‘Not my principle to pay interest’: Orissa High Court quotes Irish writer, slaps Rs 1 lakh fine on borrower in loan default case

What was the case?

• A term loan of Rs 30 lakh was sanctioned by OSFC to a borrower in 1984, followed by an additional loan of Rs 2.27 lakh in 1988 under the State Financial Corporations Act, 1951.
• While the borrower initially serviced the debt, defaults led to mounting arrears.
• As of December 31, 2021, the outstanding liability had risen to over Rs 5.9 crore due to accumulated interest.
• The possession of all assets of the petitioner company, including plant and machinery, was taken over by the OSFC under Section 29 (default in payment) of the 1951 Act, way back in 1996.
• It is the case of the petitioner that out of Rs 32.27 lakh as sanctioned on two occasions, i.e., one in 1984 and the other in 1990, a sum of Rs 54.81 lakh was repaid, which was about 170 per cent more than the original loans sanctioned, sans interest that had accrued.
• The petitioner company was referred to the Board for Industrial and Financial Reconstruction (BIFR) as a sick unit. Because of this, the petitioner’s One-Time Settlement (OTS) proposal floated in 2009 was not considered.
• OSFC accepted the OTS offer in an outstanding sum of Rs 194.64 lakh in terms of a 2011 scheme.
• Since the petitioner did not avail the benefit of sanctioning of OTS, the secured assets were put to public auction and opposite party No.4, being the highest bidder, had paid Rs 7.89 crore out of the bid amount of Rs 12.12 crore.
• The petitioner was directed to clear the outstanding amount of Rs 6.46 crore, failing which the property would be put to auction. The petitioner failed and accordingly the public auction took place.

Court’s observations

• The petitioner failed to avail the benefit of the OTS facility granted by the OSFC in 2013 despite a slew of intimations.
• Despite vociferous submissions, what right the petitioner had to seek waiver of interest or reduction of OTS amount, remains as a mystery.
• A writ court operates on the principle of ubi jus ibi remedium (Where there is a right, there is a remedy). In the absence of a justiciable right being demonstrated, no relief can be granted on the ground of mercy merely because the borrower was in financial difficulty.
• The submission by the petitioner’s counsel that the auction itself is liable to be voided is a bit difficult to countenance.
• Public auction of security property is a sanctioned mode of recovery. Contracting of debts is not in dispute; debts grow because of periodical accrual of interest, more particularly at commercial rates which cannot be disputed.
• It is the duty of the debtor to find the creditor and hand the debt back with the agreed rate of interest – a ground norm that operates in any civilised society.
• Loan and repayment are a matter of simple arithmetic. The debts have grown because of failure on the part of the debtor to service the same, despite concessions being given.
• In the good old days, it was said to beg, borrow or steal to repay outstanding debts. The petitioner has not done that.
• Inevitably, OSFC had to take possession of the plant and machinery; thereafter, it had to put secured assets for public auction, which was held in July 2025.
• The highest bidder has already credited a huge sum of Rs 7.89 crore out of the Rs 12.12 crore bid amount. He is ready and willing to remit the remainder. Due to the interim order passed by a coordinate bench, the matter came to a standstill. It cannot go on and on that way.
• Nowadays, courts witness several cases of SFC (State Financial Corporations) loan recovery where unscrupulous borrowers adopt nefarious modus operandi to stall recovery with a ‘come what may’ attitude.
• Such an attitude needs to be deprecated. Otherwise, public money will be unethically swallowed and eventually, it is the genuine borrowers who would suffer. This is a fit case for dismissal with exemplary costs.