Court’s Decision
The Delhi High Court refused to grant interim relief to the petitioner company challenging the annulment of its One-Time Settlement (OTS) proposal by a consortium of banks led by Canara Bank. Justice Vikas Mahajan held that the Letter of Award (LoA) declaring the petitioner as a successful bidder was conditional and that no binding or concluded contract had come into existence since one of the consortium lenders, Bank of Baroda, had not granted its approval.
The Court observed:
“No binding and concluded contract had come into existence without approval of Bank of Baroda, and the respondent banks were well within their right to annul and cancel the OTS proposal.”
Accordingly, the petition for interim relief was dismissed, though the main writ petition was directed to be listed for further hearing in December 2025.
Facts
The petitioner company had availed credit facilities from a consortium of three banks—Canara Bank (61.28%), Punjab & Sind Bank (19.36%), and Bank of Baroda (19.36%). When the account became a Non-Performing Asset (NPA), the banks initiated insolvency proceedings under the Insolvency and Bankruptcy Code, 2016, and recovery actions before the Debts Recovery Tribunal.
During these proceedings, the company submitted an OTS proposal offering to settle its outstanding dues for ₹430 crore. Canara Bank, as the lead bank, accepted the offer subject to approval from all consortium members and also initiated a Swiss Challenge Method (SCM) to discover better bids, while granting the petitioner a Right of First Refusal (ROFR).
The SCM attracted an H1 bidder offering ₹465.50 crore, which the petitioner matched and improved to ₹472.10 crore. Canara Bank then issued a Letter of Award (LoA) on 7 July 2025, declaring the petitioner as the successful bidder. Punjab & Sind Bank also accepted the offer, but Bank of Baroda withheld approval. Subsequently, the lenders annulled the OTS process and announced a fresh auction on 3 September 2025.
The petitioner challenged these actions before the High Court, alleging arbitrariness and violation of contractual obligations.
Issues
- Whether acceptance of the petitioner’s bid by 75% of the lenders was sufficient to constitute a concluded OTS contract.
- Whether the LoA issued by Canara Bank created binding contractual obligations.
- Whether the lenders’ annulment of the OTS process and initiation of a new auction violated principles of fairness and non-arbitrariness.
- Whether the decision to launch a new auction was mala fide.
Petitioner’s Arguments
Senior Advocates Mukul Rohatgi and Sandeep Sethi argued that the annulment of the OTS was illegal and arbitrary, especially since 80% of the lenders (Canara Bank and Punjab & Sind Bank) had approved the bid, satisfying the “75% Clause” under Step 3 of the Bidding Process Document (BPD).
They contended that once the petitioner exercised its Right of First Refusal and matched the H1 bid, a binding contract had been concluded. The petitioner was declared as a successful bidder and had already deposited ₹43 crore upfront.
It was submitted that the fresh auction announced within hours of cancelling the earlier OTS process demonstrated “tearing hurry” and suggested lack of bona fides on the part of the banks. They emphasized that the BPD did not require 100% approval, and that the insertion of such a condition later was an afterthought to defeat the petitioner’s vested rights.
They further argued that as public sector banks are ‘State’ under Article 12, they are required to act in a fair and non-arbitrary manner. Relying on the Supreme Court’s judgment in Mihan India Ltd. v. GMR Airports Ltd. (2022) 19 SCC 69, it was argued that once an LoA is issued, the bidding authority cannot arbitrarily cancel the process.
Respondent’s Arguments
Solicitor General Tushar Mehta, representing the banks, countered that the OTS process was subject to approval from all consortium members, and since Bank of Baroda did not approve, the process was rightly annulled.
He relied on the RBI Master Direction – Transfer of Loan Exposures, 2021, arguing that the Swiss Challenge Method could only involve “permitted entities” such as Scheduled Commercial Banks, NBFCs, or Asset Reconstruction Companies, and that the petitioner was not eligible to participate directly in the transfer of loans.
He highlighted the BPD disclaimer clauses granting lenders absolute discretion to cancel, modify, or annul the process without liability. Clause 5.15 explicitly stated that approval of all lenders’ competent authorities was a prerequisite for any bid to become final.
