Supreme Court restores DRAT order, holds bank can recover interest kept in suspense account
A bench of Justices Sanjay Kumar and Sanjeev Sachdeva set aside Orissa High Court orders that ignored the interest suspense account, restoring the Appellate Tribunal’s dues computation.
The Supreme Court has set aside two orders of the Orissa High Court that had directed Punjab National Bank to accept ₹29,55,678.02 in full and final settlement of a charitable trust’s loan account. A bench of Justice Sanjay Kumar and Justice Sanjeev Sachdeva held that the High Court oversimplified the calculation by relying only on a figure in a PNB certificate, while ignoring the interest that the bank maintained in a separate suspense account after the account was classified as a non-performing asset. The Court restored the order of the Debts Recovery Appellate Tribunal, Kolkata, dated 1 September 2023, which fixed the trust’s dues at ₹54,90,413 with interest. The judgment turns on how banks account for interest on non-performing loans and on the statutory scope of ‘debt’ under the Recovery of Debts law.
How the loan dispute reached the Court
United Bank of India, the predecessor of PNB, sanctioned a loan of ₹5 crore to M/s. Shree Jyoti Education and Management Trust World on 27 June 2011 for construction of a college building. Its managing trustee Tara Prasad Satpathy and other trustees stood as guarantors. The loan was disbursed over two years.
On 22 June 2017, the bank informed the trust that the balance due stood at ₹1,27,33,669. The account was classified as a non-performing asset on 30 June 2017. The bank then filed O.A. No. 258 of 2018 before the Debts Recovery Tribunal, Cuttack, claiming ₹75,56,680 as on 4 May 2018, along with future interest.
During the DRT proceedings, United Bank of India was amalgamated with PNB on 1 April 2020. PNB issued a certificate dated 24 December 2020 stating that the outstanding loan amount as on 13 October 2020 was ₹31,99,000.
The tribunals’ competing figures
By judgment dated 5 February 2021, the DRT allowed the O.A. only to the extent of ₹1,83,268, plus pendente lite and future simple interest at 10 per cent, and directed a recovery certificate under Section 19(2) of the Recovery of Debts due to Banks and Financial Institutions Act, 1993. The DRT credited ₹93,88,516 paid after the account turned non-performing.
PNB appealed to the Debts Recovery Appellate Tribunal at Kolkata in Appeal No. 16 of 2021. The Appellate Tribunal partly allowed the appeal by order dated 1 September 2023, determining the dues at ₹54,90,413 with pendente lite and future simple interest at 9 per cent from 5 February 2018 till realisation. It accounted for further sums paid after the DRT’s judgment.
PNB accepted the DRAT order. The trust and its managing trustee challenged it before the High Court in WP (C) No. 32036 of 2023. The Division Bench relied heavily on the 24 December 2020 certificate, deducted ₹2,43,321.98 said to have been paid afterwards, and by order dated 11 January 2024 directed the trust to pay ₹29,55,678.02 in full settlement. It dismissed PNB’s recall application by order dated 14 May 2024.
Why the certificate figure was incomplete
The Court accepted PNB’s explanation of its accounting system. As on 30 June 2017, the principal along with interest calculated up to that date stood at ₹1,25,30,842. Interest was applied only until the account was classified as a non-performing asset. From 1 July 2017, the bank maintained a separate suspense account for the interest due, so the interest component no longer appeared in the loan account statement.
As on the date of filing the O.A., the loan account showed ₹64,25,915 and the suspense account showed ₹11,30,765, together making up the ₹75,56,680 claimed. The Court held that the ₹31,99,000 figure in the certificate had to be read in light of this system, as it did not include the interest in the suspense account.
The Court found the trust’s calculations shifting. Before the DRT, its written arguments admitted liability of ₹32,63,899.65, while in the writ petition it relied on the certificate to claim only ₹29,55,678.02 was payable. The bench described the trust’s self-serving statement of account as “patently erroneous and mischievous.”
The statutory framework on interest as debt
The Court noted that Section 2(g) of the Act of 1993 defines ‘debt’ to include any liability inclusive of interest claimed as due to a bank. There could therefore be no dispute that the interest component was part of the debt due to PNB. Section 19(20) empowers a Debts Recovery Tribunal to order payment of interest from the date the amount is found due up to the date of realisation.
The bench also referred to Section 21A of the Banking Regulation Act, 1949, under which a transaction between a banking company and its debtor cannot be reopened on the ground that the rate of interest charged is excessive.
On precedent, the Court cited the Constitution Bench in Central Bank of India v. Ravindra on the requirements for pleading and proving interest and capitalisation, and the three-judge bench in Union of India v. Association of Unified Telecom Service Providers of India, which applied that principle.
Order
The Court held that PNB was entitled to the interest maintained in the separate suspense account in addition to the outstanding principal, and that the Appellate Tribunal’s calculation had to be acted upon. The rate of pendente lite and future simple interest was scaled down to 9 per cent per annum on the decretal amount of ₹54,90,413 from 5 February 2018 till realisation, as PNB had accepted.
The appeals were allowed. The Court set aside the Orissa High Court orders dated 11 January 2024 and 14 May 2024, and restored the DRAT order dated 1 September 2023 in Appeal No. 16 of 2021. PNB was permitted to seek recovery accordingly, after giving credit to amounts paid by the trust after that date. Parties were directed to bear their own costs.