A one-time-settlement is when the lender accepts a lesser amount than the due amount and agrees to waive off or write off the rest of the amount. The bank may agree to this under certain circumstances and if the reason is genuine. The bank may allow the settlement only after a certain period, for example, one year. The bank will close the loan in its books and the borrower will no longer be a loan customer for the bank.
The following issues are being decided by the judgments:
Can a writ of mandamus be used to direct a bank to pay a one-time-settlement to a borrower?
Default in payment of one-time-settlement with interest due to COVID
Bank rejects the one-time-settlement proposal by a farmer
No writ of mandamus can be issued by the High Court in the exercise of powers under Article 226 of the Constitution of India, directing a financial institution or bank to positively grant the benefit of the One-Time-Settlement (OTS) Scheme to a borrower. If all such prayers are entertained then every defaulting person would like to get a one-time-settlement in their favour.
The Supreme Court recently granted relief to a company to pay the one-time-settlement amount with interest considering that the default in payment was due to CoVID. Out of the instalments due to be paid under the OTS Scheme, the petitioner paid approximately 25% of the amount but defaulted in payment after that.
The Supreme Court has criticized a bank which challenged a High Court’s order directing the bank to accept the OTS proposal given by a farmer who had availed a loan from the bank.
SUPREME COURT OF INDIA
RECORD OF PROCEEDINGS
Petitions for Special Leave to Appeal (C) Nos. 14979-14980/2021
(Arising out of impugned final judgment and order dated 22-07-2021 in WP No. 14965/2021 22-07-2021 in WP No. 14967/2021 passed by the High Court of Judicature at Madras)
M/S GANGA FOUNDATIONS PVT. LTD. Petitioner(s)
VERSUS
THE STATE BANK OF INDIA & ANR. Respondent(s)
(FOR ADMISSION and I.R. and IA No.120698/2021-EXEMPTION FROM FILING C/C OF THE IMPUGNED JUDGMENT
IA No. 120698/2021 - EXEMPTION FROM FILING C/C OF THE IMPUGNED JUDGMENT)
Date : 02-03-2022 These matters were called on for hearing today.
CORAM :
HON'BLE MR. JUSTICE VINEET SARAN HON'BLE MR. JUSTICE ANIRUDDHA BOSE
For Petitioner(s) Mr. K. K. Mani, AOR
Mr. Selvabandam, Adv. Ms. T. Archana, Adv. Mr. Vinay Rajput, Adv.
For Respondent(s) Mr. K.V. Vishwanathan, Sr. Adv.
Mr. Sanjay Kapur, AOR Ms. Megha Karnwal, Adv. Mr. Lalit Rajput, Adv. Mr. Arjun Bhatia, Adv.
UPON hearing the counsel the Court made the following
ORDER
The petitioner had availed loan from the State Bank of India. Since, there was default in repayment of the loan, the petitioner
SignaeturenNott Veerifired ed into a One Time Settlement under the OTS Scheme with the
Digitally signed by Rajni Mukhi
Date: 2022.03.02
Reasobn: ank in November, 2020. The petitioner, out of the installments due to be paid under the OTS Scheme paid approximately 25% of the amount but, thereafter defaulted in payment of the said amount.
Learned counsel for the petitioner states that the default was on account of Covid pandemic as the business was not doing very well. The Writ Petition filed by the petitioner was dismissed and hence these special leave petitions.
On instructions, learned counsel for the petitioner has made a statement that the entire amount due, as per the OTS Scheme, would be deposited by the petitioner with the Bank by the 14th of this month. The petitioner further undertakes to pay 12% interest on the defaulted OTS amount from the respective due dates, within five days thereafter. The respondent-bank shall furnish the amount of interest due to be paid by the petitioner at the rate of 12% per cent from the date the amount became due till 14th March, 2022, within three days from today. The proof of payment of the said amounts shall be filed by the petitioner by the next date of hearing.
It is understood that in case there is default in payment of either of the two amounts, as indicated above, these petitions shall be dismissed.
This order is being made on the peculiar facts of the case. List these matters on 21st March, 2022.
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A one-time-settlement is governed by the OTS Scheme and guidelines issued by the RBI thereunder. Moreover, each bank’s individual policy further lays down provisions related to the bank’s OTS. Primarily, it is in the bank’s hand to either accept or reject an OTS proposal by a borrower. A bank may reject a borrower’s OTS proposal for various reasons and may direct them to pay the entire loan amount.
A settled loan, i.e., a loan closed through a one-time-settlement has a negative impact on the credit score of the borrower since only a part of the loan is paid. It is often said that if the borrower opts for a one-time-settlement, they may refrain from applying for another loan until their credit score is restored. A one-time-settlement can often be disputed. Either the lender may reject the OTS proposal or the borrower may fail to pay the interest on the one-time-settlement amount.
Therefore, the first thing that you must do as a party to any dispute related to one-time-settlement is to consult a banking and finance lawyer for your matter. Disputes related to banking and finance are extremely complicated and the application of legal knowledge by a legal expert is necessary.
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