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The Orissa State Financial Corporation & Anr vs Smt. Sukanti Mohapatra & Ors

Not available · 2024 INSC 256Decided 21 Mar 2024
Not available

Background

Orissa State Financial Corporation had granted a loan against a mortgaged plot to Prasanta Kumar Mohapatra, which fell into default. Despite the Corporation offering the borrowers multiple One Time Settlement (OTS) opportunities between 2003 and 2006, all of which lapsed because the borrowers failed to pay, the Corporation eventually seized and sold the mortgaged property under Section 29 of the Act to a third party, Tusar Ranjan Mishra, in 2006. The Orissa High Court set aside the sale, holding the Corporation had wrongly rejected a settlement request and misapplying Sections 31/32 of the Act.

Decision Breakdown

The Supreme Court held that Sections 31/32 (which the High Court relied on) had no application since the Corporation had validly proceeded under Section 29; whether to accept a borrower's settlement proposal was a commercial decision for the Corporation, not something for courts to second-guess absent extraordinary circumstances or a scheme violation. It found the Corporation had acted fairly by repeatedly extending settlement chances that the borrowers failed to avail. However, noting that the sale deed was executed despite an interim court order (a procedural lapse that did not itself invalidate the underlying process) and balancing equities between the parties, the Court gave the original borrowers one final option: to pay the full sale consideration of Rs. 13,20,000 plus registration costs and 18% annual interest to the third-party purchaser by 31 July 2024, failing which the purchaser would be entitled to take police-assisted possession.

Lesson Learnt

Courts generally will not interfere with a financial institution's fair, good-faith exercise of statutory recovery powers merely because a defaulting borrower is unhappy with the outcome, but they can still fashion an equitable last-chance remedy, such as a final payment deadline, to balance the interests of a bona fide third-party purchaser against a borrower's hardship.

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

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