Simplified Explanation of the Judgment
This case involved M/s Naturals Dairy Pvt. Ltd., a Patna-based company that had taken loans from the Bank of Baroda in 2008 to establish a dairy products factory. Over time, the loan account became irregular and was classified as a Non-Performing Asset (NPA) in December 2010. The bank initiated recovery proceedings under the SARFAESI Act, 2002, which led to multiple rounds of litigation.
In 2019, the company proposed a One-Time Settlement (OTS) of ₹2.40 crores to clear all dues. The bank accepted this proposal through its sanction letter dated 24.09.2019. The sanction terms required the company to pay the full ₹2.40 crores immediately (within 15 days, i.e., by 30.09.2019). It was also clearly stated that any delay would attract interest at 13.40% per annum on the outstanding balance from the very next day.
The company, however, did not pay the entire amount within the stipulated time. Instead, it deposited the full amount in installments, completing payment only by 30.12.2019. The bank therefore charged ₹4.83 lakhs as interest for the delay. The company objected, arguing that as per the Bank’s own Baroda MSME OTS Scheme of 09.07.2019, it had up to three months to pay without interest. It claimed that since the payment was completed by 30.12.2019, no additional interest should have been charged.
The High Court carefully examined the facts. It noted that:
- The company’s own OTS proposal (29.08.2019) had undertaken to pay ₹2.40 crores immediately upon sanction.
- The bank’s sanction letter (24.09.2019) repeated the same condition and even granted an additional grace period of 15 days.
- The company never challenged this sanction letter at the time.
- Having agreed to these terms, the company could not later rely on the general MSME OTS scheme to avoid paying interest.
The Court found that the company was a “perpetual defaulter”, having repeatedly delayed payments and engaged in litigation to stall recovery. Since the delay in paying the OTS amount was entirely attributable to the company, the bank was justified in charging interest as per the agreed terms.
Accordingly, the High Court dismissed the writ petition and upheld the bank’s demand for interest before issuing the No Dues Certificate.
In simple terms, the Court said: If you promise to pay a lump sum immediately under OTS but fail to do so, you cannot later complain about interest being charged. Agreements must be honored as written.
Significance or Implication of the Judgment
- For borrowers: This case is a cautionary tale. Once a One-Time Settlement proposal is accepted, the borrower must strictly follow its terms. Any delay can lead to additional liability, and courts will not interfere if the terms were clear and accepted.
- For banks: The judgment strengthens banks’ ability to enforce OTS terms. It also shows that courts expect consistency, but they will support banks where borrowers misuse litigation to delay repayment.
- For business and industry: The ruling highlights the importance of good faith compliance with financial settlements. Defaulting companies risk not only financial penalties but also reputational loss in courts.
Legal Issue(s) Decided and the Court’s Decision
- Whether the bank was justified in charging interest for delayed payment under OTS?
• Decision: Yes. The company failed to pay by 30.09.2019 as agreed, and therefore the bank rightly imposed interest from 01.10.2019 until final payment on 30.12.2019. - Whether the company could rely on the general Baroda MSME OTS Scheme to avoid interest?
• Decision: No. Since the company’s own OTS proposal and the sanction letter were not under that scheme, the general guidelines did not apply.
case Title
M/s Naturals Dairy (P) Ltd. v. The Bank of Baroda & Ors.
Case Number
Civil Writ Jurisdiction Case No. 5858 of 2020
Citation(s)
2021(2) PLJR 57
Coram and Names of Judges
Hon’ble Mr. Justice Mohit Kumar Shah (Judgment dated 05-03-2021)
Names of Advocates and who they appeared for
- For the Petitioner: Mr. Sanjay Singh, Mr. Nikhil Kr. Agrawal, Ms. Aditi Hansaria
- For the Respondents (Bank): Mr. Vivek Prasad
Link to Judgment
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