The Himachal Pradesh High Court clarified that where the realizable value of primary and collateral security with a financial institution far exceeds the outstanding dues, mere reference to internal OTS guidelines requiring settlement above a security threshold is illogical for outright rejection of borrower settlement proposals. This decision sets aside the earlier rejection by the Corporation and directs a realistic, fair consideration afresh—affirming a more balanced, non-technical approach in OTS applications, and provides binding guidance for all subordinate courts in Himachal Pradesh.
Summary
| Category | Data |
|---|---|
| Case Name | CWP/6151/2024 of SOHAN SINGH KAUSHAL Vs HPFC |
| CNR | HPHC010237372024 |
| Date of Registration | 02-07-2024 |
| Decision Date | 17-10-2025 |
| Disposal Nature | Disposed Off |
| Judgment Author | Hon’ble Mr. Justice Ajay Mohan Goel |
| Court | High Court of Himachal Pradesh |
| Bench | Single Judge |
| Precedent Value | Binding in Himachal Pradesh; Persuasive elsewhere |
| Overrules / Affirms |
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| Type of Law |
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| Questions of Law |
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| Ratio Decidendi |
The Court held that rejecting a one-time settlement proposal merely because the realizable value of the primary and collateral security with the Corporation exceeds the outstanding loan is illogical and unfair. OTS guidelines must be applied rationally and should not act as a deterrent to reasonable settlement, particularly when the borrower’s repayment far exceeds the sanctioned amount. The Corporation should focus on recovery of dues, not asset acquisition, and must approach settlement realistically, ensuring fairness to both parties. The impugned order was set aside and the parties were directed to attempt a fair, workable settlement afresh. |
| Judgments Relied Upon | Law declared by the Hon’ble Supreme Court of India was cited (titles not specified in judgment) |
| Logic / Jurisprudence / Authorities Relied Upon by the Court |
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| Facts as Summarised by the Court |
Petitioner took loans for a hotel/restaurant business, defaulted due to business slowdown, property attached by Corporation, multiple settlement attempts made, substantial repayments recorded, OTS proposal for Rs.15 lakh rejected by Corporation per OTS guidelines (requiring at least 90% of collateral value); Court finds rejection illogical and directs fair reconsideration. |
Practical Impact
| Category | Impact |
|---|---|
| Binding On | All subordinate courts in Himachal Pradesh |
| Persuasive For | Other High Courts and tribunals; financial sector recovery matters |
| Follows |
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What’s New / What Lawyers Should Note
- The Court held that financial institutions cannot solely use security-based thresholds in OTS guidelines to reject settlement offers when the security is substantially higher than the outstanding dues.
- The rejection of OTS on “mechanical” guideline grounds is illogical where the value of security exceeds the debt; consideration must be reasonable and case-specific.
- This precedent sharpens judicial scrutiny of arbitrary or technical refusals by financial corporations to consider borrower settlements.
- Lawyers acting for borrowers can urge courts to order a realistic, fair, and reasoned settlement exercise rather than allowing technical defeats on guideline-based grounds.
- The Court emphasizes that both borrower conduct (substantial payments/bonafides) and the public institution’s recovery objectives must be balanced in OTS decisions.
Summary of Legal Reasoning
- The court recapitulated the factual context of multiple failed settlement efforts by the petitioner, substantial amounts already paid, and the Corporation’s practice of rejecting OTS offers based on an internal guideline (requiring settlements not lower than 90% of realizable security value).
- Noting that the security value far exceeded the outstanding dues (security: ~Rs. 3.95 crore, dues: ~Rs. 66 lakh), the court found the logic of rejection “defies logic”—stating that a high security value should preferably encourage, not deter, settlement.
- The court held that internal OTS guidelines must be applied with fairness, considering both the amount availed and repayments made, rather than using collateral value as a ground to squeeze unwarranted advantage or avoid settlement.
- Both parties were criticized: the Corporation for mechanical rejection, and the petitioner for being a habitual defaulter/submitting cheques that bounced. But the core finding was that fair settlement must prevail.
- The court set aside the impugned rejection order, directing both sides to make a serious, fair attempt at settlement, with the petitioner to renew his proposal and the Corporation to provide a reasoned decision.
Arguments by the Parties
Petitioner
- Claimed to have paid over Rs. 93 lakh against Rs. 31 lakh availed.
- Alleged arbitrary and unfair rejection of OTS proposals by Corporation.
- Asserted that additional interest and charges levied were contrary to RBI guidelines and unlawful, especially for period when Corporation held property.
- Cited adverse business conditions for default.
- Contended Corporation’s demands were arbitrary, inflated, and not in consonance with the loan agreement or Supreme Court law.
Respondent (Corporation)
- Argued petitioner was a habitual defaulter; multiple failed commitments and bounced cheques.
- Asserted that OTS guidelines mandated rejection as settlement below 90% of realizable collateral value is impermissible.
- Emphasized repeated accommodation and liberal opportunities given to petitioner.
- Noted previous attempts to auction property failed; petitioner repeatedly averted sale by making non-serious offers.
- Highlighted that the Board of Directors followed proper OTS guidelines in rejecting petitioner’s Rs. 15 lakh offer.
Factual Background
The petitioner availed term and soft loans totaling Rs. 30.99 lakh from the respondent Corporation for establishing and expanding a restaurant-cum-hotel. Following a business downturn, the account was declared NPA and property was taken over in 2008. Despite repeated attempts at auction and various settlement negotiations—alongside regular and token payments by the petitioner—the Corporation rejected successive OTS proposals, citing internal guidelines. At the time of the impugned rejection, the petitioner claimed to have repaid over Rs. 93 lakh, while the Corporation acknowledged receipts of Rs. 60.27 lakh. The OTS offer of Rs. 15 lakh was rejected by the Board strictly in terms of its guideline requiring settlements above 90% of security value.
Statutory Analysis
- State Financial Corporations Act, 1951, Section 29/30: Under which the Corporation initiated recall and takeover of mortgaged property.
- OTS Guidelines: Interpreted and applied; guideline requiring settlement offer not less than 90% of realizable value of security was invoked by the Corporation and found by the Court to be arbitrary as applied to this case.
- Reserve Bank of India Guidelines: Cited by petitioner regarding interest and overdues, and referenced by Court in context of fairness, though no specific provision read down or interpreted expansively.
- No narrow or expansive reading of constitutional provisions was necessary in this matter.
Dissenting / Concurring Opinion Summary
No dissenting or concurring opinion reported in the judgment.
Procedural Innovations
- The Court set aside the corporation’s rejection order and, instead of dictating a settlement, directed both parties to engage de novo in a fresh realistic settlement process backed by opportunity of hearing and reasoned decision making.
- Emphasized direct submission by petitioner and required fair reconsideration and recordation of settlement process, moving away from mere mechanical adherence to internal guidelines.
Alert Indicators
- ✔ Precedent Followed – Affirms necessity of fairness and logic in quasi-judicial/administrative decisions; clarifies and sharpens application.
- 📅 Time-Sensitive – Directs time-bound (four weeks) reconsideration and fair process for settlement.