Read Order: Amrik Singh v. DCB Bank Ltd. and Another

Monika Rahar

Chandigarh, April 18, 2022: While dealing with a case seeking extension of time of One Time Settlement (OTS), the Punjab and Haryana High Court has reiterated that in the exercise of jurisdiction under Article 226 of the Constitution of India, High Courts would have the jurisdiction to extend the period of settlement as originally provided for in the OTS letter.

However, the Bench of Justices M.S. Ramachandra Rao and Jasjit Singh Bedi also added, “Such a power undoubtedly exists, though not as a matter of right, and must be exercised by a High Court keeping in mind the above guidelines/principles.”

In 2013, the petitioner and his brother (proprietors of two different firms) availed a loan from the respondents-DCB Bank against property to the tune of Rs. 67 lakh which was enhanced to Rs. 95 lakh in 2015, repayable over a period of 15 years. The petitioner, in his personal capacity, also stood as a guarantor to the credit facility availed by the firms by mortgaging his property in favour of the respondents-DCB Bank. 

In 2018, when the EMIs of the loans were not paid, the respondents declared the loan accounts as NPA and issued a notice under Section 13(2) of the Securitization & Reconstruction of Financial Assets & Enforcement of Security Interest Act, 2002 [‘the SARFAESI Act’]. 

In 2019 the first OTS proposal was submitted by the petitioner and his brother along with a demand draft of Rs. 10 lakh to the respondents with a condition to encash the same subject to acceptance of the settlement proposal. The respondents however encashed the said demand draft but did not accept the settlement proposal. Thus, in 2020, the second OTS was submitted offering Rs. 75.32 lakh to the respondents but the same was not accepted. 

Later, a revised OTS was submitted offering Rs. 85 lakh and the same was accepted by the respondents by issuing an OTS sanction letter requiring payment of Rs. 25 lakh by July 31, 2020, Rs. 20 lakh by August 30, 2020, and Rs. 40 lakh by September 30, 2020. By September 2020, the petitioner paid a sum of Rs. 49 lakh as against the total settlement amount of Rs. 85 lakh and was unable to raise the balance amount of Rs. 36 lakh by the last date of payment. 

Thus, the petitioner requested the respondents-Bank to grant an extension of 90 days time for making payment of the balance amount of Rs. 36 lakh while stating that the delay was a result of the non-payment of Rs. 40 lakh in time, by the purchaser to whom the petitioner sold the property. It was also mentioned that due to Covid-19, there was a slow down in business because of which the purchaser of the property could not raise the funds to make full payment to the petitioner by the last date and thus, the petitioner was constrained to seek an extension.

There was no response from the bank. Petitioner, therefore, filed the instant Writ Petition for a direction to the respondents to accept the balance amount of Rs. 36 lakh out of the total settlement amount of Rs. 85 lakh along with interest at 9% p.a. w.e.f. October 01, 2020, to December 31, 2020. 

At the very outset, the Court tackled the challenge raised to the maintainability of the present petition. In this respect, the Court opined that the respondent- DCB Bank is a Scheduled Bank (as it is mentioned in the Schedule of the Reserve Bank of India Act, 1934) governed by the Banking Regulation Act, 1949 [‘the Banking Act’]  and that its OTS policy was in pursuance of certain circulars issued by the Reserve Bank of India. 

Further, the Court added that the RBI (a statutory body) supervises the Scheduled Banks and is empowered to issue binding guidelines under Section 21 of the Banking Regulation Act (reference can be made to The guidelines issued by the Reserve Bank of India are binding on all Scheduled Banks as per the decision of the Supreme Court in Central Bank of India Vs. Ravindra). 

Further, the Court observed that the Supreme Court held in Sardar Associates and others Vs. Punjab and Sind Bank and others that the Reserve Bank of India, in the exercise of the power conferred on it under Section 21 of the 1949 Act, can formulate policies that banking companies are bound to follow. It also held that pursuant to the guidelines issued by the Reserve Bank of India, an OTS Scheme is framed by a Bank which must act according to the guidelines framed by the Reserve Bank of India. The Court declared that if in terms of guidelines issued by the Reserve Bank of India, a right is created in a borrower, a Writ of Mandamus can also be issued since the guidelines of the Reserve Bank of India have a statutory flavour. 

