One Time Settlements Have No Statutory Flavour; Defaulted Borrower Cannot Seek Enforcement As A Matter Of Right: Calcutta High Court
The High Court held that a One-Time Settlement (OTS) sanctioned in the commercial discretion of a bank does not confer an enforceable legal right unless backed by a statutory scheme, and therefore cannot be made the subject of a civil suit for specific performance.
Justice Aniruddha Roy, Calcutta High Court
The Calcutta High Court has held that a borrower cannot claim enforcement of a One-Time Settlement (OTS) proposal as a matter of right, as such a settlement is merely a commercial arrangement unless it emanates from a statutory scheme.
The Court was hearing an application under Order VII Rule 11 CPC filed by the Bank of Maharashtra seeking rejection of the plaint in a commercial suit instituted by Senbo Engineering Limited, wherein the borrower claimed a concluded OTS and sought mandatory injunctions to enforce it.
A Single Bench of Justice Aniruddha Roy observed: “In absence of any RBI scheme and/or any other statutory scheme, the OTS is an arrangement between the bank and its defaulter borrower without any statutory flavour, as in the instant case. Without the statutory flavour an OTS is a policy decision of the bank in its commercial wisdom. No defaulted borrower can, as a matter of right, prays for grant of benefit of such one-time settlement”.
Senior Advocate Dhruba Ghosh represented the plaintiff, while Advocate Sourav Kr. Mukherjee represented the defendant.
Background
The plaintiff had availed credit facilities from the bank and defaulted, resulting in the classification of its loan account as a Non-Performing Asset. Proceedings were initiated under the SARFAESI Act and before the DRT, as well as under the Insolvency and Bankruptcy Code.
Amid negotiations, the plaintiff deposited part payments and claimed that an OTS was concluded between the parties. Asserting this as a binding contract, the plaintiff filed the instant suit seeking injunctive and specific performance remedies against recovery actions.
The bank moved an application for the rejection of the plaintiff's application, contending that the claimed settlement did not arise under any statutory regime and that the suit itself disclosed no enforceable cause of action.
Court’s Observation
The Calcutta High Court held that an OTS agreement derives enforceability only when it originates from a statutory scheme or structured policy with legal effect. In the present case, the plaintiff's OTS was simply a proposal submitted voluntarily during negotiations, without any statutory underpinning. The Court found that such an arrangement cannot create an enforceable right to compel acceptance through specific performance.
“It is pertinent to note that in the facts of the instant case, plaintiff submitted its offer for OTS not under any statutory scheme but on its own pursuant to the discussions and negotiations held with the bank, as the plaint case is. Therefore, no right has been created in favour of the plaintiff to enforce the said OTS by way of specific performance or otherwise”, the Bench remarked.
Referring to the decisions of the Supreme Court in Bijnor Urban Co-operative Bank Ltd. v. Meenal Agarwal, State Bank of India v. Arvindra Electronics Pvt. Ltd., and Sardar Associates v. Punjab & Sind Bank, the Bench reiterated that banks retain complete discretion in evaluating settlement proposals, and borrowers cannot insist upon acceptance of any offer.
Examining maintainability, the Court reiterated that while the civil court possesses jurisdiction, a plaint must be rejected if it reveals a statutory bar or absence of an actionable legal right on its face. The Court held that the suit was fundamentally barred as the OTS did not meet the test of enforceability, thus falling squarely under Order VII Rule 11(a) and (d) CPC.
“On harmonious reading of the provisions under Rule 11 to Order VII of Code of Civil Procedure, 1908 (for short CPC) this Court is also of the firm and considered view that even if a particular point of law is not raised by the defendant in an application for rejection of the plaint, if the civil court on a plain reading of the plaint comes to a finding that the suit is barred by law, the power, authority and jurisdiction of the Court is plenary to reject the plaint without even the point being taken by the defendant”, the Court observed.
The Court also highlighted that the rejection of the OTS by the Bank “clearly shows a conscious decision of the bank. It is ultimately for the bank to take a conscious decision in its own interest and to secure/recover the outstanding debt. No bank can be compelled to accept a lesser amount under any OTS proposal”.
The Bench clarified that judicial interference will be justified only where arbitrariness, discrimination, or violation of constitutional guarantees is established in the rejection of an OTS proposal. As no such infirmity was pleaded or demonstrated, the suit was found devoid of merit. The Court underscored that specific performance is a statutory remedy requiring the existence of a valid contract enforceable in law, a condition wholly absent in the plaintiff's case.
Conclusion
Rejecting the plaint under Order VII Rule 11 CPC, the Court directed that the suit be removed from its file. The application filed by the bank was accordingly allowed with no order as to costs.
Cause Title: SENBO Engineering Limited v. Bank of Maharashtra
Appearances
Plaintiff: Dhruba Ghosh, Senior Advocate, with Advocates Nilay Sengupta, Altamash Alim, Sujit Banerjee, Sunanda Samanta.
Defendant: Advocates Sourav Kumar Mukherjee, Nirmalya Dasgupta, Falguni Jana, Sohana Pal, Souhardya Mitra.