STATE BANK OF INDIA versus ARVINDRA ELECTRONICS PVT. LTD. on 4 November 2022

1. Feeling aggrieved and dissatisfied with the impugned judgmentand order dated 10.03.2022 passed by the High Court of Punjab andHaryana at Chandigarh in CWP No.12953 of 2018 by which in exerciseof powers under Article 226 of the Constitution of India the High Courthas granted further six weeks’ time to the original writ petitioner to makethe payment of balance amount (Rs.2.02 crores with interest) as per thesanctioned letter of OTS dated 21.09.2017, the State Bank of India haspreferred the present appeal.

2. The facts leading to the present appeal in a nutshell are asunder:

2.1 That the State Bank of India (hereinafter referred to as ‘theBank’) sanctioned a cash credit in favour of the respondent - ArvindraElectronics Private Ltd. (hereinafter referred to as ‘Borrower’). In 2012,the account of the borrower was classified as NPA in 2015. The Bankcame out with one time settlement (hereinafter referred to as ‘OTSScheme’) dated 01.09.2017. OTS specifically provided for makingpayment as settled under the OTS scheme within six months from thedate of sanction, else infructuous. The Bank sent OTS offer to theborrower for OTS and ledger outstanding as on 31.03.2017 wasRs.13,99,89,273.99. The amount payable under the OTS wasRs.10,53,75,069.74. The borrower accepted the OTS offer and depositedan amount of Rs.1.40 crores with the Bank on 31.10.2017.

2.2 The Bank sanctioned OTS and confirmed receipt of Rs.1.40crores. Under the sanctioned OTS the borrower was required to deposit25% of the OTS amount by 21.12.2017 and the balance amount to bedeposited within six months from the date of letter upto 21.05.2018 with A

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Ainterest. The borrower was also informed that on non-payment of theaforesaid amount within the time stipulated under the OTS, the OTS willbe rendered infructuous. The borrower deposited amounts ofRs.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 extensionof 8 to 9 months for repayment of the balance amount of Rs.2.50 crores.BThe bank declined extension of 9 months and directed the borrower tomake the payment of 2.52 crores by 21.05.2018. Feeling aggrieved theborrower filed the writ petition before the High Court for extension of 8to 9 months to pay the outstanding amount of Rs.2.52 crores beyond21.05.2018.C

2.3 That thereafter the Bank floated another OTS Scheme forsettlement of outstanding payment of Rs.9,48,39,614/- for an amount ofRs.4,48,79,711/-. However, the borrower did not opt for the said scheme.That thereafter one another OTS Scheme was floated by the Bank inthe year 2019 and the Bank made an offer to the borrower to settle theDaccount for an amount of Rs.4,11,13,953/- against outstanding amountof Rs. 5,98,39,614/-. The borrower again did not opt for the scheme.Even one another OTS Scheme was floated which was offered to theborrower and the borrower did not opt for the scheme. Videcommunication dated 24.02.2021 the bank rejected the OTS offer ofRs.2.05 crores as according to the Bank amount due by the borrowerEwas Rs.23.54 crores. By the impugned judgment and order the HighCourt has set aside the communication dated 24.02.2021 rejecting theOTS offer of Rs.2.05 crores made by the borrower and has grantedfurther six weeks’ time from the impugned judgment and order passedby the High Court to the borrower to make the payment of Rs.2.02Fcrores with interest as per the OTS sanctioned letter dated 21.09.2017.

2.4 Feeling aggrieved and dissatisfied with the impugned judgmentand order passed by the High Court granting further six weeks’ time tothe borrower to make the payment of balance amount under the OTSScheme, the Bank has preferred the present appeal.G

3. Shri Sanjay Kapur, learned counsel appearing on behalf of theBank has vehemently submitted that the High Court has committed avery serious error in granting further six weeks’ time to the borrower tomake the payment of balance amount due and payable under the OTSwhich was due and payable in the year 2017, in exercise of powersunder Article 226 of the Constitution of India.H

