Calcutta High Court Rules Borrowers Cannot Enforce One-Time Settlement Against Banks
Court Rejects Suit by Senbo Engineering Against Bank of Maharashtra
OTS Proposals Are Commercial Decisions, Not Legal Rights, Says Justice Aniruddha Roy
By Our Legal Correspondnet
New Delhi: December 08, 2025:
In a significant ruling, the Calcutta High Court has clarified that borrowers cannot compel banks to accept or enforce One-Time Settlement (OTS) proposals. The judgment came in a case filed by Senbo Engineering Limited against the Bank of Maharashtra, where the borrower sought enforcement of an alleged concluded OTS. The court dismissed the suit, stating that OTS schemes are purely commercial arrangements and do not carry statutory force.
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Background of the Case
- Borrower: Senbo Engineering Limited, a company that had availed multiple credit facilities from the Bank of Maharashtra.
- Default: The company defaulted on repayment, leading to its account being classified as a Non-Performing Asset (NPA).
- Bank Action: The Bank of Maharashtra issued notices under Sections 13(2) and 13(4) of the SARFAESI Act, 2002, initiating recovery proceedings before the Debt Recovery Tribunal.
- Borrower’s Claim: Senbo Engineering argued that a concluded OTS existed and sought specific performance of the settlement.
Court’s Observations
Justice Aniruddha Roy made several key observations:
- OTS Has No Statutory Flavour: OTS proposals are not backed by law and remain within the commercial discretion of banks.
- No Enforceable Right: Borrowers cannot claim enforcement of OTS as a matter of right.
- Suit Barred by Law: The plaint was rejected under Order VII Rule 11 CPC, as it disclosed no enforceable legal right.
- Commercial Decision: Acceptance or rejection of OTS depends entirely on the bank’s assessment of recovery prospects.
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Implications of the Ruling
- For Borrowers: They cannot approach civil courts to enforce OTS agreements unless backed by statutory schemes.
- For Banks: The ruling strengthens banks’ discretion in dealing with NPAs and recovery strategies.
- For Judiciary: The judgment sets a precedent that civil suits seeking enforcement of OTS are not maintainable.
Wider Legal Context
- SARFAESI Act: Provides banks with powers to recover dues by seizing and selling secured assets.
- OTS Schemes: Introduced by banks to recover dues quickly but remain voluntary and discretionary.
- Past Judgements: Courts have consistently held that OTS is not a legal right, but a concession offered by banks.
Industry Reactions
- Banking Sector: Welcomed the ruling as it prevents misuse of OTS schemes by defaulting borrowers.
- Borrowers’ Concerns: Critics argue that banks may act arbitrarily, leaving borrowers with limited remedies.
- Legal Experts: Point out that while banks have discretion, transparency and fairness in OTS decisions remain essential.
Conclusion
The Calcutta High Court’s ruling reinforces the principle that One-Time Settlements are commercial arrangements, not enforceable legal rights. Borrowers cannot compel banks to accept such proposals, and civil suits seeking enforcement will be barred. This verdict is expected to influence future disputes between banks and defaulting borrowers, strengthening the banking sector’s hand in recovery proceedings.
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