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The Bijnor Urban Cooperative Bank Limited v. Meenal Agarwal

Civil Appeal · 2021 INSC 899Decided 15 Dec 2021
Civil Appeal No. 7411 of 2021
Justice M.R. Shah · Justice B.V. Nagarathna

Background

A borrower (the original writ petitioner) who had defaulted on a loan from the Bijnor Urban Cooperative Bank approached the Allahabad High Court seeking a One Time Settlement (OTS): a scheme that lets defaulting borrowers settle their dues for less than the full amount owed. The High Court allowed her petition and directed the Bank, by a writ of mandamus, to positively consider granting her the OTS benefit. The Bank appealed to the Supreme Court, arguing courts cannot force a bank to grant such relief as a matter of right.

Decision Breakdown

The Supreme Court allowed the Bank's appeal and set aside the High Court's order, holding that no court can issue a writ of mandamus compelling a bank to positively grant OTS benefits to a borrower. It reasoned that the grant of OTS is always subject to eligibility criteria and guidelines, and is a matter left to the commercial wisdom of the lending institution, particularly where the bank can show the borrower has the capacity to pay (here, the same borrower was servicing two other loan accounts regularly) or where the debt can be recovered by selling mortgaged property. The Court cautioned that treating OTS as an enforceable right would reward dishonest borrowers who could pay but choose not to, while waiting for a settlement scheme.

Lesson Learnt

A One Time Settlement from a bank is a discretionary commercial concession, not a legal right: a borrower who can otherwise pay cannot use the courts to force a bank into offering a discounted settlement.

Official source (sci.gov.in)View Judgment (PDF)

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