3.1 Shri Kapur, learned counsel appearing on behalf of the Bankrelying upon the decision of this Court in the case of Bijnor UrbanCooperative Bank Limited, Bijnor and Others vs. MeenalAgarwal and Others, (2021) SCC Online SC 1255 has submitted thatas observed and held by this Court, the grant of benefit of OTS Schemecannot be claimed as a matter of right and shall always be subject tofulfilling the eligibility criteria mentioned in the scheme. It is submittedthat in the present case the borrower was required to fulfil the terms andconditions of the OTS and was required to make the payment as per theschedule mentioned in the sanctioned letter of OTS. It is submitted thatany deviation from making the payment as per the sanctioned OTSScheme would render the OTS sanction infructuous, as per the sanctionletter dated 21.11.2017. It is submitted that therefore the High Court inexercise of powers under Article 226 of the Constitution of India oughtnot to have granted any further time de hors the sanctioned scheme and/or the sanction letter dated 21.11.2017 and that too in exercise of powersunder Article 226 of the Constitution of India.

3.2 It is submitted by Shri Kapur, learned counsel appearing onbehalf of the Bank that the Hon’ble High Court under Article 226 of theConstitution of India cannot direct rescheduling the payment under theOTS as it amounts to modification of the contract which can be done bymutual consent under Section 62 of the Indian Contract Act.

3.3 It is submitted that the Hon’ble High Court ought to haveappreciated that the OTS does not involve any public element and theOTS is/was non-discriminatory and non-discretionary and shall beapplicable uniformly to all borrowers.

3.4 It is submitted that by the impugned judgment and order theHon’ble High Court has rewritten the contract which is not permissiblethat too while exercising the powers under Article 226 of the Constitutionof India.

3.5 It is further submitted by learned counsel appearing on behalfof the Bank that though the decision in the case of Bijnor UrbanCooperative Bank Limited (supra) was pointed out to the High Court,the High Court has not followed the said binding decision by observingthat the earlier decision of this Court in the case of Sardar Associatesversus Punjab & Sind Bank and Others, (2009) 8 SCC 257 is moreelaborate and accurate. It is submitted that apart from the fact that theissue involved in the case of Sardar Associates (supra) was entirely A

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Adifferent, the decision in the case of Bijnor Urban Cooperative BankLimited (supra) is subsequent and on the point the same was bindingupon the High Court and the High Court ought to have followed thesame.

Making above submissions and relying upon the decision of thisBCourt in the case of Bijnor Urban Cooperative Bank Limited (supra),it is prayed to allow the present appeal and set aside the judgment andorder passed by the High Court.

4. Present appeal is vehemently opposed by Shri D.P. Singh,learned Advocate appearing on behalf of the respondent.C4.1 Learned Advocate appearing on behalf of the borrower hassubmitted that the appellant being a State is duty bound to act in a fair,transparent and non-discriminatory manner and any arbitrary action ofthe Bank is amenable to the writ jurisdiction of the High Court.

D4.2 It is submitted that in the present case the Bank arbitrarily andwithout just cause or explanation rejected the respondent’s request forextension while extending the benefit of extension of OTS to otherborrowers.

4.3 It is submitted that as per the Bank the refusal was becauseEthe OTS is non-discretionary and non-discriminatory. However, at thesame time the Bank has been granting time to other such borrowerswho are similarly placed at the respondents. It is submitted that thereforedifferential treatment by the Bank to the similarly placed borrowers isnothing but an arbitrary action and therefore the Hon’ble High Courthas wrongly granted further six weeks’ time to the borrower to makeFthe payment of balance amount under the OTS Scheme.

4.4 It is submitted that even the action of the Bank is contrary tothe spirit of the guidelines of the Reserve Bank of India. It is submittedthat the Bank has not set any eligibility criteria under any policy or underany OTS Scheme under which it can or cannot grant extension. It isGsubmitted that the same is contrary to the spirit of the guidelines of theReserve Bank of India, especially since one of the Scheduled Bankshave already set a criterion of such nature which has also been dealtwith by the High Court in the case of Anu Bhalla and Another vs.District Magistrate, Pathankot and Another, (2020 SCC Online P&H4387), the judgment which has been relied upon by the High Court. It isH

submitted that thus, in absence of any criterion and an arbitrary rejectionby the Bank, the Hon’ble High Court has rightly allowed the prayer ofthe respondent - borrower for extension of time.

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4.5 Relying upon the decision of the High Court of Punjab andHaryana in Anu Bhalla (supra) and the decision of this Court in thecase of Sardar Associates (supra), it is vehemently submitted by learnedAdvocate appearing on behalf of the respondent – borrower that theHigh Court has powers under Article 226 of the Constitution of India toextend the time period under the OTS.

