It is not unusual for borrowers to break payment of few EMIs due to temporary financial crunch, but loan accounts are automatically classified as NPA in accordance with the RBI Guidelines. There are several directives issued by the Reserve Bank of India that the banks are required to restructure and regularize the loan account which are facing temporary defaults and also encourage borrowers to settle their loan accounts under One Time Settlement Schemes (OTS).
The circulars and guidelines issued by the Reserve Bank of India are mandatory and binding upon all banks & finance companies as has been declared by the Supreme Court in the case of Central Bank of India vs. Ravindra and others [(2002) 1 SCC 367].
If there is an existing circular of the RBI on restructuring or one time settlement of loan, the bank cannot deny the benefit of the same to the borrowers. The Supreme Court of India in the case of Sardar Associates vs. Punjab and Sing Bank (AIR 2010 SC 218) declared that the RBI circular on One time Settlement is not discretionary, therefore the bank is bound to give the benefit of the same to the borrowers.
BANK CANNOT SELL THE PROPERTY DURING PENDENCY OF OTS PROPOSAL
The Allahabad High Court in the case of Shyama Ice and Cold Storage Pvt. Ltd. vs. Syndicate Bank [(2012) 4 ADJ 452] has held that during the pendency of proposal for One Time Settlements (OTS) it is not permissible for the bank to initiate recovery action under the provisions of SARFEASI Act, 2002 . If a borrower has a right to enter into One Time Settlement with the bank as per the existing RBI Guidelines, then the bank cannot proceed to take possession of the property or sell the property in auction, without first deciding the One Time Settlement application of the borrower.
WHETHER AN OTS TIME PERIOD BE EXTENDED FURTHER?
The Hon’ble Punjab & Haryana High Court in the case of Hardyal Singh Cheema vs. State Bank of India ( CWP No. 7097 of 2022 decided on 12.07.2022) held that in the case of a deserving borrower, who has deposited substantial amount within the original stipulated period of settlement and is willing to clear the remaining amount in a reasonable period, the Court can consider extending the period with some flexibility to achieve the ultimate aim of such settlement
RESTRUCTURING OF LOAN
The Allahabad High Court in the case of Shakuntala Educational & Welfare Society vs. Punjab & Sind Bank [(2015) 4 ADJ 185] has held that the joint lenders forum must identify incipient stress and resolve such stress in accordance with RBI Guidelines in order to restructure the loan account of the borrower before resorting to the recovery process under SARFAESI Act, 2002.
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