Supreme Court: Availing Bank’s OTS Scheme Not an Absolute Right of Borrower

The Supreme Court has stated that availing the benefit of a Bank’s One Time Settlement (OTS) scheme is not an absolute right of the borrower, particularly when the borrower fails to comply with mandatory preconditions such as making the required upfront payment.

A Bench comprising Justice Dipankar Datta and Justice A.G. Masih set aside an Andhra Pradesh High Court order that had directed the State Bank of India (SBI) to reconsider a borrower’s OTS proposal despite past defaults and non-payment of upfront dues.

No Right Without Fulfilling Conditions

The Court clarified that even if a borrower is otherwise eligible for OTS benefits, there is no vested right to claim consideration unless all conditions stipulated in the scheme are satisfied.

Tanya Energy had defaulted on loans secured against seven mortgaged properties. After the account was classified as a non-performing asset (NPA), SBI initiated recovery under the SARFAESI Act and attempted auctions of the mortgaged assets.

Meanwhile, the borrower applied under the OTS 2020 Scheme. However, SBI rejected the application citing past defaults, suppression of facts, and pending litigation before the Debt Recovery Tribunal. Both a Single Judge and a Division Bench of the Andhra Pradesh High Court quashed SBI’s rejection and directed the bank to reconsider the proposal. But SBI was not satisfied with this decision and appealed to the Supreme Court.

Case reached Supreme Court

Accordingly, the Supreme Court allowed SBI’s appeal, restoring its decision to reject the borrower’s OTS application. However, it also gave Tanya Energy liberty to submit a fresh OTS proposal outside the OTS 2020 Scheme, subject to SBI’s discretion.

The Court said:
“The appellants are free to proceed in accordance with law for enforcement of the security interest. At the same time, we grant the respondent an opportunity to submit a fresh proposal for OTS but not under the OTS 2020 Scheme. If the terms and conditions are reasonable and workable, the appellants may consider it as deemed fit.”

The Supreme Court’s ruling makes it clear that OTS schemes are concessions, not entitlements. Borrowers cannot demand their applications be considered unless they strictly comply with the scheme’s conditions, such as upfront payment. By setting aside the High Court’s order, the judgment reinforces the principle that banks retain discretion in granting OTS relief, while still allowing borrowers the option to renegotiate under fresh terms outside the rejected scheme.

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