Courts Cannot Compel Banks to Accept One-Time Settlement Proposals or Disclose Internal Benchmarks: Bombay High Court
Safiya Malik
The Bombay High Court at Nagpur, Justices Anil S. Kilor and Rajnish R. Vyas held that courts cannot compel banks to accept One-Time Settlement (OTS) proposals or disclose internal benchmarks used for assessing them. Dismissing a petition against Indian Bank’s rejection of an OTS offer, the Court emphasized that such decisions lie within the bank’s commercial wisdom and cannot be interfered with under Article 226. Noting that the recovery of public funds requires prudential management, the Bench affirmed that borrowers or guarantors have no enforceable right to demand settlement on preferred terms or seek judicial intervention in such financial decisions.
The matter arose from a dispute concerning the rejection of a One-Time Settlement (OTS) proposal related to a loan facility extended by Indian Bank, formerly Allahabad Bank. The petitioner, a director and shareholder of a company that had mortgaged property as security, challenged the bank’s refusal to accept the OTS offer and its alleged failure to disclose the internal benchmarks applied for evaluating such proposals.
Respondent Nos. 1 and 2, the lending bank, had sanctioned a term loan of ₹62 crores in 2011 to the principal borrower for the development of a club house and resort project. The petitioner’s company executed guarantee and mortgage documents to secure the facility. Following default in repayment, the loan account was classified as a non-performing asset in 2017, and the bank initiated proceedings under Section 13(2) and 13(4) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. The bank also filed an Original Application before the Debts Recovery Tribunal and initiated insolvency proceedings under Section 7 of the Insolvency and Bankruptcy Code, 2016 before the National Company Law Tribunal, Mumbai.
The petitioner alleged that the bank acted arbitrarily by rejecting multiple OTS proposals without disclosing the benchmark criteria, asserting that such non-disclosure violated principles of fairness and Reserve Bank of India guidelines. It was further sought that the Reserve Bank of India appoint an independent officer to scrutinize the bank’s actions and that certain measures taken by the interim resolution professional be declared illegal.
The bank contended that accepting or rejecting OTS proposals forms part of its contractual and commercial discretion, especially when public funds are involved. It maintained that compelling settlement on specific terms would amount to rewriting a private contract. The interim resolution professional stated that actions were taken in compliance with the statutory procedure under the Insolvency and Bankruptcy Code.
The Bench stated, “Respondent bank while advancing loan, deals with a public money… The question is only whether bank was under legal obligation to consider the proposal of OTS submitted by the principal borrower/guarantor and whether by not doing so, whether it has acted arbitrarily.”
It observed, “Just because borrower has submitted the proposal for OTS which from time to time is taken into consideration and rejected by giving reason that it does not match benchmark, will not create semblance of right in favour of the borrower.” The Bench added that disclosing internal benchmarks was not mandatory under any legal provision and the bank’s decision could not be termed arbitrary for withholding it.
“As rightly submitted by the learned counsel for the bank that it deals with public money and therefore, asking it to settle the account by accepting OTS would not be in the interest of public at large.” The Court further held that the petitioner’s reliance on the doctrine of legitimate expectation was misplaced, stating that fairness under the doctrine also implied the obligation to repay dues within the agreed period.
Citing Supreme Court precedents, including Bijnor Urban Cooperative Bank Ltd. v. Meenal Agrawal (2023) and State Bank of India v. Arvind Electronics Pvt. Ltd. (2023), the Bench reiterated that no borrower could claim OTS benefits as a matter of right. It recorded, “No writ of mandamus can be issued by the High Court in exercise of powers under Article 226 of the Constitution of India, directing a financial institution/bank to positively grant the benefit of OTS to a borrower.”
The judgment observed, “Directing the Bank to reschedule the payment under OTS would tantamount to modification of the contract which can be done by mutual consent… granting extension of time would tantamount to rewriting the contract which is not permissible while exercising the powers under Article 226.”
The Court also noted that the petitioner’s reliance on other judgments, including Vidarbha Industries Power Ltd. v. Axis Bank Ltd. (2022) and Sardar Associates v. Punjab and Sind Bank (2009), did not support her case as no Reserve Bank of India guidelines or OTS policy applicable to Indian Bank had been produced.
The judges stated, “Fact remains that the borrower and guarantor are debtors and have not repaid the outstanding. When parties are governed by terms and conditions of contract with full understanding, they cannot subsequently change their stand and deviate from obligation to repay the amount.”
The Court concluded that “exercising power under Article 226 of the Constitution of India would not be in the interest of justice and therefore, petition is dismissed.” It declined to issue any directive to compel acceptance of the One-Time Settlement proposal or disclosure of benchmarks, observing that “we do not intend to interfere.”
Regarding other reliefs sought, the Bench stated that “any observations made here may affect the proceedings pending before the Tribunals. Thus, we are not passing any specific orders as core issue is already answered in this petition.”
On the petitioner’s request for continuation of interim protection, the Court ordered that “the interim order dated 20.06.2023 to continue for another six weeks. After six weeks, the stay shall stand automatically vacated.”
Advocates Representing the Parties:
For the Petitioner: Mr. Devendra V. Chauhan, Senior Advocate a/b Mr. Chaitanya Dhruv and Parth C. Malviya, Advocate.
For the Respondents: Mr. A.T. Purohit with Mr. T.Y. Sharif, Advocate; Mr. S.N. Kumar, Advocate; Mr. Akshay Naik, Senior Advocate a/b Mr. Rohan Deo, Advocate; Mr. C.S. Dhore, Advocate.
Case Title: Ms. Archana Wani v. Indian Bank & Ors.
Neutral Citation: 2025: BHC-NAG:11219-DB
Case Number: Writ Petition No. 3766 of 2023
Bench: Justice Anil S. Kilor and Justice Rajnish R. Vyas
