High Court held that once a bank accepts payment under a settlement scheme (OTS), it cannot refuse to release mortgaged property despite minor non-compliance.
The Kerala High Court Single-judge Bench of Justice Dinesh Kumar Singh was hearing a petition filed by the borrower against the bank and observed that Once a bank accepts payments under a settlement scheme (OTS) within the prescribed outer limit, it cannot later assert non-compliance with the scheme's terms unless it formally communicates such a lapse, and the petitioner is entitled to the release of the mortgaged property upon payment of any applicable interest for delayed instalments.
In the matter at hand, the petitioner, who is the proprietor of ‘M/s Sha Selections’ and ‘M/s Sha Fabrics’, availed two loan facilities from the State Bank of India (SBI) amounting to Rs.25 lakhs and Rs.10 lakhs, respectively. To secure these loans, the petitioner provided his residential property as collateral. Due to the adverse economic impacts of the COVID-19 pandemic and subsequent lockdowns, the petitioner defaulted on the loan repayments. In response, the Bank initiated SARFAESI proceedings and filed an Original Application with the DRT-II Ernakulam.
Subsequent to these actions, the Bank introduced the “Rinn Samadhan 2021-22 Scheme” to facilitate loan settlements and offered this scheme to the petitioner via letters dated 10.11.2021 and 31.01.2022. The petitioner received calculation slips detailing the amounts required under the scheme for the two loans: Rs.22,92,712 for the first and Rs.6 lakhs for the second. The offer for the first loan included an OTS amount of Rs.28,66,712.40, requiring various instalments and conditions, including an exemption from interest if the total amount was paid within 90 days. For the second loan, the settlement amount was Rs.7,50,000, with specific instalment requirements and interest conditions.
The petitioner complied with the terms of the OTS schemes, making the total payments within the prescribed outer limit. However, the Bank contended that the petitioner defaulted on the timely payment of the second instalment, asserting that this failure disqualified the petitioner from the scheme benefits. Despite accepting the payments, the Bank did not formally notify the petitioner of any lapses or withdrawal of the scheme.
The Court observed that once the Bank accepted the payments within the outer limit of the settlement schemes without issuing any formal notice of non-compliance, it was improper for the Bank to later claim that the petitioner did not adhere to the terms of the schemes. Consequently, the Court directed the Bank to release the title deeds of the mortgaged property to the petitioner. However, the petitioner is required to pay interest on the delayed second instalment payments at the original loan rate. The Bank must calculate this interest and communicate it to the petitioner within 15 days. Upon receipt of this payment, the Bank is ordered to promptly release the title deeds. The writ petition was allowed, and no costs were awarded.
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