A borrower cannot enforce a One-Time Settlement proposal against a bank as a matter of right

Calcutta High Court Dismisses Borrower's Suit Against Bank Over One-Time Settlement Proposal Court Rules Borrower Cannot Enforce One-Time Settlement as a Right Without Statutory Backing or Concluded Contract

In a significant ruling, the Calcutta High Court has dismissed the suit filed by Senbo Engineering Limited against the Bank of Maharashtra regarding the enforcement of a One-Time Settlement (OTS) proposal. The judgment, delivered by Justice Aniruddha Roy, emphasized that borrowers cannot compel banks to accept OTS proposals as a matter of right unless such proposals are backed by statutory provisions or are part of a concluded contract.

The case revolved around Senbo Engineering's attempt to enforce a settlement with the Bank of Maharashtra, claiming that a concluded contract existed due to substantial payments made under a proposed OTS. The bank, however, rejected these proposals, exercising its commercial discretion. Senbo Engineering sought specific performance of the alleged contract, along with injunctions against the bank from taking coercive actions.

The court, upon evaluating the submissions and the plaint, concluded that the borrower was a defaulter, and the OTS proposals were not accepted by the bank. Justice Roy highlighted that a bank's decision to accept or reject an OTS is a matter of commercial wisdom, especially in the absence of statutory schemes or guidelines from the Reserve Bank of India (RBI).

The court further noted that the reliefs sought by Senbo Engineering, including specific performance of the OTS, were not maintainable as no statutory or contractual right existed to enforce the settlement. The court reiterated that the relief for specific performance is equitable in nature and cannot be claimed as a matter of right.

The judgment also referenced several Supreme Court decisions, reinforcing the principle that banks cannot be compelled to accept lesser amounts under OTS schemes unless backed by statutory guidelines. Consequently, the court rejected the plaint, stating it was barred by law and lacked a triable issue, thereby directing the suit to be taken off the file.

This ruling underscores the autonomy and discretion banks hold in dealing with OTS proposals and reinforces the legal principle that borrowers cannot demand settlements without established legal grounds.

Bottom Line:

A borrower cannot enforce a One-Time Settlement (OTS) proposal against a bank as a matter of right unless the OTS proposal has statutory backing or is part of a concluded contract.

Statutory provisions: Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - Section 34, Insolvency and Bankruptcy Code, 2016 - Section 63, Code of Civil Procedure, 1908 - Order VII Rule 11, Specific Relief Act, 1963

Senbo Engineering Limited v. Bank of Maharashtra, (Calcutta) : Law Finder Doc Id # 2817429