Writ Jurisdiction Cannot Be Invoked to Compel One Time Settlement Benefits: Kerala High Court Reiterates

In a significant ruling for banking and cooperative law, a division bench of the Kerala High Court has firmly held that borrowers cannot use writ jurisdiction under Article 226 of the Constitution to force banks or financial institutions to extend benefits under One Time Settlement (OTS) schemes. The court dismissed a writ appeal filed by borrowers Raju Abraham and Molly Abraham against the Vazhoor Farmers Service Co-operative Bank Ltd., upholding a single judge's refusal to interfere in ongoing recovery proceedings. Justices Anil K. Narendran and Muralee Krishna S. emphasized that OTS schemes are discretionary concessions, not enforceable rights, and judicial intervention would amount to impermissibly rewriting contractual terms. This decision, delivered on January 5, 2026, in W.A. No. 3177 of 2025, reinforces boundaries on writ petitions in commercial disputes and serves as a cautionary note for defaulters seeking court-mandated relief in loan recovery matters.

The ruling comes amid a backdrop of repeated litigation by the appellants, who have availed multiple loans from the cooperative bank and defaulted on repayments. It aligns with prior precedents from the Supreme Court and the Kerala High Court, underscoring the contractual nature of banker-customer relationships and the limits of constitutional remedies in private disputes. For legal professionals handling cooperative society recoveries or OTS negotiations, this judgment clarifies that such schemes are voluntary offers, and failure to adhere to their terms forfeits any claim for further concessions through writ courts.

Case Background

The dispute traces its roots to 2017 when Raju Abraham and Molly Abraham, residents of Vazhoor Village in Kottayam district, availed three loans from the Vazhoor Farmers Service Co-operative Bank Ltd. No. 2278. These loans were secured by an equitable mortgage over their property, a common practice in rural banking to mitigate default risks under the Kerala Co-operative Societies Act, 1969. The borrowers, whose primary income reportedly stems from a sawmill rental yielding about Rs. 20,000 monthly, cited financial hardships—including Raju Abraham's liver cirrhosis requiring ongoing treatment—as factors contributing to their inability to repay.

Following defaults, the bank initiated arbitration proceedings under Section 69 of the Kerala Co-operative Societies Act, resulting in ex parte awards against the appellants in 2017. These awards quantified their liabilities, prompting the bank to pursue recovery measures. The appellants challenged these steps through a series of representations and court interventions, highlighting a pattern of protracted litigation that delayed enforcement.

Key events in the timeline include:

• 2017-2018: Arbitration awards passed; no recovery initiated initially due to government directions for cooperative banks to regularize accounts under schemes like Navakerala Karshaka Kudumbam (or similar farmer relief programs). The appellants claimed the bank failed to communicate updated liabilities as of October 30, 2018.

• 2021: Appellants file W.P.(C) No. 9468 of 2021, securing directions to pay outstanding dues exceeding Rs. 75 lakhs in 15 monthly installments via Ext. P1 judgment on August 10, 2023. Dissatisfied, they appealed, leading to W.A. No. 1631 of 2023, disposed on November 17, 2023 (Ext. P2), allowing a proposal under the 2023 OTS scheme.

• 2024: The bank offered concessions under Circular No. 18/2024 of the Registrar of Co-operative Societies (Ext. P3, dated January 29, 2024), but the appellants contested this in W.P.(C) No. 20490 of 2024. A June 21, 2024, judgment (Ext. P4) permitted application under the new OTS scheme. Further challenges in W.P.(C) No. 25939 of 2024 resulted in an August 6, 2024, order (Ext. P8) directing the District Level Committee to assess eligibility, considering the appellants' objections.

• Early 2025: The District Level Committee, via Ext. P10 order dated February 14, 2025, fixed the total payable at Rs. 53,13,802 after concessions, allowing closure of one loan account. However, the appellants alleged the calculation ignored full scheme benefits, including interest waivers and exclusion of penal charges, especially given medical evidence of Raju Abraham's condition qualifying for principal reductions.

Aggrieved by the bank's subsequent calculation statement (Ext. P11), the appellants filed W.P.(C) No. 11083 of 2025 on November 27, 2025, seeking certiorari to quash Exts. P10 and P11, and mandamus to recalculate dues with full OTS benefits, payable in installments. The single judge dismissed it, leading to the instant appeal.

The core legal questions were: (1) Whether writ jurisdiction under Article 226 is maintainable to enforce or extend OTS benefits? (2) Can courts direct banks to grant additional concessions beyond scheme terms, particularly in light of borrower hardships? (3) Does repeated litigation justify denial of further judicial relief in recovery proceedings?

This chronology illustrates a classic case of borrowers leveraging constitutional remedies to stall enforcement, a tactic the court scrutinized as undermining the bank's recovery efforts.

Arguments Presented

The appellants, represented by Advocate T.M. Abdul Latheef, argued that the bank's calculations under Ext. P11 deviated from OTS scheme guidelines, particularly Circular No. 18/2024, which promised substantial waivers for distressed borrowers. They highlighted Raju Abraham's liver cirrhosis, supported by medical certificates, asserting eligibility for principal reductions and exclusion of penal interest/costs. The appellants claimed prior payments of Rs. 11 lakhs (deposited in 2011 but allegedly unadjusted, remaining in a suspense account) were not credited, inflating dues. They denied seeking a "new" OTS but rather full implementation of existing benefits, including 40-installment repayment due to limited income. Post-dismissal, they noted a Rs. 20 lakh discrepancy in fresh bank demands, urging settlement via "Adalath" (conciliation) and emphasizing humanitarian grounds.

