Encashing ₹18.64 Lakh Settlement Without Prior Objection Equals Acceptance: Bombay High Court In Reliance ARC's Plea

The Bombay High Court has held that Reliance Asset Reconstruction Company Ltd, having encashed Rs 18.64 lakh offered by borrowers towards full and final settlement without first communicating any objection, must be deemed to have accepted the settlement. It ruled that the company's subsequent claim that the amount was accepted “under protest” was not a valid revocation and that the arbitral awards stood satisfied.

Justice Abhay Ahuja held that once the amount was encashed without prior protest, the creditor could not later dispute the settlement or seek recovery of any further dues.

“Admittedly, the Applicant had deposited the demand draft of Rs.18,64,351/- which was offered in full and final settlement by the Respondents and then the communication seeking to raise an issue of incorrect calculations, and that execution proceedings had been initiated for recovery stating that therefore, under protest, the demand draft has been deposited and the same would be adjusted against the total outstanding decretal dues, cannot be said to be a valid revocation as what is offered on condition must be taken as it is offered and the Applicant having encashed the demand draft without first communicating to the Respondents that they do not agree the proposal made by the Respondents, the Applicant must be assumed in terms of Section 8 of the Indian Contract Act, 1872 to have accepted the proposal of the Respondents .”

The case arose from arbitral awards dated October 22, 2012, concerning loan facilities of Rs 2.5 crore and Rs 1.56 crore extended around 2010–2011.

Hiroo Hotchand Advani and a co-borrower had availed loan facilities although the order does not indicate the purpose for which they were taken. Following defaults in repayment, the dispute was referred to arbitration, resulting in awards directing payment of the outstanding amounts along with interest.

By a letter dated January 11, 2019, the borrowers forwarded ₹18,64,351 as full and final settlement of the liabilities under the awards. Reliance Asset Reconstruction Company received and encashed the demand draft.

Weeks later, on March 30, 2019, the company wrote back asserting that the settlement figure was based on incorrect calculations. It proceeded to initiate execution proceedings for recovery of the alleged balance, stating that the demand draft had been deposited “under protest”.

The court was not persuaded. It held that a communication issued after encashment could not undo the legal consequences of acceptance.

The court emphasised that if the creditor did not agree with the terms of the offer, it ought to have communicated its objection before encashing the payment. Having accepted the amount without protest, it could not subsequently seek to recover any balance.

Holding that the payment constituted complete discharge of liability, the court directed that the arbitral awards be marked as satisfied and dismissed the execution applications.