THE BIJNOR URBAN COOPERATIVE BANK LIMITED, BIJNOR & OTHERS versus MEENAL AGARWAL & OTHERS on 15 December 2021

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SUPREME COURT REPORTS

[2021] 9 S.C.R.

ATHE BIJNOR URBAN COOPERATIVE BANK LIMITED,BIJNOR & OTHERS

v.

MEENAL AGARWAL & OTHERS

(Civil Appeal No. 7411 of 2021)DECEMBER 15, 2021

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[M. R. SHAH AND B. V. NAGARATHNA, JJ.]

Constitution of India: Art. 226 – Power under – Exercise of –Grant of benefit under the One Time Settlement (OTS) Scheme – OnCfacts, writ petitioner obtained credit facility from the financialinstitution/Bank and the said loan amount was declared as Non-Performing Asset (NPA) – Writ petition seeking issuance of writ ofmandamus directing the Bank to positively grant of benefit underthe OTS Scheme to the writ petitioner-borrower – Allowed by theDHigh Court – Sustainability of – Held: Not sustainable – Grant ofbenefit under the OTS is always subject to the eligibility criteriamentioned under the OTS Scheme and the guidelines issued fromtime to time – If the bank/financial institution is of the opinion thatthe loanee has the capacity to make the payment and/or that thebank/financial institution is able to recover the entire loan amountEeven by auctioning the mortgaged property/secured property, eitherfrom the loanee and/or guarantor, the bank would be justified inrefusing to grant the benefit under the OTS Scheme – Such a decisionshould be left in the interest of the bank and in its commercial wisdom– Thus, the High Court erred and exceeded in its jurisdiction inFissuing writ of mandamus directing the Bank to positively grant thebenefit of OTS to the petitioner – Order passed by the High Court isquashed and set aside.

Allowing the appeal, the Court

HELD: 1.1 As per the guidelines issued, the grant of benefitGof OTS Scheme cannot be prayed as a matter of right and thesame is subject to fulfilling the eligibility criteria mentioned inthe scheme. The defaulters who are ineligible under the OTSScheme are mentioned in clause 2. A wilful defaulter in repaymentof loan and a person who has not paid even a single installment H

after taking the loan and will not be able to pay the loan will beconsidered in the category of “defaulter” and shall not be eligiblefor grant of benefit under the OTS Scheme. Similarly, a personwhose account is declared as “NPA” shall also not be eligible.As per the guidelines, the Bank is required to constitute aSettlement Advisory Committee for the purpose of examiningthe applications received and thereafter the said Committee hasto take a decision after considering whether a defaulter is entitledto the benefit of OTS or not after considering the eligibility asper the OTS Scheme. While making recommendations, theSettlement Advisory Committee has to consider whether effortshave been made to recover the loan amount and the possibilityof recovery has been minimized, meaning thereby if there ispossibility of recovery of the amount, either by initiatingappropriate proceedings or by auctioning the property mortgagedand/or the properties given as a security either by the borrowerand/or by guarantor, the application submitted by the borrowerfor grant of benefit under the OTS Scheme can be rejected.[Para 5.2][429-D-H; 430-A]

1.2 In the instant case, despite the fact that it was specificallypointed out before the High Court by way of counter affidavitthat the recovery proceedings under SARFAESI Act are pending;the borrower and her husband have availed two credit facilitiesand both the loan accounts are maintained regularly and the moneyis being deposited on regular basis; the Settlement AdvisoryCommittee concluded that the borrower is enjoying a goodfinancial status and the secured assets are sufficient in case ifany recovery is to be made and by auctioning the mortgagedproperty the bank can recover the entire loan amount, the HighCourt failed to consider the said aspects in their true perspectiveand issued a writ of mandamus as if the grant of benefit underthe OTS Scheme can be claimed as a matter of right. [Para 6][430-A-C]

1.3 In the instant case, a conscious decision was taken bythe Bank as well as the Settlement Advisory Committee which isreflected from the Board’s Resolution and the decision. Evenpersonal hearing was afforded to the original writ petitioner by AB

