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IN THE HIGH COURT OF CALCUTTA
Sabyasachi Bhattacharyya, J.
North Western Cachar Tea Company Limited & Anr. - Appellants
Versus
Reserve Bank Of India & Ors. - Respondents
W.P.O. No. 309 of 2020
Decided On : 28-01-2021
OTS Scheme - Loan Repayment - SARFAESI Act, 2002, IBC, 2016 - RBI Circulars - [Tea Business] - [SARFAESI Act, 2002, Sec. 13(2), Sec. 13(4); IBC, 2016] - The court discussed the concluded One-Time Settlement (OTS) scheme, the applicability of RBI Circulars, and the default status of the account. The court found that the OTS scheme was concluded on August 19, 2019, and the petitioners failed to honor it, thus, no further extension of time could be claimed. The court held that the benefits of the RBI Circulars were not applicable as the account was already declared NPA prior to the pandemic.
Fact of the Case:
The petitioners, a tea company and its Managing Director, approached a bank for credit facilities due to a shortage of funds. The bank approved various credit facilities, but later classified the account as NPA and initiated recovery action. The petitioners challenged the bank's actions and claimed the benefit of moratorium due to the pandemic.
Finding of the Court:
The court found that the OTS scheme was concluded on August 19, 2019, and the petitioners failed to honor it. The court held that the benefits of the RBI Circulars were not applicable as the account was already declared NPA prior to the pandemic. The court dismissed the writ petition.
Issues: The issues included the conclusion of the OTS scheme, the applicability of RBI Circulars, and the default status of the account.
Ratio Decidendi: The court held that the concluded OTS scheme on August 19, 2019, was not honored by the petitioners, and the benefits of the RBI Circulars were not applicable as the account was already declared NPA prior to the pandemic.
Final Decision: The court dismissed the writ petition without any order as to costs.
JUDGMENT
Sabyasachi Bhattacharyya, J. - The Court:
1. The petitioner no.1 is a company. Petitioner no.2 is a Managing Director of petitioner no.1. The company is engaged in the production and sale of tea products and other business activities. Facing shortage of funds regarding tea business, the petitioners approached respondent no.2 (UCO Bank) for grant of credit facilities. On October 5, 2013, respondent no.2 approved Rs. 3.50 crore towards Fund Based Working Capital Limits, Rs. 0.5 crore towards Non-Fund Based Working Capital Limits and Rs. 4.2875 crore towards Term Loan. The petitioners approached respondent no.2 again for sanction of a fresh Term Loan against security of a residential property, which was sanctioned on November 1, 2016 to the extent of Rs. 2.4 crore.
2. When petitioner no.1, by a letter dated January 17, 2017, submitted a fresh proposal to the respondent no.2-Bank for review of the credit limits, the respondent no.2-Bank informed the petitioner no.1, vide letter dated February 3, 2017 that the account of petitioner no.1 had been classified as Non-Performing Asset (NPA) on January 31, 2017.
3. Subsequently, respondent no.2 issued a notice under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (the SARFAESI Act). By a letter dated July 23, 2018, respondent no.2 informed petitioner no.1 that the Competent Authority had decided to refer the loan account of petitioner no.1 to the National Company Law Tribunal (NCLT) under the Insolvency and Bankruptcy Code, 2016 (IBC). On January 21, 2019, respondent no.2 issued a notice under Section 13(4) of the SARFAESI Act. Several correspondences were exchanged between the petitioner no.1 and respondent no.2-Bank in the meantime.
4. By a letter dated February 6, 2019, petitioner no.1 requested the Bank to accept its One-Time Settlement (OTS) proposal. Respondent no.2, in its reply dated February 14, 2019, requested petitioner no.1 to improve the OTS amount. By a subsequent letter dated February 19, 2019, the Bank consented to the request of petitioner no.1 and agreed that a deposit of Rs.1.30 crore would be refunded to the petitioner no.1 in case the OTS was not approved. Further correspondence followed and petitioner no.1 deposited a sum of Rs.1.30 crore towards 10 per cent of the OTS amount. However, the Bank again asked petitioner no.1 to improve the OTS offer, by a letter dated March 16, 2019.
5. On April 29, 2019, petitioner no.1 made two proposals for OTS settlement. A further break-up of payments was suggested by petitioner no.1 vide letters dated May 15 and August 2, 2019.
6. By a letter dated August 19, 2019, respondent no.2-Bank approved the OTS proposal of petitioner no.1 dated May 15, 2019, for an amount of Rs.17.3139 crore and suggested a break-up of the payment scheme.
7. On August 26, 2019, petitioner no.1 objected to certain conditions of the counter-offer. Vide letter dated November 5, 2019, petitioner no.1 accepted the Bank's counter-offer on the terms as mentioned in such letter. After subsequent correspondence, respondent no.2 issued a letter dated June 25, 2020 requesting petitioner no.1 to make payment of the OTS amount of Rs.10 crore within August 7, 2020 and the balance of Rs.6.01 crore in 36 months. Such contention deviated from the previous counter-offer of the Bank.
8. The Reserve Bank of India (respondent no.1) issued a Circular dated March 27, 2020, in view of the intervention of the pandemic, permitting Banks to grant a moratorium of three months from March 1, 2020 to May 31, 2020, to be attended by rescheduling of the tenure by three months post-moratorium.
9. By a Circular dated May 23, 2020, such moratorium was extended by another three months by the Reserve Bank of India.
10. By an e-mail dated June 30, 2020 and a letter dated July 7, 2020, petitioner no.1 requested the respondent no.2-Bank to extend the repayment schedule by six months due to the lock-down which follo
The main legal point established in the judgment is that the benefits of RBI Circulars for moratorium due to the pandemic were not applicable to the petitioners as the account was already declared NP....
The court's discretionary jurisdiction under Article 226 is not absolute and should be exercised judiciously.
The court can extend the time for repayment under an OTS scheme, considering the impact of external factors such as the COVID-19 pandemic and the borrower's efforts to raise funds for repayment.
The Court emphasized the Bank's obligation to act fairly and reasonably, and held that the refusal to grant an extension for OTS payment was arbitrary and violative of constitutional provisions.
The acceptance of late payments under a One Time Settlement can imply a waiver of strict compliance with payment timelines, and interest clauses remain enforceable.
The High Courts have the jurisdiction to extend the period of settlement as originally provided for in OTS letter, subject to certain guidelines, and the Court may consider granting extension of time....
Point of Law : The terms of one-time settlement scheme cannot also be interfered with or varied to the advantage or disadvantage of any person by resorting to the powers under Article 226 of the Cons....
The judgment establishes the court's power to grant extension of time for payment under the OTS, based on the RBI guidelines and the principles of equity and justice.
The main legal point established in the judgment is that, in certain circumstances, the court has the authority to grant an extension of time for payment of the One Time Settlement (OTS) as per RBI g....
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