The Bombay High Court (Nagpur Bench) has delivered a pivotal ruling, dismissing a plea by Archana Wani, a director and shareholder of N. Kumar Housing and Infrastructure, to compel Indian Bank to accept a One Time Settlement (OTS) for a Rs. 62 crore defaulted loan. The judgment, pronounced on October 17, 2025, by Justices Anil S. Kilor and Rajnish R. Vyas, emphasizes that borrowers and guarantors cannot demand OTS as a legal right or force banks to disclose internal benchmarks for such settlements. This decision reinforces banks’ autonomy in managing public funds and limits judicial intervention in commercial disputes.
A High-Stakes Loan Default
- Loan Background: In 2011, Indian Bank (erstwhile Allahabad Bank) sanctioned a Rs. 62 crore term loan to Poonam Resorts Ltd for a clubhouse and resort project in Nagpur, with a repayment period of 110 months.
- Guarantor’s Role: N. Kumar Housing and Infrastructure, where Wani holds stakes, guaranteed the loan and mortgaged properties as security.
- Default Trigger: The borrower defaulted, leading to the loan being classified as a Non-Performing Asset (NPA) on March 31, 2017.
- Bank’s Actions: The bank initiated recovery under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI), 2002, via notices under Sections 13(2) and 13(4). It also filed a recovery application with the Debts Recovery Tribunal (DRT), Nagpur, and a petition under Section 7 of the Insolvency and Bankruptcy Code (IBC), 2016, before the National Company Law Tribunal (NCLT), Mumbai.
- Wani’s Plea: Wani challenged the bank’s repeated rejection of OTS proposals, alleging arbitrary conduct and lack of transparency in the bank’s “benchmark” for OTS approval. She sought court orders to mandate OTS acceptance, direct the Reserve Bank of India (RBI) to audit the bank’s accounts, declare the Interim Resolution Professional’s (IRP) actions illegal, and expedite a SARFAESI appeal.
The Core Dispute
- Key Questions:
- Can a borrower or guarantor legally compel a bank to accept an OTS proposal or disclose its OTS benchmark?
- Can courts, under Article 226 of the Constitution, issue a writ of mandamus to enforce such demands?
- Petitioner’s Argument: Wani claimed the bank acted like a “private money lender,” rejecting OTS proposals without clear reasons and violating RBI guidelines. She invoked the doctrine of legitimate expectation, arguing the bank should follow a fair OTS process.
Court’s Ruling: Banks Hold the Reins
The court dismissed the petition, delivering a clear verdict in favor of the bank’s discretion:
- No Right to OTS: Citing Bijnor Urban Cooperative Bank v. Meenal Agrawal (2023), the court ruled that OTS is not a borrower’s entitlement. Banks can reject proposals if they believe full recovery is feasible, such as through auctioning mortgaged properties.
- Benchmark Disclosure Not Mandatory: Wani failed to provide any legal provision requiring banks to disclose OTS benchmarks. The court found no arbitrariness in the bank’s non-disclosure.
- Public Money Protection: As banks handle public funds, accepting a lower OTS amount when full recovery is possible would harm public interest, especially with a solvent guarantor like N. Kumar Housing.
- Contractual Boundaries: Forcing OTS would equate to rewriting the loan agreement, which courts cannot do under Article 226, per State Bank of India v. Arvind Electronics (2023).
- Legitimate Expectation Fails: Wani’s reliance on RBI guidelines was rejected, as no specific OTS policy or promise was proven (unlike Sardar Associates v. Punjab and Sind Bank, 2009).
- Special Laws Govern: Recovery proceedings under SARFAESI and IBC are governed by specialized frameworks, limiting judicial review unless clear illegality is shown.
- Solvent Guarantor’s Liability: Per Vidarbha Industries v. Axis Bank (2022), the IBC aims to revive companies, not penalize solvent ones, but banks can pursue full recovery from solvent guarantors.
Legal Precedents Shaping the Verdict
- Bijnor Urban Cooperative Bank (2023): Borrowers cannot claim OTS as a right; banks’ commercial wisdom prevails when recovery is viable.
- Vidarbha Industries (2022): IBC protects solvent companies from unnecessary insolvency but allows banks to recover from guarantors.
- State Bank of India (2023): Courts cannot modify loan contracts by mandating OTS or rescheduling payments.
- Sardar Associates (2009): Banks must follow RBI guidelines, but deviations require clear evidence of discriminatory policy, absent here.
Outcome and Next Steps
- Petition Dismissed: The court declined to issue a writ of mandamus or interfere with ongoing DRT and NCLT proceedings to avoid prejudicing those cases.
- Interim Relief Extended: A stay on recovery actions, in place since June 20, 2023, was extended for six weeks, to be vacated automatically thereafter.
- Other Prayers Sidestepped: Requests for RBI audits and declaring IRP actions illegal were not addressed to preserve the integrity of tribunal proceedings.
Why This Matters
- Banking Sector Impact: The ruling strengthens banks’ authority to prioritize full recovery over OTS, critical in managing India’s Rs. 10 lakh crore NPA crisis (as per recent RBI data).
- Borrower Caution: Borrowers and guarantors must adhere to loan terms, as courts will not override banks’ commercial decisions without evidence of gross unfairness.
- Policy Gap: The absence of clear RBI guidelines on OTS transparency may fuel future disputes, urging regulators to clarify standards.
- Economic Context: Amid India’s push for financial discipline post-pandemic, this decision supports stricter recovery mechanisms, deterring deliberate defaults.
- Legal Precedent: Likely to influence similar cases nationwide, reducing judicial challenges to bank decisions in NPA recoveries.
This judgment sends a strong message: banks, as custodians of public money, have the final say in settlement decisions, and courts will not meddle in their commercial judgment unless laws are blatantly violated.
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