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Athe Settlement Advisory Committee. The High Court observedthat no opportunity was given to the original writ petitioner, whichis factually incorrect. Therefore, the decision cannot be saidto be in violation of the principle of natural justice. [Para 7][430-D-E]B1.4 While passing the impugned judgment and order, theHigh Court observed that the proceedings under the SARFAESIAct have remained pending for seven years and the Bank hasbeen unable to recover its dues and therefore the hope ofrecovery is illusory. This conclusion is not supported by anymaterial on record. Merely because the proceedings under theCSARFAESI Act have remained pending for seven years, the Bankcannot be held responsible for the same. No fault of the bank canbe found. What is required to be considered is a consciousdecision by the Bank that the Bank will be able to recover theentire loan amount by auctioning the mortgaged property and a Ddue application of mind by the Bank that there are all possibilitiesto recover the entire loan amount, instead of granting the benefitunder the OTS Scheme and to recover a lesser amount. No bankcan be compelled to accept a lesser amount under the OTSScheme despite the fact that the Bank is able to recover theentire loan amount by auctioning the secured property/mortgagedEproperty. When the loan is disbursed by the bank and theoutstanding amount is due and payable to the bank, it will alwaystake a conscious decision in the interest of the bank and in itscommercial wisdom. [Para 8][430-F-H; 431-A-B]

1.5 In a given case, it may happen that a person would borrowFa huge amount, for example Rs. 100 crores. After availing theloan, he may deliberately not pay any amount towards installments,though able to make the payment. He would wait for the OTSScheme and then pray for grant of benefit under the OTS Schemeunder which, always a lesser amount than the amount due andGpayable under the loan account will have to be paid. This, despitethere being all possibility for recovery of the entire loan amountwhich can be realised by selling the mortgaged/securedproperties. If it is held that the borrower can still, as a matter ofright, pray for benefit under the OTS Scheme, in that case, it H

would be giving a premium to a dishonest borrower, who, despitethe fact that he is able to make the payment and the fact that thebank is able to recover the entire loan amount even by sellingthe mortgaged/secured properties, either from the borrower and/or guarantor. This is because under the OTS Scheme a debtorhas to pay a lesser amount than the actual amount due and payableunder the loan account. Such cannot be the intention of the bankwhile offering OTS Scheme and that cannot be purpose ofthe Scheme which may encourage such a dishonesty. [Para 9][431-C-F]

1.6 If a prayer is entertained on the part of the defaultingunit/person to compel or direct the financial corporation/bank toenter into a one-time settlement on the terms proposed by it/him, then every defaulting unit/person which/who is capable ofpaying its/his dues as per the terms of the agreement enteredinto by it/him would like to get one time settlement in its/hisfavour. Who would not like to get his liability reduced and paylesser amount than the amount he/she is liable to pay under theloan account. In the instant case, the original writ petitioner andher husband are making the payments regularly in two other loanaccounts and those accounts are regularised. Meaning thereby,they have the capacity to make the payment even with respect tothe present loan account and despite the said fact, not a singleamount/installment has been paid in the present loan account forwhich original petitioner is praying for the benefit under the OTSScheme. [Para 10][431-F-H; 432-A-B]

1.7 No writ of mandamus can be issued by the High Courtin exercise of powers under Article 226 of the Constitution ofIndia, directing a financial institution/bank to positively grant thebenefit of OTS to a borrower. The grant of benefit under the OTSis always subject to the eligibility criteria mentioned under theOTS Scheme and the guidelines issued from time to time. If thebank/financial institution is of the opinion that the loanee has thecapacity to make the payment and/or that the bank/financialinstitution is able to recover the entire loan amount even byauctioning the mortgaged property/secured property, either fromthe loanee and/or guarantor, the bank would be justified in refusing AB

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Ato grant the benefit under the OTS Scheme. Ultimately, such adecision should be left to the commercial wisdom of the bankwhose amount is involved and it is always to be presumed thatthe financial institution/bank shall take a prudent decision whetherto grant the benefit or not under the OTS Scheme, having regardto the public interest involved and having regard to the factorsBnarrated. [Para 11][432-B-E]

1.8 The High Court, materially erred and has exceeded inits jurisdiction in issuing a writ of mandamus in exercise of itspowers under Article 226 by directing the appellant-Bank topositively consider/grant the benefit of OTS to the original writCpetitioner. The impugned judgment and order passed by the HighCourt is hence unsustainable and is accordingly quashed and setaside. [Para 12][432-E-F]

M.M. Accessories v. U.P. Financial Corporation,Kanpur AIR 2002 All 96; Vipin Kumar Gupta v. BranchDManager, Union Bank of India, Gyanpur AIR 2004All 319 – referred to.

