1. Loan default — SARFAESI Act proceedings — Application for One Time Settlement (OTS) under a specific scheme — Rejection of application — Challenge to rejection order. (Para 1 , 2 )
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2025 Supreme(SC) 1689
SUPREME COURT OF INDIA
Dipankar Datta, Augustine George Masih, JJ.
Assistant General Manager State Bank of India & Anr. – Appellants
Versus
Tanya Energy Enterprises Through Its Managing Partner Shri Alluri Lakshmi Narasimha Varma – Respondent
Civil Appeal No. 11134 of 2025 [Arising Out of SLP (Civil) No. 2456 of 2025]
Decided On : 15-09-2025
Important Points
A creditor's obligation to consider an OTS application is contingent on the borrower's compliance with eligibility criteria, including upfront payment requirements.
Subject
Banking and Finance - Debt Recovery
Act Referred
Headnote
(A) Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - Sections 2(f) and 13(2) - Recovery of debt - Borrower defaulting on repayment of loans secured by immovable property - Demand notices issued under Section 13(2) and subsequent actions under SARFAESI Act triggered after classification of account as a non-performing asset - Borrower sought benefit under One Time Settlement (OTS) Scheme, which was denied due to insufficient adherence to its conditions - Courts upheld an order for reconsideration of OTS application under conditions available at the time. (Paras 23, 40, 46)
(B) Judicial Review - Mandamus and eligibility criteria - Courts cannot compel a secured creditor to grant an OTS unless eligibility criteria is objectively satisfied - The principle of fairness must inform the creditor's consideration of any OTS application, even if prior settlements were unsuccessful. (Paras 20, 34)
Facts of the case:
Assistant General Manager of a bank appealed against a High Court ruling allowing the borrower's writ petition, which sought to enforce consideration of an application under the OTS scheme after non-compliance with previous settlement terms. Bank classified the borrower's account as a non-performing asset due to defaulted loans.
Findings of Court:
The High Court's decision for reconsideration of the OTS application was deemed legally flawed due to the borrower's failure to meet essential application requirements.
Issues: The court examined whether the rejection of the borrower's OTS application was justified and whether the borrower could claim entitlement under the scheme without the necessary up-front payment.
Ratio Decidendi: The court held that the failure to comply with the OTS scheme's upfront payment requirement invalidated the borrower's application, necessitating rejection, even if the borrower was found eligible under some conditions.
Result: Appeal allowed.
(B) Judicial Review - Mandamus and eligibility criteria - Courts cannot compel a secured creditor to grant an OTS unless eligibility criteria is objectively satisfied - The principle of fairness must inform the creditor's consideration of any OTS application, even if prior settlements were unsuccessful. (Paras 20, 34)
Facts of the case:
Assistant General Manager of a bank appealed against a High Court ruling allowing the borrower's writ petition, which sought to enforce consideration of an application under the OTS scheme after non-compliance with previous settlement terms. Bank classified the borrower's account as a non-performing asset due to defaulted loans.
Findings of Court:
The High Court's decision for reconsideration of the OTS application was deemed legally flawed due to the borrower's failure to meet essential application requirements.
Issues: The court examined whether the rejection of the borrower's OTS application was justified and whether the borrower could claim entitlement under the scheme without the necessary up-front payment.
Ratio Decidendi: The court held that the failure to comply with the OTS scheme's upfront payment requirement invalidated the borrower's application, necessitating rejection, even if the borrower was found eligible under some conditions.
Result: Appeal allowed.
Judgement Key Points
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Advocates appeared:
For the Appellant(s) : Mr. Sanjay Kapur, AOR Mr. Surya Prakash, Adv. Ms. Shubhra Kapur, Adv. Ms. Mahima Kapur, Adv. Ms. Mansi Kapur, Adv. Mr. Abhishek Tiwar, Adv. Mr. Annu Mishra, Adv.
For the Respondent(s): Mr. Dama Seshadri Naidu, Sr. Adv. Mr. Mullapudi Rambabu, Adv. Mr. Deepak Sharma, Adv. M/S. M. Rambabu And Co., AOR
For the Appellant(s) : Mr. Sanjay Kapur, AOR Mr. Surya Prakash, Adv. Ms. Shubhra Kapur, Adv. Ms. Mahima Kapur, Adv. Ms. Mansi Kapur, Adv. Mr. Abhishek Tiwar, Adv. Mr. Annu Mishra, Adv.
