1. Factual Background and Procedural History
The dispute in Assistant General Manager, State Bank of India & Anr. v. Tanya Energy Enterprises arose from the respondent’s default on credit facilities availed from the State Bank of India (SBI), secured by seven mortgaged properties. Upon default, the borrower’s account was classified as a Non-Performing Asset (NPA) on 31 May 2017, triggering a Section 13(2) demand notice under the SARFAESI Act, 2002 for recovery of approximately ₹7 crore.
After unsuccessful recovery attempts, SBI initiated proceedings before the Debt Recovery Tribunal (DRT), Visakhapatnam, in OA No. 4013 of 2017, seeking ₹8 crore with 13.65% interest. The borrower proposed a compromise settlement in May 2018, offering ₹5 crore as full and final settlement. SBI accepted the proposal by a Compromise Sanction Letter dated 23 November 2018, stipulating installment payments within fixed timelines. However, the borrower defaulted, prompting SBI to cancel the compromise on 22 February 2019.
Subsequent SARFAESI proceedings were initiated, including sale notices and auction of secured assets. Multiple applications under Section 17 of the SARFAESI Act were filed before the DRT, challenging these measures.
Amidst these proceedings, SBI launched its One Time Settlement (OTS) Scheme, 2020, applicable to accounts with outstanding dues between ₹20 lakh and ₹50 crore. The respondent applied under this OTS Scheme through letters dated 19 October 2020 and 10 November 2020, offering ₹3.75 crore (in addition to ₹1.5 crore already paid). SBI, however, rejected the application on 17 November 2020, citing the borrower’s prior defaults, conduct before the DRT, and suppression of facts.
The borrower challenged this rejection before the Andhra Pradesh High Court. The Single Judge allowed the writ petition, holding that SBI must process the OTS application as the scheme was non-discretionary and non-discriminatory. The Division Bench affirmed the decision, concluding that the borrower’s case did not fall within the ineligible category under Clause 2.1 of the OTS 2020 Scheme.
Aggrieved, SBI filed an appeal before the Supreme Court, leading to the present judgment dated 15 September 2025.
2. Identification of Legal Issues
The Supreme Court addressed the following principal issues:
- Whether the High Court erred in directing reconsideration of the borrower’s OTS application under SBI’s 2020 Scheme after its rejection by the Bank.
- Whether a borrower who failed to comply with mandatory upfront payment under Clause 4(i) of the OTS 2020 Scheme was entitled to have the application processed.
- Whether the Court could uphold an administrative order based on a valid ground not expressly stated in the order, but apparent from the record.
3. Arguments of the Parties
Appellants (SBI)
- Represented by Additional Solicitor General Mr. Venkatraman, SBI contended that the OTS 2020 Scheme does not create a legal or enforceable right to compel acceptance under Article 226 of the Constitution.
- A writ of mandamus could not issue in absence of a public duty. The borrower, having defaulted repeatedly and disregarded DRT orders, was undeserving of equitable relief.
- The OTS application was rightly rejected on objective grounds including prior breach of compromise terms and failure to honour judicial directions.
- SBI urged the Court to set aside the High Court’s orders and permit continuation of recovery through auction of remaining mortgaged assets.
Respondent (Borrower)
- Represented by Senior Advocate Mr. D.S. Naidu, the borrower argued that SBI’s rejection was arbitrary and violative of natural justice.
- The borrower had paid ₹1.5 crore in good faith and sought only consideration of its application, not a direction for positive grant of OTS.
- Relying on Bijnor Urban Cooperative Bank Ltd. v. Meenal Agarwal [(2023) 2 SCC 805], counsel acknowledged that no right to OTS exists, but emphasized the duty of fair and reasoned consideration.
- He further contended that the rejection could not rely on earlier failed settlements or pending SARFAESI proceedings, especially as the prior auction was annulled by DRT and no third-party rights subsisted.
- The borrower was not a wilful defaulter but a victim of non-payment by its debtor, ICOMM Tele Ltd., whose insolvency impaired its repayment capacity.
4. Court’s Analysis and Reasoning
The Bench of Justices Dipankar Datta and Augustine George Masih undertook a meticulous review of the OTS 2020 Scheme and prior judicial precedents.
A. No Automatic Right to OTS
The Court reaffirmed the principle from Meenal Agarwal and State Bank of India v. Arvindra Electronics Pvt. Ltd. [(2023) 1 SCC 540] that no mandamus can compel grant of OTS unless eligibility criteria are satisfied. The High Court’s order, although framed as “reconsideration,” effectively intruded into the bank’s commercial discretion.