Case Law Reference

CIVIL APPELLATE JURISDICTION : Civil Appeal No.7411 of2021.

From the Judgment and Order dated 16.08.2021 of the High Courtof Judicature at Allahabad in WRIT-C No.15194 of 2021.F

Ms. Meenakshi Arora, Sr. Adv., Jasbir Singh Malik, Varun Punia,Advs. for the Appellants.

V. K. Shukla, Sr. Adv., Ms. Parul Shukla, Ms. Kirti Aggarwal,Advs. for the Respondents.

GThe Judgment of the Court was delivered by

M. R. SHAH, J.

1. Feeling aggrieved and dissatisfied with the impugned judgmentand order dated 16.08.2021passed by the High Court of Judicature atAllahabad in Writ Petition No. 15194 of 2021, by which the High CourtH

has allowed the said writ petition preferred by respondent No.1 herein(original writ petitioner) and has, in exercise of powers under Article226 of the Constitution of India, issued a writ of mandamus directing theappellant – Bank to positively consider the original writ petitioner’sapplication for One Time Settlement (OTS), the Bank has preferred thepresent appeal.

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

That the original writ petitioner had obtained credit facility fromthe bank of about Rs. 1 crore. The said loan account with the Bank wascategorised as “Non-Performing Asset, (NPA)”. The Bank also initiatedproceedings under the provisions of the Securitization and Reconstructionof Financial Assets and Enforcement of Security Interest Act, 2002(hereinafter referred to as the ‘SARFAESI Act’). That there were twoother loan accounts also which were being regularly serviced byrespondent no.1 – original writ petitioner, meaning thereby that thepayment was regularised insofar as two other loan accounts areconcerned. However, so far as the present loan account is concerned,which was declared as NPA, not a single amount was paid till anapplication for extending the benefit of OTS was submitted.

2.1 That One Time Settlement Scheme was issued by the Bankvide OTS Circular dated 01.08.2013 which provided that on the conditionscontained in the said circular being complied with, the benefit of OTScan be taken by the debtor. The benefit of OTS Scheme came to beextended till 30.11.2019. The original writ petitioner submitted anapplication for consideration of her case under OTS vide applicationdated 22.07.2019. Vide communication dated 17.09.2019, her applicationfor grant of benefit under the OTS came to be rejected on the groundthat she is not eligible for OTS under the OTS Scheme and that the loancan be recovered by auction of the mortgaged property and that thereare chances of recovering the loan amount and that her loan accounthas been declared as ‘NPA’. It appears that to come out of NPA eligibility,the original writ petitioner deposited a sum of Rs.60 lakhs on 02.03.2020,i.e., after rejection of her earlier application on the ground that as herloan account is “NPA’, she is not eligible for OTS Scheme.

2.2 The Board of the Bank also passed a resolution dated28.12.2020 to the effect that original writ petitioner is not eligible for the A

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Abenefit under the OTS Scheme for the reason that the loan account isfully recoverable and all the measures to recover the loan amount havenot yet been exhausted and the chances of recovery of the loan amountare still there.

2.3 The original writ petitioner filed a writ petition before the HighBCourt being Writ Petition No. 18221 of 2020 challenging the order dated17.09.2019 passed by the Bank rejecting her application for giving thebenefit of OTS scheme. Vide order dated 25.01.2021, the High Courtdisposed of the said writ petition by directing the Bank to consider thegrievance of the original writ petitioner and to decide her representationdated 22.07.2019 after affording due opportunity of hearing to her, asCexpeditiously as possible and preferably within a period of four weeks.At this stage, it is required to be noted that in the said writ petition, theoriginal writ petitioner also prayed for a writ of mandamus directing theBank to give the benefit of OTS so that the original writ petitioner maydeposit the entire amount at once so as to clear her dues for the loanDwhich she had taken in the year 2013, which prayer was not granted bythe High Court and the High Court only directed the Bank to considerher grievance and decide her representation dated 22.07.2019.

