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Bank May Recover Debt Irrespective of One Time Settlement Terms if Terms Are Not Complied: Punjab and Haryana High Court

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This case concerns the dispute relating to the extension of time for One-time settlement for repayment of loan availed from the Bank. 

Brief Facts of the Case: 

The Petitioner, M/s. Milkhi Ram Bhagwan Dass, through this petition, was seeking a writ of mandamus directing Respondent No.2-Bank to grant six months to it to make the remaining payment as per One Time Settlement (OTS) dated 31.05.2019, with further directions to restrain Respondents from taking physical possession of the mortgaged property. 

The Petitioner had availed a loan of ₹1.55 crore from Respondent No.2-Bank. Later, as the Petitioner defaulted, its loan account was declared an NPA by the Respondent No.2-Bank on 06.10.2018. The proceedings under the SARFAESI Act, 2002 (Act of 2002) were initiated against the Petitioner, which included notice under Section 13(2) of the Act of 2002. 

An application was filed by the Bank before the District Magistrate, Manasa- Respondent No.1 to take possession of the secured assets. To this effect, notice was issued by Respondent No.1. Subsequently, the Petitioner effected the one-time settlement dated 31.05.2019, he was to pay ₹1.29 crore to Respondent No.2 by 30.11.2019. However, till 31.10.2019, in six instalments, the Petitioner paid only ₹51,00,000. 

For the remaining amount of ₹78 crore, the Petitioner was banking upon the assurance given by his son and brother-in-law, who was running a separate business, but due to the theft of cheques and other important documents by their accountant. Due to this, the Petitioner was unable to deposit the balance amount, thus, asked for an extension of six months. Respondent No.2 ignored the request for an extension; hence, this petition was filed. 

Petitioner’s argument: 

The Counsel for Petitioner relied on the case of Anu Bhalla and another vs. District Magistrate and another and submitted that the claim for extension of time for settlement of payment should be considered by the Court, liberally. The reason being that in this case the parties effected the settlement of ₹1.60 crores, but only ₹83.80 lakhs was deposited but the remaining amount could not be paid due to unavoidable circumstances. The borrowers filed a petition for extension and the request was allowed. 

Although the Petitioner failed to pay ₹78 lakhs to Respondent No.2, when the petition was pending before, he paid an amount of ₹20 lakhs to Respondent No.2. This shows that the Petitioner was ready to make the balance payment along with reasonable interest for a period of delay. 

The Petitioner had suffered financial losses in his business on account of lockdown imposed by the government with effect from March 2020, otherwise, he would have paid the balance amount up to June 2020. 

The aforesaid OTS was for the betterment of both parties. In such a situation, the Petitioner being a deserving borrower, willing to clear his loan account, should be allowed to do so, by extending the time for making the payment. 

Respondent’s argument:

The learned counsel submitted that the Petitioner had failed to establish his bonafide to pay the balance amount under OTS. The circumstances on account of which the Petitioner failed to pay the amount were false and frivolous. Further, after January 2020, not even a single penny was deposited by the Petitioner to show his bonafide. 

It was argued that the Petitioner failed to pay the amount of ₹78 lakhs by the stipulated date i.e., 30.11.2019, without any plausible explanations. 

It was further contended that the reliance by the Petitioner on the decision of this Court in Anu Bhalla’s Case was misplaced. In that case, half of the amount was paid by the borrowers, when he committed the default in repaying the balance amount. The facts of Anu Bhalla’s Case are distinguishable from the facts of this case. 

The Counsel had relied upon the judgment of Allahabad High Court in Union Bank of India and another vs. Anil Kumar Wadhera and others (2017) which held that once a borrower fails to comply with the conditions of OTS within the time specified and there being no Order of the Bank to extend the time for a deposit, the OTS would automatically fail. 

Observation of the Court: 

The Court observed that Anu Bhalla’s case was distinguishable from the case of the Petitioner in facts and otherwise also. In Anu Bhalla’s Case, OTS was effected between the borrowers and the bank for ₹1.60 crores, in compliance with the same, borrowers deposited ₹83.80 lakhs, but could not make the remaining payment. It means that, in the referred case, 50% of the settled amount was deposited before they committed default. 

However, in this case, the borrower effected OTS for ₹1.29 crore and made payment for ₹51 lakhs only when it defaulted. So, in the present case, the amount paid was just 40% of the settled amount. The reasons for the failure to pay in this case were not plausible. Thus, the Petitioner cannot take benefit of Anu Bhalla’s case. 

In the Union Bank of India case, it was held that no separate Orders are required to be passed, once the OTS has become defunct for non-compliance of its condition by the borrowers and the logical consequence in case of breach of terms and conditions of the OTS is that the Bank becomes free to recover the money outstanding following law irrespective of OTS. 

As per OTS, sufficient time was available for the Petitioner to repay. The Petitioner failed to convince this Court that failure to pay the amount was due to reasons beyond his control. The Petitioner also could not show its bonafide intent to pay. 

The Decision of the Court:

The writ petition was dismissed, being devoid of merits. The Petitioner, however, was at liberty to avail the appropriate remedy under the law. The Petitioner is also at liberty to approach Respondent No.2-Bank under the new OTS scheme, as and when it comes into force. is now on Telegram. Follow us for regular legal updates and judgments from the Court. Follow us on Google NewsInstagramLinkedInFacebook & Twitter. You can also subscribe to our Weekly Email Updates. You can also contribute stories like this and help us spread awareness for a better society. Submit Your Post Now.

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