One-Time Settlement Lacks Statutory Enforceability: Civil Suit Seeking Specific Performance Against Bank Liable to Rejection | Calcutta High Court
- REEDLAW
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REEDLAW Legal News Network reports: In a pivotal ruling, the Calcutta High Court held that a borrower cannot compel a bank to accept or specifically perform a one-time settlement in the absence of a statutory or binding scheme, reaffirming that such settlements remain within the bank’s exclusive commercial discretion and do not acquire enforceability merely through negotiations or interim payments.
The Calcutta High Court Single-Judge Bench of Justice Aniruddha Roy, while adjudicating an Interlocutory Application in a Commercial Suit, held that a defaulting borrower had no enforceable right to compel a bank to accept or specifically perform a non-statutory one-time settlement, as such settlements rest entirely within the bank’s commercial discretion and do not constitute a concluded or legally enforceable contract merely because negotiations occurred or interim payments were accepted. The Court accordingly held that a civil suit seeking declaration and specific performance of an alleged OTS, in the absence of any statutory backing or binding scheme, was barred by law and liable to rejection under Order VII Rule 11 of the Code of Civil Procedure.
The High Court considered an application filed by the Respondent Bank seeking rejection of the plaint and dismissal of a commercial suit instituted by the defaulting borrower, which sought a declaration of a concluded one-time settlement and specific performance thereof. The Petitioner had availed financial facilities from the Respondent Bank, defaulted in repayment, and its account had been classified as a non-performing asset. Measures under the SARFAESI Act had been initiated, recovery proceedings under the Recovery of Debts and Bankruptcy Act were pending before the jurisdictional Tribunal, and insolvency proceedings under Section 7 of the Insolvency and Bankruptcy Code had also been initiated. During this period, the Petitioner submitted one-time settlement proposals, both of which were ultimately rejected by the Respondent Bank, despite interim payments having been made and accepted during negotiations.
The Petitioner contended that acceptance of payments and continued negotiations resulted in a concluded contract, which the Respondent Bank could not rescind from, and sought enforcement of the alleged settlement through specific performance and injunctive relief. The Respondent Bank opposed the suit, asserting that a one-time settlement was not a statutory right, that no concluded contract had come into existence, and that the reliefs claimed were barred by law. Reliance was placed on settled principles that a defaulting borrower cannot compel a bank to accept a lesser amount under a one-time settlement and that such decisions fall within the commercial wisdom of the bank.
The Court reiterated the settled scope of consideration under Order VII Rule 11 of the Code of Civil Procedure, holding that for rejection of a plaint, the plaint must be read meaningfully and as a whole, treating its averments as correct. On such reading, the Court found that the Petitioner was an admitted defaulter and that both one-time settlement proposals had been consciously rejected by the Respondent Bank. In the absence of any statutory scheme or binding regulatory framework governing the settlement, the Court held that the alleged one-time settlement was merely a non-statutory arrangement dependent entirely on the commercial discretion of the bank, conferring no enforceable right on the borrower.
Relying upon the principles laid down by the Supreme Court in The Bijnor Urban Cooperative Bank Limited, Bijnor & Others v. Meenal Agarwal and Others, REEDLAW 2021 SC 12202, the Court held that no borrower has a vested right to demand or enforce a one-time settlement and that courts cannot compel banks to accept reduced amounts contrary to their commercial assessment. The Court further distinguished the decision in Bank of Rajasthan Limited v. VCK Shares and Stock Broking Services Limited, REEDLAW 2022 SC 11207, holding that the nature of reliefs and enforceable rights in that case were materially different from the present suit. It was concluded that a claim for specific performance of an alleged one-time settlement, in the facts pleaded, was barred by law.
Accordingly, the High Court held that even though a civil court may otherwise have jurisdiction, the plaint, as framed, disclosed no legally enforceable cause of action and was barred by law. The plaint was therefore rejected under Order VII Rule 11 of the Code of Civil Procedure, and the suit was directed to be taken off the file, with no order as to costs.
Mr. Dhruba Ghosh, Senior Advocate with Mr. Nilay Sengupta, Mr. Altamash Alim, Mr. Sujit Banerjee and Ms. Sunanda Samanta, Advocates, represented the Applicant.
Mr. Sourav Kr. Mukherjee, Mr. Nirmalya Dasgupta, Ms. Falguni Jana, Ms. Sohana Pal and Mr. Souhardya Mitra, Advocates, appeared for the Defendant.
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