2.4 Thereafter, the original writ petitioner again submitted anapplication dated 06.02.2021 to the Bank to grant the benefit under theEOTS, which again was rejected by the Bank vide communication dated08.01.2021 and 25.02.2021. The original writ petitioner filed a fresh writpetition before the High Court being Writ Petition No. 15194 of 2021with a prayer to quash the aforesaid impugned orders dated 08.01.2021and 25.02.2021 rejecting her application for grant of benefit of OTS andalso prayed for a writ of mandamus to direct the Bank to give the benefitFof OTS issued vide Circular Nos. C-108 and C-121.

2.5 The aforesaid writ petition was vehemently opposed by theBank by filing a detailed affidavit-in-reply. It was inter alia submittedthat the writ petitioner was not entitled to get any relief under the OTSScheme as the probabilities of recovery of loan amount does not diminishGand still stands and sufficient amount of property is mortgaged with theBank and therefore by auctioning the mortgaged property the Bank canrecover the loan amount. It was also submitted that her case does notcome under the eligible category for OTS. It was submitted that eventhe case of the original writ petitioner was referred to the SettlementHAdvisory Committee for consideration which after hearing the writ

petitioner also rejected her application for grant of benefit under theOTS Scheme. By the impugned judgment and order and in exercise ofpowers under Article 226 of the Constitution of India, the High Courthas issued a writ of mandamus and has directed the Bank to positivelyconsider her application for grant of benefit under the OTS Scheme.

2.6 Feeling aggrieved and dissatisfied with the impugned judgmentand order passed by the High court, by which the High Court in exerciseof powers under Article 226 of the Constitution of India has issued awrit of mandamus directing the Bank to positively consider her applicationfor OTS, the Bank has preferred the present appeal.

3. Ms. Meenakshi Arora, learned Senior Advocate has appearedon behalf of the appellant herein – Bank and Shri V.K. Shukla, learnedSenior Advocate has appeared on behalf of respondent no.1 herein.

3.1 Ms. Meenakshi Arora, learned Senior Advocate appearing onbehalf of the appellant herein has vehemently submitted that the HighCourt has materially erred in issuing a writ of mandamus directing theBank to positively consider the application of the original writ petitionerfor grant of OTS which, according to the learned counsel appearing onbehalf of the Bank, could not have been passed in exercise of powersunder Article 226 of the Constitution of India.

3.2 It is vehemently submitted that as such a conscious decisionwas taken by the Bank as well as the Settlement Advisory Committeethat the original writ petitioner is not eligible for grant of benefit of OTSas she is not fulfilling the eligibility criteria for availing the benefit ofOTS.

3.3 It is further submitted that a conscious decision was takenconsidering the RBI guidelines as well as the OTS Scheme and that tooafter giving an opportunity to the original writ petitioner and thereforethe same ought not to have been set aside by the High Court.

3.4 It is further submitted that as such the benefit of OTS cannotbe asked/prayed as a matter of right by any person who is in default. Itis submitted that the benefit of OTS is to be granted as per the Guidelinesissued by the RBI as well as the conditions in the OTS Scheme itself. Itis submitted that if it is found that there are chances of recovering theloan amount by auctioning the mortgaged property and/or by auctioningthe other properties which are put as a security and the chances of A

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Arecovery of the entire loan amount are not diminished, the Bank is justifiedin refusing to grant the benefit under the OTS Scheme.

