Facts of the Case

The petitioner, Hamsa N.A., had availed three separate loans from the respondent Bank. Upon default by the petitioner, the Bank initiated proceedings under the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act).

According to the petitioner, a sum of Rs. 50,00,000 had already been remitted towards the loan liability on 10.06.2022. The petitioner further stated that another amount of Rs. 37,16,698 had been received by the Bank out of compensation payable to him in connection with acquisition of land.

The petitioner had submitted Ext.P6 proposal dated 25.07.2022 for One Time Settlement (OTS) and sought a direction that the proposal be considered by a competent authority of the respondent Bank.

The documentary record appended to the judgment shows the broader sequence of recovery proceedings, including:

  • Ext.P3: Demand Notice dated 03.09.2021 issued by the respondent;
  • Ext.P5: Possession Notice dated 01.02.2022;
  • Ext.P6: OTS proposal dated 25.07.2022 submitted by the petitioner; and
  • Ext.P7: Sale Notice dated 29.09.2022 proposing sale of the mortgaged properties through online bidding on 20.10.2022.

Thus, the dispute reached the High Court against the background of ongoing SARFAESI enforcement action and the petitioner’s pending request for settlement of the loan liability through OTS.

Issues Involved

The principal issues arising before the Kerala High Court were:

  1. Whether the petitioner’s Ext.P6 One Time Settlement proposal should be directed to be considered by the competent authority of the respondent Bank.
  2. Whether the Bank should be granted a defined period within which to take a decision on the pending OTS proposal.
  3. Whether further coercive or recovery proceedings under the SARFAESI Act should continue while the petitioner’s OTS proposal remained pending for consideration.
  4. Whether the High Court itself should determine the petitioner’s entitlement to One Time Settlement or leave the matter to the Bank for decision in accordance with its applicable policy.
  5. Whether any opinion should be expressed on the petitioner’s claimed entitlement to refund.

Petitioner’s Arguments

The petitioner submitted that substantial amounts had already gone towards discharge of the loan liability.

It was specifically argued that:

  • Rs. 50,00,000 had been remitted towards the liability on 10.06.2022; and
  • a further Rs. 37,16,698 had been received by the Bank from compensation payable to the petitioner for acquisition of land.

On that basis, the petitioner relied upon Ext.P6 OTS proposal and requested the High Court to direct a competent authority of the respondent Bank to consider and decide the proposal.

The petitioner’s essential request was therefore not for the High Court itself to formulate or impose an OTS settlement, but for a direction ensuring consideration of the pending settlement proposal by the competent banking authority.

Respondent Bank’s Arguments

The respondent Bank submitted that, as on the date of hearing, the outstanding liability was Rs. 6,02,96,722.

Notwithstanding the substantial outstanding amount, the Bank stated before the Court that it had no objection to considering the petitioner’s One Time Settlement proposal.

The Bank further submitted that a decision on the OTS proposal could be taken within a period of two weeks from the date of the judgment.

Thus, while the Bank maintained the quantified outstanding liability, it did not oppose consideration of the petitioner’s OTS request.

Court Order / Findings

1. Competent authority directed to decide the OTS proposal

After hearing both sides, the Kerala High Court disposed of the writ petition by directing that a competent authority of the respondent Bank shall take a decision on Ext.P6, the One Time Settlement proposal submitted by the petitioner.

2. Decision to be taken within two weeks

The Court fixed a specific timeline and directed that the decision on Ext.P6 OTS proposal must be taken and communicated to the petitioner within a period of two weeks from 04.11.2022.

3. Further SARFAESI proceedings kept in abeyance

The High Court granted limited interim protection to the petitioner by directing that:

Until a decision on the OTS proposal is taken and communicated to the petitioner, further proceedings against the petitioner under the SARFAESI Act shall be kept in abeyance.

This was a significant operative direction because the record disclosed existing recovery measures, including a possession notice and a sale notice relating to the mortgaged properties.

4. Bank free to decide OTS according to its policy

The Court expressly clarified that the Bank was at liberty to decide Ext.P6 in accordance with its policy.

Therefore, the High Court did not direct compulsory acceptance of the petitioner’s settlement proposal. The judicial direction was confined to requiring a timely decision by the competent authority.

5. No opinion expressed on entitlement to refund

The Court expressly stated that it had not expressed any opinion on the petitioner’s entitlement to refund.

6. Writ petition disposed of

With the above directions, the writ petition stood disposed of.

Important Clarification

This judgment should not be interpreted as holding that a borrower has an automatic or unconditional right to obtain One Time Settlement.

The Kerala High Court did not:

  • compel the Bank to accept Ext.P6 OTS proposal;
  • determine the amount at which the loan account must be settled;
  • reduce or waive the outstanding liability of Rs. 6,02,96,722;
  • invalidate the SARFAESI proceedings on merits;
  • permanently restrain the Bank from proceeding under the SARFAESI Act; or
  • decide that the petitioner was entitled to any refund.

The actual direction was narrower and precise: the competent authority of the Bank was required to consider and decide the OTS proposal within two weeks, and only until that decision was taken and communicated were further SARFAESI proceedings to remain in abeyance.

The Bank retained full authority to decide the OTS proposal in accordance with its policy.

Sections / Legal Provisions Involved

The judgment principally concerns:

  • SARFAESI Act, 2002 – Proceedings initiated by the secured creditor following default by the borrower.
  • Article 226 of the Constitution of India – Writ jurisdiction of the High Court under which the petitioner sought judicial directions.
  • One Time Settlement / OTS Framework – Consideration of settlement proposal by the competent authority of the Bank in accordance with applicable banking policy.

Relevant SARFAESI Statutory Context

  • Section 13(2), SARFAESI Act, 2002 – Demand notice to the borrower;
  • Section 13(4), SARFAESI Act, 2002 – Measures available to the secured creditor upon non-discharge of liability;
  • Section 17, SARFAESI Act, 2002 – Statutory remedy before the Debts Recovery Tribunal against specified measures under Section 13(4).

Link to download the order -

https://www.mytaxexpert.co.in/uploads/1783331543_1166compressed.pdf

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