Post-NPA interest maintained in a suspense account remains recoverable as part of the bank’s debt.

United Bank of India, predecessor-in-interest of Punjab National Bank (PNB), sanctioned a ₹5 crore construction loan to M/s. Shree Jyoti Education and Management Trust, with its managing trustee and other trustees as guarantors.

The loan account was classified as a non-performing asset on 30.06.2017. United Bank thereafter instituted O.A. No. 258 of 2018 before the Debts Recovery Tribunal (DRT), claiming ₹75,56,680, comprising the loan dues and interest, with further interest.

Following the amalgamation of United Bank with PNB, the DRT determined the amount recoverable at ₹1,83,268, after accounting for payments made by the Trust and trustees.

PNB appealed, and the Debts Recovery Appellate Tribunal (DRAT) determined the liability at ₹54,90,413, with pendente lite and future simple interest at 9% per annum from 05.02.2018 until realization.

The Trust and its managing trustee challenged the DRAT order before the Orissa High Court. Relying principally on a PNB certificate stating that ₹31,99,000 was outstanding as of 13.10.2020, the High Court reduced the alleged dues to ₹29,55,678.02 after deducting subsequent payments and directed that the amount be accepted in full and final settlement.

PNB challenged the High Court’s orders before the Supreme Court, contending that the certificate did not include interest maintained in a separate suspense account after classification of the loan as an NPA.

Whether the High Court erred in treating ₹31,99,000 as the entire outstanding liability and in directing PNB to accept ₹29,55,678.02 in full and final settlement, without accounting for interest maintained in the suspense account after the loan became an NPA?

Whether PNB was legally entitled to recover the interest component, in addition to the principal loan amount, and whether the DRAT’s determination of ₹54,90,413 with 9% pendente lite and future interest should be restored?

Whether the Trust and its trustees could rely on a selective statement of account contrary to the bank’s records and their earlier position before the DRT?

The Court applied Section 2(g) of the Recovery of Debts and Bankruptcy Act, 1993, which defines “debt” to include any liability, inclusive of interest, claimed as due from a person by a bank or financial institution.

Section 19(20) authorises the DRT to award interest from the date on which payment is found due until realization or actual payment.

Section 21A of the Banking Regulation Act, 1949 restricts reopening of banking transactions merely on the ground that the interest charged is excessive.

Relying on Central Bank of India v. Ravindra, (2002) 1 SCC 367, and Union of India v. Association of Unified Telecom Service Providers of India, (2020) 3 SCC 525, the Court reiterated that interest may be charged and capitalised in accordance with contractual terms, banking practice and applicable Reserve Bank of India directives, and that banks must produce proper statements of account showing the relevant debit and interest entries.

The Supreme Court found that the High Court had erroneously treated the ₹31,99,000 figure in PNB’s certificate as the complete debt.

Under the banking accounting system, interest accruing after classification of the account as an NPA was transferred to and maintained in a separate suspense account and therefore did not appear in the regular loan-account statement.

The original claim before the DRT had expressly included both the loan-account balance of ₹64,25,915 and suspense-account interest of ₹11,30,765, totalling ₹75,56,680.

Since interest formed part of the statutory definition of “debt” under Section 2(g), PNB was entitled to claim that component in addition to the outstanding principal.

The Court also rejected the Trust’s selective calculation of the principal due, noting that it was inconsistent with the bank’s running statement of account and with the Trust’s own earlier position before the DRT.

Accordingly, the High Court’s simplified calculation was held unsustainable, while the DRAT’s determination—accepted without demur by PNB—was treated as the operative adjudication of the liability.

The Supreme Court set aside the Orissa High Court’s orders dated 11.01.2024 and 14.05.2024 and restored the DRAT’s order dated 01.09.2023 determining the liability at ₹54,90,413, together with pendente lite and future simple interest at 9% per annum from 05.02.2018 until realization.

PNB was permitted to recover the dues through appropriate proceedings after giving credit for any payments made by the Trust and its trustees after the DRAT’s order, in accordance with law.

The parties were directed to bear their own costs.