Case Note & Summary
The petitioner, Surendra Nikose, had availed a housing loan from the State Bank of India (respondent). Due to financial difficulties, he defaulted on repayment. The bank issued a notice under Section 13(2) of the SARFAESI Act, 2002, calling upon him to repay the outstanding amount. In response, the petitioner submitted a one-time settlement (OTS) proposal on 18.12.2012, offering to pay a reduced amount. However, without considering the OTS proposal, the bank proceeded to take possession of the secured asset under Section 13(4) of the Act on 08.01.2013. Aggrieved, the petitioner filed a writ petition under Article 226 of the Constitution before the Bombay High Court (Nagpur Bench). The core legal issue was whether the bank was obliged to consider the OTS proposal before taking possession. The petitioner argued that the bank's action was arbitrary and violative of principles of natural justice, as the OTS proposal was pending when possession was taken. The respondent bank contended that there was no legal obligation to consider an OTS proposal and that the SARFAESI Act does not mandate such consideration. The court analyzed the scheme of the SARFAESI Act, particularly Sections 13(2) and 13(4), and held that while the Act does not expressly require consideration of an OTS proposal, the bank, as a public sector entity, must act fairly and reasonably. The court observed that the bank's failure to consider the OTS proposal before taking possession was arbitrary and unsustainable. It directed the bank to consider the petitioner's OTS proposal within four weeks and, if accepted, to allow the petitioner to pay the settled amount; if rejected, to communicate the reasons. The court also directed that possession already taken shall be subject to the outcome of the OTS consideration. The writ petition was allowed in these terms.
Headnote
A) SARFAESI Act - Section 13(2) - One-Time Settlement - Obligation to Consider - Before taking possession under Section 13(4), the bank must consider a genuine OTS proposal from the borrower, as failure to do so would be arbitrary and violative of principles of natural justice. The court held that the bank's refusal to consider the OTS proposal was unsustainable and directed the bank to consider the petitioner's OTS proposal within four weeks. (Paras 3-13) B) Banking Law - One-Time Settlement - Fairness - The bank cannot mechanically reject an OTS proposal without application of mind; it must evaluate the proposal on its merits and communicate its decision to the borrower. The court observed that the bank's action in issuing possession notice without considering the OTS proposal was premature and unfair. (Paras 5-10) C) Constitutional Law - Article 226 - Writ Jurisdiction - High Court can interfere if a bank acts arbitrarily in not considering an OTS proposal, as it amounts to violation of Article 14. The court exercised its writ jurisdiction to direct the bank to consider the OTS proposal. (Paras 11-13)
Issue of Consideration
Whether a bank is obliged to consider a one-time settlement (OTS) proposal submitted by a borrower before taking possession of the secured asset under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act).
Final Decision
The writ petition is allowed. The respondent bank is directed to consider the petitioner's one-time settlement proposal dated 18.12.2012 within four weeks from the date of the judgment. If the proposal is accepted, the petitioner shall be permitted to pay the settled amount; if rejected, the bank shall communicate the reasons in writing. The possession already taken shall be subject to the outcome of the consideration of the OTS proposal.
Law Points
- SARFAESI Act
- 2002
- Section 13(2)
- Section 13(4)
- One-Time Settlement
- Principles of Natural Justice
- Fairness in Banking Transactions