3.5 It is submitted that in the present case, in other two loanaccounts, the original writ petitioner is making the payments, however,insofar as the present loan account is concerned, not a single amountBwas deposited till 2.3.2020. It is submitted that a sum of Rs. 60 lakhswas deposited cleverly by the original writ petitioner to come out ofNPA. It is submitted only when, after her first application for grant ofbenefit under the OTS Scheme was rejected on 17.09.2019, the originalwrit petitioner thereafter deposited a sum of Rs.60 lakhs to come out ofNPA and to take the benefit under the OTS Scheme. It is submitted thatCunder the OTS Scheme, once the account is declared as NPA and not asingle amount has been deposited till the application for grant of benefitunder the OTS is filed and there are chances of recovery of the entireloan amount by auctioning the mortgaged property or other propertiesput as a security, the application for grant of benefit under the OTSDscheme can be rejected.

3.6 It is therefore submitted that in the present case, as it wasfound that the original writ petitioner is not eligible for grant of benefitunder the OTS Scheme, her application was rightly rejected, both, bythe Bank as well as the Settlement Advisory Committee.

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3.7 It is further submitted that the decision/s to reject herapplication for grant of benefit under the OTS Scheme was absolutely inconsonance with the guidelines issued by the RBI as well as the OTSScheme itself. It is submitted that the High Court ought not to haveissued a writ of mandamus directing the Bank to positively consider herFcase for grant of benefit under the OTS Scheme, in absence of anyabsolute/vested right in her favour.

3.8 Ms. Meenakshi Arora, learned counsel appearing on behalfof the appellant Bank has heavily relied upon the decisions of theAllahabad High Court in the case of M.M. Accessories v. U.P. FinancialGCorporation, Kanpur, reported in AIR 2002 All 96 as well as anotherdecision in the case of Vipin Kumar Gupta v. Branch Manager, UnionBank of India, Gyanpur, reported in AIR 2004 All 319 by submittingthat in the aforesaid two decisions, it is specifically observed and held bythe very High Court that no such writ of mandamus directing to grantthe benefit of OTS can be issued in exercise of powers under ArticleH

226 of the Constitution of India. It is submitted that though the aforesaiddecisions were cited before the High Court, the same have not beendealt with and considered by the High Court.

3.9 Making the above submissions, it is prayed to allow the presentappeal and quash and set aside the impugned order passed by the HighCourt directing the Bank to positively consider the case of the originalwrit petitioner for grant of benefit under the OTS Scheme.

4. The present appeal is vehemently opposed by Shri V.K. Shukla,learned Senior Advocate appearing on behalf of respondent no.1 – originalwrit petitioner. It is submitted that in the present case as it was foundthat though the original writ petitioner is ready and willing to deposit theentire amount under the OTS Scheme and though she is eligible for thegrant of benefit under the OTS Scheme, her application for grant ofbenefit under the OTS Scheme was rejected which is found to bearbitrary and against the principle of natural justice, the High Court hasrightly set aside the decision rejecting the application of the original writpetitioner for grant of benefit under the OTS Scheme.

4.1 It is submitted that under the OTS Scheme, a loanee is requiredto deposit at least 25% of the total amount along with the application,however, the original writ petitioner deposited more than 50% of theamount to be paid – before her application for grant of benefit under theOTS is considered. It is submitted that the cheque for the said amountcame to be accepted by the Bank and even the same was credited in theNPA account, thereby showing that her request for OTS has beenaccepted. It is submitted that thereafter to reject the application for grantof benefit under the OTS is malafide and arbitrary and therefore theHigh Court has rightly issued a writ of mandamus and has rightly directedthe bank to positively consider her case for grant of benefit under theOTS Scheme.

4.2 It is further submitted that as such the original writ petitionerwas being harassed by the Bank even when she was eligible to thebenefit under the OTS Scheme. It is submitted that the Bank with an ill/ulterior motive deliberately refused to grant the benefit under the OTSScheme just to grab her property. It is therefore prayed not to interferewith the impugned judgment and order passed by the High Court, inexercise of powers under Article 136 of the Constitution of India.

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A5. Having heard learned counsel for the respective parties at length,the following issues/questions are posed for consideration of this Court:

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

ii) Whether the High Court in exercise of powers under Article226 of the Constitution of India can issue a writ of mandamusdirecting the Bank to positively consider the grant of benefitunder the OTS Scheme and that too de hors the eligibilitycriteria mentioned under the OTS Scheme?

