Bombay High Court Affirms Banks' Commercial Wisdom, Rules Courts Cannot Compel One-Time Settlements

NAGPUR, INDIA – In a significant ruling reinforcing the autonomy of financial institutions, the Nagpur Bench of the Bombay High Court has declared that courts cannot issue a writ of mandamus to compel banks to accept a borrower's One-Time Settlement (OTS) proposal. The division bench, comprising Justices Anil S. Kilor and Rajnish R. Vyas, firmly established that such decisions fall squarely within the "commercial wisdom" of the bank and that compelling a settlement would be tantamount to rewriting a private contract, an act impermissible under the writ jurisdiction of Article 226 of the Constitution.

The judgment, delivered on October 17, 2025, dismisses a writ petition filed by businesswoman Archana Wani, who sought judicial intervention to force Indian Bank to accept her OTS offer and disclose its internal benchmarks for evaluating such proposals. The court's decision serves as a critical precedent, delineating the boundaries of judicial review in disputes concerning loan recovery and settlement negotiations between banks and defaulting borrowers.

Background of the Dispute

The case, titled Archana Wani v. Indian Bank , originated from a ₹62 crore term loan sanctioned by the erstwhile Allahabad Bank (now merged with Indian Bank) to Poonam Resorts Ltd. on March 8, 2011, for a clubhouse and resort project. The petitioner, Ms. Wani, was a director and shareholder of N. Kumar Housing and Infrastructure, the corporate guarantor that mortgaged property to secure the loan.

Following a default by the principal borrower, the loan account was classified as a Non-Performing Asset (NPA) on March 31, 2017. Subsequently, Indian Bank initiated recovery proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002, and also filed an application to initiate the Corporate Insolvency Resolution Process (CIRP) under Section 7 of the Insolvency and Bankruptcy Code (IBC) before the National Company Law Tribunal (NCLT), Mumbai.

In an attempt to resolve the outstanding dues, Ms. Wani submitted several OTS proposals to the bank. However, each proposal was rejected on the grounds that it did not meet the bank's confidential internal benchmark.

Petitioner's Arguments: A Plea for Transparency and Fairness

Aggrieved by the repeated rejections, Ms. Wani approached the High Court with a series of contentions. Senior Advocate Devendra V. Chauhan, representing the petitioner, argued that the bank's refusal to disclose its OTS evaluation benchmark was arbitrary and opaque. The petitioner contended that the bank was acting "like a private moneylender," violating the principles of fairness and transparency prescribed by the Reserve Bank of India (RBI).

The core arguments advanced by the petitioner were:

1. Arbitrariness: The bank's failure to disclose the benchmark, which was allegedly changed arbitrarily over time, prevented the petitioner from making a compliant offer and violated principles of natural justice.
   
   
2. Violation of RBI Guidelines: The bank's conduct was contrary to RBI's guidelines on fair practices, which mandate transparency in dealing with borrowers.
   
   
3. Right to Settlement: The petitioner argued that a borrower has a legitimate expectation to have their OTS proposal considered fairly, and the bank’s opaque process frustrated this right.
   
   
4. Judicial Intervention: The petitioner sought a court directive for an independent audit of the bank's accounts by the RBI and a mandate for the bank to formulate a transparent OTS policy.

Bank's Stance: Sanctity of Contract and Public Interest

Representing Indian Bank, Advocate A.T. Purohit countered that the loan agreement was a binding contract, and forcing the bank to accept a reduced settlement amount would constitute a judicial rewriting of its terms. The bank emphasized that it deals with public money, and its primary duty is to recover the full amount owed to protect the interests of its depositors and the public at large. It was argued that judicial review under Article 226 was inappropriate for resolving contractual disputes, especially when specialized recovery mechanisms under the SARFAESI Act and IBC were already in motion.

