MP HC Quashes ₹8.59 Lakh Loan Demand After Bank Fails To Reconcile It With Later Nil-Balance Account Closures

The petitioner challenged the respondent Bank’s demand notice dated 15 March 2012 for Rs. 8,59,971, disputing the outstanding amount and seeking disclosure of his loan-account details and adjustment of payments already made.

The Bank stated that amounts remained outstanding under the tractor loan and Kisan Credit Card loan.

The petitioner also alleged that the Bank had seized his tractor on 5 January 2012.

By an interim order dated 24 May 2012, the Court directed release of the tractor upon the petitioner depositing Rs. 1,00,000, and directed the Bank to disclose the account particulars and arrange a meeting concerning repayment.

The petitioner stated that he deposited the amount on 21 June 2012.

Statements later produced by the Bank recorded closure of the relevant accounts on 6 December 2018 with nil balances.

The Court exercised its jurisdiction under Article 226 of the Constitution of India.

It applied the principles that a financial institution must act in accordance with law and the terms governing the loan, that recovery powers cannot be exercised arbitrarily, and that a claimed borrower liability must be supported by relevant account statements and records.

Where a borrower disputes the demand and the Bank’s own records show account closure with nil balances, an unexplained assertion of outstanding dues is insufficient to sustain recovery.

No specific statute or precedent was cited.

The petitioner disputed the demand from the outset and sought account details; the Bank’s subsequently produced statements showed the relevant accounts closed with nil balances.

The Bank did not provide a satisfactory reconciliation between those entries and the amounts it had claimed as outstanding.

The Court therefore held that the demand and recovery action based on it could not be sustained on the material before it.

As to the Rs. 1,00,000 deposit, the Court directed verification and permitted adjustment only for any separately established and duly reconciled liability, requiring the Bank to provide the supporting account records and legal basis before making an adjustment.

The Bank was directed to verify the asserted Rs. 1,00,000 deposit and refund the balance, after any lawful adjustment for a separately established and duly reconciled liability, within eight weeks of receiving a certified copy of the order.

No coercive recovery action could be taken on the basis of the quashed notice.

The request for an independent enquiry against Bank officials was not separately adjudicated, and the petitioner remained at liberty to pursue any available remedy.

No order as to costs.