DRT Lacks Jurisdiction to Extend OTS Timeline Once Functus Officio: High Court Overturns Modification Order

Beyond the Bench: Courts Sharpen Rules on Changing Agreed Payment Terms

In a decisive ruling that underscores the boundaries of judicial authority, the High Court has reaffirmed that a Debts Recovery Tribunal (DRT) cannot unilaterally alter the terms of a One-Time Settlement (OTS) once it has finalized its proceedings. The verdict serves as a stern reminder to both borrowers and tribunals that contract sanctity remains a pillar of commercial law.

The Breakdown: When Does a Tribunal’s Power End?

The dispute originated from a standard debt recovery process under the SARFAESI Act, 2002. After reaching a mutual OTS, the Bank and the borrower approached the DRT, which issued a consent recovery certificate for repayment by 2018. When the borrower defaulted on this timeline, the Bank moved to resume recovery proceedings.

However, the DRT took the unusual step of allowing the borrower’s application to extend the deadline by another twelve months. The Bank, feeling the Tribunal had overstepped its bounds, took the matter to the High Court , triggering a legal debate on the limits of judicial modification of private contracts.

Arguments on the Floor

Counsel for the Bank argued that once the Securitisation Application was disposed of, the Tribunal essentially became functus officio —a Latin legal term meaning it had fulfilled its function and lacked the authority to revisit or modify the order. Furthermore, they contended that rewriting the payment schedule effectively re-authored a private contract without the Bank's consent, violating Section 62 of the Indian Contract Act .

Conversely, the respondents argued that the DRT possessed inherent powers under Section 19(25) of the Recovery of Debts and Bankruptcy Act to secure the ends of justice, especially since the Bank had allegedly made it difficult for them to meet the original deadline.

The High Court ’s Verdict: A Firm "No" to Redrafting Contracts

The High Court found merit in the Bank’s argument, ruling that the DRT’s decision to grant an extension was a clear case of exceeding jurisdiction. Citing the Supreme Court’s stance in State Bank of India v. S.N. Goyal , the Court clarified that when a quasi-judicial authority pronounces a final order, it loses the power to revise it unless specific statutory provisions exist.

The Court emphasized that rescheduling an OTS without mutual consent is akin to re-writing a contract, a move that is impermissible for courts and tribunals acting under Article 226 or similar powers.

Key Observations

The judgment offers several stark reminders for legal professionals:

• On the status of the Tribunal: "The DRT became functus officio after passing the Consent Recovery and the Amended Consent Recovery Certificate... and thereafter, nothing further remained with the DRT to re-decide."
• On judicial boundary setting: "Directing the Bank to reschedule the payment under OTS would tantamount to modification of the contract which can be done by mutual consent under Section 62 of the Indian Contract Act ."
• On the sanctity of the OTS: "Ultimately, such a decision should be left to the commercial wisdom of the bank whose amount is involved."
• On inherent powers: "...such powers are exercisable in relation to the pending petition before the Tribunal and not to the application which has been submitted after final adjudication."

Implications for Future Debt Resolution

By quashing the DRT’s extension order, the Court has reinforced the finality of consent decrees. For borrowers, this case highlights the risks of missing deadlines in settlement agreements. For financial institutions, it provides a protective shield against the mid-stream alteration of settlement terms, ensuring that the commercial wisdom of lending banks remains the guiding force in debt recovery. As proceedings continue in other forums, such as the NCLT , this ruling sets a rigid precedent against judicial intervention in the fundamental terms of private financial arrangements.