OTS Rejection Is Substantive Order, Pre-Deposit Mandatory Under SARFAESI: Calcutta High Court

The Calcutta High Court on 20 May held that rejection of a borrower's plea seeking implementation of a One Time Settlement (OTS) scheme constitutes a substantive adjudication affecting debt liability and not a mere procedural order.

Justice Om Narayan Rai observed that any direction requiring a bank to implement an OTS scheme would amount to alteration of the borrower's outstanding liability. He held:

“A direction to the bank to implement a scheme for one time settlement in support of a borrower would amount to alteration of the debt due to the bank. In such view of the matter, it cannot be said that an order whereby a prayer seeking implementation of an OTS Circular or Scheme in favour of a borrower has been rejected, is merely procedural in nature.”

Jainco Projects (India) Ltd., the petitioner, had defaulted on repayment of credit facilities availed from UCO Bank. After its account was classified as a Non-Performing Asset, SARFAESI proceedings were initiated.

Before the Debts Recovery Tribunal (DRT), Jainco Projects filed an interlocutory application seeking directions to the bank to implement its OTS circular dated 27 July 2021. The DRT rejected the plea, holding that settlement matters fall within the bank's discretion and are outside the Tribunal's adjudicatory scope.

Aggrieved, Jainco Projects approached the Debts Recovery Appellate Tribunal (DRAT) and also sought waiver of the statutory pre-deposit under Section 18(1) of the SARFAESI Act, 2002. The DRAT directed deposit of 50% of the debt due, quantified at Rs 4.95 crore. Jainco then invoked the High Court's jurisdiction under Article 227 of the Constitution.

The petitioner argued that the DRT's order was purely procedural, and therefore the DRAT could not insist on pre-deposit.

UCO Bank opposed the plea, submitting that the request for implementation of an OTS scheme was substantive as it directly impacted the borrower's liability and could not be treated as procedural in nature.

Justice Om Narayan Rai held that directing a bank to implement an OTS scheme would alter the debt due and therefore strike at the core of the borrower's liability, making the rejection of such a plea substantive. He observed:

“The application if allowed would have interfered with the core substratum of loan, and having been refused has left the loan liability as it is. The DRT order does not merely manage court timelines or case progression or the like which would make it procedural in nature. Instead, it disposes of a substantive plea of the borrower. This Court is therefore unable to come to the conclusion that the order dated March 20, 2025 passed by the DRT is a procedural order.”

The Bench relied on Narayan Chandra Ghosh v. UCO Bank and Union Bank v. Rajat Infrastructure, reiterating that appeals before DRAT are subject to strict compliance with the pre-deposit requirement under Section 18(1) of the SARFAESI Act.

Accordingly, the High Court dismissed the revisional application.