B. Mandatory Upfront Deposit Requirement
Clause 4(i) of the OTS 2020 Scheme mandated a 5% upfront payment (15% for wilful defaulters) along with the application. The Court found that the respondent made no such deposit, rendering the application incomplete and unprocessable.
Despite this, SBI had failed to cite Clause 4(i) in its rejection letter—a procedural omission the High Court overlooked. Justice Datta observed that the borrower “did not have any right in law to claim that such application should be processed.”
C. Whether a Court Can Uphold an Order on Unstated Grounds
The Court revisited the constitutional principles in Mohinder Singh Gill v. Chief Election Commissioner [(1978) 1 SCC 405] and Commissioner of Police v. Gordhandas Bhanji [AIR 1952 SC 16], which restrict post-facto justifications of administrative orders. However, after examining subsequent cases such as All India Railway Recruitment Board v. K. Shyam Kumar [(2010) 6 SCC 614] and 63 Moons Technologies Ltd. v. Union of India [(2019) 18 SCC 401]*, the Bench clarified a nuanced position:
Courts may uphold an administrative order on an alternative ground apparent from the record, provided the affected party is given an opportunity to respond. This, it held, prioritizes fairness and justice over procedural technicality.
Applying this principle, the Court upheld SBI’s rejection on the alternative but fundamental ground—failure to comply with Clause 4(i)—since it struck “at the heart of the matter.”
D. Distinction Between Eligibility and Entitlement
While Clause 2.1 enumerated “ineligible” categories, the Court held that merely escaping ineligibility does not automatically confer entitlement. Eligibility must be coupled with compliance with all scheme conditions, particularly procedural prerequisites.
E. Equitable Opportunity for Fresh Proposal
Although allowing SBI’s appeal, the Court preserved fairness by granting the borrower liberty to submit a fresh proposal (outside the OTS 2020 Scheme) for SBI’s independent consideration, if terms were reasonable and workable.
5. Final Conclusion and Holding
The Supreme Court allowed the appeal, setting aside both the Division Bench and Single Judge judgments. It held:
- The borrower’s failure to deposit the mandatory 5% upfront payment under Clause 4(i) rendered its OTS 2020 application non-compliant and ineligible for processing.
- The High Court erred in interfering with SBI’s rejection, having ignored a vital eligibility condition.
- SBI is at liberty to proceed with enforcement of its security interest under the SARFAESI Act, though the borrower may make a new settlement proposal outside the OTS 2020 framework.
- The judgment would not affect ongoing DRT proceedings.
Legal Principle Affirmed:
A borrower cannot compel consideration of a One Time Settlement (OTS) application unless it strictly complies with the scheme’s mandatory conditions, including upfront payment. Administrative orders may be sustained on valid grounds evident from the record, even if not expressly stated, provided fairness is ensured.
FAQs:
1. Can a borrower demand One Time Settlement (OTS) as a legal right?
No. The OTS benefit is a discretionary relief, not a statutory right. Banks may reject applications if eligibility or procedural requirements under the scheme are not met.
2. What happens if a borrower fails to make the upfront payment required under an OTS scheme?
Failure to deposit the mandatory upfront percentage (such as 5% under SBI’s OTS 2020) renders the application incomplete and non-processable, barring any right to consideration.
3. Can courts direct banks to grant OTS benefits under Article 226?
Courts cannot compel banks to approve OTS proposals through writ jurisdiction, except to ensure that applications are considered fairly and in accordance with the scheme’s terms.
4. Can an administrative decision be upheld on a ground not stated in the order?
Yes, if the alternative ground is evident from the record and the affected party has an opportunity to respond, courts may uphold such orders to advance justice.
5. Does exemption from ineligibility under an OTS scheme ensure entitlement to settlement?
No. Avoiding disqualification under the “not eligible” clause does not confer automatic entitlement; the borrower must also meet all procedural and financial conditions of the scheme.
Stay informed with insights that matter. Follow us for more updates on key legal developments.
Disclaimer
The content provided here is for general information only; it does not constitute legal advice. Reading them does not create a lawyer-client relationship, and Mahendra Bhavsar & Co. disclaims all liability for actions taken or omitted based on this content. Always obtain advice from qualified counsel for your specific circumstances. © Mahendra Bhavsar & Co.