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4.6 It is submitted by learned Advocate appearing on behalf ofthe respondent – borrower that even otherwise, consistent view hasbeen taken by different High Courts that the High Court look intojusticiability of the actions taken by the banks.

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4.7 It is further submitted by learned Advocate appearing on behalfof the respondent that the High Court has rightly observed that thedecision of this Hon’ble Court in the case of Bijnor Urban CooperativeBank Limited (supra) is distinguishable since it deals with the issue ofgrant of OTS and not extension of time once OTS has already beengranted and acted upon by the parties.

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4.8 Learned Advocate appearing on behalf of the respondent –borrower has submitted that equities are in favour of the respondent. Insupport of the above it is submitted that E

(i) the respondent paid 80% of the OTS amount i.e. INR8,01,45,000/- within the stipulated time by selling itsresidential establishment; F

(ii) In addition to the above, the cleared pending mortgage lienof INR 3,50 crores to the appellant – bank;

(iii) the respondent – borrower sold 31% of its share incommercial establishment and used the advance of INR3.50 crores to repay the OTS amount to the appellant –Gbank;

(iv) the remaining amount had to come by the sale of the otherproperty and therefore the extension was sought on thisground alone which was in the knowledge of the officialsof the bank; H

A(v)the respondent – borrower is an MSME and does not havethe requisite legal framework which is as efficient/effectiveas the SARFESI Act to retrieve its dues from defaultingparties; 4.9 It is submitted that the respondent has paid the entire amountBwith interest and is ready to pay further reasonable interest with thisHon’ble Court or the Bank deem fit to impose which would balanceboth the appellant – bank and that of the respondent – borrower.

Making the above submissions and relying upon the decision ofthis Court in the case of Sardar Associates (supra) and the decision ofCthe Punjab and Haryana High Court in Anu Bhalla (supra) and decisionsof some of the High Courts, it is prayed to dismiss the present appeal.

5. Heard learned counsel for the respective parties at length.

6. At the outset, it is required to be noted that by the impugnedjudgment and order the High Court has extended time by a further periodDof six weeks from 10.03.2022 in favour of the respondent - borrower –original writ petitioner to make the payment of the balance amount whichwas due and payable under the sanctioned OTS Scheme which wassanctioned in the year 2017 in exercise of powers under Article 226 ofthe Constitution of India.

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6.1 Therefore, the short question which is posed for considerationof this Hon’ble Court is whether in the facts and circumstances of thecase the High Court is justified in extending the period to make thepayment of balance amount under sanctioned OTS Scheme beyond thetime granted under the sanctioned OTS Scheme, while exercising theFpowers under Article 226 of the Constitution of India?

6.2 While considering the aforesaid issue the recent decision ofthis Court in the case of Bijnor Urban Cooperative Bank Limited(supra) is required to be referred to.

6.3 In the case of Bijnor Urban Cooperative Bank LimitedG(supra) this Court answered the following two questions:

“(i) Whether benefit under the OTS Scheme can be prayed as amatter of right?;

(ii) Whether the High Court in exercise of powers under ArticleH226 of the Constitution of India can issue a writ of mandamus directing the Bank to positively consider the grant of benefit underthe OTS Scheme and that too de hors the eligibility criteriamentioned under the OTS Scheme?”

6.4 On a detail analysis of the OTS Scheme, it is observed andheld by this Court that, (i) no borrower can, as a matter of right pray fora grant for the benefit of one-time settlement scheme; (ii) No writ ofmandamus can be issued by the High Court in exercise of Article 226 ofthe Constitution of India, directing the financial institution/bank to positivelygrant a benefit of OTS to a borrower; (iii) The grant of benefit of OTSScheme is subject to the eligibility criteria and the guidelines issued fromtime to time.

Though the decision of this Court in the case of Bijnor UrbanCooperative Bank Limited (supra) was specifically pressed in serviceon behalf of the Bank and was pointed out to the High Court, the HighCourt instead following the binding decision of this Court in the case ofBijnor Urban Cooperative Bank Limited (supra) has not followedthe same by observing that the earlier decision of this Court in the caseof Sardar Associates (supra) is more elaborate. We do not approvesuch an observation by the High Court and not following the subsequentbinding decision of this Court which as such was on the point. Being asubsequent decision on the point/issue, the High Court was bound tofollow the same.

