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2020 (9) TMI 1194 - HC - Indian LawsSeeking grant of extension in time, for making the re-payment of the balance settlement amount in terms of One Time Settlement (OTS) - balance could not be paid due to prevailing lockdown situation - Whether this Court in exercise of its jurisdiction under Article 226 of the Constitution of India, has the jurisdiction to extend the period of One Time Settlement? - HELD THAT - If the settlement policies of the banks itself provide for an extension subject to payment of interest, there is no reason to hold that the Courts in exercise of their equitable jurisdiction under Article 226 of the Constitution of India, cannot extend such time period of settlement. Further, it is also to be noticed, that invariably in all the settlement schemes or the policies, there are already sufficient checks and balances to identify eligible borrowers to whom such concessions can be extended to lead to an OTS. It is needless to mention that settlement takes place, only after the case of the borrower has been tested on the basis of criteria of eligibility for settlement provided under the scheme or policy itself. For example we see, that cases of wilful default and fraud are normally excluded - a deserving borrower, who has deposited substantial amounts within the originally stipulated period of settlement, proved his bona fides and is willing to clear the remaining in a reasonable period, and compensate the creditor with interest for the period of delay, should be considered with some flexibility to achieve the ultimate aim of such settlements. It is with this perspective, that extensions can be considered to be granted to deserving cases. This issue in answered in AFFIRMATIVE and hold that this Court in exercise of its jurisdiction under Article 226 of the Constitution of India would have the jurisdiction to extend the period of settlement as originally provided for, in the OTS letter. Whether in the facts of the present case, the petitioners would be entitled for an extension in making payment of the balance settlement amount pursuant to One Time Settlement dated 29.01.2019? - HELD THAT - In the present case, the petitioner has prayed for extension of settlement period pursuant to an OTS entered with respondent No. 2 and has paid substantial portion of the same and is willing to pay the remaining with interest. In our considered opinion, if the petitioners are in litigation with other creditors the same by no stretch of imagination constitutes to be a material fact, disclosure of which would have had any impact over the decision of the present case. So long as the respondent No. 2 is getting its money back, under a settlement voluntarily entered into by it, it would have no concern with what the petitioners are litigating with the other creditors - there are no hesitation in rejecting this argument of the respondent. The petitioners would have to pay the remaining amount due in two quarterly instalments, of which a sum of ₹ 25 lacs shall be payable on or before 31.12.2020 and the remaining amount by 31.03.2021. The petitioners shall also pay interest @ 9% p.a. simple on the delayed payments on reducing balance payable w.e.f. 01.06.2019 i.e. the closing date of the settlement/OTS. It shall be the responsibility of Respondent No. 2 to calculate the amounts due on account of interest and inform the petitioners well in advance, so as to enable the petitioners to ensure adherence to the time schedule of repayment. Whether the present petition is maintainable in view of the proceedings pending before National Company Law Tribunal, Mumbai? - HELD THAT - The present case is peculiar in nature, inasmuch as, usually it is Corporate Debtors of private and public nature which are subjected to Insolvency proceedings at the instance of the creditors (Financial/Operational). However, proceedings before the Adjudicating Authority i.e. the National Company Law Tribunal, in the present case, have been initiated against the Respondent/Financial Service Provider i.e. the creditor itself, at the instance of the Regulator i.e. Reserve Bank of India. Such proceedings against the Financial Service Provider are governed under the Code, 2016 by virtue of Insolvency and Bankruptcy (Insolvency and Liquidation Proceedings of Financial Service Provider and Application to Adjudicating Authority) Rules, 2019. On one hand, the respondent, is facing liquidity issues resulting into initiation of insolvency proceedings and surprisingly on other hand is opposing the prayer of a borrower who intends to make payment to the respondent, which should be the need of the hour, as far as the respondent is concerned. We are yet to notice a plea taken by an entity facing insolvency proceedings, to oppose the prayer of the petitioner which is proposing to make payment of its dues payable to respondent. In our opinion, the interpretation sought to be given by the respondent, is a self defeating argument and hence we express our inability to accept the same - this issue is answered in AFFIRMATIVE and it is held that in the peculiar facts and circumstances of the present petition, the petition would be maintainable. The petitioners would have to pay the remaining amount due pursuant to OTS dated 02.01.2019 (P-11) in two quarterly instalments, of which a sum of ₹ 25 lacs shall be payable on or before 31.12.2020 and the remaining amount by 31.03.2021. The petitioners shall also pay interest @ 9% p.a. simple on the delayed payments on reducing balance payable w.e.f. 01.06.2019 i.e. the closing date of the settlement/OTS. It shall be the responsibility of respondent No. 2 to calculate the amounts due on account of interest and inform the petitioners well in advance, so as to enable the petitioners to adhere to the time schedule of repayment - Petition allowed.
Issues Involved:
1. Jurisdiction to extend the period of One Time Settlement (OTS). 2. Entitlement of petitioners to extension in making payment of the balance settlement amount. 3. Maintainability of the petition in view of pending proceedings before National Company Law Tribunal (NCLT). Issue-wise Detailed Analysis: Issue No. 1: Jurisdiction to extend the period of One Time Settlement (OTS) The court held that it has the jurisdiction under Article 226 of the Constitution of India to extend the period of OTS. This conclusion is supported by various judgments of the Hon'ble Supreme Court and Division Bench of the High Court. The court cited several cases where extensions were granted to borrowers who had made substantial payments but could not complete the payment within the stipulated time due to reasons beyond their control. Notably, in *State Bank of India v. Vijay Kumar* and *P. Vijayakumari v. Indian Bank*, the Supreme Court upheld the High Court's decision to grant extensions. The court also referenced specific policies of banks like Punjab National Bank, Punjab and Sind Bank, and State Bank of India, which allow for extensions in OTS payment terms, demonstrating that such extensions are not an alien concept and can be judicially sanctioned. Issue No. 2: Entitlement of petitioners to extension in making payment of the balance settlement amount The court established guidelines for considering extensions in OTS payments, including the original time provided, extent of payments already made, reasons for delay, acceptance of payments by the bank after the due date, bona fide intent of the borrower, and the time period being demanded. Applying these guidelines, the court found that the petitioners were entitled to an extension. The petitioners had already paid a substantial portion of the settlement amount and were willing to pay the remaining amount with interest. The court noted the financial difficulties faced by the petitioners due to delayed government reimbursements under the Post Matric Scholarship Scheme and the impact of the COVID-19 pandemic. The court directed the petitioners to pay the remaining amount in two quarterly installments, with interest at 9% per annum on the delayed payments. Issue No. 3: Maintainability of the petition in view of pending proceedings before National Company Law Tribunal (NCLT) The court held that the petition was maintainable despite the initiation of insolvency proceedings against Respondent No. 2 by the Reserve Bank of India. The court explained that the moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016, aims to preserve the assets of the corporate debtor during the resolution process. However, the relief sought by the petitioners—to repay the settlement amount with interest—would not adversely affect the assets of Respondent No. 2. Instead, it would enhance the liquidity of the respondent, aligning with the objectives of the insolvency proceedings. The court emphasized that denying the petitioners' request would leave them remediless and create an anomalous situation where the respondent could continue coercive actions against the petitioners' assets. Relief Granted: The court allowed the petition, directing the petitioners to pay the remaining amount of the OTS in two quarterly installments and to pay interest at 9% per annum on the delayed payments. The court also directed Respondent No. 2 to calculate the due amounts and inform the petitioners in advance to ensure adherence to the repayment schedule.
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