Evaluating When the Orissa High Court Allows One Time Settlement in SARFAESI Act Writ Petitions

In the complex landscape of banking recovery in India, the tension between a financial institution's right to recover public money and a borrower's right to a fair process often culminates in the courtroom. For many defaulting borrowers, the One Time Settlement (OTS) scheme represents the last viable opportunity to save their assets and resolve debts amicably. When banks refuse to negotiate or proceed with aggressive recovery, borrowers frequently approach the Orissa High Court via writ petitions under Article 226 of the Constitution of India.

The central legal question often revolves around whether a court can direct a bank to consider an OTS proposal or quash a recovery action to facilitate such a settlement. While banks typically rely on the rigorous recovery mechanisms provided under the SARFAESI Act, 2002, the Orissa High Court has established several benchmarks for when it will intervene in these matters.

The Interplay Between Writ Jurisdiction and Statutory Remedies

Generally, the judiciary is hesitant to entertain writ petitions when a statutory alternative exists. Under the SARFAESI Act, Section 17 provides a specific remedy for borrowers to approach the Debt Recovery Tribunal (DRT). Consequently, many writs are dismissed if the court finds the petitioner has ignored this alternative remedy 2026 Supreme(Online)(Ker) 8115 and 2017 0 Supreme(Ori) 146.

However, the Orissa High Court may exercise its extraordinary jurisdiction if there are fundamental procedural lapses or if the recovery process violates principles of equity and natural justice. In such instances, the court may quash the recovery proceedings, which effectively opens the door for the borrower to propose a One Time Settlement (OTS).

Procedural Compliance as a Gateway to OTS Relief

A recurring theme in Orissa High Court rulings is the demand for strict adherence to statutory procedures by banks. When banks fail to follow the prescribed manner—reflecting the maxim Expressio unius est exclusio alterius—the court is more likely to grant relief 2009 0 Supreme(Ori) 10.

The Necessity of Vernacular Publication

One of the most critical procedural requirements is the publication of auction notices. Under Rules 8 and 9 of the Security Interest (Enforcement) Rules, 2002, notices must be published in local language newspapers. The court has held that If the notice is published in English in a newspaper printed in vernacular language, it would not serve the purpose 2009 0 Supreme(Ori) 10.

The court's stance is that Non-compliance of such statutory provisions tantamount to fundamental procedural defects which enables the Court to set aside the confirmed sale 2009 0 Supreme(Ori) 10. Because these rules are mandatory, borrowers do not need to prove they were prejudiced by the lack of a vernacular notice; the burden lies on the bank to prove compliance 2009 0 Supreme(Ori) 10.

Valuation and Fair Pricing

The court also intervenes when auctions are conducted based on stale or inadequate valuations. Since the goal is the recovery of public money, the sale must fetch the best possible price. Where a reserve price is based on a valuation that is outdated—for example, 11 months old—the court may view the auction as flawed 2018 0 Supreme(AP) 143. Such defects often lead to the setting aside of the sale certificate, providing the borrower a window to negotiate an OTS.

The Right of Redemption and its Limitations

The Right of Redemption allows a mortgagor to reclaim their property by paying the dues. However, this right is not absolute. Under the amended Section 13(8) of the SARFAESI Act, the mortgagor's right of redemption is extinguished upon the publication of the auction notice 2023 0 Supreme(SC) 977.

The court has scrutinized the timeline between the Rule 8(6) notice and the Rule 9(1) publication. In cases where the mandatory 30-day gap is not maintained, the court has found that the redemption right was extinguished prematurely, leading to the ruling: This Court necessarily has to set aside the sale held and the consequential sale certificate 2018 0 Supreme(AP) 143.

Binding Nature of RBI Guidelines on OTS

The Orissa High Court has consistently emphasized that Reserve Bank of India (RBI) guidelines are binding on banks. In cases involving Non-Performing Assets (NPAs), the court has affirmed that formulas established in RBI OTS guidelines must be honored, particularly when they are issued under Section 35A of the Banking Regulation Act 2004 0 Supreme(Cal) 560.

However, this does not mean banks are legally compelled to accept every OTS offer. The court has clarified that banks are not obligated to consider an OTS proposal if the borrower has previously failed to honor a settlement offer 2006 0 Supreme(Del) 2250. In such instances, the borrower may be deemed to have lost their opportunity, and the petition may be dismissed as not maintainable 2006 0 Supreme(Del) 2250.

OTS Beyond the SARFAESI Act

The court's approach to settlements extends to other recovery statutes. For instance, under the State Financial Corporation Act, if a sale of mortgaged property is conducted in contravention of Sections 31 and 32, it may be seen as a violation of the rights guaranteed under Article 21 and Article 300A of the Constitution 2011 0 Supreme(Ori) 354. In such cases, the court has directed the acceptance of OTS proposals in accordance with specific corporate settlement schemes 2011 0 Supreme(Ori) 354.

Summary of When Relief is Typically Granted

Based on current trends in the Orissa High Court, relief in writ applications regarding OTS is typically granted when:* Procedural Irregularities Exist: Such as failure to publish notices in the vernacular language or inadequate notice periods 2009 0 Supreme(Ori) 10 and 2018 0 Supreme(AP) 143.* Sales are Undervalued: When the reserve price is based on stale valuations, failing to ensure the best price for the public exchequer 2009 0 Supreme(Ori) 10.* Bona Fide Proposals are Ignored: When a borrower presents a genuine OTS proposal with an upfront payment, the court may direct the bank to consider it per RBI guidelines 2025 0 Supreme(SC) 1689.* Equity Demands Intervention: Where there is no suppression of facts and the borrower has demonstrated a sincere attempt to comply with prior settlements 2020 0 Supreme(All) 180.

Conversely, writs generally fail if the borrower has not made an upfront payment to demonstrate eligibility 2025 0 Supreme(SC) 1689 or if the redemption period has legally lapsed under the amended SARFAESI laws 2023 0 Supreme(SC) 977.

Key Takeaways for Borrowers and Banks

For borrowers, the most effective strategy is to ensure that any OTS offer is bona fide and accompanied by an upfront payment. While the DRT remains the primary forum for challenging SARFAESI actions, a writ petition may be viable if there is a clear jurisdictional error or a gross violation of mandatory statutory rules

Bank of Baroda VS U. N. Automobiles Pvt. Ltd.

For banking institutions, the primary lesson is that procedural shortcuts can be costly. Failure to adhere to the strict requirements of the Security Interest (Enforcement) Rules can lead to the quashing of a confirmed sale, delaying recovery and forcing the bank back to the negotiation table.

Ultimately, the Orissa High Court seeks a balance between the expeditious recovery of dues and the preservation of fairness. While it will not shield a willful defaulter, it will not permit the recovery process to be carried out in a manner that ignores the law. As these matters are highly fact-specific, the outcome of any writ petition typically depends on the precision of the procedural challenge and the genuineness of the settlement offer.