The respondents, including the State of Kerala (via Senior Government Pleader Mary Beena Joseph) and the bank (via Advocate Nandagopal S. Kurup), countered that the appellants had squandered multiple opportunities. The bank detailed the history: despite Ext. P1's installment facility, the appellants appealed; they ignored Ext. P3's 2023 scheme offers and filed fresh petitions. Even after Ext. P8's directions, they only closed one loan under Ext. P10, failing to settle the rest. The bank clarified Ext. P11 stemmed from a subsequent OTS scheme, not Ext. P10, and argued OTS is discretionary, not a right. They accused the appellants of successive writs since 2021 to "circumvent" recovery, breaching contractual obligations under the mortgage and arbitration awards. The government added that scheme benefits require bank transmission of proposed amounts, and judicial mandamus would disrupt policy implementation for cooperative societies.

Both sides invoked Section 69 proceedings' finality, but the appellants focused on procedural lapses in committee assessments, while respondents stressed the private contractual essence of loans, immune from writ interference absent arbitrariness.

Legal Analysis

The division bench's reasoning centered on the non-maintainability of writ petitions for OTS enforcement, drawing from established precedents to delineate judicial limits in commercial contracts. The court observed that the appellants' litigious history—from 2021 onward—demonstrated a strategy to delay recovery, rendering further concessions untenable.

Key to the analysis was the Supreme Court's ruling in Bijnor Urban Cooperative Bank Limited v. Meenal Agarwal [(2023) 2 SCC 805]. Here, the apex court clarified that OTS benefits are not rights but conditional privileges, subject to eligibility criteria like non-wilful default and committee scrutiny. The Kerala HC quoted: "The grant of benefit of OTS Scheme cannot be prayed as a matter of right... A wilful defaulter... shall not be eligible." Relevance: This precedent directly negated the appellants' claim, as their repeated non-compliance (e.g., ignoring installment directions) mirrored ineligible "defaulters" minimizing recovery prospects via litigation rather than payment.

The bench also relied on its own prior decision in Idukki District Police Co-operative Society Ltd. No.1-490 v. Rasheed A.K. [2025 (4) KHC 44], which addressed whether mandamus can compel OTS extension. The court extracted: "The relationship between the banker and the customer is based on the contract. If the Writ Court interferes... it would result in rewriting of the contract, which is impermissible." This distinguished writ jurisdiction's role in public law (e.g., arbitrariness challenges) from private contractual disputes, where remedies lie in civil courts or arbitration. The ruling clarified that OTS schemes, often government-circulated for cooperatives (like Circular 18/2024), are facilitative, not mandatory, and breaches of scheme terms (e.g., non-payment post-offer) bar further judicial aid.

The analysis differentiated OTS from statutory rights: Unlike consumer protections under the Banking Regulation Act or debt relief laws, OTS is a voluntary bank policy to expedite recoveries, not a welfare entitlement. The court rejected humanitarian pleas (e.g., health issues) as insufficient to override contractual sanctity, noting medical evidence was considered by the District Committee but didn't entitle rewriting terms. It distinguished quashing arbitration awards (potentially writ-able if procedural flaws) from directing concessions, the latter encroaching on executive/banking discretion.

Broader principles invoked included Article 226's restraint in contractual matters ( State of U.P. v. Bridge & Roof Co. impliedly) and the policy against delaying NPAs in cooperatives, vital for Kerala's rural economy. The judgment warned that allowing such writs could flood courts with similar claims, undermining Section 69's expeditious arbitration framework.

Key Observations

The court's opinion featured incisive observations underscoring OTS's discretionary nature and writ limitations:

1. "As found by the learned Single Judge, the provisions for One Time Settlement are a benefit offered to the borrowers to settle their liability, and if they failed to utilise such an opportunity, they cannot be heard to contend that some further concession must be extended to them."

2. "Moreover, as held above, the appellants cannot maintain a writ petition under Article 226 of the Constitution of India claiming the benefit of the One Time Settlement Scheme."

3. "In the present case, the appellants could not avail the benefit of the settlement offered to them by the decision of the District Level Committee. In the light of the judgments referred to above, it is only to be held that the appellants cannot now contend that the Bank has to be directed to give them the benefit of another One Time Settlement Scheme."

4. "Directing the bank to extend further concessions would amount to rewriting contractual terms, which is impermissible in writ jurisdiction."

These excerpts, drawn verbatim from the judgment, encapsulate the bench's rejection of the appeal, emphasizing adherence to scheme terms over repeated judicial interventions.

Court's Decision

The division bench unequivocally dismissed the writ appeal on January 5, 2026, affirming the single judge's November 27, 2025, order. No interference was warranted, as the appellants' claims fell outside writ jurisdiction's purview. The court directed no further directions, leaving recovery proceedings untouched.

Practically, this mandates the bank to proceed with enforcement under the equitable mortgage, potentially including property auction. The appellants must now pursue alternative remedies, such as civil suits for account adjustments or negotiations outside court, without constitutional leverage.

Implications are profound for Kerala’s cooperative sector, handling significant rural credit (over Rs. 50,000 crore in loans per recent NABARD data). It deters "writ shopping" by defaulters, streamlining recoveries and preserving bank liquidity. For legal practitioners, it signals caution in advising OTS via writs—focus instead on contractual or statutory appeals. Future cases may see stricter scrutiny of litigation histories in OTS disputes, potentially influencing policy on schemes like Circular 18/2024. Nationally, it aligns with RBI guidelines promoting voluntary settlements while curbing judicial overreach, benefiting honest borrowers by prioritizing genuine distress over tactical delays. This ruling, cited as 2026:KER:8, is likely to be referenced in similar cooperative and banking litigations, fostering a more efficient dispute resolution ecosystem.