One-Time Settlement Scheme: Supreme Court Rules On Borrowers' Rights

High courts cannot direct banks to extend payment deadlines agreed upon under the OTS, the Supreme Court said.

<div class="paragraphs"><p>Supreme Court of India, New Delhi, India. (Source: Reuters)&nbsp; </p></div>
Supreme Court of India, New Delhi, India. (Source: Reuters) 

The Supreme Court has held that banks cannot be directed to reschedule payment timelines under the One-Time Settlement Scheme.

In doing so, the apex court overturned the ruling by the Punjab and Haryana High Court, which had directed the State Bank of India to extend the payment timeline for Arvindra Electronics Pvt. under the OTS.

High Courts, in the exercise of their inherent powers, cannot direct banks to extend payment deadlines, which have been agreed upon under the OTS. This would amount to a modification of the contract, which is not permissible, the apex court said.

The Supreme Court's judgement is an extension and reiteration of the law laid out in the Bijnor Urban Cooperative Bank case, said Girish Rawat, partner at Luthra and Luthra Law Offices. In that case, the court said that borrowers could not claim the benefit of OTS as a matter of right.

The present judgement reaffirms this stand and holds that high courts cannot interfere in a OTS agreement mutually agreed upon by parties and extend the time granted for repayment of debt. This judgement could have far-reaching impact on borrowers who may genuinely need some extension of time.
Vineetha MG, Partner, Samvad Partners

The apex court further said that just because relaxation of time was granted in other cases, it doesn’t give a borrower the right to seek an extension.

According to the court, there cannot be any "‘negative discrimination" claimed. The parties can, however, alter the contract on mutual terms, the order said.

In the case heard by the Supreme Court, SBI had entered into an OTS agreement with Arvindra Electronics in September 2017. The agreement required the company to deposit a portion of the settlement amount by December, which it did. The remaining amount was required to be paid in six months. The borrower, however, failed to meet the deadlines and sought an extension of 8–9 months, which was rejected by the bank.

The company also rejected the bank's offer to opt for other OTS schemes and approached the high court for relief. The high court directed SBI to grant an extension of six weeks, which prompted the bank to appeal.

The apex court agreed with the bank's rationale and held that rescheduling of payments and extension of time would amount to a rewriting of the contract, which is not permissible.

"The borrower has to establish any right in their favour to claim the extension as a matter of right," the Supreme Court said.

The court has upheld that it will not interfere in the commercial wisdom or the contractual arrangements between parties, MG said. But the court has not completely closed the door for writs. "The court can require banks to comply with RBI circulars on OTS."

Rawat concurred and said that high courts can also interfere with an OTS scheme if the bank's decision is arbitrary.

(Corrects an earlier version that misstated Girish Rawat's surname)