K.P. Umasankar v. Punjab National Bank

# **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** ## **THE HONOURABLE MR. JUSTICE GOPINATH P.** **THURSDAY, THE 7[TH] DAY OF JULY 2022 / 16TH ASHADHA, 1944** ## **WP(C) NO. 4909 OF 2020** ## **PETITIONER:** K.P.UMASANKAR, AGED 58 YEARS S/O.K.P.ANANTHAN, KERAYIPARAYIL HOUSE, CHAKRUTTIVAYAL P.O., NARIKUNDU, AMBALAVAYAL, WAYANAD. BY ADVS. S.M.PRASANTH P.VISWANATHAN (SR.) ## **RESPONDENT:** THE PUNJAB NATIONAL BANK, REPRESENTED BY ITS BRANCH MANAGER, SULTHAN BATHERY BRANCH, SULTHAN BATHERY P.O.,WAYANAD - 673 121. BY ADVS. SRI.R.S.KALKURA SRI.M.S.KALESH THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON 07.07.2022, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: WP(C) NO. 4909 OF 2020 2 ## **JUDGMENT** The petitioner is a guarantor in respect of a loan availed by a proprietary concern named ' _PBT Spices'_ of which one Thankappan was the proprietor. The aforesaid proprietary concern had availed a loan of Rs.11,70,000/- from the respondent bank in the year 2006. The said loan became a Non Performing Asset, leading to initiation of proceedings by the bank under the SARFAESI Act. Those proceedings were challenged by the petitioner before the Debts Recovery Tribunal through S.A. No.799/2010 which is still pending consideration of the Tribunal. The bank, thereafter, filed O.A. No.292/2012, for recovery of a sum of Rs.18,32,308/- along with future interest and costs from the aforesaid proprietary concern. The said O.A. is also pending consideration before the Tribunal. 2. While matters stood thus, at the instance of the petitioner, the respondent bank granted an offer for One Time Settlement, permitting closure of the loan account on payment of Rs.7,02,116/-. This was on 30.03.2019. It is not in dispute that a sum of Rs.4,50,000/was paid on 30.03.2019 itself towards the One Time Settlement and the balance payable was Rs.2,52,116/-. This amount had to be paid within 45 days from 30.03.2019 as per the terms of the letter sanctioning One Time Settlement. The time for payment would therefore run till 15.05.2019. On 08.05.2019, the original borrower died. The petitioner, WP(C) NO. 4909 OF 2020 3 thereupon requested the bank to extend the time for payment of the balance amount under One Time Settlement, which came to be rejected through the document marked as Ext.R1(b) produced along with the counter affidavit filed by the respondent bank before this Court. The petitioner disputes the receipt of Ext.R1(b), though the said communication appears to have been sent by registered post; acknowledgment due. The petitioner submits that despite all efforts to make the bank accept the request for extending the time for balance payment, the bank refused to accede to the request and therefore the petitioner was forced to approach this Court through this writ petition filed under Article 226 of the Constitution of India. 3. Sri. P. Viswanathan, learned Senior counsel, instructed by Sri. S M. Prasanth, appearing for the petitioner, would point out the facts of the case and would submit that the action of the bank in refusing to extend the time limit for payment under One Time settlement offer is arbitrary and illegal. He refers to the judgment of a learned Single Judge of this Court in _**Bindu Vijayakumar V. Regional Manager, SBI, Kollam and Others [2022(1) KHC 394]**_ , where this Court, on consideration of various judgments including the judgment of the Hon’ble Supreme Court in _**Vijayakumari P. and Another V. Indian Bank represented by its Chief Manager [AIR 2018 SC 759]**_ , held as follows:- WP(C) NO. 4909 OF 2020 4 _‘’8. Courts cannot vary the terms of an agreement especially in the exercise of jurisdiction under Article 226 of the Constitution of India. The terms of one-time settlement scheme cannot also be interfered with or varied to the advantage or disadvantage of any person by resorting to the powers under Article 226 of the Constitution of India. A Division Bench of this Court in Asokan Vasu v. State Bank of India (2020 SCC OnLine Ker. 4282) had observed that “A loan is granted in terms of the contract, and grant of one time settlement or re-scheduling of the loan amount is really a modification of the contract, which can only be done by mutual consent of the parties, vide Section 62 of the Contract Act, 1872.The court cannot alter the terms of the contract.”