One Time Settlement not a Legal Right Holds Bombay High Court

The High Court of Bombay Nagpur Bench, in the case of Ms. Archana Wani v. Indian Bank & Ors. (2025: BHC-NAG:11219-DB), dated October 17, 2025, held that a borrower or guarantor cannot claim the benefit of a One Time Settlement (OTS) as a matter of right. The Court ruled that the decision to accept or reject an OTS proposal lies within the exclusive commercial discretion of the lending bank, particularly as banks deal with public money and must act in the interest of financial prudence and public accountability.

The case arose from a petition by Ms. Archana Wani, director and shareholder of N. Kumar Housing and Infrastructure Private Limited, which had stood guarantor for a ₹62-crore term loan granted by the erstwhile Allahabad Bank (now Indian Bank) to M/s Poonam Resorts Limited for a resort project in Nagpur. Following persistent defaults, the account was declared a Non-Performing Asset on March 31, 2017, leading the bank to initiate recovery proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, and the Insolvency and Bankruptcy Code, 2016, before the National Company Law Tribunal, Mumbai.

The petitioner challenged the actions of the bank on the ground that the bank had acted arbitrarily in rejecting several OTS proposals without disclosing the benchmark or eligibility criteria. It was argued that such non-disclosure violated the Reserve Bank of India (RBI) guidelines and the principles of fairness under Article 14 of the Constitution of India. The petitioner also sought a direction to the RBI to appoint an independent officer to audit the bank’s actions and to compel the bank to consider the OTS proposal afresh.

The High Court rejected the petition, holding that the bank was under no statutory or contractual obligation to accept an OTS proposal or to disclose its internal benchmark for such settlements. The Court reasoned that the grant of OTS is a matter of policy and commercial discretion, not a legal right enforceable by writ jurisdiction. The relationship between a borrower and a bank is governed by contract, and the Court under Article 226 of the Constitution of India, 1950, cannot rewrite or modify contractual terms by directing acceptance of reduced settlement amounts. The petitioner had failed to demonstrate the existence of any binding policy or RBI circular mandating the acceptance or disclosure of OTS criteria.

The Court further held that the doctrine of legitimate expectation could not apply in the absence of an established or consistent practice of granting OTS benefits. A borrower cannot create a right based on a mere expectation of leniency, especially when the bank has initiated recovery under special enactments such as the SARFAESI Act and the IBC. The pendency of those proceedings demonstrated that the bank had already invoked lawful mechanisms for recovery, and interference by the High Court would undermine the statutory process.

The Court emphasized that if the bank believes it can recover the entire outstanding amount by enforcing its security or selling the mortgaged property, it is fully justified in rejecting an OTS proposal offering a lesser sum. Since banks manage public funds, they are duty-bound to protect depositors’ interests and ensure responsible recovery of dues; judicial compulsion to accept reduced settlements would be contrary to public interest and fiscal discipline.

In conclusion, the Court dismissed the writ petition, observing that the decision whether to grant or reject an OTS must remain within the commercial wisdom of the bank and cannot be subjected to judicial direction. The interim stay previously granted was directed to continue for six weeks, after which it would automatically stand vacated.

This judgment reaffirmed that the grant of OTS is a matter of policy and discretion, not an enforceable right, and that courts will not interfere with a bank’s commercial judgment in the recovery of public money.