The Court also made reference to a decision of the Division Bench of the High Court in Anu Bhalla and another Vs. District Magistrate, Pathankot,CWP-5518-2028 P&H (DB) wherein it was specifically held that in the exercise of jurisdiction under Article 226 of the Constitution of India, High Courts would have the jurisdiction to extend the period of settlement as originally provided for in the OTS letter subject certain illustrative guidelines which are required to be considered cumulatively or individually on case to case basis to decide whether in a given case an applicant would be entitled to the extension. 

It held that One Time Settlement 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 an extension for the time period in their respective settlement Policies. 

Also, in order to ensure the balance of convenience, it was also held in this decision that the willful defaulters and fraudsters would not be entitled to such extension, and in the case of a deserving borrower, who has deposited a substantial amount within the original stipulated period of settlement, and proved his bona fides, and is willing to clear the remaining amount in a reasonable period and also compensate the creditor with interest for the period of delay, the Court can consider extending the period with some flexibility to achieve the ultimate aim of such settlement. 

Thus, in light of the above, the Court opined that such a power to grant extension undoubtedly exists, though not as a matter of right, and must be exercised by a High Court keeping in mind the above guidelines/principles. 

Next, addressing the plea of an alternate remedy raised by the respondents while referring to the remedy available under Section 17 of the SARFAESI Act was not found to be tenable by the Court. The Court observed that the Debt Recovery Tribunal is the Forum mentioned in Section 17 of the SARFAESI Act and is empowered to deal with applications against the measures to recover secured debts, referred in Sub Section (4) of Section 13 of the SARFAESI Act, taken by the Secured Creditor, and under Sub Section (2) of Section 17 of the SARFAESI Act is empowered to consider whether any such measure taken by the secured creditor for enforcement of security are in accordance with the provisions of this Act and the Rules made thereunder. 

Thus, in light of the above, the Court inferred that like the instant one, where such measures were not initiated then, the remedy under Section 17(1) of the SARFAESI Act could not be availed prima facie. Also, the Court asserted that where an extension of time for OTS is to be granted or not is an issue normally within the purview of the DRT having regard to the language contained in Sec.17 of the SARFAESI Act.

Next, the Court applied the above legal position to the facts of the present case to observe that no doubt the OTS Policy contained a clause that in case of default in compliance with the payment schedule, the settlement offer shall stand cancelled but the Court sympathized with the situation of the petitioner. 

It was noted by the Court that by September 30, 2020, the petitioner paid Rs. 45 lakh and the balance payable was Rs. 40 lakh, and thereafter, the petitioner made a request for an extension of the OTS by 90 days on account of the Covid-19 Pandemic, slowing down of the economy, slow flow of funds in the market and also on the ground that the purchaser of the mortgaged property delayed payment of the said amount to him. 

Also, noted was the fact that with the request letter, the petitioner admittedly deposited Rs. 4 lakh, leading to a balance of Rs. 36 lakh. 

The Court opined that the difficulties caused to borrowers on account of the Covid-19 Pandemic in the year 2020 and 2021, the slowing down of the economy are matters of common knowledge and thus, the Court was of the opinion that these difficulties faced by the petitioner could not be brushed aside lightly and ought to be sympathetically considered by the Court keeping in mind that only two months and five days i.e. a very short time was granted, and only 90 days was sought for payment of the balance Rs. 36 lakh. 

Thus, while opining that the case of the petitioner fell within the parameters of Anu Bhalla (Supra) and allowing the appeal, the Court held, “We are also of the opinion that the non-acceptance of the amount of Rs. 36 lakh with interest offered by the petitioner on 31.12.2020/02.01.2021 by the respondents is arbitrary and illegal and violative of Article 14 of the Constitution of India particularly when the OTS policy itself in Clause 6.9 contemplated extension of timelines for payment of the sanctioned OTS.”

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