2025 (11) TMI 12 - HC - IBC

Petition to force bank to disclose OTS benchmark or grant settlement relief dismissed; Article 226 relief denied

Ms. Archana Wani Versus Indian Bank (Erstwhile Allahabad Bank) Deputy General Manager, Stressed Asset management Department Mumbai, The Reserve Bank of India, Financial Inclusion and Development, M/s Poonam Resorts Ltd. N. Kumar Housing and Infrastructure.

HC dismissed the petition seeking a directive to compel a bank to disclose its OTS benchmark or to grant settlement relief. The court noted the bank is a ... Recovery of dues - borrower/guarantor can ask mandate from the court to compel the creditors/bank to disclose benchmark and settle the matter ignoring OTS proposal submitted - whether Court can give direction to disclose benchmark, which according to the petitioner has not been disclosed and changed from time to time by way of vague replies? - proposal for One Time Settlement (OTS) rejected on the ground that proposal submitted by the petitioner fails to meet the benchmark - principle of legitimate expectation - HELD THAT:- Respondent-Bank is a ‘State' within the meaning of Article 12 of the Constitution of India apart from the fact that it is bound to follow the guidelines issued by the Reserve Bank of India. If, therefore, the broad policy decisions contained in the guidelines were required to be followed, the power of the Board of Directors to make deviation in terms of Clause 4 thereof would only be in relation to some minor matters which does not touch the broad aspects of the policy decision and in particular the one governing the non-discriminatory treatment. In a case of this nature, we are satisfied that the respondent-Bank is guilty of violation of the equality clause contained in the Reserve Bank of India guidelines as also Article 14 of the Constitution of India - In that case, there was a specific policy regarding OTS scheme which was adopted in view of guidelines of Reserve Bank of India. In the instant case, no such guidelines has been produced on record. No doubt, the issue of legitimate expectation was dealt with by the Court in detail but fact remains that there was absolutely no policy laid down by the respondent lender bank for OTS, therefore, there is no question of legitimate expectation since there was no expressed promise or existing regular practice of OTS which has brought to the notice of the Court. No scheme is produced for perusal. In the light of observation of the Hon’ble Apex Court in Bijnor Urban Cooperative Bank Ltd and Ors Vs. Meenal Agrawal and Others [2021 (12) TMI 669 - SUPREME COURT] in that it can be said that if the bank/financial institution is of opinion that loanee has the capacity to make the payment or bank is able to recover the entire loan amount, even by auctioning the mortgaged property, the bank would be justified in refusing to grant benefit under the OTS scheme, and ultimately, such decision should be left to the commercial wisdom of the bank whose amount is involved and it is always to be presumed that bank shall take a prudent decision whether to grant the benefit under the OTS scheme, having regard to the public interest involved, it is not intended to interfere. Thus, exercising power under Article 226 of the Constitution of India would not be in the interest of justice and therefore, petition is dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether a court can, in exercise of writ jurisdiction (Article 226), mandate a bank/financial creditor to disclose the 'benchmark' for grant of One Time Settlement (OTS) or compel the bank to accept an OTS proposal. 2. Whether refusal by a bank/financial creditor to accept an OTS proposal, without disclosing any internal 'benchmark', amounts to arbitrary action justifying judicial interference. 3. Whether judicial review under Article 226 is available where recovery steps have been initiated under the SARFAESI Act and/or a CIRP has been initiated under the Insolvency and Bankruptcy Code (IBC), and if so, to what extent (i.e., interplay of writ jurisdiction with special statutory schemes). 4. Whether the doctrine of legitimate expectation can be invoked to compel a bank to follow an alleged practice or promise (e.g., consideration/acceptance of OTS) in the absence of any established policy or consistent practice. 5. Whether the court may pass observations affecting ongoing tribunal/tribunal-like proceedings or direct disclosure/audit of bank records by regulatory authority in the circumstances of this case. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Court's power to mandate disclosure of OTS benchmark or compel acceptance of OTS Legal framework: Writ jurisdiction under Article 226; contractual freedom between creditor and debtor; OTS schemes as commercial/administrative measures of banks governed by internal scheme criteria and RBI guidelines where applicable. Precedent Treatment: Relied-upon authorities hold that (a) an OTS benefit cannot be claimed as a matter of right; (b) courts should not, in exercise of writ jurisdiction, direct a bank to grant OTS de hors eligibility criteria; and (c) directing a bank to reschedule/modify contractual terms amounts to rewriting the contract (requiring mutual consent under contract law). Decisions treating moratorium under IBC and SARFAESI interplay are considered where relevant. Interpretation and reasoning: The Court emphasized that OTS is a commercial/commercial-wisdom driven mechanism of the bank. For a court to mandate disclosure of an internal 'benchmark' or to compel acceptance of OTS would effectively rewrite contractual/commercial terms and substitute judicial discretion for the bank's commercial judgment. No statutory or mandatory regulatory requirement to disclose internal benchmarks was shown to exist in the record; absence of a disclosed or mandatory OTS policy undermines any basis for compelling disclosure or acceptance. Ratio vs. Obiter: Ratio - courts will not issue writs compelling banks to grant OTS or to disclose internal benchmarks where no statutory obligation or established policy exists. Obiter - general remarks on fairness and public interest in recovery of public money. Conclusion: The Court will not compel disclosure of an OTS benchmark nor force acceptance of an OTS proposal in the absence of a mandatory policy, statutory duty, or clear right in favour of the debtor/guarantor. Issue 2 - Arbitrariness in refusal to accept OTS absent disclosure of benchmark Legal framework: Administrative law principle against arbitrariness; Article 14 considerations where state action or state-like entities act; banks' duty to follow mandatory regulatory guidelines; commercial prudence in protection of public funds. Precedent Treatment: Decision distinguishing cases where specific discriminatory policy existed