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5.1 While considering the aforesaid issues/questions, the relevantCclauses of the OTS Scheme are required to be referred to which are asunder:

1. “Introduction:-

A large part of various types of loans dispersed from time to timeDby the urban co-operative banks of the state to the institutions/members are currently in the form of time-less loans has beenblocked. Despite all the efforts regarding recovery of such lapsedloans, the recovery of loans is not being done for a long time.According to the guidelines issued by the Reserve Bank of Indiafor OTS from time to time, it has been decided to implement theErevised one time settlement (OTS) for recovery of non-performingassets in the state so that serious timeless debts of the bank canbe saved to get maximum recovery.

2. Coverage (Cut-off- date): -

This scheme in respect of all types of debts classified as doubtfulFor loss assets as on 31 .3.2013 on entities/individuals as per therevised guidelines by the Reserve Bank of India will apply.

According to the revised guidelines by the Reserve Bank of India,this scheme is applicable in respect of all types of loans oninstitutions and individuals as on 31.03.2013, which have been inGthe category of doubtful or loss assets or have been classified insub-standard on the said date.

The following categories of defaulters will not be eligible underthis scheme:

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1. Willful defaulter in repayment of loan, (The person orAinstitution who has not paid even one installment after takingthe loan, he will not be able to pay the loan will be consideredin the category of defaulter).

2. Cases of fraud and forgery.

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3. Loans taken by salaried employees.

4. Such timeless loan which has been availed by the banksecretary / operator or whose guarantee has been taken byany director of the bank or the close relative of the operatoror any institution in which the interest of the current orformer director is vested.

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5. Such a timeless loan whose guarantee has been given bythe government.

6. Loans taken by government departments / institutionsapproved by the government.

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7. Negotiable N.P.A. / Outstanding loan limit is only the amountof money aggregating all types of loan accounts of anorganization / individual member, for which a lump sumagreement can be made that the limit of debt will beextinguished.

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8. Personal Borrowers Rs.10.00 Lakhs

9. Institutional Borrowers Rs.50.00 Lakhs In cases of more than the above limit, prior approval of the registrarco-operative societies will have to be obtained by making aseparate plan by the board of directors of the concerned bank forone-time settlement.

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4. Settlement Formula:

a) Accounts of non-performing assets which were or should havebeen classified as doubtful/loss as on 31[st] March 2013, the recoveryof the amount will be equal to the total balance (principal andinterest) in that account on the date the account is classified asdoubtful and loss. If the interest has been charged in such accountsafter the date of classification of doubtful/loss category, then thesame can be waived, this policy will be applicable to all theborrowers and defaulters alike.

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SUPREME COURT REPORTS

Ab) Under this scheme, with the consent of the defaulter, the totalamount of the settlement will have to be deposited in one lumpsum, but if the defaulter is unable to deposit all the amount in onelump sum, then 25 percent of such amount till the date of theconsent letter and for the recovery of remaining 75 percent, amountwill have to be deposited in three equal installments over a periodBof one year on which interest will be payable at the rate ofminimum loan interest from the date of settlement till the date offinal repayment. Penal interest, legal expenses and other expenseswill be waived.

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5. Authority to sanction relief: -

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The Scheme will be first approved by the concerned bankmanagement committee constituted under the provisions containedin the Uttar Pradesh Co-operative societies Act and the right todecide on one time settlement cases up to an amount of Rs 5.00Lakhs will be there’s and for the cases involving more than Rs.D5.00 Lakhs prior approval of the Registrar Co-operative Societies,Uttar Pradesh will have to be obtained. For this purpose, the bankwill constitute a Settlement Advisory Committee, which afterexamining the applications received, will present suitable casesfalling within the eligibility before the authority for decision. TheEbank will abide by the guidelines relating to the settlement withthe loan recipients without any discrimination. There will be nodeviation from the policies by the Chief Executive Officers/Boardof Directors. The decision of the Settlement Committee will beconfirmed in the next meeting of the management committee orthe general body.F

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6. Settlement Advisory Committee. After examining the receivedcases and presenting the eligible cases before the competentauthority, it will be as follows:

1. Chairman of the bank President

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2. Secretary / Executive officer concerned Member /Convener

3. A Director nominated by the board of Member Directorsand one other person and bank officer who have enoughexperience in the field of banking/management or law.

