Court can grant extension of time for making payment of balance One Time Settlement amount but borrower cannot seek such extension as matter of right: P&H HC

Read Order: Aseem Gaind v. Axis Bank, Retail Assets Centre 

Monika Rahar

Chandigarh, February 24, 2022: The Punjab and Haryana High Court has held that it is not open to Public Sector Banks or Private Sector Banks to decline One Time Settlement (OTS) sought by a borrower provided he falls within the OTS Policy being followed by the said Bank.

The Bench of Justice M.S. Ramachandra Rao and Justice J.S. Bedi also added that the High Court has the power to grant an extension of time to make the payment of balance OTS amount. Though, it cannot be claimed by the borrower as a matter of right, it must be exercised by a High Court keeping in mind the guidelines/principles laid down by this Court in Anu Bhalla and Another v. District Magistrate, Pathankot and Another, CWP No. 5518 of 2020.

In this case, the petitioner along with his co-applicant was given a home loan of Rupees 2,32,00,000/- in 2014 by the respondent-Bank which was to be repaid in 240 monthly instalments on a floating rate of interest of 0.25% above the base rate. Four days later, a home loan (against property) was also sanctioned for Rupees 1.74 crores to be repaid in 180 monthly instalments on a floating rate of interest of 1.75% above the base rate. 

However, owing to deteriorating health conditions and the crashing of his Furniture business, the petitioner was unable to repay the loan. Resultantly, the Bank offered the first OTS to settle both the loan accounts for Rupees 3.10 crores as against an outstanding of Rupees 3,94,29,233/- if the amount was paid in two months, but the petitioner could not do so since the period offered was too less. Thus, the petitioner was offered the second OTS to settle both the loan accounts for Rupees 2.63 crores provided the amount was paid within six months. 

The petitioner then requested the respondent-Bank to grant an extension of a further period of six months for making the repayment of the balance OTS amount of Rupees 183.45 lakhs and offered to pay Rupees 25 lakhs as lump-sum. Thereafter, the petitioner deposited Rupees 4.18 lakhs by July 2019 and Rupees 12,55,974/- in August, September and October 2019. 

According to the petitioner, out of the total amount of OTS of Rupees 2.63 crores, deposited Rupees 96.29 lakhs till October 2019. 

Thus, this Writ Petition was filed by the petitioner for issuance of a Writ in the nature of Certiorari for quashing of the letter issued by respondent-Bank whereby prayer of the petitioner for extension of time by another six months for repayment of the balance amount of Rupees 1.76 crores, out of total OTS of Rupees 2.36 crores was rejected.

Firstly, the Court addressed the issue of maintainability of the Writ Petition by opining that the Writ Petition was maintainable. In arriving at this conclusion, the decision of this Court in M/s A-One Mega Marg P. Ltd. Vs. HDFC Bank, 2013 (1) PLR 688 was referred to wherein it was stated that where the respondent-bank is a Scheduled Bank (like the bank in the present case) under the Reserve Bank of India Act, 1934 and is governed by the Banking Regulations Act, 1949 (as is the case with the present bank), the Bank concerned would be amenable to the writ jurisdiction of the High Court where the Scheduled Bank takes recourse to the provisions of the Act of 2002. 

Thus, the Court asserted, “Since, it is not the case of the respondent-Bank that it will not take recourse to the said procedure under the Act for recovery of the loan dues of the petitioner, it cannot say that the Writ Petition against it is not maintainable.”

Next, the Court looked into the question of High Court’s power to grant an extension of time to make a balance payment of OTS as per the sanctioned letter. Regarding this issue, the Court was of the view that the High Court has the power to grant an extension of time to make a balance payment of OTS, but it cannot be claimed by the borrower as a matter of right. Further, it was added that undisputedly if the denial of the OTS by a Financial Institution is not in terms of the OTS Policy framed by it or as per guidelines framed by the Reserve Bank of India, certainly a Writ Petition could be maintained challenging such action as arbitrary and illegal. 

Further, the Bench added that, in view of Supreme Court decision in Sardar Associates v. Punjab and Sind Bank, 2009(8) SCC 257, that it would not be open to Public Sector Banks or Private Sector Banks to decline OTS sought by a borrower provided he falls within the OTS Policy being followed by the said Bank. 

The third aspect which was addressed by the Court was, under what circumstances an OTS scheme can be extended by the High Court. This issue was addressed by the High Court in the case of Anu Bhalla’s Case (Supra) wherein the Division Bench of the High Court specifically held that in exercising of the jurisdiction under Article 226 of the Constitution of India, the High Courts would have the jurisdiction to extend the period of settlement as originally provided for, in OTS letter, but laid down guidelines to be followed. It was also held that OTS is not cloaked with rigorous principles which may not permit extension of period to pay the remaining/balance settlement amount, and in fact, OTS policies of certain Banks themselves contain provisions for the extension for the time period in their respective settlement Policies. 

Lastly, the Court adjudicated upon the issue of the petitioner being entitled to an extension of time. With respect to this, the Court perused the payment made so far. The Court stated that admittedly, the petitioner, during the period between March 2018 and September 2018, made an initial payment of Rupees 25,11,573/- in respect of both the loan accounts, but later paid only Rupees 12.56 lakhs. 

Within the period of OTS, as against Rupees 2.63 crores, the petitioner paid only Rupees 37,67,573/-, which was found by the Court to be too low to be considered as payment of a substantial amount. The Bench also added that even according to the decision in the case of Anu Bhalla’s Case (Supra), the borrower could not seek an extension of time for making payment of the balance OTS amount, as a matter of right. 

Next, the Court opined that with such a slow pace of payment, the petitioner could not claim that his case would fall within the guidelines framed in the case of Anu Bhalla’s Case (Supra).