or where RBI guidelines and an internal OTS policy required non-discriminatory compliance. Authorities were applied to show that arbitrariness may be found where an express policy or mandatory guideline is flouted. Interpretation and reasoning: The Court found no material showing a specific mandatory OTS policy or an RBI-mandated benchmark applicable to the facts. Mere repeated rejection of OTS proposals citing failure to meet a nebulous 'benchmark' does not, without evidence of a required disclosure obligation or discriminatory application, create a right or prove arbitrariness. Where the creditor deals with public money and believes it can recover full dues, refusal to grant OTS aligns with public interest and commercial prudence. Ratio vs. Obiter: Ratio - absence of a mandatory policy or a requirement to disclose internal benchmarks precludes finding of arbitrariness solely on the ground of nondisclosure. Obiter - comment that discriminatory deviation from mandatory guidelines could attract Article 14 scrutiny (referred to prior authority). Conclusion: Refusal to accept the OTS proposals without disclosing an internal benchmark was not held arbitrary in the absence of an established policy or demonstrated discriminatory treatment. Issue 3 - Availability and scope of writ relief where SARFAESI/IBC proceedings are pending Legal framework: SARFAESI Act (powers to enforce security interest), IBC (CIRP and statutory moratorium under Section 14), and constituent powers of superintendence/review under Article 226. Principle that special statutes may limit or guide judicial intervention. Precedent Treatment: The Court considered authorities holding (a) that certain proceedings benefiting the corporate debtor may not be barred by moratorium (Power Grid distinction), (b) that steps to enforce security interests can be prohibited by moratorium once CIRP is admitted (Indian Overseas Bank), and (c) that IBC's object is to address insolvency and not to punish solvent companies (Vidarbha). Interpretation and reasoning: The Court observed that special statutory regimes (SARFAESI and IBC) regulate recovery and insolvency processes and circumscribe the scope of traditional writ remedies. It distinguished authorities where their ratios did not fit present facts: here the core question is debtor's default and bank's recovery rights, not a proceeding that benefits the corporate debtor in a manner akin to non-recovery actions. The Court declined to exercise writ power to interfere with creditor commercial decisions or with processes already engaged under SARFAESI/IBC in respect of recovery of public funds. Ratio vs. Obiter: Ratio - writ jurisdiction should not be used to obstruct or substitute commercial or statutory mechanisms for recovery (SARFAESI/IBC), especially where recovery of public money is involved and no compelling statutory violation is shown. Obiter - detailed distinctions of moratorium jurisprudence as applied to non-debt-recovery proceedings. Conclusion: Judicial intervention under Article 226 was inappropriate to direct disclosure of benchmarks or to compel acceptance of OTS while SARFAESI/IBC remedies are in play; such matters are to be left to the creditor's commercial judgment and statutory processes unless malafide or contrary to mandatory law is shown. Issue 4 - Applicability of legitimate expectation doctrine to compel bank action on OTS Legal framework: Doctrine of legitimate expectation requires a clear promise, established practice, or an assurance by a public authority such that the claimant reasonably expects continuation; ordinarily applied in public law contexts where fairness requires protection. Precedent Treatment: Courts recognize legitimate expectation where there is express promise or consistent practice; however, absent any policy or promise, the doctrine cannot be invoked to create a substantive right to a commercial concession such as OTS. Interpretation and reasoning: The Court held that no express promise, statutory obligation, or consistent practice was established to ground legitimate expectation. A mere hope or repeated consideration/rejection of OTS proposals without a promised entitlement does not satisfy the doctrinal threshold. Moreover, the doctrine cannot override contractual obligations to repay public funds. Ratio vs. Obiter: Ratio - the doctrine of legitimate expectation does not apply in the absence of an express promise or established practice; thus it cannot be used to compel a bank to grant OTS. Obiter - references to principles from European jurisprudence and prior case law illustrating legitimate expectation contours. Conclusion: Legitimate expectation did not arise on the facts; it cannot be invoked to compel disclosure or acceptance of OTS. Issue 5 - Prayer for regulatory audit/disclosure and effect on ongoing tribunal proceedings; interim relief Legal framework: Separation of functions between courts, statutory tribunals (DRT/NCLT/NCLAT), and regulatory authorities; doctrine against making observations that prejudice pending tribunal processes. Precedent Treatment: Courts refrain from passing orders or observations that would interfere with active tribunal adjudications or the statutory processes; regulatory directions require clear jurisdictional basis and supporting material. Interpretation and reasoning: The Court declined to pass orders directing the regulator to appoint an auditor or to make observations that might affect tribunal proceedings pending under SARFAESI/IBC. As to interim stay, the Court exercised discretion to continue an existing interim order for a limited six-week period given longstanding interim protection, balancing prejudice to the creditor and applicant. Ratio vs. Obiter: Ratio - courts should not make extraneous orders affecting ongoing tribunal proceedings or direct regulatory audits absent a clear legal basis. Obiter - limited discretionary extension of interim relief for a finite period to avoid immediate prejudice. Conclusion: No direction for regulatory audit/disclosure was issued; interim stay was extended for six weeks only, after which it stands vacated automatically. OVERALL CONCLUSION The Court dismissed the petition seeking mandamus/disclosure/compulsion in relation to OTS benchmark and acceptance, holding that (i) no mandatory duty to disclose an internal OTS 'benchmark' was shown; (ii) refusal to accept OTS in the circumstances was not arbitrary; (iii) writ intervention would amount to rewriting contracts or substituting commercial judgment and is inappropriate where SARFAESI/IBC remedies and public-interest considerations exist; and (iv) the petitioners did not establish grounds for directing regulatory audit or other intrusive relief. The existing interim protection was extended for six weeks, to be vacated automatically thereafter.