Bank is free to recover debt if the terms and conditions of one-time settlement are breached: Punjab & Haryana High Court

Bank is free to recover debt if the terms and conditions of one-time settlement are breached: Punjab & Haryana High Court

The Punjab and Haryana High Court (HC) held that if the terms of the One Time Settlement (OTS) entered with the bank are violated by a borrower wherein the amount is not paid within the agreed time frame, then Court orders are not needed for extending the time period of payment under the One Time Settlement (OTS).

M/s. Milkhi Ram Bhagwan Dass (petitioner) is a partnership firm and it availed a loan limit of Rs 1.55 crore from the HDFC Bank (Respondent No. 2). Later, the petitioner defaulted in repaying the loan and its loan account was declared as Non-Performing Asset (NPA) by respondent No.2 on 6 October 2018.

The proceedings under Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFESI Act), were initiated by respondent No.2 Bank against the petitioner, and a notice was sent under Section 13(2) of the SARFESI Act. An application was also filed before the District Magistrate (Respondent No.1) by Respondent No.2 to take possession of the secured assets.

Respondent No. 1 issued the notice and subsequently the petitioner affected OTS dated 31 May 2019, with respondent No.2. According to the terms and conditions of the said OTS the petitioner had to pay Rs.1.29 Crores to respondent No.2 by 30 November 2019.

The petitioner had filed a writ petition before the HC for seeking a writ of mandamus directing respondent No.2 to grant six months' time period for making the remaining payment. It also requested the HC to give directions to the respondents from restraining them to take physical possession of the mortgaged property of the petitioner.

The matter was listed before a Division bench of the HC of Justice Rajan Gupta and Justice Karamjit Singh. It stated that the Bank becomes free to recover the outstanding amount as per the law, irrespective of the OTS.

The HC also observed, "The borrower affected OTS for Rs.1.29 Crores and made payment of Rs.51 lakhs only when it defaulted. So, in the present case, the amount paid was just 40% of the settled amount. Also, in this case, reasons put forth by the petitioner for failure to pay the balance amount, are not plausible."

The HC relied on the judgment of the Allahabad High Court in the case of Union Bank of India & Anr. v. Anil Kumar Wadhera & Ors., wherein the Court held that once a borrower fails to comply with the conditions of OTS within the time specified and there being no order of the Bank to extend the time for the deposit, the OTS would fall automatically and it will not be open to the borrower to insist upon the enforcement of such an OTS.

The Division Bench concluded, "No separate orders are required to be passed in the matter of the OTS having become defunct for non-compliance of its conditions by the borrowers and the logical consequence in case of breach of the terms and conditions of the OTS is that the Bank becomes free to recover the money outstanding in accordance with law irrespective of the OTS."

The HC held that already sufficient time period had been given by respondent no. 2 to the petitioner for repayment of the loan. But the petitioner had failed to repay the loan within the defined timeline and it had also failed to convince the HC that there was some reason beyond control for delaying the payment of the balance amount within the stipulated period.

Hence, the petitioner could not show his bonafide intent to make the payment of the balance amount. The petition was dismissed by the HC being devoid of merits.