2022 (10) TMI 259 - HC - Indian Laws

Seeking direction to respondent to grant extension of time for making the balance payment of the OTS - seeking direction to respondent not to take any coercive action against the properties of the petitioners, and to maintain status quo regarding the mortgaged properties pending the disposal of this Writ Petition - HELD THAT - There is no dispute that there was COVID-19 pandemic which resulted in lockdowns in the country which continued from 24.03.2020 to 30.06.2020 preventing operation of industries and movement of men and vehicles. Even though lockdown was lifted on 01.07.2020, still the restrictions on running of factories continued for considerable period of time - According to the petitioners, for the above reason and also because the purchasers, who had agreed to purchased the properties under the agreements of sale dt. 30.04.2019 (Annexures P-6 and P-7) delayed payment of the amounts thereunder to the petitioners, it was forced to seek extension of time for making payment under the said OTS. The contention of the Bank that the time limit fixed in the OTS is final, and the same cannot be extended under any circumstances cannot be countenanced since having regard to the COVID-19 pandemic, it would have been virtually impossible for the petitioners to make the full payment by 26.09.2020 with the lockdowns in place, and the prohibition to the industrial activities being enforced by the State and Center Governments strictly in the Country - the reason for delay in the payment was on account of the circumstances beyond their control. Since the entire amount of OTS was paid, though with some delay, and the circumstances of the case justify the grant of extension of time by about six months; and for the said delay the respondent can be compensated by payment of interest; the said sale of machinery, even if true, has no bearing on this case. The time for payment of the OTS as per Annexure P-16 letter dt. 26.03.2020 shall stand extended upto 31.03.2021 subject to the petitioners paying interest @ 1 month MCLR on reducing balance w.e.f. 26.03.2020 till 31.03.2021 within four weeks from the date of receipt of certified copy of this order; on receipt of the same, the loan dues of the petitioners shall be treated as having been fully satisfied, and the documents of title deposited by the petitioners with the respondent shall be returned to the petitioners within 4 weeks of receipt of such payment. The Writ Petition is allowed.

Summary

Issues Involved:
1. Validity of the rejection of the petitioners' rehabilitation proposal by Allahabad Bank.
2. Compliance with RBI guidelines for MSME revival.
3. Validity of the One Time Settlement (OTS) agreements.
4. Extension of time for payment under the OTS due to COVID-19.
5. Petitioners' entitlement to equitable relief under Article 226 of the Constitution of India.

Detailed Analysis:

1. Validity of the rejection of the petitioners' rehabilitation proposal by Allahabad Bank:
The petitioners, a partnership firm under MSME, faced financial difficulties and sought rehabilitation under the RBI guidelines for MSME revival. The Allahabad Bank initially rejected this proposal without referring it to the Designated Committee, which was deemed a contravention of RBI guidelines by the High Court in CWP No. 22963 of 2017. Subsequently, the proposal was again rejected by a committee not properly constituted per Clause 3 of the RBI guidelines. This led to another writ petition (CWP No. 657 of 2019), resulting in an OTS offer from the bank.

2. Compliance with RBI guidelines for MSME revival:
The Allahabad Bank's actions were scrutinized for non-compliance with RBI guidelines. The court found that the bank's rejection of the restructuring proposal without Designated Committee review was a breach of these guidelines. The bank's subsequent actions, including the improper constitution of the committee, further violated the stipulated procedures.

3. Validity of the One Time Settlement (OTS) agreements:
The court examined the terms of the OTS agreements dated 07.06.2019 and 26.03.2020. The first OTS required a payment of Rs. 14.75 Crores, with specific conditions for upfront and balance payments. The petitioners paid Rs. 5.25 Crores but failed to meet the full terms due to external factors, including a civil suit affecting property sales. The second OTS reduced the amount to Rs. 10,60,32,000/- with similar conditions. The petitioners sought extensions due to the COVID-19 pandemic, impacting their ability to pay within the stipulated time.

4. Extension of time for payment under the OTS due to COVID-19:
The court acknowledged the impact of the COVID-19 pandemic on the petitioners' ability to fulfill the OTS terms. The lockdowns and restrictions significantly hindered their operations and financial transactions. The court considered these unprecedented circumstances as valid reasons for granting an extension, aligning with the principles laid out in the case of Anu Bhalla and others, which allows for equitable relief under such conditions.

5. Petitioners' entitlement to equitable relief under Article 226 of the Constitution of India:
The court referred to the case of Anu Bhalla, which established that High Courts have the jurisdiction to extend OTS periods under Article 226. The court emphasized that OTS agreements are not rigid and can be extended in deserving cases where the borrower shows bona fide intent and substantial compliance. The court rejected the respondent's reliance on Bijnor Urban Cooperative Bank Ltd. vs. Meenal Aggarwal, clarifying that it did not address extensions of already sanctioned OTS agreements.

Conclusion:
The court granted the petitioners' request for an extension of time to complete the OTS payments, recognizing the genuine difficulties posed by the COVID-19 pandemic. The court ordered that the OTS period be extended to 31.03.2021, subject to the payment of interest for the delay. This decision balanced the equities between the parties, ensuring that the petitioners could fulfill their obligations while compensating the bank for the delay. The court's judgment underscores the importance of flexibility and equitable considerations in enforcing financial settlements, especially under extraordinary circumstances like a global pandemic.