For the Respondent(s): Mr. Dama Seshadri Naidu, Sr. Adv. Mr. Mullapudi Rambabu, Adv. Mr. Deepak Sharma, Adv. M/S. M. Rambabu And Co., AOR
Table of Contents
2. Whether a mandamus can compel consideration of an OTS application despite non-compliance with scheme terms and whether previous defaults justify rejection of settlement proposals. (Para 3 , 4 , 5 , 6 , 7 , 9 , 10 , 11 , 12 , 13 , 14 , 15 )
3. The borrower failed to make the mandatory up-front payment required for processing the OTS application, rendering the application incomplete and ineligible for consideration. (Para 19 , 20 , 21 , 23 , 24 , 25 , 26 , 27 , 28 , 29 , 31 , 32 , 39 , 41 )
4. Courts may uphold administrative rejection orders on alternative grounds found in the record if original grounds are untenable, provided the affected party is given notice. (Para 34 , 35 , 36 , 37 , 38 )
5. Appeal allowed — High Court orders set aside — Bank permitted to enforce security interest — Borrower granted liberty to submit a fresh settlement proposal. (Para 44 , 45 , 46 )
6. Can a court issue a writ of mandamus to compel a secured creditor to grant a One Time Settlement (OTS) to a borrower?
No, a court cannot direct a secured creditor to positively grant the benefit of an OTS to a defaulting borrower; such a grant is always subject to the borrower satisfying the eligibility criteria. (Para 20 , 21 )
7. Does the failure to meet mandatory procedural requirements, such as up-front payments, affect the processing of an OTS application?
Yes, if a scheme stipulates a mandatory up-front payment for an application to be processed, failure to make such payment renders the application incomplete and disentitles the borrower to have it processed. (Para 25 , 26 , 27 , 39 )
8. Can a court uphold an administrative rejection order based on grounds not explicitly mentioned in the order but available in the record?
Yes, if the mentioned grounds are untenable, a court may uphold the order on alternative grounds traceable from the record or factual narrative, provided the affected party is put on notice and given an opportunity to respond. (Para 34 , 35 , 36 , 37 , 38 )
JUDGMENT :
DIPANKAR DATTA, J.
THE APPEAL
1. In this appeal, by special leave, a challenge has been mounted to the judgment and order dated 21st December, 2022 passed by a Division Bench of the High Court of Judicature of Andhra Pradesh at Amravati1[High Court]. An intra-court writ appeal2[Writ Appeal No. 918 of 2022] of the Assistant General Manager and the Deputy General Manager3[the appellants] of the State Bank of India4[SBI] came to be dismissed thereby. The writ appeal was directed against the judgment and order dated 22nd September, 2022 of a Single Judge, who allowed the respondent’s writ petition5[Writ Petition No. 22706 of 2020].
THE FACTS
2. The facts leading to presentation of this appeal are not in dispute.
a) SBI is a “secured creditor” and the respondent a “borrower” as defined in Section 2(zd) and 2(f), respectively, of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 20026[SARFAESI Act].
b) Having availed credit facilities from the SBI by mortgaging 7 (seven) immovable properties, the respondent failed to adhere to the payment schedule and defaulted in its obligation to repay. Additional time granted for regularising the payments proved abortive.
c) Respondent’s account was then classified as “non-performing asset”, triggering a demand notice dated 31st May, 2017 under Section 13(2) of the SARFAESI Act. A sum of Rs. 7 crore (approximately) was demanded from the respondent, with further interest from 1st June, 2017.
d) Such demand not having been met by the respondent, recovery proceedings under Section 19 of the Recovery of Debts and Bankruptcy Act, 19937[RDB Act] were initiated by the SBI on 22nd December, 2017 by filing an original application8[OA No. 4013 of 2017] before the Debts Recovery Tribunal, Vishakhapatnam9[DRT]. A decree was sought in a sum of Rs. 8 crore approximately, with future interest at 13.65% till date of realisation.
e) On 14th May, 2018, while transferring Rs.50 lakh to the account of the SBI, the respondent requested for full and final settlement of the total dues of Rs.8.14 crore by paying Rs.5 crore. The first appellant acceded to the request and issued a “compromise sanction letter” on 23rd November, 2018 containing the following terms and conditions:
“a. Up-front amount of Rs 0.50 crores was already paid by you, which is kept in parking account will be appropriated immediately towards your settlement amount
| The balance amount of Rs 4.50 crores to be paid as under: Rs. 0.25 crore to be paid on or before 30 11 2018. Rs. 1.00 crore to be paid on or before 20 02 2018. Rs. 1.00 crore to be paid on or before 20 05 2019. Rs. 1.00 crore to be paid on or before 20 08 2019. Rs. 1.25 crore to be paid on or before 20 11 2019. |
b. If entire compromise amount is not paid within 4 months, interest at minimum MCLR for the balance compromise amount paid after 4 months shall be charged from 30th day from the date of letter conveying approval of the compromise to the borrower.
c. If, for any reason, the compromise amount or any installment, as agreed, is not received within scheduled period, the Bank reserves the right to cancel the compromise settlement and entire dues of the Bank along with interest and costs will become due for payment.”
f) Respondent did not adhere to the terms and conditions, as a sequel whereto the sanction letter was cancelled on 22nd February, 2019.
g) Thereafter, while making a request to the appellants on 13th August, 2019 not to take possession of the secured assets, the respondent made a further payment of Rs.50 lakh.
h) On 16th October, 2019, measures under Section 13(4) of the SARFAESI Act were initiated by issuing sale notice in respect of the 7 (seven) properties mortgaged as security by the respondent.
i) Respondent challenged the sale notice before the DRT on 25th October, 2019 by filing an application under Section 17 of the SARFAESI Act10[S.A. No. 399 of 2019]. DRT, vide order dated 21st N
