The Orissa State Financial Corporation vs. Smt. Sukanti Mohapatra [March 21, 2024]
Citation: 2024 INSC 256
Background and Facts
The Orissa State Financial Corporation (OSFC) granted a loan of ₹3,26,258.78 to Prasanta Kumar Mohapatra, with repayment scheduled in 24 monthly installments starting January 1997. To secure the loan, Smt. Sukanti Mohapatra (respondent no. 1) mortgaged her property. The borrowers defaulted, prompting OSFC to initiate proceedings under Section 29 of the State Financial Corporations Act, 1951, including taking possession and steps to sell the mortgaged property.
The respondents sought relief through multiple representations and “One Time Settlement” (OTS) proposals, requesting reductions in the outstanding amount. OSFC considered these requests but ultimately rejected a proposal to reduce the OTS amount from ₹6,27,400 to ₹4,27,000, finding no extraordinary circumstances to warrant such relaxation. The respondents then approached the Orissa High Court, which intervened and directed OSFC to reconsider the settlement and sale process.
Supreme Court’s Analysis and Ruling
The Supreme Court found that the High Court’s interference with OSFC’s commercial decisions was unwarranted. The Court emphasized that whether to accept a particular OTS proposal or reduce the due amount is a matter of commercial judgment for the financial corporation, not ordinarily subject to judicial review unless there are extraordinary circumstances or the terms of the OTS scheme are violated—which was not the case here.
The Court observed that OSFC had acted fairly and granted multiple opportunities to the respondents to settle the dues, including deferring the sale and considering several OTS proposals. The respondents, however, remained in default despite these indulgences. The sale of the mortgaged property was therefore justified and conducted as a last resort.
The Court also addressed the issue of property valuation, noting that the guidelines cited by the respondents pertained only to valuation and did not prescribe procedures for other aspects of the recovery process. The respondents failed to demonstrate that a better price could have been obtained or that the sale process was otherwise improper.
The Supreme Court set aside the High Court’s order, holding it unsustainable in law and fact. It affirmed OSFC’s right to enforce its security and realize the mortgaged property when borrowers default, provided the process is fair and in accordance with the law. The payment made by the auction purchaser was confirmed as adjusted in the loan account of the borrower.
Significance
This judgment reinforces the autonomy of financial institutions in making commercial decisions regarding loan recovery and settlements. It clarifies that courts should not substitute their judgment for that of financial corporations in such matters unless there is clear illegality or arbitrariness. The decision upholds the sanctity of contractual and statutory remedies available to lenders under the State Financial Corporations Act, 1951.
Citation
2024 INSC 256.
RELATED Blog
0 comments