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2021 (7) TMI 1468 - HC - Indian LawsBorrower's failure to adhere to the One Time Settlement (OTS) terms justifies the bank's withdrawal of the OTS offer - validity of the bank's actions in rescinding the OTS offer and proceeding with the auction of the mortgaged properties - doctrine of promissory estoppel. Legal position as to OTS Scheme - HELD THAT - The loan transactions entered into between the Bank and borrower are essentially a matter of contract, is undisputable; even then, the extant RBI Guidelines under which the OTS Schemes have been evolved, regulate the repayment of loans as per the terms agreed; the Public Sector Banks being the instrumentalities of 'State' under Article 12 of the Constitution, their actions/inactions even when filled with contractual elements, are liable to suffer a restrictive judicial scrutiny under Articles 226 and 227, depending upon the facts and circumstances of each case, is also true. Foundational facts emerging from record - HELD THAT - The borrower vide letter dated 13.03.2020 had sought for elongation of stipulated period of payment up to 31.05.2020; the bank vide letter dated 30.05.2020 rescinded the OTS facility, the agreed amount not reaching its hands in terms of OTS. The borrower vide representation dated 26.06.2020 requested the bank to withdraw the aforesaid Rescinding Letter dated 30.05.2020 stating that minimum 45 days were required for assignment of debt and that he would pay interest on the delayed payment, as well; the bank declined and went ahead with the coercive acts of recovery since the conduct of the borrower did not generate confidence. Recovery of debts - HELD THAT - The OTS offers have been made by the borrower thrice; he was accorded consent by the Bank to the assignment of loan to the company in question subject to the rider that the timeline for payment in terms of OTS would not be altered; the loan transaction essentially being a matter of contract, the OTS- like-arrangement is only a novatio and a new arrangement is brought about by the bargain of parties namely the lender, the borrower and the surety, done across the table; that being the position, ordinarily, the Courts cannot alter the terms of contract even when it has statutory elements; the time within which the remittance of the amount has to be made is an essential term of OTS, disentitles the defaulting borrower from invoking the writ jurisdiction. Locus standi of surety to maintain appeal - HELD THAT - It is not that the borrower was not aware of surety's representation dated 12.02.2019 in which he had stated inter aha about the subject mortgaged property being capable of fetching the auction price much higher than the sums stated in the OTS offers; after all the surety has also a stake in the loan transaction and he cannot escape the liability; that being the position, the principal borrower in all fairness ought to have arraigned him as a respondent to the writ petition; that having not been done, he is not justified in opposing surety's request for the grant of leave to file the writ appeals; added to this, the borrower did not avail the opportunity of revising his OTS offer; therefore, we granted the leave as sought for and heard the appeals on merits. Locus standi of auction purchaser - HELD THAT - The learned single Judge vide ad interim order dated 24.03.2021 had, in a sense, permitted auctioning of the property by restraining the confirmation of contemplated auction sale; auction purchaser had also sought for his impleadment in the writ petition; the e-auction was held on 08.04.2021 (presumably being unaware of the disposal of the writ petition on 06.04.2021) and the highest bid of Rs. 15,00,52,000/- of the appellant in Writ Appeal No. 100103/2021 came to be accepted; he has also paid Rs. 78 lakh on 05.04.2021 being the pre-deposit for participation in the auction; he has also remitted Rs. 2,97,13,000/- on 09.04.2021; that apart, he has now come forward with a very high offer of Rs. 25,20,99,999/-; this is much higher than the revised OTS offer of the borrower i.e., Rs. 15,20,00,000/-; the borrower despite giving the same opportunity as was given to the appellants herein, declined to improve his offer figure; when the public money is involved, a Writ Court has to scrutinize the things with objectivity and ensure that no loss of such money takes place. Therefore, leave is granted for maintaining the appeal. Loan transaction - breach of OTS - HELD THAT - The equity and fairness required of a Public Sector Banks cannot be carried too far and to an unrealistic extent of disabling or delaying the very recovery of the public money which they have lent; while not insisting upon the borrower to honour the OTS commitment undertaken by him, the Banks alone cannot be shackled hand and foot by invoking the doctrine of promissory estoppel - a Writ Court has to assume a realistic role of a trustee in ensuring that the public money is not lost in the conundrums of constitutional contentions; Courts have to have a pragmatic approach when matters touching economics are brought before them for adjudication. Suspicious conduct of bank officials - HELD THAT - Strangely the mortgaged property was auctioned on 08.04.2021; the highest bid of Rs. 150,052,000/- of the appellant auction purchaser came to be accepted; the very same buyer has revised the bid to Rs. 252,099,999/- before us; even the surety has come up with an offer of Rs. 23 crore; the OTS deal struck between the bank and the borrower in a small sum of Rs. 150,052,000/- raises a strong suspicion as to there being some 'shady deal' with the connivance of authorities of the bank; this needs to be investigated into by the Reserve Bank; matter merits attention of the Comptroller and Auditor General of India, as well. Conclusion - i) Judicial intervention in banking matters was deemed limited to cases of statutory violations or manifest unfairness. ii) The lender bank shall accept the revised offer of the appellant auction-purchaser in a sum of Rs. 25,20,99,999/- only; he shall remit the remainder of the said amount within a period of six weeks failing which, the amount which he has already deposited shall stand adjusted to the credit of the principal borrower. iii) The court ordered an investigation into potential misconduct by bank officials, reflecting concerns over the handling of the OTS and auction processes. Appeal allowed in part. 1. ISSUES PRESENTED and CONSIDERED The core legal questions considered in this judgment include:
2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Borrower's Non-Compliance with OTS Terms
Issue 2: Validity of Bank's Actions and Auction Process
Issue 3: Doctrine of Promissory Estoppel
Issue 4: Locus Standi of Surety and Auction Purchaser
Issue 5: Judicial Intervention in Contractual Matters
Issue 6: Potential Misconduct by Bank Officials
3. SIGNIFICANT HOLDINGS
In conclusion, the court emphasized the necessity of adhering to contractual obligations under OTS schemes, the limited scope of judicial intervention in banking disputes, and the need for transparency and integrity in bank operations. The judgment underscores the court's role in safeguarding public money and ensuring fair and reasonable conduct by financial institutions.
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