The Punjab and Haryana High Court, in CWP-7097-2022 (Hardyal Singh Cheema v. State Bank of India and another), decided on 12.07.2022, held that the High Court, in exercise of its jurisdiction under Article 226 of the Constitution of India, has the power to extend the time granted for payment of the amount under a One Time Settlement (OTS) by a bank or secured creditor, and laid down detailed guidelines for courts to apply when considering such requests.
Background
The petitioner was a guarantor of a loan taken by Cheema Spintex Limited from the State Bank of India. The company’s account was classified as a Non-Performing Asset on 13.03.2016. After the COVID-19 pandemic, the Bank floated the “SBI OTS Scheme 2020” and, vide letter dated 26.10.2020, informed the company that it was eligible for settlement. The OTS amount was fixed at Rs.2,96,53,886.98, with the balance to be paid within 8 months of the sanction letter dated 23.11.2020, making the last date 22.07.2021.
The company made payments totalling Rs.1,41,13,500 within the stipulated period. However, during the second wave of COVID-19 in April to July 2021, the company faced severe disruptions and could not arrange the balance in time. On 30.07.2021, the petitioner deposited the remaining Rs.1,61,05,000, just 7 days after the deadline. The Bank cancelled the OTS on the ground that the payment was delayed beyond the stipulated period, and claimed that the petitioner had submitted a fresh compromise proposal on 02.08.2021. The petitioner contended that the Bank had misled him into signing the letter dated 02.08.2021 under false pretenses and that the Bank’s conduct was mala fide.
Preliminary Objections and Their Rejection
The Bank raised several preliminary objections. First, it contended that the writ petition was not maintainable because the NCLT had admitted a CIRP against the company. The Court noted that the CIRP had since been withdrawn (vide NCLT order dated 30.05.2022), the IRP discharged, and the company released from the rigors of the IBC. The Bank’s counsel did not dispute this. Second, the Bank contended that no writ under Article 226 could issue in contractual matters. Relying on the Supreme Court’s decisions in ABL International Ltd. v. Export Credit Guarantee Corpn. of India Ltd., (2004) 3 SCC 553 and several three-judge Bench decisions, the Court held that there is no absolute bar on entertaining a writ petition even if it arises out of a contractual obligation, particularly where a State instrumentality is a party and its action is alleged to be arbitrary.
The Court’s Power to Extend OTS Period
On the central question, the Court relied on the Supreme Court’s decision in P. Vijayakumari v. Indian Bank, AIR 2018 SC 759, where the Supreme Court had accepted a borrower’s plea for condonation of delay in depositing the settlement amount, even though the borrower had taken approximately 2 years against an original period of 3 months. The Supreme Court had held that if the agreed amount stood paid though with some delay, condonation of the delay is a possible course of action if the grounds for delay justify a departure from the Bank’s right to recover the entire dues.
The Court also followed the Division Bench decision of the Punjab and Haryana High Court in Anu Bhalla and Another v. District Magistrate, Pathankot, which had specifically held that the High Courts, in exercise of equitable jurisdiction under Article 226, have the power to extend the period of settlement as originally provided in the OTS letter. The Bench in that case observed that One Time Settlement is not cloaked with rigorous principles that may not permit extension, and that OTS policies of certain banks themselves contain provisions for extension.
Guidelines Laid Down
The Court laid down illustrative guidelines, to be considered cumulatively or individually on a case-to-case basis, for deciding whether a borrower is entitled to extension of OTS time. These include: (A) whether the original time period stipulated in the settlement letter was short or not excessive; (B) whether the borrower has already paid substantial amounts to the creditor under the OTS; (C) whether the borrower was prevented from making timely payment by reasons or circumstances beyond his control, and whether he made best efforts to comply; (D) whether the borrower has demonstrated bona fides; and (E) whether the borrower is willing to compensate the creditor with interest for the period of delay. The Court clarified that willful defaulters and fraudsters would not be entitled to such extension.
Significance
The judgment is significant for laying down a structured framework, drawing on Supreme Court authority, for when the High Court can intervene under Article 226 to extend OTS payment timelines. It reaffirms that banks, as State instrumentalities, must act fairly and reasonably, and that strict insistence on contractual timelines can be reviewed where the borrower has substantially complied and the delay is attributable to circumstances beyond his control, such as the COVID-19 pandemic.
Mrs. Munisha Gandhi, Senior Advocate, assisted by Mr. Vaibhav Sharma, Advocate, appeared for the Petitioner, i.e., Mr. Hardyal Singh Cheema.