Even otherwise it is required to be noted that the decision of thisCourt in the case of Sardar Associates (supra) is distinguishable onfacts. In the case of Sardar Associates (supra) it was found that theBank deviated from the OTS guidelines issued by the Reserve Bank ofIndia and therefore this Hon’ble Court held that the RBI Guidelines arebinding on the bank and that the bank shall deal with the case of theborrower under the RBI Guidelines on OTS. Therefore, even otherwiseon facts the said decision was not applicable at all.

6.5 In the present case in the sanctioned letter dated 21.11.2017 itwas specifically provided that the entire payment to be made by21.05.2018. The schedule to make the payment under the instalmentswas also mentioned. It is an admitted position that the borrower did notmake the payment due and payable under the sanctioned OTS Schemeon or before the date mentioned in the sanctioned letter. The prayer ofthe borrower for extension of nine months came to be rejected as far asback on 16.05.2018 and the borrower was directed to make the payment A

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Aof Rs.2.52 crores by 21.05.2018, the borrower failed to make thepayment. At this stage, it is required to be noted that during the pendencyof the writ petition there were as many as three different OTS floatedby the Bank and the Bank offered the respondent - borrower to settlethe outstanding payment under the OTS Scheme. However, the borrowerdid not opt for any of the scheme. By the impugned Judgment and OrderBthe High Court has granted further six weeks’ time from 10.03.2022which would be beyond even the time prayed by the borrower in theyear 2018. As observed above earlier period of 8 to 9 months was soughtin the year 2018 and by the impugned judgment and order the borrowerhas got time upto May, 2022. Even otherwise as rightly submitted onCbehalf of the Bank directing the Bank to reschedule the payment underOTS would tantamount to modification of the contract which can bedone by mutual consent under Section 62 of the Indian Contract Act. Bythe impugned judgment and order rescheduling the payment under theOTS Scheme and granting extension of time would tantamount to rewriting

the contract which is not permissible while exercising the powers underDArticle 226 of the Constitution of India.

6.6 It is required to be noted that under the OTS Scheme whichwas originally sanctioned in the year 2017 the borrower was required topay Rs.10,53,75,069.74 against the outstanding of Rs.13,99,89,273.99.Therefore, under the original sanctioned OTS Scheme the borrower wasEgetting the substantial relief of approximately 3 crores. The Bank agreedand accepted the OTS offer on the terms and conditions mentioned inthe letter dated 21.11.2017. In the sanctioned letter dated 21.11.2017 itwas specifically mentioned in Clause (iv) that the entire payment underthe OTS Scheme was to be made by 21.05.2018, otherwise OTS wouldFbe rendered infructuous. Therefore, borrowers were bound to make thepayment as per the sanctioned OTS Scheme. Therefore, the High Courtought not to have granted further extension de hors the sanctioned OTSScheme while exercising the powers under Article 226 of the Constitutionof India.G7. The submissions on behalf of the borrower that in case of someother borrowers the time was extended is concerned, the same is neitherhere nor there. The Bank mutually can agree to extend the time which ispermissible under Section 62 of the Indian Contract Act. The borroweras a matter of right cannot claim that though it has not made the paymentas per the sanctioned OTS Scheme still it be granted further extensionH

as a matter of right. There cannot be any negative discrimination claimed.The borrower has to establish any right in their favour to claim theextension as a matter of right.

7.1 Now so far as the reliance placed upon the decision of Punjaband Haryana High Court in the case of Anu Bhalla (supra) is concerned,in view of the direct decision of this Court in the case of Bijnor UrbanCooperative Bank Limited (supra), the decision of this Court wouldbe binding on the High Court.

8. In view of the above and for the reason stated above, theimpugned judgment and order passed by the High Court granting furthertime to the respondent – borrower to make the balance payment underthe OTS Scheme in exercise of powers under Article 226 of theConstitution of India is unsustainable and the same deserves to be quashedand set aside and is accordingly quashed and set aside. Consequently,the original writ petition filed by the respondent – borrower standsdismissed.

Present appeal is accordingly allowed. However, in the facts andcircumstances of the case there shall be no order as to costs.

Devika Gujral

Appeal allowed.

(Assisted by : Shevali Monga, LCRA)

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