Defaulting Borrowers Cannot Claim OTS Benefits

3. Arguments of the Parties

Appellant (State Bank of India)

Appearing through Additional Solicitor General Mr. N. Venkataraman, SBI contended that:

• The OTS 2020 Scheme mandated an upfront deposit of 5% of the settlement amount under Clause 4(i), failing which an application could not be processed.
• The borrower made no such upfront payment, rendering its application incomplete.
• The High Court erred in treating eligibility under Clause 2.1 (“cases not eligible”) as sufficient, ignoring Clause 4(i), which independently governed eligibility.
• The writ of mandamus under Article 226 cannot compel a public sector bank to extend discretionary settlements contrary to scheme terms (Bijnor Urban Coop. Bank Ltd. v. Meenal Agarwal, (2023) 2 SCC 805).
• The borrower’s conduct—non-compliance with earlier settlements, defaults before the DRT, and suppression of facts—disentitled it to equitable relief.
  

Respondent (Tanya Energy Enterprises)

Senior Advocate Mr. Dama Seshadri Naidu argued that:

• The rejection order was arbitrary and unreasoned, violating principles of natural justice.
• The borrower had already deposited ₹1.5 crore and expressed willingness to make further payments upon clarification of dues.
• Neither the Single Judge nor the Division Bench directed SBI to grant OTS benefits; they merely required objective reconsideration.
• The earlier failed compromise of 2018 could not justify rejection of a fresh OTS proposal under a subsequent scheme.
• SBI’s reliance on fresh grounds not contained in its rejection letter violated the principle laid down in Mohinder Singh Gill v. Chief Election Commissioner, (1978) 1 SCC 405—that an administrative order must stand or fall on the reasons it originally contains.
  

4. Court’s Analysis and Reasoning

a. Statutory Interpretation and Scheme Requirements

The Court emphasized that Clause 4(i) of the OTS 2020 Scheme explicitly required every applicant to deposit 5% of the proposed settlement amount as an upfront payment, failing which the application “will not be processed.” The borrower’s failure to comply with this condition, the Court held, rendered its application incomplete and non-maintainable.

While the rejection letter did not cite this omission as a ground, the Court clarified that eligibility under Clause 2.1 did not automatically entitle a borrower to OTS benefits; all preconditions must be satisfied cumulatively.

b. Administrative Law and Alternative Grounds

Invoking Mohinder Singh Gill and Commissioner of Police v. Gordhandas Bhanji (AIR 1952 SC 16), the Court revisited the principle that an order’s validity must be tested on the reasons recorded in it. However, it reconciled this with later decisions, including All India Railway Recruitment Board v. K. Shyam Kumar (2010) 6 SCC 614, PRP Exports v. State of Tamil Nadu (2014) 13 SCC 692, and 63 Moons Technologies Ltd. v. Union of India (2019) 18 SCC 401.

The Bench held that courts may uphold an administrative order on alternative grounds evident from the record if fairness and opportunity to respond are ensured. This nuanced reading balanced procedural fairness with substantive justice, allowing the Court to consider Clause 4(i) even though it was not initially cited.

c. Rejection of the High Court’s Approach

The Supreme Court found that both the Single Judge and the Division Bench overlooked the mandatory upfront payment requirement, thereby misdirecting themselves. The borrower’s mere exclusion from the “not eligible” list under Clause 2.1 did not equate to compliance with other eligibility conditions.

d. Broader Doctrinal Clarification

The Court reiterated that no borrower has a vested right to claim OTS benefits. Such schemes are contractual in nature, framed to aid recovery and not to confer enforceable legal rights unless scheme conditions are fully met. Judicial interference under Article 226 in bank policy implementation must thus remain minimal and grounded in arbitrariness or mala fides, not contractual disputes.

5. Final Conclusion and Holding

The Supreme Court allowed SBI’s appeal, setting aside both the Single Judge and Division Bench judgments. It held that:

• The borrower’s failure to make the mandatory 5% upfront payment disentitled it from consideration under the OTS 2020 Scheme.
• The High Court’s direction to reconsider the OTS application was unsustainable, as it ignored a crucial eligibility condition.
• Nonetheless, the borrower was granted liberty to submit a fresh settlement proposal, though not under the 2020 Scheme, and SBI could consider it independently if reasonable and workable.
  

The judgment reaffirmed the principle that contractual compliance is a prerequisite for equitable relief, and OTS benefits cannot be claimed as a matter of right.

FAQs:

1. What is a One-Time Settlement (OTS) Scheme under the SARFAESI Act?

A One-Time Settlement Scheme allows borrowers to settle outstanding dues with banks through negotiated lump-sum payments. However, eligibility and compliance with scheme terms—like upfront deposits—are mandatory.

2. Can a borrower compel a bank to accept an OTS proposal through court orders?

No. Courts cannot direct banks to grant OTS benefits. Judicial review is limited to ensuring that rejection decisions are not arbitrary or contrary to the scheme’s own provisions.

3. What happens if a borrower fails to make the upfront payment under an OTS scheme?

Failure to make the prescribed upfront payment renders the OTS application incomplete and non-processable, as the condition is a mandatory prerequisite to consideration.

4. Can courts uphold administrative orders on grounds not mentioned in them?

Yes, if such grounds are evident from the record and fairness is ensured. Courts may consider alternative valid grounds to uphold an order, balancing procedural propriety with justice.

5. Does eligibility under one clause of an OTS scheme automatically grant settlement rights?

No. Being eligible under one clause does not guarantee entitlement. Borrowers must satisfy all scheme conditions cumulatively, including payment and documentation requirements.

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