Case Note & Summary
The case involves a dispute between Union Bank of India (appellant) and M/s NHDPL South Private Limited (respondent/borrower) regarding the bank's refusal to consider the borrower's One-Time Settlement (OTS) proposal. The borrower had approached the Banking Ombudsman, who passed an award directing the bank to consider the OTS proposal in accordance with RBI guidelines. The bank failed to comply, leading the borrower to file a writ petition before the Single Judge of the Karnataka High Court. The Single Judge, by order dated 27.01.2025, directed the bank to reconsider the OTS proposal within a specified timeframe. Aggrieved, the bank filed a writ appeal under Section 4 of the Karnataka High Court Act. Additionally, the borrower filed a contempt petition alleging willful disobedience of the Single Judge's order. The Division Bench, comprising the Chief Justice and Justice C M Joshi, heard both matters together. The court examined the binding nature of the Banking Ombudsman's award under the Banking Ombudsman Scheme, 2006, and Section 35A of the Banking Regulation Act, 1949. It held that the award is binding on the bank and that the bank must consider the OTS proposal in line with RBI guidelines. The court found that the bank's initial refusal to comply amounted to willful disobedience, but since the bank had subsequently complied with the order during the pendency of the appeal, the contempt petition was disposed of. The writ appeal was dismissed, upholding the Single Judge's order. The court emphasized that banks cannot arbitrarily reject OTS proposals and must act in accordance with regulatory guidelines.
Headnote
A) Banking Law - Banking Ombudsman Award - Binding Nature - Section 35A Banking Regulation Act, 1949, Section 18 Banking Ombudsman Scheme, 2006 - The court held that the award of the Banking Ombudsman is binding on the bank under the Banking Ombudsman Scheme, 2006, and the bank is obligated to consider the borrower's One-Time Settlement proposal in accordance with RBI guidelines. The Single Judge's order directing reconsideration was upheld. (Paras 1-10) B) Contempt of Court - Willful Disobedience - Section 11 and 12 Contempt of Courts Act, 1971 - The court found that the bank's failure to comply with the Single Judge's order constituted willful disobedience, but the contempt petition was disposed of as the bank had subsequently complied. (Paras 11-15) C) Writ Appeal - Maintainability - Section 4 Karnataka High Court Act - The court held that the writ appeal against the Single Judge's order was maintainable but dismissed on merits. (Paras 1-5)
Issue of Consideration
Whether the Banking Ombudsman's award directing the bank to consider the borrower's One-Time Settlement proposal is binding on the bank, and whether the bank's failure to comply amounts to contempt of court.
Final Decision
The writ appeal was dismissed, and the contempt petition was disposed of as the bank had complied with the order during the pendency of the appeal.
Law Points
- Banking Ombudsman Award binding
- One-Time Settlement consideration
- RBI guidelines
- Section 35A Banking Regulation Act
- 1949
- Section 18 Banking Ombudsman Scheme
- 2006
- Writ appeal maintainability
- Contempt petition
