Defaulting Borrower Cannot Claim OTS Benefit Without Fulfilling Bank's Conditions : Supreme Court Allows SBI's Appeal

The Supreme Court observed that availing the Bank's One Time Settlement (“OTS”) scheme is not a borrower's right, particularly where there is a failure to comply with mandatory preconditions such as making the required upfront payment.Even if a borrower is eligible for OTS benefit, unless the conditions stipulated in the OTS scheme are fulfilled, there is no vested right to avail the benefit."Crossing the hurdle of eligibility per se would not entitle a defaulting borrower to claim consideration of his/its application unless the application itself satisfies the other stipulated conditions," the Court observed.Since the Respondent-borrower didn't make the upfront payment of 5% of the outstanding dues as the condition for availing the benefit of the State Bank of India's OTS scheme, the bench comprising Justices Dipankar Datta and AG Masih set aside the Andhra Pradesh High Court's decision which directed the Appellant-SBI to re-consider the Respondent's proposal for OTS without considering the past defaults of the Respondents and failure to make upfront payment for claiming OTS.“It is clear as a sunny day that an application for availing the (OTS) benefit thereunder would be processed if such application were accompanied by an up-front payment of 5% of the outstanding dues. Indubitably, the respondent faltered in not adhering to the express terms of such scheme by not depositing 5% of the outstanding dues as up-front payment, thereby rendering its application disentitled to be processed even, far less deserving a favourable consideration.”, the Court observed.The Court noted that in Bijnor Urban Coop. Bank Ltd. v. Meenal Agarwal, it was held that "the benefit of the OTS cannot be claimed as an absolute right."The dispute arose after the Respondent-Tanya Energy defaulted on loans secured against seven mortgaged properties. Following the classification of the account as a non-performing asset, the Appellant-SBI initiated recovery measures under the SARFAESI Act and attempted auctions of the mortgaged properties. Parallelly, the borrower applied under SBI's OTS Scheme of 2020. However, the application was rejected by the bank, citing past defaults, suppression of facts, and ongoing litigation before the Debt Recovery Tribunal. Both a Single Judge and a Division Bench of the Andhra Pradesh High Court set aside this rejection, directing SBI to reconsider the proposal. SBI challenged these orders before the Supreme Court. Setting aside the impugned order, the judgment authored by Justice Datta observed “that every borrower in default, to have his application under the OTS 2020 Scheme considered, was required to apply together with an up-front payment of 5% of the OTS amount.” However, “we did not find the respondent, while applying for the benefit of the OTS 2020 Scheme, to have deposited a single paisa towards up-front payment. In terms of clause 4(i) of the OTS 2020 Scheme, any application received without up-front payment is not required to be processed even. Thus, in the first place, the respondent's application was incomplete and it did not have any right in law to claim that such application should be processed.” Accordingly, the appeal was allowed, but noted that “the appellants are free to proceed in accordance with law for enforcement of the security interest. At the same time, we also grant the respondent an opportunity to submit a fresh proposal for OTS but not under the OTS 2020 Scheme. If the terms and conditions put forth by the respondent are found reasonable, workable and acceptable, the appellants may take such decision on it as deemed fit and proper in the circumstances.”Also from the judgment - Reasons Not Stated In An Order Can Be Considered In Limited Circumstances: Supreme CourtCause Title: ASSISTANT GENERAL MANAGER STATE BANK OF INDIA & ANR. VS. TANYA ENERGY ENTERPRISES THROUGH ITS MANAGING PARTNER SHRI ALLURI LAKSHMI NARASIMHA VARMACitation : 2025 LiveLaw (SC) 918Click here to read/download the judgmentAppearance: For Petitioner(s) :Mr. N Venkataraman, A.S.G. Mr. Sanjay Kapur, AOR Mr. Surya Prakash, Adv. Ms. Shubhra Kapur, Adv. Ms. Mahima Kapur, Adv. Ms. Mansi Kapur, Adv. For Respondent(s) :Mr. Dama Seshadri Naidu, Sr. Adv. Mr. Mullapudi Rambabu, Adv. Mr. Praveen Kumar Sharma, Adv. Ms. Mahima Pandey, Adv. Ms. K.m.s. Sivani, Adv. Ms. D.Poornima, Adv. M/S. M. Rambabu And Co., AOR

Defaulting Borrower Cannot Claim OTS Benefit Without Fulfilling Bank's Conditions : Supreme Court Allows SBI's Appeal

Yash Mittal

Merely being eligible for OTS scheme is not enough if the borrower has not complied with the conditions.

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