Bank Unilaterally Changing Amount Payable Under 'One Time Settlement Scheme' Contrary To Doctrine Of Legitimate Expectation: Madhya Pradesh HC

The Madhya Pradesh High Court recently held that a Bank cannot unilaterally change the quantified OTS (One Time Settlement) amount as the same would be against the principles of natural justice, and also runs contrary to the doctrine of Legitimate Expectation. The division bench of Justice Sujoy Paul and Justice D.D. Bansal was essentially dealing with a writ petition filed by the Petitioner who was aggrieved by the order of the Respondent Bank, whereby the latter had unilaterally increased the quantified OTS amount from Rs. 36,50,000/- to Rs. 50,50,000/-. The admitted facts between the parties were that the Petitioner had borrowed a loan from the Respondent and intended to repay it in terms of One Time Settlement (OTS). The Bank communicated to the Petitioner that as per the settlement formula given in the scheme (Maha Samadhan Yojana 2021-22), the OTS amount was quantified to be Rs. 36,50,000/-. The Petitioner, in furtherance thereof, deposited Rs.35,00,000/- with the Bank. However, in its correspondence later, the Bank informed the Petitioner that his proposal was put up before the competent authority, which sanctioned the compromise proposal on certain terms, whereby the OTS amount was increased to Rs.50,50,000/-. This was followed by a series of communications exchanged between the parties, which eventually led to the Petitioner approaching the Court by filing the instant petition. The Petitioner argued that after he deposited the amount (95% of the OTS) within the stipulated time, the only option left with the Bank was to proceed further after the stage of issuance of 'intimation letter', and if he was to be found eligible, issue a 'sanction letter'. He submitted that the Bank had miserably failed to accept the same and on the contrary, decided to enhance the compromise amount to Rs.50,50,000/-, unilaterally. This, he contended, ran contrary to the OTS scheme, and that he never gave his acceptance to the decision of the Bank to increase the amount. He further argued that as per the decision of the Apex Court in Sardar Associates & Ors. v. Punjab and Sind Bank & Ors, the OTS scheme is binding, and therefore, the Bank could neither have enhanced the amount nor by any stretch of imagination, could've treated that the offer, which was duly accepted, as elapsed. The Petitioner also relied on the decision of the Court in Laxmi Grih Udyog & Anr. v State of Madhya Pradesh & Anr. to argue that once an amount for OTS is quantified in pursuance to an offer given by the Bank and the said amount is deposited, the Bank cannot take a different stand by enhancing the amount or treat the respective offer as only an 'intimation letter'. In fact, he asserted, it should be treated to as accepted and thus, the Bank was bound by the principles of estoppel flowing from Section 115 of Indian Evidence Act. Per contra, the Respondent Bank submitted that the communication quantifying the OTS to be Rs.36,50,000/- was merely a letter of intimation and not sanction. Furthermore, by depositing only Rs.35,00,000/-, the Petitioner did not fulfil the conditions of the respective communication. The Bank also submitted that it had communicated to the Petitioner vide a letter, wherein, it was stated that it has been presumed by the Bank that the inflated amount of Rs.50,50,000/-, has been agreed upon by him. It further argued that the OTS scheme is not binding in nature and the borrower has no right whatsoever to get a writ of mandamus from this Court. To strengthen its argument, the Bank relied on the decision of the Supreme Court in Bijnour Urban Cooperative Bank v. Minal Agrawal, and the decision of the Allahabad High Court in Mahalaxmi Floor Mills Pvt. Ltd. v. State of U.P. The Court examined the communication wherein the OTS was quantified to be Rs.36,50,000/-, and observed- "It is clear like noon day that the amount was quantified by the Bank as per settlement formula given in the scheme. The respondents in their pleadings nowhere stated that the amount so quantified i.e. Rs.36,50,000/- was erroneously quantified or runs contrary to the settlement formula given in the scheme. The respondents could not point out the basis on the strength of which a magic figure of Rs.50.50 lakhs was determined by them in letter dated 25.8.2021." The Court held that the Bank could not have unilaterally changed the amount to Rs.50,50,000/- after correctly quantifying the OTS amount to be Rs.36,50,000/-. The Court went on test the decision of the Bank, which came under the category of an administrative decision, based on the three parameters laid down by Lord Diplock, L.J. in Council of Civil Service Unions v. Minister for the Civil Service- Irrationality, Illegality and Procedural Impropriety. The Court held the decision of the Bank to be irrational as it correctly quantified the amount to be Rs.36,50,000/- as per the formula under the scheme but...

Bank Unilaterally Changing Amount Payable Under 'One Time Settlement Scheme' Contrary To Doctrine Of Legitimate Expectation: Madhya Pradesh HC

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Zeeshan Thomas

Bank Unilaterally Changing Amount Payable Under 'One Time Settlement Scheme' Contrary To Doctrine Of Legitimate Expectation: Madhya Pradesh HC

Zeeshan Thomas

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Zeeshan Thomas

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