The Apex court, through the bench of MR Shah and BV Nagarathna, JJ, ruled that no borrower has the right to ask for the benefit of the One-Time Settlement Scheme as a matter of right (OTS Scheme).
In the instant case titled Bijnor Urban Co-operative Bank Ltd. and Others v. Meenal Agarwal & Others, two issues were raised before the Supreme Court for clarification, they are:
Whether the benefit of the OTS Scheme a right or not?
Whether the High Court can issue a writ of Mandamus to a Bank to positively consider OTS grants?
With regard to the first issue, the Court pointed out that no borrower has the right to ask for the benefit of the One-Time Settlement Scheme. The Court also pointed out that in some cases, a person may need to borrow a large sum of money, such as Rs. 100 crores. He may choose not to pay any instalments after taking out the loan, even though he is capable of doing so. He would wait for the OTS Scheme and then pray for benefit under the OTS Scheme, which would require him to pay a lower sum than the amount due and payable on the loan account. Despite the fact that the bank is able to recover the total loan amount by auctioning the secured property/mortgaged property, no bank can be forced to accept a lower price under the OTS Scheme. When the bank disburses the loan and the outstanding balance is due and payable, it will always make a thoughtful decision that is in the bank's best interests and commercial wisdom.
As on the second issue, the Court held the High Court cannot issue a writ of mandamus compelling a financial institution or bank to award a borrower the benefit of OTS in the exercise of its powers under Article 226 of the Indian Constitution. The grant of benefits under the OTS is always subject to the eligibility conditions outlined in the OTS Scheme, as well as any updated rules. If the bank/financial institution believes that the loanee has the ability to pay the loan and/or that the bank/financial institution can recover the entire loan amount by auctioning the mortgaged property/secured property, either from the loanee and/or the guarantor, the bank would be justified in refusing to grant the benefit under the OTS Scheme.
The Court categorically held that:
"As such the benefit of OTS cannot be asked/prayed as a matter of right by any person who is in default. It is submitted that the benefit of OTS is to be granted as per the Guidelines issued by the RBI as well as the conditions in the OTS Scheme itself. It is submitted that if it is found that there are chances of recovering the loan amount by auctioning the mortgaged property and/or by auctioning the other properties which are put as security and the chances of recovery of the entire loan amount are not diminished, the Bank is justified in refusing to grant the benefit under the OTS Scheme."
The Bank cannot be held accountable for the SARFAESI Act procedures just because they have been ongoing for seven years. There is no evidence that the bank is at fault. What was required to be taken into account was the Bank's conscious decision that it would be able to recover the entire loan amount by auctioning the mortgaged property, as well as the Bank's due application of mind that there are all possibilities to recover the entire loan amount, rather than granting the benefit under the OTS Scheme and recovering a lesser amount.
As a result, the High Court erred in law and exceeded its jurisdiction when it issued a writ of mandamus in the exercise of its powers under Article 226 of the Constitution of India, directing the appellant-Bank to positively consider/grant the benefit of OTS to the original writ petitioner, who was not only an NPA account holder but also a willful defaulter.