Introduction

In M/S Classic Agencies & Ors. v. The Regional Office, Indian Overseas Bank (WA No. 2095 of 2025), a Division Bench of the Kerala High Court (Anil K. Narendran, J. and Muralee Krishna S., J.) reaffirmed critical limits on the High Court’s writ jurisdiction in banking recovery matters. The core dispute arose from a One Time Settlement (OTS) sanctioned by Indian Overseas Bank (IOB) under a sanction letter dated 26.12.2024 (Ext.P2), which contained a self-executing (automatic) cancellation clause upon non-fulfilment of stipulated terms. The borrowers sought:

• a mandamus restraining the bank from cancelling the OTS; and
• an extension of the OTS timelines (as requested by their letter dated 16.06.2025, Ext.P6), with interim protection against coercive measures under the SARFAESI Act.

The learned Single Judge had earlier disposed of the writ petition on 01.08.2025 by directing the bank to communicate its decision on the borrowers’ request within a week and protected the borrowers from coercive action for two weeks to enable them to work out remedies. Following that, the bank rejected the extension request by letter dated 14.08.2025 (Annexure A). The appellants then pursued a writ appeal under Section 5(i) of the Kerala High Court Act, 1958.

The Division Bench dismissed the appeal, holding that the OTS had lapsed automatically per its terms and that writ courts cannot either compel extension of an OTS or interdict SARFAESI steps where an efficacious statutory remedy lies before the Debts Recovery Tribunal (DRT).

Summary of the Judgment

The Court held that:

• The OTS sanction (Ext.P2) carried an automatic-cancellation clause (Condition No. 4), and the borrowers admittedly failed to comply with the stipulated terms. As a result, the OTS stood automatically cancelled from the date of non-fulfilment. No separate cancellation order was required.
• Under Article 226 of the Constitution, a writ court cannot issue a mandamus directing a bank to extend or favourably consider extension of an OTS timeline or restrain cancellation of the OTS. Such directions would amount to rewriting or modifying the contract, contrary to Section 62 of the Contract Act, 1872, and are within the domain of the bank’s commercial discretion.
• Disputes or grievances arising out of measures under the SARFAESI Act must ordinarily be pursued before the DRT under Section 17, an efficacious and specialized remedy. As repeatedly cautioned by the Supreme Court, High Courts should refrain from interfering in SARFAESI proceedings through writs except in exceptional cases.

Applying settled Supreme Court precedent, the Division Bench found “absolutely no grounds” to entertain the appeal and dismissed it.

Detailed Analysis

Precedents Cited and Their Influence

• South Indian Bank Ltd. v. Naveen Mathew Philip, (2023) 17 SCC 311:

  The Supreme Court reiterated that High Courts should not entertain writ petitions challenging SARFAESI measures when a specific, efficacious statutory remedy before the DRT is available. The Court reminded that writ jurisdiction is not to substitute the statutorily created adjudicatory process; writs like certiorari target jurisdictional or legal infirmities in process, not mere dissatisfaction with outcomes. The Kerala High Court relied on this to decline interference both with the OTS outcome and any effort to keep “coercive steps” in abeyance through writ proceedings.

• Mardia Chemicals Ltd. v. Union Of India, (2004) 4 SCC 311:

  Cited in Naveen Mathew Philip, Mardia Chemicals articulates the SARFAESI Act’s objective—swift, court-minimal recovery—balanced by a specialized tribunal (DRT) for legal oversight. The Division Bench echoes this legislative design to channel borrower grievances through the DRT.

• United Bank Of India v. Satyawati Tondon, (2010) 8 SCC 110; State Bank of Travancore v. Mathew K.C., (2018) 3 SCC 85; Phoenix ARC (P) Ltd. v. Vishwa Bharati Vidya Mandir, (2022) 5 SCC 345; Varimadugu Obi Reddy v. B. Sreenivasulu, (2023) 2 SCC 168; Federal Bank Ltd. v. Sagar Thomas, (2003) 10 SCC 733:

  This line of authority repeatedly cautions High Courts against entertaining writ petitions in banking recovery matters where statutory alternatives exist, deprecating the practice of interim protection that circumvents the DRT’s jurisdiction. The Kerala High Court aligns with this jurisprudence, underscoring that borrowers cannot bypass the statutory framework by seeking indulgence from writ courts.

• State Bank of India v. Arvindra Electronics Pvt. Ltd., (2023) 1 SCC 540, and Bijnor Urban Cooperative Bank Ltd. v. Meenal Agarwal, (2023) 2 SCC 805:

  These decisions solidify two complementary propositions:

  • No writ of mandamus lies to compel a bank to grant OTS benefits—eligibility and extension are matters of the bank’s commercial wisdom within policy parameters.
  • Directing rescheduling or extension of OTS payments would amount to contract modification or novation under Section 62 of the Contract Act, which the writ court cannot impose.

  The Division Bench directly applied these holdings to reject the borrowers’ prayer to preserve and extend their OTS.

Legal Reasoning Employed by the Court

• Sanctity of OTS Terms and Automatic Cancellation:

  The OTS sanction letter (Ext.P2) explicitly contained Condition No. 4 providing automatic cancellation upon non-compliance. The appellants admittedly failed to meet the sanctioned schedule. The Court held that the OTS therefore lapsed automatically from the date of default by operation of the contract. This self-executing clause obviated the need for a cancellation decision and left no residual right to demand extension via writ.

