Defaulting Borrower Cannot Demand OTS Without Fulfilling Mandatory Upfront Payment Condition: Supreme Court Rules SBI Rightly Rejected Incomplete Application

“Crossing the hurdle of eligibility per se would not entitle a defaulting borrower to claim consideration of his application unless the application itself satisfies the other stipulated conditions” — In a significant decision Supreme Court of India reversed the judgments of the Andhra Pradesh High Court, ruling that a borrower who fails to comply with the mandatory upfront payment requirement under the OTS 2020 Scheme has no legal right to claim reconsideration of their compromise proposal.

The Court held that any OTS application made without complying with the pre-conditions, especially the 5% upfront payment, is incomplete in law and need not even be processed by the bank.

“OTS Scheme Is Not a Charity – Defaulting Borrowers Must Comply With Terms Before Seeking Equity”: SC Slams Borrower’s Conduct

Opening the judgment, Justice Dipankar Datta, speaking for the Bench, noted that Tanya Energy Enterprises had failed to make the mandatory upfront payment of 5% of the offered settlement amount while applying under SBI’s OTS 2020 Scheme. This, according to the Court, disentitled the borrower from seeking any mandamus from the High Court under Article 226 of the Constitution.

The Court observed: “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. In terms of clause 4(i) of the OTS 2020 Scheme, any application received without up-front payment is not required to be processed even.”

In that view, the Court held that the High Court erred in directing reconsideration of the OTS application, as the foundational condition of eligibility was not fulfilled.

Borrower in Default Sought OTS Despite Repeated Non-Compliance

The matter originated when Tanya Energy Enterprises, having mortgaged seven properties with the State Bank of India, failed to repay the credit availed and was declared a non-performing asset. After a failed compromise settlement in 2018, where only part-payment was made, SBI proceeded under SARFAESI Act, auctioning one property.

In October 2020, SBI introduced the OTS 2020 Scheme to settle pending dues. The borrower submitted an application citing earlier payments and proposed a fresh settlement. However, the application was made without depositing the mandatory 5% upfront amount of the total settlement sum.

Rejecting this, SBI issued a detailed letter on 17th November 2020, citing the borrower’s past defaults, suppression of facts, and auction proceedings as reasons for rejection—but crucially, it did not cite the non-payment of upfront amount under clause 4(i).

The borrower approached the High Court, where a Single Judge allowed the writ petition and directed SBI to reconsider the application. The Division Bench upheld this view. SBI then approached the Supreme Court.

 “An Incomplete Application Is Not Entitled to Consideration Merely Because It Was Filed”

The central question before the Supreme Court was whether the High Court was correct in interfering with SBI’s rejection order when the borrower had not complied with a non-negotiable requirement of the OTS scheme.

In a thorough analysis, the Court noted that Clause 4(i) of the OTS 2020 Scheme categorically required a 5% upfront payment, failing which the application "will not be processed." The respondent’s failure to do so, in the Court's opinion, was fatal to the claim.

The judgment further clarified: “The respondent’s conduct disabled itself to have a fair and objective consideration of its application for OTS.”

The Court also addressed the omission of this ground (non-payment of upfront amount) in SBI’s rejection letter. It ruled that courts are not always bound to restrict their review only to grounds mentioned in administrative orders:

“While the courts, in course of reviewing administrative orders, may not permit additional grounds... we are inclined to the view that... in appropriate cases, it would be open to the court to uphold [the order] on such alternative ground subject, of course, to the affected party being put on notice.”

Having put the respondent on notice and elicited responses, the Court concluded that Clause 4(i) could be validly relied upon, even if it was not cited initially.

 “Schemes Like OTS Are Policy Decisions, Not Statutory Rights—No Writ Can Enforce Them Unless All Conditions Are Satisfied”

In its conclusion, the Court stressed that merely being outside the exclusion criteria under Clause 2.1 of the scheme does not entitle a borrower to relief, unless the full conditions of eligibility are met.

“Not being covered by clause 2.1 does not necessarily lead to the conclusion that a defaulting borrower is automatically entitled to have the loan account settled on the basis of the OTS 2020 Scheme.”

The Court was clear that public sector banks are not obligated to accept incomplete or non-compliant OTS applications merely because the borrower desires settlement.

In a note of practical balance, however, the Court allowed the respondent the opportunity to submit a fresh settlement proposal, but emphasized it cannot be under the 2020 Scheme.

Borrower’s Conduct Must Inspire Confidence Before Claiming Equitable Relief

While the Supreme Court acknowledged that High Courts have a wide writ jurisdiction, it held that no equity flows in favour of a party that defaults, disrespects legal orders, and yet seeks indulgence without fulfilling minimum obligations.

SBI was also advised to conduct an internal inquiry into how the respondent’s application was processed without verifying compliance with the OTS terms.

“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.”

Date of Decision: September 15, 2025