Rescheduling Payment Under OTS Amounts To Rewriting Contract, High Court Can't Do It In Writ Jurisdiction: Kerala High Court

A Division Bench comprising Justice Anil K Narendran and Justice Muralee Krishna S  thus sett aside a Single Judge order that had granted borrowers the facility to clear loan arrears in instalments and restrained coercive recovery under the SARFAESI Act.

The appellants approached the division bench challenging the judgment of the single judge which allowed the petitioner to regularise the loan account after payment of a fixed amount and the balance overdue in 12 monthly installments.

The appellants contended that the impugned judgment of the Single Judge was contrary to the law laid down by the Apex Court in several decisions including Phoenix ARC Pvt. Ltd. v Vishwa Bharati Vidya Mandir [(2022) 5 SCC 345]. It was further contended that the Single Judge has granted reliefs which were not sought in the petition.

The Court examined whether a High Court can issue a writ of mandamus directing consideration or grant of a One Time Settlement (OTS) proposal. 

The Court observed that in State Bank of India v Arvindra Electronics Pvt. Ltd [(2023) 1 SCC 540], the Apex Court has held that writ of mandamus cannot be issued by the High Court in exercise of the powers under Article 226 of the Constitution of India. The Court observed that OTS is subject to eligibility criteria under OTS scheme and guidelines issued from time to time.

“Such a decision should be left to the commercial wisdom of the bank, whose amount is involved, and it is always to be presumed that a financial institution/bank shall take a prudent decision whether to grant a benefit or not under the OTS scheme. Therefore, the High Court materially erred and exceeded in its jurisdiction in issuing a writ of mandamus directing the bank to positively consider/grant the benefit of OTS to the borrower.” the Court noted.

The Court further observed that directing the bank to rescheduled the payment under OTS would amount to modification of the contract, which can be done by mutual consent under Section 62 of the Contract Act, 1872. 

"Rescheduling the payment under OTS and granting extension of time would tantamount to rewriting the contract, which is not permissible while exercising the powers under Article 226 of the Constitution of India." Court added. 

The Bench noted that in the present case, the respondent-petitioner's  OTS offer had already been considered and rejected since it failed to meet the internal norms of the bank, Net Present Value (NPV),  coverage, and regulatory requirements and there was no definitive timeline for the remittance of the proposed settlement amount in the OTS proposal, which does not demonstrate an intent or capability for resolution. 

The Bench thus noted that the Single Judge erred in disposing the writ petition by providing a 12 equal monthly installment for the balance overdue. 

The Bench noted that the Single Judge has interfered with the proceedings initiated by the Bank under SARFAESI Act, by granting those reliefs. 

"By granting such installment facility to the petitioner to pay the overdue amount in 13 (1+12) monthly installments, along with regular monthly installments, the learned Single Judge interfered with the proceedings initiated by the Bank under the provisions of the SARFAESI Act, including the proceedings pursuant to the order of the Chief Judicial Magistrate Court, Kollam, under the provisions of Section 14 of the SARFAESI Act." the Court noted. 

The Court has also observed that in the writ petition, the petitioners had challenged a Section 14 notice issued by the Advocate Commissioner appointed by the Chief Judicial Magistrate Court.

Section 14 of the SARFAESI Act deals with the powers of the Chief Metropolitan Magistrate or the District Magistrate to assist a secured creditor in taking possession of a secured asset.

The Court cited Indian Bank v D Visalakshmi [(2019) 20 SCC 47], where the Apex Court noted that the the Chief Judicial Magistrate is equated with the Chief Metropolitan Magistrate for the purpose referred to in the Criminal Procedure Code, 1973, and those expressions are used interchangeable, being synonymous with each other. The Court thus held that the Chief Judicial Magistrate is equally competent to deal with the application moved by the secured creditor under Section 14 of the SARFAESI Act. 

The Court also relied on South Indian Bank Ltd. v Naveen Mathew Philip [(2023) 17 SCC 311], and observed that courts are not expected to substitute themselves with the decision-making authority since the provisions of SARFAESI Act provides an effective mechanism before the Debt Recovery Tribunal.

The Court thus held that the respondents-petitioners cannot invoke the writ jurisdiction under Article 226 of the Constitution of India when the statutory remedy is available under Section 17 of the Act.

It thus set aside the Single Judge's judgment granting installments and dismissed the writ petition by allowing the appeal.

The Respondent-petitioners have the right to avail statutory remedy under Section 17 of the SARFAESI Act and challenge the OTS rejection before the appropriate forum.

Case Title: South Indian Bank Ltd. and Anr v Rahim H K and Anr.

Case No: WA 2425/ 2025

Citation: 2025 LiveLaw (Ker) 787

Counsel for Petitioner: B J John Prakash, Sooraj M S, P Pramel, Varsha Vijayakumar Nair, Manu Baby, Rajasree K

Counsel for Respondents: T Thasmi