Kiran Raj

The Supreme Court, Division Bench of Justice Dipankar Datta and Justice Augustine George Masih set aside the Andhra Pradesh High Court’s orders directing the State Bank of India to reconsider Tanya Energy Enterprises’ request under the One Time Settlement (OTS) 2020 Scheme. The Court held that the application was incomplete because it was not accompanied by the required 5% upfront deposit under clause 4(i) of the scheme. It observed that participation in an OTS is not a borrower’s right and can only be considered when the prescribed conditions are met. SBI remains free to enforce security interest.

The dispute arose between the Assistant General Manager and Deputy General Manager of the State Bank of India (SBI) and Tanya Energy Enterprises, represented by its managing partner, Shri Alluri Lakshmi Narasimha Varma. SBI, a secured creditor under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act), had extended credit facilities to the borrower against the mortgage of seven immovable properties. Following defaults in repayment, the borrower’s account was classified as a non-performing asset, and a demand notice was issued under Section 13(2) of the SARFAESI Act for recovery of approximately ₹7 crore.

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When repayments were not forthcoming, SBI initiated proceedings before the Debts Recovery Tribunal, Visakhapatnam, under Section 19 of the Recovery of Debts and Bankruptcy Act, 1993, seeking a decree of about ₹8 crore with interest. A compromise was later offered through a sanction letter dated 23 November 2018, allowing settlement at ₹5 crore, subject to specific installments. However, the borrower failed to comply, resulting in cancellation of the compromise. SBI subsequently initiated measures under Section 13(4) of the SARFAESI Act, issuing sale notices and conducting auctions of mortgaged properties.

The borrower challenged these measures through applications under Section 17 of the SARFAESI Act before the Debts Recovery Tribunal. In the meantime, SBI introduced the One Time Settlement (OTS) 2020 Scheme for recovery of dues. The borrower applied under the scheme through letters dated 19 October 2020 and 10 November 2020, offering settlement terms and requesting adjustment of prior payments of ₹1.5 crore. SBI rejected the application by letter dated 17 November 2020, citing non-compliance with prior orders and suppression of facts.

The borrower approached the High Court of Andhra Pradesh under Article 226 of the Constitution, seeking quashing of SBI’s rejection and a direction for consideration under the OTS 2020 Scheme. The Single Judge allowed the writ petition, directing SBI to process the application under the scheme, which the Division Bench affirmed. SBI challenged these orders before the Supreme Court.

The main statutory provisions invoked included Sections 2(zd), 2(f), 13(2), and 13(4) of the SARFAESI Act, Section 19 of the Recovery of Debts and Bankruptcy Act, and the internal terms of the OTS 2020 Scheme, particularly clause 4(i) requiring a 5% upfront payment for processing applications.

The Court recorded that “OTS 2020 Scheme was launched by the SBI to augment efforts towards recovery of outstanding dues.” It noted that under clause 4(i), “The borrower has to deposit 5% or 15% (for wilful defaulters) of the OTS Amount … at the time of submission of application … failing which the application will not be processed.”

The Bench observed that “every borrower in default, to have his application under the OTS 2020 Scheme considered, was required to apply together with an up-front payment of 5% of the OTS amount.” It further stated, “We did not find the respondent, while applying for the benefit of the OTS 2020 Scheme, to have deposited a single paisa towards up-front payment.”

The Court recorded that the High Court overlooked this mandatory requirement, noting, “The High Court too – both the Division Bench and the Single Judge – missed this aspect altogether because neither omission to make up-front payment … was brought to the notice of the relevant courts.”

It explained the consequence of the omission, stating, “It is clear as a sunny day that an application for availing the benefit thereunder would be processed if such application were accompanied by an up-front payment of 5% of the outstanding dues. Indubitably, the respondent faltered in not adhering to the express terms of such scheme.”

On the issue of entitlement, the Court observed, “No doubt, clause 2.1 of the OTS 2020 Scheme laying down cases which are ‘not eligible’ had no application qua the respondent but overcoming the ‘not eligible’ criteria did not amount to satisfying the other eligibility criteria.” It further stated, “Not being covered by clause 2.1 does not necessarily lead to the conclusion that a defaulting borrower is automatically entitled to have the loan account settled on the basis of the OTS 2020 Scheme.”

The Bench clarified the broader position: “Borrower is not entitled to the benefit of the OTS under the OTS 2020 Scheme without complying with its mandatory conditions.”

“For the reasons aforesaid, this civil appeal deserves to succeed. Dismissal of the intra-court appeal of the appellants by the impugned judgment and order of the Division Bench is set aside together with the judgment and order of the Single Judge allowing the respondent’s writ petition because a relevant factor was kept out of its consideration, which has the effect of significantly impacting the outcome of the respondent’s application for OTS. The appellants are free to proceed in accordance with law for enforcement of the security interest.”

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“We also grant the respondent an opportunity to submit a fresh proposal for OTS but not under the OTS 2020 Scheme. If the terms and conditions put forth by the respondent are found reasonable, workable and acceptable, the appellants may take such decision on it as deemed fit and proper in the circumstances. The civil appeal, thus, stands allowed. Connected applications, if any, will stand closed.”

“Except to the extent decided, this judgment of ours shall, however, not have any effect on the proceedings pending before the DRT.”

Advocates Representing the Parties

For Petitioner(s): Mr. N Venkataraman, A.S.G. Mr. Sanjay Kapur, AOR Mr. Surya Prakash, Adv. Ms. Shubhra Kapur, Adv. Ms. Mahima Kapur, Adv. Ms. Mansi Kapur, Adv.

For Respondent(s): Mr. Dama Seshadri Naidu, Sr. Adv. Mr. Mullapudi Rambabu, Adv. Mr. Praveen Kumar Sharma, Adv. Ms. Mahima Pandey, Adv. Ms. K.m.s. Sivani, Adv. Ms. D.Poornima, Adv. M/S. M. Rambabu And Co., AOR

Case Title: Assistant General Manager, State Bank of India & Anr. v. Tanya Energy Enterprises Through Its Managing Partner Shri Alluri Lakshmi Narasimha Varma
Neutral Citation: 2025 INSC 1119
Case Number: Civil Appeal No. 11134 of 2025
Bench: Justice Dipankar Datta, Justice Augustine George Masih