India: Enforcement Of OTS Proposal

The Hon'ble Supreme Court, in Devidayal Castings Private Limited vs. Haryana Financial Corporation and Ors.1 has decided an issue as laid down here:

Whether the decision of the Executive Committee, dated December 22, 2005, as approved by the Board of Directors of the Corporation, not to accept the settlement amount under the policy under force in cases where the value of the secured properties is more than the said settlement amount, amounts to change of policy to the detriment of the borrower and, therefore, the Corporation should be held bound to accept the settlement amount as per policy in force?

FACTS

In 2005, the Corporation adopted and promulgated a policy known as "The Policy For Compromise Settlement of Chronic Non-Performing Assets (NPAs) Of Haryana Financial Corporation, 2005", whereby, the borrowers are given option to settle on the basis of the principal amount of the outstanding in the loan accounts as on the date on which the account was declared Non Performing Assets. Pursuant to the circulation of policy admittedly, letters were written and offers were given to the borrowers to deposit 10% of such dues as a pre-condition for consideration of their cases. The borrowers thereafter, accepted the said offer and responded accordingly. It is imperative to mention that in response, the same came to be rejected in a meeting of the Executive Committee of the Board held on December 22, 2015, the Board in principle held that where the secured properties were more than the settlement amount then in such situation the Corporation should resort to sale of the secured properties. The resolution of the Executive Committee was approved by the Board. The OTS proposal of the borrowers were rejected. Aggrieved by the decision of the Board, the borrowers had filed writ petition before the Hon'ble High Court of Punjab & Haryana.

JUDGMENT

The observation of the Court is laid down as under:

  • If an offer has been made by the Corporation in terms of the OTS policy in force which did not contain the exception in question, there can be no departure from the policy and the exception acted upon is in detriment to the interest of the borrowers.
  • The Court had quoted paragraph no. 36 of Sardar Associates and Ors. vs. Punjab and Sind Bank and Ors. wherein, this Court had dealt with the similar policy containing a similar power of deviation there from which was laid down by the RBI to govern the policy but only to the non – essential features thereof.

    1. "While making a deviation, the Board of Directors of a public-sector bank could not have taken recourse to a policy decision which is per se discriminatory. The Respondent / Corporation could not have taken recourse to a policy decision which is per se discriminatory. The Respondent Bank is "State" within meaning of Article 12 of the Constitution of India apart from the fact that it is bound to follow the guidelines issued by the Reserve Bank of India. If therefore, the broad policy decisions contained in the guidelines were required to be followed, the power of the Board of Directors to make deviation in terms of Clause 4 of thereof would only be in relation to some minor matters which do not touch the broad aspects of the policy decision and in particular the one governing the non-discriminatory treatment. In a case of this nature, we are satisfied that the Respondent Bank is guilty of violation of the equality clause contained in the Reserve Bank of India guidelines as also Article 14 of the Constitution of India."
  • One Time Settlement allowed as per policy.

ANALYSIS

From the aforementioned observation given by the Hon'ble Supreme Court, it can be concluded that the OTS proposal circulated by the Corporation / Financial Institution / Bank has to be non-discriminatory and non-discretionary. Even the circular dated September 03, 2005, circulated by Reserve Bank of India mandates that the One Time Settlement has to be nondiscretionary and the same should be in the interest of the borrowers.

Footnotes

1 2016(8)SCALE697

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