The Supreme Court Bench comprising Justices M. R. Shah and Krishna Murari, J. was hearing an Appeal on Friday and held that the High Court while exercising the powers under Article 226 of the Constitution of India, cannot direct the bank to reschedule OTS as it would be tantamount to modification of the contract which can be done by mutual consent under Section 62 of the Indian Contract Act.
In the present Appeal, the High Court in the exercise of powers under Article 226 of the Constitution of India granted a further six weeks’ time to the Respondent to make the payment of the balance amount as per the sanctioned letter of OTS dated 21.09.2017, the Appellant feeling aggrieved and dissatisfied with the impugned order passed by the High Court preferred the present appeal.
Facts:
The Appellant-bank sanctioned a cash credit in favour of the respondent-borrower in 2012. The account of the borrower was classified as NPA in 2015. The Bank came out with One Time Settlement (OTS) dated 01.09.2017. OTS specifically provided for making payment as settled under the OTS scheme within six months from the date of sanction, or else infructuous. The Bank sent an OTS offer to the borrower for OTS and the ledger outstanding as of 31.03.2017 was Rs.13,99,89,273.99. The amount payable under the OTS was Rs.10,53,75,069.74. The borrower accepted the OTS offer and deposited an amount of Rs.1.40 crores with the Bank on 31.10.2017. The Bank sanctioned OTS and confirmed receipt of Rs.1.40 crores.
Under the sanctioned OTS the borrower was required to deposit 25% of the OTS amount by 21.12.2017 and the balance amount is to be deposited within six months from the date of the letter up to 21.05.2018 with interest. The borrower was also informed that on non-payment of the aforesaid amount within the time stipulated under the OTS, the OTS will be rendered infructuous. The borrower deposited amounts of Rs.4,51,45,000/on 31.12.2017/21.05.2018. The borrower agreed/committed to pay Rs.3.50 crores on 21.05.2018 and requested an extension of 8 to 9 months for repayment of the balance amount of Rs.2.50 crores. The bank declined an extension of 9 months and directed the borrower to make the payment of 2.52 crores by 21.05.2018. Feeling aggrieved the borrower filed the writ petition before the High Court for an extension of 8 to 9 months to pay the outstanding amount of Rs.2.52 crores beyond 21.05.2018.
Thereafter the Bank floated another OTS Scheme for the settlement of the outstanding payment of Rs.9,48,39,614/for an amount of Rs.4,48,79,711/. However, the borrower did not opt for the said scheme. That thereafter another OTS Scheme was floated by the Bank in the year 2019 and the Bank made an offer to the borrower to settle the account for an amount of Rs.4,11,13,953/against an outstanding amount of Rs. 5,98,39,614/. The borrower again did not opt for the scheme. Even another OTS Scheme was floated which was offered to the borrower and the borrower did not opt for the scheme. Vide communication dated 24.02.2021 the bank rejected the OTS offer of Rs.2.05 crores as according to the Bank amount due by the borrower was Rs.23.54 crores. By the impugned judgment and order the High Court has set aside the communication dated 24.02.2021 rejecting the OTS offer of Rs.2.05 crores made by the borrower and has granted a further six weeks’ time from the impugned judgment and order passed by the High Court to the borrower to make the payment of Rs.2.02 crores with interest as per the OTS sanctioned letter dated 21.09.2017.
Feeling aggrieved and dissatisfied with the impugned order passed by the High Court granting a further six weeks’ time to the borrower to make the payment of the balance amount under the OTS Scheme, the Bank has preferred the present appeal.
Appellant’s Submission:
Learned counsel appearing on behalf of the Bank submitted that the High Court has committed a very serious error in granting a further six weeks’ time to the borrower to make the payment of the balance amount due and payable under the OTS which was due and payable in the year 2017, in the exercise of powers under Article 226 of the Constitution of India.
Learned counsel appearing on behalf of the Bank was relying upon the decision of the Supreme Court in the case of Bijnor Urban Cooperative Bank Limited, Bijnor and Others v. Meenal Agarwal and Others, REED 2021 SC 12202 submitted that as observed and held by the Supreme Court, the grant of benefit of OTS Scheme cannot be claimed as a matter of right and shall always be subject to fulfilling the eligibility criteria mentioned in the scheme. It was submitted that in the present case the borrower was required to fulfil the terms and conditions of the OTS and was required to make the payment as per the schedule mentioned in the sanctioned letter of OTS. It was submitted that any deviation from making the payment as per the sanctioned OTS Scheme would render the OTS sanction infructuous, as per the sanction letter dated 21.11.2017. It was submitted that therefore the High Court in the exercise of powers under Article 226 of the Constitution of India ought not to have granted any further time de hors the sanctioned scheme and/or the sanction letter dated 21.11.2017 and that too in the exercise of powers under Article 226 of the Constitution of India.
It was submitted by the learned counsel appearing on behalf of the Bank that the Hon’ble High Court under Article 226 of the Constitution of India cannot direct reschedule 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.
Respondent’s Submission:
Learned Advocate appearing on behalf of the borrower has submitted that the appellant being a State is duty bound to act in a fair, transparent and non-discriminatory manner and any arbitrary action of the Bank is amenable to the writ jurisdiction of the High Court.
