Can a Court Order a Bank to Grant a One Time Settlement (OTS)? Supreme Court Clarifies

The Supreme Court on September 16, 2025, said it is true that no court can, by issuing a writ of mandamus, direct a secured creditor to positively grant benefit of One Time Settlement to a defaulting borrower as such a grant is always subject to the eligibility criteria being satisfied. 

However, this principle of law may not have any direct application in a case where it is merely a reconsideration that the High Court has directed and there is no positive direction for granting an OTS, the bench of Justices Dipankar Datta and Augustine George Masih said.

Court allowed a civil appeal filed by the Assistant General Manager of the State Bank of India against the Andhra Pradesh High Court's division and single judge bench decisions allowing the respondent Tanya Energy Enterprises' writ petition against rejection of the application to avail OTS 2020. 

The respondent's account was classified as a “non-performing asset”, triggering a demand notice in 2017 under Section 13(2) of the SARFAESI Act. A sum of Rs 7 crore (approximately) was demanded from the respondent, with further interest from June 1, 2017, and subsequently auction of the mortgaged properties was started.

The High Court held the respondent was entitled to the benefit of the OTS 2020 Scheme, which was non-discretionary and non-discriminatory, and the appellants were directed to process the respondent’s prayer in this regard.

On the Bank's appeal, the division bench held there was no bar for considering cases where proceedings under the SARFAESI Act have been initiated and auction of the property is underway; hence, the respondent could not have been held ineligible under the OTS 2020 Scheme.

Before the apex court, the respondent contended since the court had issued notice in 2023 noting that the question which would arise was whether borrower could have applied under the OTS Scheme 2020 with respect to the arrears after excluding the amount receivable under the first auction, so it was no longer open to the appellant to argue beyond the question posed by the court for an answer.   

"Notwithstanding limited notice having been issued on a special leave petition, that this court can expand the scope of the lis is no longer res integra. One may profitably refer to the decision of this court in Biswajit Das v. Central Bureau of Investigation (2025),'' the bench said.

Examining the issue of whether the High Court erred in its interference with the said order of rejection of the respondent’s application under the OTS 2020 Scheme and directing reconsideration thereof, the bench held that the High Court was not justified in its interference with the order of rejection.   

Referring to the OTS 2020 Scheme, the court noted that it was clear that every borrower in default had to apply together with an upfront payment of 5% of the OTS amount to have their application considered. 

It pointed out that the manner of calculation of the OTS amount was provided in clause 3A (v) of the OTS 2020 Scheme. For wilful defaulters, payment of 15% was required. Though it was not argued that the respondent fell in the category of a ‘wilful defaulter’, however, it was certainly a defaulter, the bench said.

"We did not find the respondent, while applying for the benefit of the OTS 2020 Scheme, to have deposited a single paisa towards up-front payment,'' the bench said. 

In terms of clause 4(i) of the OTS 2020 Scheme, any application received without up-front payment was not required to be processed even. Thus, in the first place, the respondent’s application was incomplete and it did not have any right in law to claim that such application should be processed, the court held.   

"Crossing the hurdle of eligibility per se would not entitle a defaulting borrower to claim consideration of his/its application unless the application itself satisfies the other stipulated conditions,'' the bench said.  

Though failure to make up-front was not mentioned as a ground for rejection of the application, the bench said, ''It is clear as a sunny day that an application for availing the benefit thereunder would be processed if such application were accompanied by an up-front payment of 5% of the outstanding dues".

Indubitably, the respondent faltered in not adhering to the express terms of such scheme by not depositing 5% of the outstanding dues as up-front payment, thereby rendering its application disentitled to be processed even, far less deserving a favourable consideration, court added.

Although this ground is not mentioned in rejection letter, yet, it is fundamental to the case, strikes at the heart of the matter and fully justifies the conclusion that the respondent, by its own conduct, did not and does not deserve to be extended the benefit of the OTS under the Scheme, the bench held.

"SBI would be well advised to ascertain and fix responsibility as to how the respondent’s application could be processed when it did not comply with the terms of the OTS 2020 Scheme,'' the bench said.

Court finally held that the respondent’s conduct disabled it from having a fair and objective consideration of its application for OTS.   

The bench allowed the Bank to proceed in accordance with the law for enforcement of the security interest. At the same time, court also granted the respondent an opportunity to submit a fresh proposal for OTS, but not under the OTS 2020 Scheme.  

Court also clarified that its judgment would not have any effect on the proceedings pending before the DRT.

Case Title: Assistant General Manager, State Bank of India & Anr Vs Tanya Energy Enterprises 

Order Date: September 16, 2025

Bench: Justices Dipankar Datta and Augustine George Masih