He paid 80% of the OTS. The Supreme Court still said: no extension.

When the Bank said no, the High Court said yes. The Supreme Court just said: stop.

State Bank of India gave Arvindra Electronics Pvt. Ltd. a cash credit facility. The account turned into a non-performing asset. In November 2017, the Bank offered a one-time settlement: pay about Rs.10.54 crores instead of the full outstanding of about Rs.14 crores, with payments to be completed by May 2018. The company paid about 80% but could not pay the remaining Rs.2.52 crores on time. It asked for 8-9 months' extension. The Bank refused. During the writ petition, the Bank offered three more OTS schemes. The company rejected all of them. The Punjab & Haryana High Court, exercising Article 226 powers, gave the company six more weeks to pay the balance. The Supreme Court reversed this in State Bank of India v. Arvindra Electronics Pvt. Ltd., holding that the High Court cannot rewrite OTS contracts or grant extensions as a matter of right under Article 226.

The stakes were simple: if the High Court's order stood, every borrower who defaulted on an OTS payment could run to court and get more time. If the Supreme Court reversed it, the company would lose the OTS benefit entirely — and the Bank could recover the full outstanding of nearly Rs.14 crores.

The OTS that almost worked

On 21 November 2017, the Bank sanctioned an OTS for Rs.10,53,75,069.74 against an outstanding of Rs.13,99,89,273.99. The payment schedule was clear: the entire amount had to be paid by 21 May 2018. The company paid about 80% of the OTS amount but could not pay the balance of Rs.2.52 crores by the deadline.

On 16 May 2018, just five days before the deadline, the company asked for an 8-9 month extension. The Bank said no. The company was directed to pay the Rs.2.52 crores by 21 May 2018. It didn't.

The company then filed a writ petition before the Punjab & Haryana High Court at Chandigarh. During the pendency of that petition, the Bank offered three more OTS schemes. The company rejected all of them. The High Court, on 10 March 2022, allowed the writ petition. It set aside the Bank's rejection of the OTS offer of Rs.2.05 crores and granted the company six weeks to pay Rs.2.02 crores with interest as per the original OTS.

The Bank appealed to the Supreme Court.

What the Bank argued

The learned Counsel for the Bank argued that the High Court had no jurisdiction under Article 226 to grant an extension of time for payment under an OTS Scheme. The OTS was a contract between the Bank and the borrower. The borrower had failed to comply with its terms. The Bank had the right to treat the OTS as infructuous. The High Court could not rewrite the contract.

The Bank relied on the Supreme Court's decision in Bijnor Urban Cooperative Bank Limited, Bijnor v. Meenal Agarwal, (2021) SCC Online SC 1255, which held that no borrower can claim OTS benefit as a matter of right and no writ of mandamus can be issued directing a bank to grant OTS benefit.

What the borrower argued

The learned Counsel for the borrower argued that the High Court had merely granted an extension of time to pay the balance amount. The borrower had already paid 80% of the OTS amount. The Bank had not suffered any loss. The High Court had exercised its discretion under Article 226 to do substantial justice.

The borrower relied on Sardar Associates v. Punjab & Sind Bank, (2009) 8 SCC 257, where the Supreme Court had directed a bank to deal with a borrower under RBI Guidelines on OTS. The borrower also relied on Anu Bhalla v. District Magistrate, Pathankot, 2020 SCC Online P&H 4387, a Punjab & Haryana High Court decision dealing with extension of OTS payments.

The Supreme Court's answer: No right to extension

The Bench of Justice M.R. Shah and Justice Krishna Murari allowed the Bank's appeal. The High Court order was quashed. The original writ petition was dismissed.

The Supreme Court held that a borrower cannot, as a matter of right, claim extension of time to make payment under a sanctioned OTS Scheme when it has failed to pay within the stipulated time. There is no entitlement to demand that the OTS remain operative despite non-compliance with its terms.

The Court observed that the High Court, exercising powers under Article 226, cannot direct a bank to reschedule or extend payments under an OTS Scheme. Doing so tantamounts to modification or rewriting of the contract, which is permissible only by mutual consent under Section 62 of the Indian Contract Act, 1872.

The Court distinguished Sardar Associates on facts. In that case, the Bank had deviated from RBI OTS guidelines. In the present case, the Bank had acted in accordance with its guidelines. The borrower had simply failed to pay on time.

The Court also held that the High Court was bound to follow the subsequent Supreme Court decision in Bijnor Urban Cooperative Bank, even if it considered an earlier decision to be "more elaborate".

THE PLAY: If your client has defaulted on an OTS payment deadline, do not file a writ petition seeking extension. The High Court cannot grant it. Your only option is to negotiate a fresh OTS with the bank — and that is a contractual matter, not a writ remedy.

The witness rule the Supreme Court applied

The Court applied a simple rule: a contract is a contract. An OTS is a contract between the bank and the borrower. If the borrower fails to comply with its terms, the bank is entitled to treat the OTS as infructuous. The High Court cannot rewrite the contract under Article 226.

The Court also applied the rule of precedent. The High Court was bound by Bijnor Urban Cooperative Bank, which was a direct authority on the point. The High Court could not prefer an earlier decision merely because it was considered "more elaborate".

Why this matters in practice

For advocates: This judgment closes the door on writ petitions seeking extension of OTS payment deadlines. If your client has defaulted on an OTS, do not file a writ petition. Instead, negotiate a fresh OTS with the bank. The bank may mutually agree to extend the time, but that is a contractual matter, not a writ remedy.

For CFOs and founders: If your company has accepted an OTS, pay on time. Do not assume you can get an extension from the High Court. The Supreme Court has made it clear: no borrower can claim extension as a matter of right. If you default, the bank can treat the OTS as infructuous and recover the full outstanding.

The Court also made an important obiter observation: there cannot be any negative discrimination claimed by a borrower on the basis that other borrowers were granted extensions. The borrower must establish a right in their favour to claim extension. This prevents borrowers from using Article 14 arguments to force banks into granting OTS extensions.

The bottom line

If your client defaults on an OTS payment, the High Court cannot grant an extension under Article 226. The only way to revive the OTS is by mutual consent with the bank — and that is a contractual negotiation, not a writ remedy.