Financial institutions such as banks widely use One-Time Settlement ("OTS") schemes to recover loans. It is a tool used to deal with non-performing assets, wherein it provides the bank an option to maximise recovery and minimise losses. The borrower gets the opportunity to settle the dues at concessional rates. However, a recurring issue persisted: whether a borrower can demand OTS as a matter of right, especially when conditions under the proposed scheme are not met?
The Supreme Court of India, in Assistant General Manager, SBI & Anr. v. Tanya Energy Enterprises (2025 INSC 1119), provided clarity on this issue and held that there exists no legal right of a borrower to claim the benefits of any OTS scheme when all eligibility and requirements as stipulated under the scheme are not fully met.
Background of the Case
The dispute arose from credit facilities extended by the State Bank of India ("SBI"), a secured creditor to Tanya Energy Enterprises ("borrower"), secured against seven immovable properties. After the borrower defaulted on repayment, SBI classified the account as Non-Performing Assets ("NPA"). SBI also initiated proceedings under relevant sections of the SARFAESI Act, 2002, as well as the Recovery of Debts and Bankruptcy Act, 1993.
In 2018, a compromise agreement was reached between the parties, under which the borrower was required to pay INR 5 Crore (Indian Rupees Five Crore only) in instalments against outstanding dues of INR 8.14 Crore (Indian Rupees Eight Crore and Fourteen Lakh only). The borrower only paid INR 50 Lakh (Indian Rupees Fifty Lakh only), which led to SBI cancelling the settlement. Even after getting interim relief from the Debt Recovery Tribunal ("DRT"), the borrower continued to default.
Meanwhile, in 2020, SBI introduced a scheme for OTS of outstanding dues in excess of INR 20 Lakh (Indian Rupees Twenty Lakh only) and up to INR 50 Crore (Indian Rupees Fifty Crore only). The borrower applied under this scheme, but SBI rejected the application, citing the borrower's previous conduct, wherein it defaulted in payment of the instalments, vacated the interim order of stay passed by DRT, auctioned one of the borrower's mortgaged properties, and suppressed facts.
The borrower then challenged the rejection before the single bench of the High Court of Andhra Pradesh, which directed SBI to process the borrower's application. On appeal, the Division Bench, after considering a specific clause that contained cases not eligible to be covered under the scheme, treated it as an exhaustive list and held that the borrower was not debarred under the scheme, meaning cases falling outside the coverage of the 'not eligible' criteria should be treated as eligible.
Aggrieved by the decision of the Divisional Bench, SBI challenged the judgment through a Special Leave Petition before the Supreme Court.
Issues before the Court
- Whether a borrower can demand settlement under the OTS scheme as a matter of right when conditions under the proposed scheme are not met?
- Whether the court, while reviewing an administrative order rejecting an application under the OTS scheme, can go outside the grounds mentioned therein to include an alternate valid ground which is evident from the order itself or from the records?
Analysis of the Judgment
The Supreme Court, relying on Bijnor Urban Coop. Bank Ltd. v. Meenal Agarwal (2023)1It reiterated the principle that no court can direct a secured creditor to grant the benefit of OTS to a defaulting borrower positively, and such a grant is always subject to the eligibility criteria being satisfied.
The Supreme Court further observed that, in the particular instance, the borrower did not fulfil the mandates of the OTS scheme, i.e., deposit of 5 per cent (five per cent) or 15 per cent (fifteen per cent) (for wilful defaulters) of the OTS amount at the time of submission of the application. This reason was neither mentioned by SBI while rejecting the borrower's application nor considered by the High Court while deciding the writ petition; nonetheless, an application received without an up-front payment is not required to be processed. The court also noted that the "non-eligible" clause that the High Court examined was not the only mandate, and all of the requirements need to be fulfilled; omission on the borrower's part rendered the application incomplete.
The court further held that, generally, courts should not go outside the grounds mentioned in an administrative order, but in cases where the stated grounds are unsustainable and other valid alternative grounds (evident from the order itself or from records) are available, the court may uphold the order, provided that the affected party is given notice and subsequently an opportunity to respond.
Future Implications
The Supreme Court's ruling in Assistant General Manager, SBI & Anr. v. Tanya Energy Enterprises (2025 INSC 1119) has significant implications for borrowers and banks. It reinforces the principle that OTS schemes are voluntary concessions and requires strict compliance with all the requirements laid down within the scheme. The case demonstrates that a defaulting borrower cannot claim the OTS benefit without fulfilling the bank conditions, even when the administrative order does not mention it as grounds for rejecting the OTS application. Alternative valid grounds, arising from the order itself or any other record, can be used to uphold the order, provided that the affected party is given a chance to be heard. The judgment establishes that the banks retain discretion in granting OTS, and no judicial remedy lies where there is failure to comply with the conditions of the OTS scheme.
Footnotes
1. 2 SCC 805.
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