Principle Of Promissory Estoppel Applies After Customer Acts On Basis Of Bank's One Time Settlement Scheme: Gujarat High Court

The Gujarat High Court has held that once a customer acts on the basis of offer made by a Bank under its One Time Settlement scheme, the principle of promissory estoppel applies and the latter is estopped from acting to the detriment of the former."It is clear that the principle of promissory estoppel applies. The bank by its conduct of offering an OTS settlement intended to create legal relations which the petitioners had acted upon in light of the promise made and paid the amount on or before 30th of December 2017. This action was apparently accepted in principle by the bank as not only for the title clearance certificate but valuation reports letters were written by by the bank to the advocates and the valuers. The amounts were paid and accepted by the bank and once the petitioners had acted upon on the promise set out by the bank, the bank cannot be allowed to go back on its proposal on the basis of a letter dated 28th August 2018 stating that the scheme of OTS was not applicable as the cases of the petitioners was reported as fraud."It thus directed the State Bank of India (Respondent) to issue a no due certificate to the Petitioner-Company and further release the mortgage documents in its custody for the release of the properties in question. The High Court further directed that the Bank withdraw all pending proceedings against the Petitioners under the SARFAESI Act before the competent authorities. While admitting the petition of the Company, Justice Biren Vaishnav applied the principle of Promissory Estoppel: "The act on behalf of the bank therefore in not releasing the title documents, not issuing of a no due certificate and not withdrawing the pending legal actions against the petitioners is arbitrary and violates the constitutional guarantee enshrined under Article 14 of the Constitution of India as held by the Hon'ble Supreme Court in the case of Central Bank of India versus Devi Ispat (2010) 11 SCC 186." The Single Judge Bench made this observation in the context of an Art 226 petition seeking the issuance of a no-due certificate to the Petitioners and further release of the charge in its favour with Statutory Authorities such as the Registrar of Companies, Central Registry of Securitisation Asset Reconstruction and Security Interest of India, Land Revenue Authorities or any other authority. It was further sought that the proceedings pending against the Company under Sec 14 of the SARFAESI Act be declared illegal, null and void ab initio. The Petitioner herein had received a letter from the Respondent-Bank offering a One Time Settlement (OTS) of outstanding dues to the tune of Rs. 12, 34, 54,566 by a payment of Rs. 9,90,58,133. The Bank offered that if this amount was paid before 31st December 2017, the Petitioners would be eligible for an additional incentive of 10% over the OTS amount. The Petitioner indicated in October 2017 that it would remit the amount by the due date but the Bank should release the documents and give a no due certificate. However, the same was not released despite full payment. The Bank thereafter sent a letter in August 2018 reporting the Petitioners as fraud to the RBI for some transactions in 2016 and therefore, the Petitioners were deemed unentitled to the benefits of OTS. However, the Petitioners were not returned the settlement money, either. The Petitioners primarily contested that the principle of promissory estoppel applied in the instant case since the Bank could not have cancelled the OTS letter when it had not informed the case as fraud. The Bank's action of not releasing the title papers and issuing a no-due certificate and clearing the charges of the bank and not withdrawing the legal action against the Petitioners was bad in law. The Bank had filed an application under Sec 14 of the SARFAESI Act which had to be withdrawn. Reliance was placed on Gujarat State Financial Corporation vs. Lotus Hotels Private Limited reported in AIR 1983 SC 848 for bringing home the argument on estopping the bank from backing out. Per contra, the Respondent Bank contested that the instant petition was not maintainable since there was an alternative remedy available to the Petitioners under the SARFAESI Act of approaching the Debt Recovery Tribunal. Further, reference was made to Clause 2.1 of the OTS Scheme to indicate that cases reported as fraud will not be eligible. The Company had committed fraud by selling the collateral mortgage securities without permission or obtaining an NOC from the Bank and did not deposit the sale proceeds with the Bank also. Thus, the OTS Scheme was withdrawn. Justice Vaishnav observed, "When the entire amount was paid pursuant to the OTS settlement, the bank could not have cancelled the settlement vide its letter dated 28.08.2018 stating that as the case of the petitioners was reported as fraud, the petitioners were not entitled to the benefits of ATS. In light of the...

Principle Of Promissory Estoppel Applies After Customer Acts On Basis Of Bank's One Time Settlement Scheme: Gujarat High Court

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