Supreme Court: Borrower Has No Vested Right to OTS; Claim Fails Without Mandatory Deposit
- REEDLAW
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REEDLAW Legal News Network reports: In a pivotal ruling delivered on 15 September 2025, the Supreme Court of India clarified that a borrower enjoys no vested right to seek relief under a One Time Settlement (OTS) scheme and that any such claim collapses if the borrower fails to make the mandatory upfront deposit prescribed by the scheme. The decision underscored the principle that OTS arrangements are contractual concessions subject to strict compliance with the bank’s terms, rather than statutory entitlements.
The Supreme Court Bench comprising Justice Dipankar Datta and Justice Augustine George Masih, while adjudicating the appeal, reaffirmed that the borrower’s request for an OTS is not a matter of right. The Court emphasised that when a scheme explicitly mandates an upfront deposit as a condition precedent, failure to meet that requirement renders the borrower’s claim unsustainable, thereby validating the lender’s refusal to extend the settlement benefit.
The Appellant challenged the judgment of the Division Bench of the High Court of Andhra Pradesh, which had affirmed the Single Judge’s direction to reconsider the Respondent’s request for settlement of outstanding dues under the State Bank of India’s One Time Settlement (OTS) 2020 Scheme. The dispute arose when the Financial Creditor, after classifying the Respondent’s loan account as a non-performing asset, initiated recovery proceedings under the SARFAESI Act and the Recovery of Debts and Bankruptcy Act. Despite several opportunities, including a compromise sanction letter in 2018, the Respondent failed to comply with the agreed payment schedule, resulting in the cancellation of the settlement and subsequent auction of mortgaged properties.
The Respondent later sought relief under the OTS 2020 Scheme and claimed credit for earlier payments, offering a fresh proposal to settle dues. The Financial Creditor rejected this request, citing the Respondent’s past defaults, suppression of facts, and failure to honour commitments. The Respondent filed a writ petition seeking reconsideration, which the Single Judge allowed, holding that the scheme was non-discretionary and non-discriminatory. The Division Bench upheld this decision, stating that the Respondent’s case was not excluded by the ineligibility criteria under clause 2.1 of the scheme.
On appeal, the Supreme Court examined the terms of the OTS 2020 Scheme, particularly clause 4(i), which required every applicant to deposit 5% of the settlement amount upfront. The Court found that the Respondent had not deposited any upfront amount at the time of application, rendering the request incomplete and not liable to be processed. It observed that neither the Single Judge nor the Division Bench addressed this mandatory requirement, and that the Financial Creditor’s omission to cite this ground in the rejection letter did not cure the fundamental defect in the Respondent’s application.
The Supreme Court reiterated that no borrower has a vested right to demand a settlement under an OTS scheme and that courts cannot compel a secured creditor to grant such relief unless the scheme’s eligibility criteria are satisfied. Since the Respondent failed to meet the essential condition of making an upfront payment, the High Court’s interference was held to be unjustified. The appeal was accordingly allowed, the orders of the High Court were set aside, and the rejection of the Respondent’s application under the OTS 2020 Scheme was upheld.
Mr. Sanjay Kapur, Advocate, represented the Appellant.
Mr. D.S. Naidu, Senior Advocate, appeared for the Respondent.
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