_ _9. In the aforestated decision, it was further observed that the Court has no power to extend the terms of a one-time settlement and that there must be judicial restraint to be observed by the court while considering writ petitions under Article 226 of the Constitution of India seeking extension of terms of one time settlement schemes._ _10. While bearing in mind the aforesaid principles, this Court cannot be oblivious of the circumstances that are peculiar to some of the cases. The Supreme Court had in the decision in Vijayakumari v. Indian Bank (AIR 2018 SC 759), observed that in exceptional circumstances, the terms of settlement scheme can be extended without causing prejudice to the respondents by compelling payment of interest for the delayed payment. In the aforesaid decision the Supreme Court observed as follows:_ _“8................There was undoubtedly some delay in payment of the amount due as per the terms of the settlement reached in the Lok Adalat. It was also agreed by and between the parties that if the terms of payment including the time schedule of payment is not adhered to, the respondent - Bank will be at liberty to recover the entire amount due. The DRAT in the impugned order had considered the matter and had taken the view that even on the face of the express terms between the parties that the bank would have a right to recover the full amount due in the event of default on the part of the appellants, the same was not the only course of action or the sole option and that on the grounds shown for the delay the same is liable to be understood in favour of the borrower. Accordingly, the matter was closed. In the writ petition filed by the Bank the position was reversed._ _9. In the facts of the present case, the view taken by the learned Appellate Tribunal (DRAT), as noted above, cannot be said to be so wholly unreasonable or unsustainable so as to justify interference by the High Court. If the agreed amount stood paid though with some delay, condonation of the delay is a possible course of action, if the grounds for delay justified a departure from what was also agreed upon, i.e., the right of a Bank to recover the entire dues. All would depend on the facts of each case. Having regard to the totality of the facts of the present case, we are of the view that the ends of justice would be met if for the delay that had occurred, the appellants are made liable to pay simple interest @ 24% p.a. on the amount of Rs. 34.5 lakhs (as agreed to in the Lok Adalat) for the period from the date of the Award of Lok Adalat, i.e.,_ WP(C) NO. 4909 OF 2020 5 _10.09.2004 to the date of last payment, i.e., 29.10.2006. In addition, a further amount of Rs. 10 lakhs to be paid by the appellants to the respondent - Bank as compensation and costs.”_ _11. In view of the above decision of the Supreme Court, which decision was not brought to the notice of this Court in Asokan Vasu’s case (supra), it can be held that under certain exceptional circumstances, a departure from the normal rule that the terms of settlement cannot be varied by Court under Article 226, is possible. The departure can be directed based upon the facts peculiar to each case and exceptional circumstances available, on a consideration of the entirety of the case._ _16. Further, in Anu Bhalla and Another v. District Magistrate, Pathankot and Another (AIR 2021 Punjab And Haryana 1), a Division Bench of the Punjab & Haryana High Court held, after referring to various decisions that, a deserving borrower, who had deposited substantial amounts within the originally stipulated period of settlement proved his bonafides and if he is willing to clear the remaining in a reasonable period and compensate the Bank for the delay, it should be considered with some leniency to attain the aim of such settlement. The following observations in the aforecited decision is relevant. “Further, it is also to be noticed, that invariably in all the settlement schemes or the policies, there are already sufficient checks and balances to identify eligible borrowers to whom such