Banks Cannot Be Directed To Accept OTS Proposals Or Disclose Evaluation Criteria: Bombay High Court

The Bombay High Court recently affirmed that it cannot compel banks to accept One Time Settlement proposals or disclose the internal benchmarks used to evaluate such proposals, emphasizing that these decisions rest within the commercial wisdom of the bank.A division bench of Justices Anil S Kilor and Rajnish R Vyas in an order passed on October 17, 2025, observed, "It is clear that no specific policy of the bank has been brought on record by the petitioner to show that for any particular period for particular amount at particular stage OTS scheme is made applicable. Just because borrower has submitted the proposal for OTS which from time to time is taken into consideration and rejected by giving reason that it does not match benchmark, will not create semblance of right in favour of the borrower."The dispute arose from a term loan facility of Rs. 62 crores sanctioned by Indian Bank on March 8, 2011 to Poonam Resorts Ltd for the development and construction of a clubhouse cum resort project. N. Kumar Housing and Infrastructure was the guarantor and mortgagor, with the petitioner-Archana Wani as its director and shareholder. Following default by the principal borrower, the loan account was classified as a non-performing asset on March 31, 2017. Subsequently, the bank, initiated recovery proceedings under the SARFAESI Act and also filed applications under the Insolvency and Bankruptcy Code before the NCLT. Meanwhile, the petitioner had submitted several OTS proposals and they were all rejected on the ground that it did not meet the bank's internal benchmark. The petitioner challenged the rejection of several OTS proposals on the ground that the bank failed to disclose the internal benchmark used to evaluate and reject the One Time Settlement proposals. She also argued that the benchmark was arbitrarily changed over time.The petitioner further contented that the bank acted arbitrarily and like a private money lender without following Reserve Bank of India guidelines. The petitioner sought directions for an independent audit by RBI and declarations against the interim resolution professional's actions. The bank maintained that the loan agreement was a contractual obligation and that accepting the OTS proposals would amount to rewriting the terms of the contract. The bank also highlighted that it dealt with public money and judicial review under Article 226 was not appropriate. Agreeing with the Bank, the court dismissed the petition observing, "As rightly submitted by the learned counsel for the bank that it deals with public money and therefore, asking it to settle the account by accepting OTS would not be in the interest of public at large." The court further noted, "Thus, it is crystal clear that issuing writ of mandamus under Article 226 of Constitution, would not in the interest of justice by directing the bank to consider the benefit of OTS to the borrower guarantor."The court extended the interim stay for six weeks, after which it will automatically stand vacated.Case Title: Archana Wani v Indian BankCase Number: WRIT PETITION NO. 3766 OF 2023Appearances:For Petitioner: Senior Advocate Devendra V Chauhan assisted by advocates Chaitanya Dhruv and Parth C MalviyaFor Respondent: Advocate A T Purohit with advocates TY Sharif, for respondent nos. 1 and 2; Advocate SN Kumar for respondent no. 3; Senior Advocate Akshay Naik, Senior Advocate assisted by advocate Rohan Deo for respondent No. 4; Advocate C S Dhore for respondent No. 5Click here to read/download judgement

Banks Cannot Be Directed To Accept OTS Proposals Or Disclose Evaluation Criteria: Bombay High Court

Sahyaja MS

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