Mandatory Upfront Payment a Precondition for Consideration of Application

The Supreme Court in Assistant General Manager, State Bank of India v. Tanya Energy Enterprises, (2025 SCC OnLine SC 1979), dated September 15, 2025, has held that a borrower cannot claim the benefit of a one-time settlement (OTS) as of right unless the eligibility conditions stipulated in the scheme are strictly fulfilled, and that failure to make the mandatory upfront deposit renders an application incomplete and non-processable.

The facts in brief were that Tanya Energy Enterprises, the borrower, having availed credit facilities from the State Bank of India (SBI) secured by seven mortgaged properties, defaulted in repayment. After the account was classified as a non-performing asset in 2017, SBI initiated recovery proceedings before the Debt Recovery Tribunal (DRT) and also issued sale notices under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002. Although a compromise settlement was sanctioned in 2018 for ₹5 crore, the borrower defaulted once again, leading to its cancellation. Subsequent attempts by SBI to auction the mortgaged properties were challenged before the Tribunal with limited success.

In October 2020, SBI introduced its OTS 2020 Scheme, under which the borrower applied for settlement, claiming adjustment of earlier payments and proposing a reduced settlement figure. SBI rejected the application in November 2020 citing past defaults, non-compliance with Tribunal orders and suppression of facts. The borrower approached the High Court, where a Single Judge held that the OTS Scheme was non-discretionary and directed reconsideration of the application. The Division Bench dismissed SBI’s intra-court appeal and affirmed the Single Judge’s view.

In appeal, the Supreme Court noted that the critical requirement under clause 4(i) of the OTS 2020 Scheme mandated that every application must be accompanied by an upfront payment of 5% of the settlement amount, failing which the application would not be processed. The borrower had not deposited a single rupee towards this mandatory upfront payment. This, the Court observed, struck at the very root of eligibility and rendered the application incomplete. The High Court, both at the Single Judge and Division Bench level, had overlooked this crucial requirement and instead proceeded on a narrow reading of clause 2.1 dealing with ineligible cases. While SBI’s rejection letter did not expressly mention this ground, the Court held that an order may still be upheld if the record discloses a determinative ground that directly affects eligibility, provided fairness is ensured to the affected party.

Since the borrower had neither complied with the mandatory upfront payment requirement nor shown bona fides in repayment, its application was legally untenable. The High Court, in overlooking this mandatory requirement and focusing only on the ‘ineligible cases’ clause of the scheme, had erred in interfering with SBI’s decision.The Court accordingly allowed the appeal, set aside the judgments of the High Court, and permitted SBI to proceed with recovery measures under law, while granting the borrower liberty to make a fresh settlement proposal outside the OTS 2020 Scheme.

This judgment reaffirmed that the benefit of a OTS scheme is not a matter of right and can only be availed upon strict adherence to the conditions expressly stipulated in the scheme.