The High Court's Decisive Ruling

The division bench, in a detailed order, sided unequivocally with the bank. Justice Rajnish R. Vyas, authoring the judgment, noted that while the case file was voluminous, "the controversy involved is very short."

The court's decision was anchored in several key legal principles:

1. No Inherent Right to OTS: The bench held that a borrower cannot claim an OTS as a matter of right. Citing the Supreme Court's landmark decision in Bijnor Urban Cooperative Bank v. Meenal Agrawal (2023) 2 SCC 805 , the court reiterated that granting an OTS is a discretionary power vested in the financial institution. The mere submission of a proposal does not create any "semblance of right" in favor of the borrower. The court observed:

"Just because a borrower has submitted the proposal for OTS which from time to time is taken into consideration and rejected by giving reason that it does not match benchmark, will not create semblance of right in favour of the borrower."

2. Sanctity of Commercial Wisdom: The court emphasized that the decision to accept or reject an OTS proposal is a commercial one, guided by the bank's internal policies, risk assessment, and financial viability. This "commercial wisdom" is not typically subject to judicial scrutiny unless it is proven to be manifestly arbitrary or mala fide. The petitioner failed to produce any specific bank policy or RBI circular that mandated the acceptance of her OTS proposal or the disclosure of internal benchmarks. "It thus cannot be said that the bank has acted arbitrarily by not disclosing the benchmark," the Court held.

3. Impermissibility of Rewriting Contracts: Relying on the Supreme Court's judgment in State Bank of India v. Arvind Electronics Pvt. Ltd. (2023) 1 SCC 540 , the bench affirmed that directing a bank to accept an OTS would effectively alter the terms of the loan contract. The court's power under Article 226 cannot be used to compel a party to enter into a new agreement or to forgo its contractual rights. "Fairness," Justice Vyas observed, "would obviously mean repayment of the outstanding amount within the period agreed."

4. Protection of Public Money: The court gave significant weight to the bank's argument that it is a custodian of public funds. Forcing a settlement for a lesser amount could be detrimental to the public interest and set a dangerous precedent, encouraging defaults. The bench noted:

"As rightly submitted by the learned counsel for the bank that it deals with public money and therefore, asking it to settle the account by accepting OTS would not be in the interest of public at large."

5. Limited Scope of Judicial Review: The ruling underscored the principle of judicial restraint in matters of economic and financial policy. With comprehensive statutory frameworks like the SARFAESI Act and IBC available for debt resolution and recovery, the court found no compelling reason to exercise its extraordinary writ jurisdiction. The judgment concluded that issuing a writ of mandamus would not be "in the interest of justice."

Conclusion and Legal Implications

The Bombay High Court's judgment in Archana Wani v. Indian Bank provides robust clarity on the legal status of OTS proposals and the limited scope for judicial interference. It reinforces the autonomy of banks in making commercial decisions regarding loan recovery. For legal practitioners advising both lenders and borrowers, this ruling underscores several critical takeaways:

• For Borrowers: An OTS is a concession, not a right. The success of an OTS proposal depends entirely on its commercial viability from the bank's perspective, not on principles of equity or fairness alone. Litigating to compel an OTS is unlikely to succeed without demonstrating a clear, binding policy or statutory provision in the borrower's favor.
  
  
• For Banks: The ruling validates the practice of maintaining internal, confidential benchmarks for OTS evaluations. It strengthens the position of banks to pursue full recovery through established legal channels like SARFAESI and IBC, insulating their commercial decisions from judicial second-guessing.
  
  
• For the Legal System: The judgment reinforces the specialized nature of debt recovery laws and discourages the use of writ petitions as a tool to delay or circumvent these proceedings. It reaffirms the judiciary's role as an interpreter of contracts, not a re-drafter of them.

While dismissing the petition, the court, in a procedural allowance, extended an interim stay that had been in effect since June 2023 for a further six weeks, after which it will automatically stand vacated. This provides the petitioner a brief window to pursue other legal remedies, if any.