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There will be three members for the purpose of the settlementadvisory committee will examine the application received fromthe member and present it before the board of directors aftermaking its clear recommendation. While making therecommendation, the following points will be considered-

1. The officer recommending the right off loan should not havepersonally sanctioned the loan.

2. The transfer has been granted as per the conditionsprescribed by the Reserve Bank.

3. Adequate cares have been taken after the delivery of loan.

4. Efforts have been made to recover the loan and thepossibility of recovery has been minimized.

The board of directors after due consideration will approve theone-time payment. The decision of the committee (S.A.C) will bereviewed every month by the board of directors and the settlementproceedings will be completed within the prescribed time-limit.”

5.2 Therefore, as per the guidelines issued, the grant of benefit ofOTS Scheme cannot be prayed as a matter of right and the same issubject to fulfilling the eligibility criteria mentioned in the scheme. Thedefaulters who are ineligible under the OTS Scheme are mentioned inclause 2, reproduced hereinabove. A wilful defaulter in repayment ofloan and a person who has not paid even a single installment after takingthe loan and will not be able to pay the loan will be considered in thecategory of “defaulter” and shall not be eligible for grant of benefit underthe OTS Scheme. Similarly, a person whose account is declared as“NPA” shall also not be eligible. As per the guidelines, the Bank is requiredto constitute a Settlement Advisory Committee for the purpose ofexamining the applications received and thereafter the said Committeehas to take a decision after considering whether a defaulter is entitled tothe benefit of OTS or not after considering the eligibility as per the OTSScheme. While making recommendations, the Settlement AdvisoryCommittee has to consider whether efforts have been made to recoverthe loan amount and the possibility of recovery has been minimized,meaning thereby if there is possibility of recovery of the amount, eitherby initiating appropriate proceedings or by auctioning the propertymortgaged and/or the properties given as a security either by the borrower A

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Aand/or by guarantor, the application submitted by the borrower for grantof benefit under the OTS Scheme can be rejected.

6. In the present case, despite the fact that it was specificallypointed out before the High Court by way of counter affidavit that (i) therecovery proceedings under SARFAESI Act are pending; (ii) theBborrower and her husband have availed two credit facilities and both theloan accounts are maintained regularly and the money is being depositedon regular basis; (iii) the Settlement Advisory Committee concluded thatthe borrower is enjoying a good financial status and the secured assetsare sufficient in case if any recovery is to be made and by auctioning themortgaged property the bank can recover the entire loan amount, theCHigh Court failed to consider the aforesaid aspects in their true perspectiveand has issued a writ of mandamus as if the grant of benefit under theOTS Scheme can be claimed as a matter of right.

7. In the present case, a conscious decision was taken by theBank as well as the Settlement Advisory Committee which is reflectedDfrom the Board’s Resolution dated 28.12.2020 and the decision dated08.01.2021. Even personal hearing was afforded to the original writpetitioner by the Settlement Advisory Committee on 25.02.2021. TheHigh Court in the impugned judgment and order has observed that noopportunity was given to the original writ petitioner, which is factuallyEincorrect. Therefore, the decision cannot be said to be in violation of theprinciple of natural justice.

8. While passing the impugned judgment and order, the High Court,in response to the submissions on behalf of the Bank that, there are allpossibilities of recovery of the loan amount and the efforts are beingFmade to recover the amount by initiating proceedings under theSARFAESI Act and that the properties mortgaged can be auctioned,has observed that the proceedings under the SARFAESI Act haveremained pending for seven years and the Bank has been unable torecover its dues and therefore the hope of recovery is illusory. Thisconclusion is not supported by any material on record. Merely becauseGthe proceedings under the SARFAESI Act have remained pending forseven years, the Bank cannot be held responsible for the same. No faultof the bank can be found. What is required to be considered is a consciousdecision by the Bank that the Bank will be able to recover the entire loanamount by auctioning the mortgaged property and a due application ofHmind by the Bank that there are all possibilities to recover the entire loan amount, instead of granting the benefit under the OTS Scheme and torecover a lesser amount. It is ultimately for the Bank to take a consciousdecision in its own interest and to secure/recover the outstanding debt.No bank can be compelled to accept a lesser amount under the OTSScheme despite the fact that the Bank is able to recover the entire loanamount by auctioning the secured property/mortgaged property. Whenthe loan is disbursed by the bank and the outstanding amount is due andpayable to the bank, it will always take a conscious decision in the interestof the bank and in its commercial wisdom.