concessions can be extended to lead to an OTS. It is needless to mention that settlement takes place, only after the case of the borrower has been tested on the basis of criteria of eligibility for settlement provided under the scheme or policy itself. For example, we see, that cases of wilful default and fraud are normally excluded. Once the borrower is found to be eligible and the settlement takes place, it is important to keep in mind, that during the period of settlement, minor differences inter alia extension to pay the remaining settled amount in deserving cases, are creased out, equities are balanced in terms of the policy itself by the bank officials so that the settlement achieves its final goal, aimed at the betterment of both the parties. An amicable settlement is drawn up to achieve a win-win situation for both the creditor and debtor. The former is able to recover the amounts, in a more simplified manner and then use the same in its commercial cycle to pump in more liquidity and resultant revenues. On the other hand, the latter is able to settle a long dispute so as to focus its attention to a more productive field, rather than being involved in a litigative sphere. In such a situation, a deserving borrower, who has deposited substantial amounts within the original stipulated period of settlement, proved his bona fides and is willing to clear the remaining in a reasonable period, and compensate the creditor with interest for the period of delay, should be considered with some flexibility to achieve the ultimate aim of such settlements. It is with this perspective, that extensions can be considered to be granted to deserving cases.”_ 4. Learned Senior counsel places reliance on _**Mehar**_ ## _**Reynolds V. Josemon Simon and Another [2019 (5) KHC 196]**_ to contend that equitable considerations are not alien to proceedings under Article 226 of the Constitution of India. He states that, in that WP(C) NO. 4909 OF 2020 6 decision, this Court extended the time prescribed under the Security Interest (Enforcement) Rules 2002 to deposit balance sale consideration by an auction purchaser. 5. Learned Senior counsel places reliance on the judgment of the Hon’ble Supreme Court in _**Vijayakumari (Supra)**_ where it was held as follows:- _‘’9. In the facts of the present case, the view taken by the learned Appellate Tribunal (DRAT), as noted above, cannot be said to be so wholly unreasonable or unsustainable so as to justify interference by the High Court. If the agreed amount stood paid though with some delay, condonation of the delay is a possible course of action, if the grounds for delay justified a departure from what was also agreed upon, i.e., the right of a Bank to recover the entire dues. All would depend on the facts of each case. Having regard to the totality of the facts of the present case, we are of the view that the ends of justice would be met if for the delay that had occurred, the appellants are made liable to pay simple interest @ 24% p.a. on the amount of Rs. 34.5 lakhs (as agreed to in the Lok Adalat) for the period from the date of the Award of Lok Adalat, i.e., 10.09.2004 to the date of last payment, i.e., 29.10.2006. In addition, a further amount of Rs. 10 lakhs to be paid by the appellants to the respondent-Bank as compensation and costs._ _10. The above amounts will be paid by the appellants to the respondent-Bank within a period of 45 days from today failing which the respondent-Bank may understand the present order to be recalled and the mortgaged property to be open for auction/disposal in accordance with law._ He relied on the judgment of a Division Bench of the Punjab and ## Haryana High Court in _**Aseem Gaind V. Axis Bank, Retail Assets**_ _**Centre [2022 SCC OnLine P& H 531]**_ , where in Paragraph No.44 , after referring to the judgment of a Division Bench of the same High Court in _**Anu Bhalla and Another V. District Magistrate Pathancot and Another**_ [CWP NO.5518 of 2020], it was held:- _‘’Therefore, the contention of the respondent-Bank that in no circumstance can the Court grant extension of time for completion of the payment under the OTS cannot be countenanced. Such a power undoubtedly exists, though not as a matter of right, but it must be_ WP(C) NO. 4909 OF 2020 7 _exercised by a High Court keeping in mind the above guidelines/principles.’’