In an important judgment clarifying the scope of One Time Settlement (OTS) schemes offered by banks, the Supreme Court on Monday held that borrowers cannot claim OTS benefits as a matter of right, especially where they fail to comply with the mandatory conditions prescribed under the scheme.
A bench comprising Justices Dipankar Datta and AG Masih allowed the appeal filed by the State Bank of India (SBI) and set aside the Andhra Pradesh High Court’s direction which had compelled SBI to reconsider the OTS proposal of Tanya Energy Enterprises, despite the borrower’s admitted default in making the required upfront payment of 5% of outstanding dues.
Borrower Has No Absolute Right to OTS
Authoring the judgment, Justice Datta observed that mere eligibility does not automatically entitle a borrower to OTS benefits unless the scheme’s conditions are strictly fulfilled:
“Crossing the hurdle of eligibility per se would not entitle a defaulting borrower to claim consideration of his/its application unless the application itself satisfies the other stipulated conditions.”
The Court stressed that an OTS scheme is a concession and not an enforceable legal right. The benefit arises only upon strict adherence to the scheme’s terms.
Failure to Deposit Upfront Amount Disentitles Borrower
Under the SBI OTS Scheme of 2020, every defaulting borrower was required to deposit 5% of the outstanding dues upfront along with their application. The respondent failed to deposit “even a single paisa,” the Court noted, thereby rendering the application “incomplete” and disentitled to be processed at all.
“It is clear as a sunny day that an application for availing the OTS benefit would be processed only if accompanied by an upfront payment of 5% of the outstanding dues. The respondent faltered in not adhering to the express terms of the scheme by not depositing the mandatory upfront amount, thereby rendering its application not even capable of being processed, far less deserving of favourable consideration.”
The dispute arose after Tanya Energy Enterprises defaulted on loans secured against seven mortgaged properties. When the loan account was classified as a non-performing asset (NPA), SBI initiated recovery proceedings under the SARFAESI Act and attempted auctions of the mortgaged properties.
Parallelly, the borrower applied under SBI’s OTS Scheme 2020 seeking settlement of dues. SBI rejected the application citing:
• Past defaults,
• Suppression of material facts, and
• Pending litigation before the Debt Recovery Tribunal (DRT).
Despite this, both a Single Judge and later a Division Bench of the Andhra Pradesh High Court directed SBI to reconsider the OTS proposal. Aggrieved, SBI approached the Supreme Court.
The Supreme Court referred to its earlier decision in Bijnor Urban Cooperative Bank Ltd. v. Meenal Agarwal, where it was held that the benefit of OTS cannot be claimed as an absolute right by borrowers. OTS schemes, the Court reiterated, are matters of policy and discretion and subject to strict compliance with their terms.
Setting aside the High Court’s orders, the Supreme Court held that the borrower had no legal right to demand processing of an incomplete OTS application.
At the same time, the Court granted Tanya Energy Enterprises limited liberty:
“The appellants are free to proceed in accordance with law for enforcement of the security interest. At the same time, we grant the respondent an opportunity to submit a fresh proposal for OTS but not under the OTS 2020 Scheme. If the terms and conditions put forth by the respondent are found reasonable, workable and acceptable, the appellants may take such decision on it as deemed fit and proper.”
Accordingly, the Supreme Court allowed SBI’s appeal in Assistant General Manager, State Bank of India & Anr. v. Tanya Energy Enterprises through its Managing Partner Shri Alluri Lakshmi Narasimha Varma, restoring the Bank’s discretion in dealing with OTS applications.