9. Even otherwise, as observed hereinabove, no borrower can, asa matter of right, pray for grant of benefit of One Time SettlementScheme. In a given case, it may happen that a person would borrow ahuge amount, for example Rs. 100 crores. After availing the loan, hemay deliberately not pay any amount towards installments, though ableto make the payment. He would wait for the OTS Scheme and thenpray for grant of benefit under the OTS Scheme under which, always alesser amount than the amount due and payable under the loan accountwill have to be paid. This, despite there being all possibility for recoveryof the entire loan amount which can be realised by selling the mortgaged/secured properties. If it is held that the borrower can still, as a matter ofright, pray for benefit under the OTS Scheme, in that case, it would begiving a premium to a dishonest borrower, who, despite the fact that heis able to make the payment and the fact that the bank is able to recoverthe entire loan amount even by selling the mortgaged/secured properties,either from the borrower and/or guarantor. This is because under theOTS Scheme a debtor has to pay a lesser amount than the actual amountdue and payable under the loan account. Such cannot be the intention ofthe bank while offering OTS Scheme and that cannot be purpose of theScheme which may encourage such a dishonesty.

10. If a prayer is entertained on the part of the defaulting unit/person to compel or direct the financial corporation/bank to enter into aone-time settlement on the terms proposed by it/him, then every defaultingunit/person which/who is capable of paying its/his dues as per the termsof the agreement entered into by it/him would like to get one timesettlement in its/his favour. Who would not like to get his liability reducedand pay lesser amount than the amount he/she is liable to pay under theloan account? In the present case, it is noted that the original writ petitionerand her husband are making the payments regularly in two other loan AB

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Aaccounts and those accounts are regularised. Meaning thereby, theyhave the capacity to make the payment even with respect to the presentloan account and despite the said fact, not a single amount/installmenthas been paid in the present loan account for which original petitioner ispraying for the benefit under the OTS Scheme.

B11. The sum and substance of the aforesaid discussion would bethat no writ of mandamus can be issued by the High Court in exercise ofpowers under Article 226 of the Constitution of India, directing a financialinstitution/bank to positively grant the benefit of OTS to a borrower. Thegrant of benefit under the OTS is always subject to the eligibility criteriamentioned under the OTS Scheme and the guidelines issued from timeCto time. If the bank/financial institution is of the opinion that the loaneehas the capacity to make the payment and/or that the bank/financialinstitution is able to recover the entire loan amount even by auctioningthe mortgaged property/secured property, either from the loanee and/orguarantor, the bank would be justified in refusing to grant the benefitDunder the OTS Scheme. Ultimately, such a decision should be left to thecommercial wisdom of the bank whose amount is involved and it is alwaysto be presumed that the financial institution/bank shall take a prudentdecision whether to grant the benefit or not under the OTS Scheme,having regard to the public interest involved and having regard to thefactors which are narrated hereinabove.E

12. In view of the aforesaid discussion and for the reasons statedabove, we are of the firm opinion that the High Court, in the presentcase, has materially erred and has exceeded in its jurisdiction in issuinga writ of mandamus in exercise of its powers under Article 226 of theConstitution of India by directing the appellant-Bank to positively consider/Fgrant the benefit of OTS to the original writ petitioner. The impugnedjudgment and order passed by the High Court is hence unsustainableand deserves to be quashed and set aside and is accordingly quashedand set aside.

13. The present appeal is accordingly allowed. However, in theGfacts and circumstances of the case, there shall be no order as to costs.

Nidhi Jain

Appeal allowed.

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