_ He relied on the judgment of the Hon’ble Supreme Court in _**M/s.Sardar Associates and Others V. Punjab & Sind Bank and Others [2009 KHC 4895]**_ wherein Paragraph No.48 it was held as follows:- _‘’48. If in terms of the guidelines issued by the Reserve Bank of India a right is created in a borrower, we see no reason as to why a writ of mandamus could not be issued. We would assume, as has been contended by Mr. Singh, that while exercising its power under Article 226 of the Constitution of India, the High Courts may or may not issue such a direction but the same, in our opinion, by itself, would not mean that the High Court would be correct in interfering with an order passed by the Appellate Tribunal which was entitled to consider the effect of such one time settlement.’’_ He relied on the judgment of the Hon’ble Supreme Court in _**G. Veerappa Pilla V. Raman and Raman Ltd., [AIR 1952 SC 192],**_ wherein Paragraph No.20 the Court has set out the parametres of exercise of jurisdiction under Article 226 of the Constitution of India. He places reliance on the judgment of the Hon’ble Supreme Court in _**State Bank of India V. Vijay Kumar [AIR 2007 SC 1689]**_ where the Hon’ble Supreme Court refused the interference with a judgment of the High Court through which the time for payment under a compromise arrived at a Lok Adalat was extended by the High Court. He cited _**K.D. Sharma V. Steel Authority of India Limited and Others [2008 (12) SCC 481]**_ to contend that the jurisdiction of the Supreme Court under Article 32 and of the High Courts under Article 226 of the Constitution of India is extraordinary, **equitable** and discretionary. It was also held that the prerogative writs mentioned therein are to be WP(C) NO. 4909 OF 2020 8 issued for doing substantial justice. He also places reliance on the Division Bench judgment of this Court in _**State of Kerala and Others V. George Jacob [2010 (3) KHC 381]**_ to contend that this Court while exercising jurisdiction under Article 226 of the Constitution of India can mould relief to meet the ends of justice. Finally, he submits with reference to the judgment of the Hon’ble Supreme Court in _**Eastern Coalfields Ltd and Others V. Bajrangi Rabidas [2013 KHC 4777]**_ to contend that the jurisdiction of the High Courts under Article 226 of the Constitution of India is equitable and discretionary and the power of the High Court is required to be exercised to reach injustice wherever it is found. That judgment also holds that the High Courts while exercising the jurisdiction under Article 226 of the Constitution of India can always take cognizance of the entire facts and circumstances and pass appropriate directions to balance justice. 6. The learned Standing Counsel appearing for the respondent bank on the other hand contends principally that the offer for One Time Settlement is actually a binding contract between the parties and the failure to comply with the terms will entail its cancellation. It is submitted that a person who availed the benefit of One Time Settlement cannot be heard to contend that the terms thereof must be varied to his advantage. It is submitted that the petitioner himself was the applicant for One Time Settlement and he cannot be heard to contend that the WP(C) NO. 4909 OF 2020 9 time must be extended on account of the death of the original borrower on 8.5.2019. It is submitted that, even the present writ petition was filed belatedly, considering the fact that the bank had rejected the request of the petitioner for extension of the time for payment under the One Time Settlement by Ext.R1(b) letter as early as on 16.5.2019. The learned counsel has placed reliance on the judgment of the Supreme Court in _**Bijnoor Urban Co-operative Bank Limited**_ v. _**Meenal Agarwal & others; Civil Appeal No.7411/2021**_ where in paragraph 11, it was held as follows:- “ _11. The sum and substance of the aforesaid discussion would be that no writ of mandamus can be issued by the High Court in exercise of powers under Article 226 of the Constitution of India, directing a financial institution/bank