It was submitted that in the present case the Bank arbitrarily and without just cause or explanation rejected the respondent’s request for extension while extending the benefit of extension of OTS to other borrowers.
It was submitted that the same was contrary to the spirit of the guidelines of the Reserve Bank of India, especially since one of the Scheduled Banks has already set a criterion of such nature which has also been dealt with by the High Court in the case of Anu Bhalla and Another v. District Magistrate, Pathankot and Another, REED 2020 P&H 09209, the judgment which has been relied upon by the High Court. It was submitted that thus, in absence of any criterion and an arbitrary rejection by the Bank, the Hon’ble High Court has rightly allowed the prayer of the respondent borrower for an extension of time.
Relying upon the decision of the High Court of Punjab and Haryana in Anu Bhalla, REED 2020 P&H 09209, and the decision of the Supreme Court in the case of Sardar Associates and Others v. Punjab & Sind Bank and Others, REED 2009 SC 07201, it was vehemently submitted by learned Advocate appearing on behalf of the respondent – borrower that the High Court has powers under Article 226 of the Constitution of India to extend the time period under the OTS.
Court’s Analysis:
The Supreme Court noted that by the impugned judgment and order the High Court extended time by a further period of six weeks from 10.03.2022 in favour of the respondent borrower–original writ petitioner to make the payment of the balance amount which was due and payable under the sanctioned OTS Scheme which was sanctioned in the year 2017 in the exercise of powers under Article 226 of the Constitution of India.
Therefore, the short question which was posed for consideration by the Supreme Hon’ble Court was whether in the facts and circumstances of the case the High Court was justified in extending the period to make the payment of the balance amount under sanctioned OTS Scheme beyond the time granted under the sanctioned OTS Scheme while exercising the powers under Article 226 of the Constitution of India?
On a detailed analysis of the OTS Scheme, it was observed that, (i) no borrower can, as a matter of right pray for a grant for the benefit of a one-time Settlement scheme; (ii) No writ of mandamus can be issued by the High Court in the 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 Supreme Court noted that though the decision of the Supreme Court in the case of Bijnor Urban Cooperative Bank Limited, Bijnor and Others v. Meenal Agarwal and Others, REED 2021 SC 12202, was specifically pressed in service on behalf of the Bank and was pointed out to the High Court, the High Court instead following the binding decision of this Court in the case of Bijnor Urban Cooperative Bank Limited, REED 2021 SC 12202, has not followed the same by observing that the earlier decision of the Supreme Court in the case of Sardar Associates, REED 2009 SC 07201, was more elaborate. The SC Bench did not approve such an observation by the High Court and not following the subsequent binding decision of the Supreme Court which as such was on point. Being a subsequent decision on the point/issue, the High Court was bound to follow the same.
In the present case in the sanctioned letter dated 21.11.2017 it was specifically provided that the entire payment be made by 21.05.2018. The schedule to make the payment under the instalments was also mentioned. It was an admitted position that the borrower did not make the payment due and payable under the sanctioned OTS Scheme on or before the date mentioned in the sanctioned letter. The prayer of the borrower for an extension of nine months came to be rejected as far as back 16.05.2018 and the borrower was directed to make the payment of Rs.2.52 crores by 21.05.2018, but the borrower failed to make the payment. At this stage, it was required to be noted that during the pendency of the writ petition there were as many as three different OTS floated by the Bank and the Bank offered the respondent borrower to settle the outstanding payment under the OTS Scheme. However, the borrower did not opt for any of the schemes. By the impugned Judgment and Order, the High Court has granted a further six weeks’ time from 10.03.2022 which would be beyond even the time prayed by the borrower in the year 2018. As observed above an earlier period of 8 to 9 months was sought in the year 2018 and by the impugned judgment and order the borrower has got time up to May 2022. Even otherwise as rightly submitted on behalf of the Bank directing the Bank to reschedule the payment under OTS would be tantamount to modification of the contract which can be done by mutual consent under Section 62 of the Indian Contract Act. By the impugned judgment and order rescheduling the payment under the OTS Scheme and granting an extension of time would be tantamount to rewriting the contract which is not permissible while exercising the powers under Article 226 of the Constitution of India.
The Supreme Court noted that the submissions on behalf of the borrower that in the case of some other borrowers the time was extended were concerned, the same was neither here nor there. The Bank mutually can agree to extend the time which is permissible under Section 62 of the Indian Contract Act. 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.
The Supreme Court observed that so far as the reliance placed upon the decision of Punjab and Haryana High Court in the case of Anu Bhalla and Another v. District Magistrate, Pathankot and Another, REED 2020 P&H 09209, was concerned, in view of the direct decision of this Court in the case of Bijnor Urban Cooperative Bank Limited, REED 2021 SC 12202, the decision of the Supreme Court would be binding on the High Court.
In view of the above and for the reason stated above, the Supreme Court noted that the impugned judgment and order passed by the High Court granting further time to the respondent–borrower to make the balance payment under the OTS Scheme in the exercise of powers under Article 226 of the Constitution of India was unsustainable and the same was set aside. Consequently, the original writ petition filed by the respondent–borrower stands dismissed. The present appeal was accordingly allowed.
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