Kerala High Court Sets Aside DRT Order In Union Bank OTS Dispute; Orders Reconsideration Of Borrowers’ Stay Plea And Defers Recovery Proceedings
Isabella Mariam
The High Court of Kerala Single Bench of Justice Basant Balaji set aside an order of the Debt Recovery Tribunal (DRT) that had refused interim relief to borrowers in a dispute with Union Bank of India over the withdrawal of a one-time settlement (OTS) scheme. The Court directed the DRT to reconsider the borrowers’ stay application after hearing both sides and to decide it based on established principles for granting interim relief. The case arose from proceedings initiated by Union Bank of India to recover dues under the SARFAESI Act, where the petitioners—business entities and individuals—sought protection against coercive measures following the cancellation of their OTS proposal. All recovery actions were ordered to remain deferred until the DRT’s fresh decision.
The petitioners, comprising business firms and their representatives, approached the High Court of Kerala challenging an order issued by the Debt Recovery Tribunal-II, Ernakulam, in proceedings initiated by Union Bank of India for recovery of outstanding dues. The bank had filed multiple Original Applications before the Tribunal to recover amounts from the petitioners.
A compromise petition was prepared on 12 January 2025 following a settlement between the parties, pursuant to which the petitioners remitted ₹10.5 crores. The bank later issued a letter dated 24 March 2025 directing payment of the balance one-time settlement (OTS) amount by 31 March 2025, failing which the OTS would stand cancelled. The petitioners deposited 25 per cent of the OTS amount, ₹13,97,27,800, and sought an extension of time, also remitting an additional ₹25 lakhs as an upfront payment.
On 1 July 2025, the bank informed that the competent authority was not inclined to consider the OTS proposal and declared it withdrawn. The petitioners then filed a securitisation application before the DRT challenging the withdrawal and moved an interlocutory application seeking to stay further proceedings pursuant to a possession notice issued by an Advocate Commissioner.
The Tribunal refused interim relief and directed the petitioners to serve copies of the application and annexures on the bank for filing its counter. Aggrieved, the petitioners invoked the supervisory jurisdiction of the High Court under Article 227 of the Constitution, contending that further proceedings should have been deferred. The respondent bank opposed, arguing that the challenge was not maintainable in view of available statutory remedies under the Recovery of Debts Due to Banks and Financial Institutions Act, 2002 and the SARFAESI Act.
The Court observed that “when an application is filed for stay of proceedings pending disposal of the securitisation application, the Tribunal has the duty to act on it and pass appropriate order in accordance with law, applying its mind.”
It recorded that “a perusal of the order would show that the interim order is not granted because of the fact that the High Court of Kerala in W.A.No.2114 of 2025 declined to defer the further proceedings in securitisation proceedings.”
The Court stated that “merely because this court has not deferred the further proceedings, is not a reason for rejecting the stay application.”
It further observed that “when the rejection of OTS proposal is pending consideration by the DRAT, the stay application filed along with it should be disposed of recording sufficient reasons.”
Referring to precedent, the Court stated: “In Jimmy Thomas v. Indian Bank [2023 (4) KHC 42], it was held that when considering an application for interim stay, it is for the Tribunal to apply its mind to the contentions taken in the securitisation application and shall take a decision on whether or not an interim stay should be granted on the well-settled principles governing the grant of interim relief.”
The Court noted that “a perusal of Ext.P7 would show that the Tribunal has not considered the application on the settled principles :-(i) strong prima facie case, (ii) balance of convenience and (iii) irreparable injury.”
It recorded that “the impugned order shows non-application of mind” and that “this court, invoking the jurisdiction under Article 227 of the Constitution of India, should necessarily interfere with Ext.P7.”
The Court stated: “Ext.P7 stands set aside and the DRT is directed to take up I.A.No.3615 of 2025, after the respondent bank has filed its counter to the said I.A., and after giving opportunity to both sides, pass appropriate orders in accordance with law, taking into consideration the well-settled principles governing the grant of interim relief. Till the matter is considered and decided, all coercive proceedings against the petitioners shall stand deferred.”
“The O.P.(D.R.T) is allowed as indicated above.”
Advocates Representing the Parties
For the Petitioners: Sri. S. Sreekumar (Kollam), Shri. K. Vijayan, Shri. Raj Carolin V., Smt. Namitha Rajesh, Smt. Nithya V.D.
For the Respondents: Shri. A.S.P. Kurup, Sri. Sadchith P. Kurup, Shri. Siva Suresh, Smt. B. Sreedevi, Smt. Athira Vijayan
Case Title: M/s Southern Cashew Exporters & Others v. Union Bank of India & Another
Neutral Citation: 2025:KER:83529
Case Number: O.P. (DRT) No. 293 of 2025
Bench: Justice Basant Balaji
