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Public sector banks cannot arbitrarily withdraw an accepted One-Time Settlement (OTS) once the agreed amount has been fully paid

The High Court held that a public sector bank cannot arbitrarily withdraw an accepted One-Time Settlement (OTS) once the agreed amount has been fully paid.


Delhi High Court Single-Judge Bench of Justice Ms. Mini Pushkarna help that a public sector bank cannot arbitrarily withdraw an accepted One-Time Settlement (OTS) once the agreed amount has been fully paid, and such withdrawal, based on unsubstantiated claims of non-compliance, is deemed arbitrary and unjustifiable.


In the case at hand, the petitioner sought to overturn a letter from Punjab and Sind Bank dated August 1, 2023 and emailed on August 2, 2023, which withdrew a previously agreed-upon One-Time Settlement (OTS) Scheme. The petitioner company had secured a term loan of ₹155 Crores from the bank on March 14, 2013, for a Noida Project, with additional loans from HDFC Limited and Punjab National Bank (PNB). The petitioner repaid HDFC Limited's loan in July 2018. A subsequent term loan of ₹150 Crores was issued on November 28, 2013, and an overdraft privilege of ₹100 Crores was granted on June 1, 2007. Due to repayment failures, these loans were classified as Non-Performing Assets (NPA) as of March 31, 2019, leading to a Corporate Insolvency Resolution Process (CIRP) that was annulled on August 2, 2022.


The petitioner approached the bank for debt settlement, successfully settling the Panipat Project’s OTS amount of ₹122 Crores, which led to the closure of that loan on October 28, 2022. For the Noida Project, the petitioner proposed a settlement amount for arrears as of April 1, 2019. After negotiations and clarifications, a final OTS proposal of ₹119.50 Crores was accepted on February 6, 2023, with a payment deadline extended to September 30, 2023. The petitioner completed payment of the OTS amount on August 1, 2023, and the interest on August 2, 2023. However, the bank withdrew the OTS on August 2, 2023, citing deviations and non-compliance.


The petitioner argued that there was no misrepresentation or concealment and that the OTS terms were transparent. They contested the bank's claims regarding non-compliance and alleged misrepresentation. Conversely, the bank claimed that the petitioner had misrepresented its financial status, particularly about payments to PNB, and argued that the OTS was based on incomplete and misleading information.


The High Court found the bank's claims of misrepresentation unfounded. It noted that there were no conditions in the OTS sanction letter requiring the OTS to depend on PNB’s separate OTS proposal. The Court rejected the bank’s arguments, emphasizing that there was no requirement to adjust the OTS terms based on PNB’s actions. It was noted that the petitioner had provided a letter affirming the status of its loan account with PNB, with no misrepresentation involved. The bank’s extension of the OTS repayment period was acknowledged, and the bank's withdrawal of the OTS was deemed improper.


The Court relied on precedents emphasizing that public sector banks must honour their commitments and cannot unilaterally withdraw offers once payments have been accepted. The Court referenced the principles established in cases like Kranti Associates Private Limited v. Masood Ahmed Khan, which stressed that administrative actions must be reasoned. Ultimately, the Court set aside the bank’s decision to withdraw the OTS and directed the release of the petitioner company’s securities and charges related to the loan account. The writ petition was allowed in the petitioner’s favour.

 

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