One Time Settlement : Financial corporations should focus on the recovery of debts, not to eye the higher value of collaterals

Himachal Pradesh High Court Directs Fresh Negotiations for One Time Settlement Between Sohan Singh Kaushal and HP Financial Corporation. Court Emphasizes Realizable Value of Collateral Should Not Hinder Settlement Efforts

In a significant decision, the Himachal Pradesh High Court has directed the petitioner, Sh. Sohan Singh Kaushal, and the respondent, Himachal Pradesh Financial Corporation (HPFC), to engage in fresh negotiations for a realistic and amicable One Time Settlement (OTS). The court underscored that the realizable value of the collateral security should not deter the petitioner if it exceeds the outstanding loan amount.

The judgment, delivered by Justice Ajay Mohan Goel, came in response to the petitioner's plea challenging the rejection of his OTS proposal by HPFC. The court observed that the petitioner had taken loans totaling approximately Rs. 31 lakh for setting up a restaurant, which later faced financial difficulties leading to the account being declared a Non-Performing Asset (NPA) in 2004.

Despite several attempts by the petitioner to settle the dues, including multiple representations and proposals, HPFC rejected the OTS offer, citing that the realizable value of the primary and collateral security was significantly higher than the outstanding loan amount. The court found this reasoning illogical, emphasizing that the higher realizable value should not be a barrier to settlement.

Justice Goel urged both parties to focus on a reasonable settlement, taking into account the amount availed as a loan and the payments already made by the petitioner. The court highlighted that the primary objective should be the recovery of debts in a fair manner rather than exploiting the higher value of securities.

The court set aside HPFC's order dated August 16, 2023, which rejected the OTS proposal, and directed both parties to attempt a realistic settlement within a specified timeframe. The petitioner was advised to make a fresh representation to HPFC, which should be considered sympathetically by the corporation.

This decision emphasizes the judiciary's role in ensuring fair practices in financial settlements and protecting the interests of borrowers facing genuine financial distress.

Bottom Line:

In cases of One Time Settlement (OTS) with financial corporations, the realizable value of primary and collateral security should not act as a deterrent to the petitioner if it exceeds the outstanding amount.

Statutory provision(s): State Financial Corporations Act, 1951 Section 29

Sh. Sohan Singh Kaushal v. Himachal Pradesh Financial Corporation, (Himachal Pradesh) : Law Finder Doc Id # 2796424