The Solicitor General further contended that no borrower has a vested right to demand acceptance of an OTS, citing the Supreme Court’s ruling in Bijnor Urban Cooperative Bank Ltd. v. Meenal Agarwal (2023) 2 SCC 805.
He also emphasized that the lenders had since received a firm offer of ₹520 crore from an Asset Reconstruction Company, proving that the fresh auction would fetch higher value and was therefore in the public interest.
Analysis of the Law
The Court examined the OTS proposal dated 23 May 2025, which itself stated that it was “subject to approval by all consortium lenders.” The same condition appeared in Canara Bank’s letter dated 13 June 2025, which accepted the OTS proposal subject to Swiss Challenge and approval from all lenders.
The Court closely analysed the Bidding Process Document (BPD) and observed that:
- The 75% Clause under Step 3 only referred to the discretion of lenders to cancel or proceed with the process; it did not create a binding contract.
- Clause 5.15 of the BPD explicitly provided that the bid of the Anchor Bidder or H1 Bidder shall be subject to approval of the competent authorities of all lenders.
The Court therefore held that the condition of 100% lender approval was embedded in the process itself and not introduced later.
It also noted that the petitioner had unconditionally accepted these terms while countersigning the LoA, which clearly stated:
“This letter is not an agreement or an undertaking. Your offer is subject to final approval from all consortium lenders.”
Precedent Analysis
- Mihan India Ltd. v. GMR Airports Ltd. (2022) 19 SCC 69 – Distinguished. The Supreme Court held that bids could not be rejected after acceptance; however, the Delhi High Court found this case inapplicable because here, acceptance was conditional upon all lenders’ approval.
- Bijnor Urban Cooperative Bank Ltd. v. Meenal Agarwal (2023) 2 SCC 805 – Relied upon. It held that no borrower has a legal right to compel acceptance of an OTS.
- RBI Master Direction (Transfer of Loan Exposures) 2021 – Applied to restrict participation in Swiss Challenge bids to “permitted entities” such as ARCs and financial institutions.
Court’s Reasoning
The Court rejected the petitioner’s contention that the rules of the game were changed midway, holding that the requirement of approval by all lenders was integral to the process from inception.
The Court further observed that the petitioner’s own parent company had acknowledged the pending approval of Bank of Baroda in its letter dated 25 August 2025, thereby admitting that the OTS process had not concluded.
On the allegation of mala fides, the Court found no material evidence of arbitrariness or favouritism. Instead, it noted that the banks’ decision to annul the OTS and conduct a new auction was commercially justified, as it secured a higher base price and complied with RBI’s regulatory framework.
“The decision to annul the OTS process is bona fide, sans any mala fide, and taken in the interest of public sector banks who are custodians of public money.”
Conclusion
The Delhi High Court held that the petitioner failed to establish a prima facie case for interim relief. It ruled that:
- No concluded contract existed as approval from all consortium banks was mandatory.
- The annulment of the OTS process and initiation of a new Swiss Challenge auction was in accordance with the BPD and RBI Master Directions.
- The decision of the banks was bona fide, made in the best interest of the lenders and not arbitrary.
Accordingly, the Court dismissed the interim relief application but allowed the petitioner to pursue the main writ petition.
Implications
This judgment reaffirms that:
- Borrowers have no vested right to an OTS, and lender discretion prevails under the RBI framework.
- Conditional Letters of Award do not create binding contracts until all approvals are obtained.
- Public sector banks, being custodians of public funds, must act prudently to maximize recovery and cannot be compelled to conclude settlements without full lender consensus.
- The decision strengthens the transparency and legality of Swiss Challenge mechanisms in distressed asset resolution.
FAQs
1. Can a borrower enforce an OTS once some lenders have approved it?
No. Unless all consortium members approve, no binding or enforceable OTS exists.
2. What is the legal significance of a conditional Letter of Award?
A conditional LoA does not create contractual obligations until the stated conditions—such as all lenders’ approval—are fulfilled.
3. Can courts direct banks to accept an OTS proposal?
No. As held by the Supreme Court in Bijnor Urban Cooperative Bank Ltd. v. Meenal Agarwal, courts cannot compel banks to accept OTS proposals.
Also Read: Karnataka High Court Upholds Voluntary Social Survey: Ensures Data Privacy & Rejects Census Claims