• No Mandamus to Rewrite Contracts or Direct OTS Extension:

  Following Arvindra Electronics and Bijnor Urban, the Court emphasized that:

  • Extension or rescheduling of an OTS amounts to contract modification—permissible only by mutual consent under Section 62 of the Contract Act—not by judicial fiat.
  • Writ courts cannot compel banks to extend, modify, or grant OTS benefits; such decisions fall within the lender’s commercial discretion subject to policy and regulatory guidelines.
• Alternative Remedy under SARFAESI and Writ Abstention:

  Citing Naveen Mathew Philip and the established Supreme Court jurisprudence, the Division Bench declined to keep SARFAESI “coercive steps” in abeyance under Article 226. The DRT is the primary forum to examine factual and legal challenges, including allegations of procedural infractions, statutory non-compliance, or equitable pleas. Invoking writ jurisdiction to pre-empt or suspend SARFAESI measures would undermine the statutory scheme designed for expeditious adjudication.

• Absence of a Legal Right to Extension:

  A writ of mandamus issues to enforce a legal right. The appellants’ plea rested on partial payment (Rs. 1.19 crores) and a request for more time. The Court held that such equity, without more, does not create a legally enforceable right to insist on extension. In the absence of illegality or statutory infraction, the Court could not grant relief.

Impact and Prospective Significance

• OTS Enforcement:

  The decision strengthens the enforceability of self-executing OTS clauses. Borrowers must strictly adhere to OTS timelines; partial payments do not entitle them to judicially compelled extensions. Banks, in turn, are encouraged to draft clear automatic cancellation clauses, knowing courts will honor them as written.

• Channeling Disputes to DRT:

  The judgment reinforces the DRT as the statutory forum for SARFAESI disputes, curtailing the trend of seeking interim protection in writ courts. This should reduce parallel litigation and ensure faster, specialized adjudication, consistent with SARFAESI’s objectives.

• Contractual Sanctity and Commercial Wisdom:

  By refusing to modify OTS terms via writ, the Court underscores the sanctity of negotiated settlements and the bank’s commercial autonomy. Future litigants should anticipate that any relaxation or rescheduling must be obtained consensually, not by judicial direction.

• Narrowing Equitable Interventions:

  The judgment signals that equitable considerations like substantial but incomplete payment will not by themselves ground writ relief. Absent demonstrable illegality, arbitrariness, or violation of statutory mandates, Article 226 is unlikely to be invoked to salvage lapsed settlements.

• Kerala High Court Bench Guidance:

  As a Division Bench ruling, this decision offers authoritative guidance within the High Court’s jurisdiction, likely influencing Single Judge practice on OTS-related writ petitions and interim orders.

Complex Concepts Simplified

• One Time Settlement (OTS): A negotiated settlement between a borrower and a lender to close outstanding dues on agreed terms (amounts and timelines). It is a contract; failure to comply with its terms typically triggers consequences specified in the sanction letter, including automatic lapse.
• Automatic (Self-Executing) Cancellation Clause: A term stating that the OTS will stand cancelled upon non-fulfilment of conditions (e.g., non-payment within time), without any further action by the bank. Once triggered, the settlement lapses by its own terms.
• Section 62, Contract Act, 1872 (Novation/Alteration/Rescission): A concluded contract can be altered, replaced, or rescinded only by mutual agreement of the parties. Courts cannot unilaterally alter contractual terms through writ jurisdiction.
• SARFAESI Act (Key Idea): Enables secured creditors to enforce security interests without court intervention, followed by a specialized remedy before the DRT under Section 17 for aggrieved parties to challenge creditors’ measures.
• DRT (Debts Recovery Tribunal): A specialized forum to adjudicate disputes under SARFAESI and related banking recovery laws. It can examine factual disputes, procedural compliance, statutory violations, and grant appropriate relief.
• Writ of Mandamus: A high prerogative writ issued to enforce a legal right against a public authority. It does not lie to compel discretionary or commercial decisions like granting/ extending OTS unless backed by a legal right or statutory mandate.
• Doctrine of Alternative Remedy: Courts ordinarily refuse writ petitions where an effective statutory remedy exists (here, DRT under Section 17 of SARFAESI), barring exceptional circumstances like patent lack of jurisdiction or egregious procedural illegality.

Conclusion

The Kerala High Court’s decision in Classic Agencies v. Indian Overseas Bank decisively underscores three interlocking principles:

• OTS agreements are contracts whose terms—especially automatic cancellation clauses—will be enforced as written.
• Writ courts under Article 226 cannot extend OTS timelines, compel banks to grant OTS benefits, or otherwise rewrite settlement schedules; such relief, if any, must come through mutual consent (Section 62, Contract Act).
• SARFAESI disputes belong before the DRT, and High Courts should not stall recovery steps via writs in the face of efficacious statutory remedies.

The judgment offers clear guidance to borrowers and banks alike: adherence to OTS timelines is critical; contractual indulgence cannot be procured through writs; and SARFAESI challenges must be routed through the specialized tribunal. In the broader legal landscape, this decision deepens the trend of judicial restraint in commercial recovery matters, fortifying contractual sanctity and the statutory design of the SARFAESI regime.