions distinguishing or limiting the Gill principle. Interpretation and reasoning: The Court adopts a nuanced approach - while courts normally confine themselves to grounds mentioned in the impugned order, they may, in appropriate cases, examine alternative grounds that are manifest from the factual narrative or records and could have validly supported the administrative decision, provided affected parties are put on notice and given opportunity to respond. Ratio vs. Obiter: Ratio - courts may uphold administrative decisions on alternative grounds traceable from the record where the stated grounds are unsustainable, but fairness demands notice and an opportunity to respond; this reconciles prior authorities. Conclusions: It is permissible, in appropriate cases, to consider an unstated but record-evident ground to sustain an administrative rejection, subject to procedural fairness safeguards; this does not permit after-the-fact validation by new grounds presented only in affidavits or argument without notice. Issue 3 - Effect of failure to make mandatory up-front payment under OTS Legal framework: The specific terms of the OTS 2020 Scheme required deposit of an up-front payment (5% or 15%) at the time of application; the scheme stipulated that applications without such payment need not be processed. Precedent Treatment: No precedent was treated as overruling the scheme terms; the Court applies contractual/administrative law principles respecting express eligibility conditions of schemes. Interpretation and reasoning: The Court finds on the record that the applicant did not deposit the mandatory up-front payment; clause 4(i) therefore rendered the application incomplete and not amenable to processing. Although clause 4(i) was not cited in the rejection letter, it is a fundamental and dispositive ground apparent from the scheme and records. Ratio vs. Obiter: Ratio - non-deposit of the mandatory up-front payment under the scheme is a fundamental illegality/deficiency that justifies rejection without further substantive consideration; where such a ground is recorded in the scheme and evident on the record, it may sustain the rejection subject to fair notice. Conclusions: The respondent's application was not eligible for processing because of failure to make the stipulated up-front payment; this ground justified the rejection and was sufficient to render the High Court's interference improper unless procedural opportunity to meet that point had been afforded. Issue 4 - Relevance of prior failed compromise or auction proceedings Legal framework: Scheme eligibility clauses specify categories of ineligibility; however, not being listed as 'not eligible' does not automatically entitle a borrower to processing if other conditions of the scheme are not satisfied. Precedent Treatment: The Court treats prior authorities as recognizing that prior conduct (failed compromise, auctions) may bear on discretionary consideration but does not by itself preclude judicial review of eligibility or procedural fairness. Interpretation and reasoning: The Court holds that while clause 2.1 (listing ineligible cases) did not apply to the borrower, overcoming that clause does not mean all other conditions are satisfied; prior failed compromises/auction conduct can be relevant but cannot substitute for compliance with express scheme conditions such as up-front payment. Ratio vs. Obiter: Ratio - prior failed compromise or auction does not automatically deprive a borrower of eligibility; compliance with every scheme condition remains requisite. Conclusions: Prior conduct is a relevant factor but does not trump express scheme conditions; absence of application of other eligibility clauses rendered the High Court's direction for re-consideration incomplete. Issue 5 - Whether High Court erred in directing re-consideration Legal framework: Judicial review demands courts ensure decision-making conforms to scheme terms and principles of natural justice; courts may remit for re-consideration where administrative decision is defective. Precedent Treatment: The decision reconciles precedents restricting after-the-fact validation with principles permitting courts to consider record-evident grounds and direct re-consideration when administrative process was flawed. Interpretation and reasoning: The Court finds that both the Single Judge and Division Bench failed to notice clause 4(i) and the absence of mandatory up-front payment; because that relevant factor was not considered by the High Court, its direction for re-consideration was unjustified. The Court also affirms that even if the High Court had limited its direction to re-consideration on clause 2, it failed to apply all relevant eligibility clauses. Ratio vs. Obiter: Ratio - interference directing re-consideration is unjustified where an unconsidered, fundamental, record-evident ground (non-compliance with mandatory scheme condition) sufficiently justifies rejection; courts must consider all material scheme conditions before directing re-consideration. Conclusions: The High Court erred in directing re-consideration absent application of clause 4(i); the appellate interference was set aside and the administrative rejection sustained on the ground of non-deposit of mandatory up-front payment, subject to procedural fairness if the borrower seeks fresh settlement outside the OTS 2020 Scheme. Final Disposition (as derived from judgment) The Court allows the appeal, sets aside the High Court's orders directing re-consideration under the OTS 2020 Scheme because a material eligibility condition (mandatory up-front payment) was not complied with and was not considered; the secured creditor is free to proceed with enforcement in accordance with law, and the borrower is granted liberty to submit a fresh settlement proposal (not under the OTS 2020 Scheme) to be considered on its merits.