to positively grant the benefit of OTS to a borrower. The grant of benefit under the OTS is always subject to the eligibility criteria mentioned under the OTS Scheme and the guidelines issued from time to time. If the bank/financial institution is of the opinion that that the loaneee has the capacity to make the payment and/or that the bank/financial institution is able to recover the entire loan amount even by auctioning the mortgaged property/secured property, either from the loanee and/or guarantor, the bank would be justified in refusing to grant the benefit under the OTS Scheme. Ultimately, such a decision should be left to the commercial wisdom of the bank whose amount is involved and it is always to be presumed that the financial institution/bank shall take a prudent decision whether to grant the benefit or not under the OTS Scheme, having regard to the public interest involved and having regard to the factors which are narrated hereinabove.”_ The learned counsel cites the judgment of a Division Bench of the Madras High Court in _**Tamil Nadu Industrial Investment Corporation Ltd**_ v. _**Millenium Business Solutions Pvt. Ltd. & ors; AIR 2005 Mad 232**_ to WP(C) NO. 4909 OF 2020 10 contend that the grant of a loan is under the terms of a contract and grant of One Time Settlement or rescheduling of the loan is a modification of such contract which can only be done with the mutual consent of both the parties by virtue of Section 62 of the Contract Act, 1872. He placed reliance on the judgment of a learned single Judge of Gujarat High Court in _**Gupta Tex Prints Pvt. Ltd**_ . v. _**Bank of Baroda**_ ; _**Manu/GJ/1510/2021**_ to contend that the High Court in exercise of jurisdiction under Article 226 of the Constitution of India would not direct that the terms of a One Time Settlement offer should be modified to the advantage of a borrower. The learned counsel also placed reliance on the judgment of a Division Bench of the Madras High Court in _**V. Sunil Prasad**_ v. _**Authorised Officer, Central Bank of India and others; Manu/TN/2640/2017**_ to contend that a writ petition is not maintainable in respect of action initiated by the bank under the provisions of the SARFAESI Act. Finally, the learned counsel placed reliance on the judgment of a learned single Judge of this Court in _**T. Narayanan and others**_ v. _**State; 1959 KLT 580**_ to contend that no writ can be issued to compel the State to enter into a contract or alter the terms of a contract. 7. I have considered the contentions raised. As already noticed, the fact that the bank had offered a One Time Settlement on 30.3.2019 enabling the settlement of liability on payment of a sum of Rs.7,02,116/- is not disputed. It is also not disputed that a sum of Rs.4,50,000/- was paid by the principal borrower on the date of sanction of One Time Settlement towards the amount payable under the One Time Settlement Scheme. What remained to be paid was a sum of Rs. 2,52,116/-, which was to be paid on or before 15.5.2019. The petitioner, who is WP(C) NO. 4909 OF 2020 11 a guarantor in respect of a loan had requested for extension of time to make the balance payment also pointing out that that the original borrower had died on 8.5.2019. The bank, however, refused to extend the benefit to the petitioner. 8. This Court in _**Bindu Vijayakumar (supra),**_ after taking note of the judgment of the Supreme Court in _**Vijayakumari (supra)**_ took the view that in certain exceptional circumstances, this Court in exercise of jurisdiction under Article 226 of the Constitution of India direct a financial institution to extend the time limit for compliance with the terms of the settlement. The decision of the Division Bench of Panjab and Haryana High Court in _**Aseem Gaind (supra)**_ also takes the same view. In _**K.D. Sharma (surpa),**_ the Supreme Court has taken the view that the power to issue the prerogative writs under Articles 32 and 226 of the Constitution of India is an extraordinary power which is also equitable and discretionary. It is also observed that the prerogative writs mentioned in Articles 32 and 226 can be issued for doing substantial justice. The Supreme Court in _**Vijayakumari**_ ; _**(supra)**_ took the view that where there is delay in complying with the terms of a settlement and the borrower was willing to compensate the bank by payment of interest, the grant of further time to pay the amounts due in terms of the settlement could be granted. The decision of the Supreme Court in _**Bijnor Urban Cooperative Bank (supra)**_ deals with the question as to whether a writ court can compel the bank/financial institution to grant One Time Settlement dehors the eligibility criteria mentioned in the scheme and that judgment does not apply to the facts of this case. The judgment of a Division Bench of the Madras High Court in _**Tamil Nadu Industrial Investment Corporation Ltd.**_ WP(C) NO. 4909 OF 2020 12 _**(supra)**_ , no doubt, takes the view that a contract can be modified only with the consent of both parties and in terms of Section 62 of the Indian Contract Act. The Division Bench of the Madras High Court in _**V. Sunil Prasad (supra)**_ also took the view that in respect of action initiated under the provisions of the SARFAESI Act, the High Court could not, in exercise of jurisdiction under Article 226 of the Constitution of India, issue directions to the bank in respect of the manner in which the repayment should be scheduled etc. However, in the peculiar facts and circumstances of this case, I am inclined to follow the view taken by this Court in _**Bindu Vijayakumar (supra)**_ . The circumstances which compel me to follow the view taken in _**Bindu Vijayakumar (supra)**_ are the following:- _i) Out of the total settlement amount of Rs.7,02,116/-, an amount of Rs.4,50,000/- stood paid on the date of offer itself._ _ii) Before the balance of Rs.2,52,116/- could be paid, the principal borrower died on 8.5.2019, that is about a week before the time limit for making that payment expired._ iii) _The petitioner, who is a guarantor had immediately approached_ _the bank, pointing out the fact the principal borrower had died, requesting for extension of time to make payment under the One Time Settlement Schem_ e. I am of the view that these three factors cumulatively compel me to hold that there are certain exceptional circumstances as noticed by the Supreme Court in _**Vijayakumari (supra)**_ and by this Court in _**Bindu Vijayakumar (supra)**_ to WP(C) NO. 4909 OF 2020 13 hold that a direction can be issued to the bank to accept the balance payable under the One Time Settlement offer along with interest to compensate the bank for the delay in making the payment. This writ petition is, therefore, allowed and it is directed that on payment of a sum of Rs.2,52,116/- together with interest at the rate of 14.5% per annum from 15.5.2019 till the date of payment, the entire liability of the petitioner (as a guarantor) to repay the liability of the principal borrower will stand extinguished. The benefit of this judgment will be available only if the aforesaid amount together with interest is paid to the bank within a period of one month from today. Interest shall be calculated as above, in the same manner as interest would be calculated and applied under the terms of the original loan agreement. The rate of interest is fixed at 14.5% as it is stated before me that this was the rate of interest applicable on the loan in question. Sd/- **GOPINATH P. JUDGE** ajt/acd WP(C) NO. 4909 OF 2020 14 ## **APPENDIX OF WP(C) 4909/2020** PETITIONER EXHIBITS EXHIBIT P1 TRUE COPY OF THE OFFER LETTER FOR OTS IN THE LOAN TRANSACTION DATED 30/3/2019. EXHIBIT P2 TRUE COPY OF THE RECEIPT DATED 30/3/2019. EXHIBIT P3 TRUE COPY OF DEATH CERTIFICATE DATED 20/7/2019. EXHIBIT P4 TRUE COPY OF THE INTIMATION GIVEN TO THE BANK DATED 15/5/2019. EXHIBIT P5 TRUE COPY OF THE TERMS SETTLEMENT EXHIBIT P6 TRUE COPY OF THE JUDGMENT REPORTED IN 2019(5) KHC 196 OF THIS HONOURABLE COURT. EXHIBIT P7 TRUE COPY OF THE JUDGMENT REPORTED IN (2020) 5 SCC 138 OF THE HONOURABLE SUPREME COURT. ## RESPONDENTS EXIHIBITS |SPONDENTS EXIHIBITS|| |---|---| |EXHIBIT R1(a)|COPY OF THE OFFER SUBMITTED BY THE PETITIONER| |EXHIBIT R1(b)|COPY OF THE LETTER DATED 16.5.2019 ISSUED BY THE<br>RESPONDENT TO TH PETITIONER| |EXHIBIT R1(c)|COPY OF THE POSTAL ACKNOWLEDGMENT CARD<br>EVIDENCING RECEIPT OF EXT.R1(b)BY THE PETITIONER|