ots: Borrowers are not entitled to a single settlement: Supreme Court | India News

NEW DELHI: In an important order aimed at preventing unscrupulous delinquent debtors from escaping the rigors of the SARFAESI law, the Supreme Court ruled on Wednesday that no court can order a bank or financial institution to offer a one-time settlement (OTS) to a borrower when the bank or FI was of the opinion that it would be able to recover the overdue amount through an asset auction.
Setting aside an order by Allahabad HC directing Bijnor Urban Cooperative Bank Limited to consider granting OTS to a defaulter despite the bank’s argument that Sarfaesi proceedings were pending, a bench of Judges MR Shah and BV Nagarathna said: “If it is judged that the borrower can still, as of right, claim benefits under the OTS scheme, in this case it would be giving a premium to a dishonest borrower, who, despite the fact that he is able to make the payment and the fact that the bank is able to recover the entire loan amount even by selling the mortgaged / secured properties either from the borrower and / or the guarantor. ”
Writing the judgment, Judge Shah said, “This is because under the OTS program a debtor has to pay an amount less than the actual amount owed and payable on the loan account. This cannot be the intention of the bank in offering the OTS program and that cannot be the aim of the program which may encourage such dishonesty. ”
The bench said: “No bank can be forced to accept a lower amount under the OTS program despite the bank being able to recover the entire loan amount by auctioning the collateralized property. Mortgaged property When the loan is disbursed by the bank and the outstanding amount is due and payable to the bank, it will always make a conscious decision in the interest of the bank and in its commercial wisdom.
Judge Shah said that no borrower has the right to plead in court to grant them the benefit of the OTS program. “In a given case, it may happen that a person borrows a huge amount, say Rs 100 crore. After using the loan, he may deliberately not pay any amount in installments, although he has the necessary resources. to repay the loan amount. He would wait for the OTS scheme and then apply for benefits under the OTS scheme under which, always an amount less than the amount due and payable under the loan account will have to be paid. ”
In conclusion, the judiciary said, the crux of the matter is that HCs cannot order banks of financial institutions to positively grant the benefit of OTS to a borrower. “The granting of an OTS benefit is always subject to the eligibility criteria mentioned under the OTS scheme and to directives issued from time to time. If the bank / financial institution is of the opinion that the lender has the capacity to make the payment and / or that the bank / financial institution is able to recover the full amount of the loan even by auctioning the mortgaged / secured property, either with the lender and / or the guarantor, the bank would be justified in refusing to grant the benefit under the OTS regime, “It said.
“Ultimately, such a decision should be left to the commercial wisdom of the bank whose amount is involved and it is always presumed that the financial institution / bank will make a prudent decision whether or not to grant the benefit under the title. of the OTS regime, having regard to the public interest at stake and taking into account the factors mentioned above, “he added.