The Supreme Court has held that banks are entitled to recover interest maintained in a separate suspense account post the classification of a loan account as a Non-Performing Asset (NPA), in addition to the outstanding principal loan amount. A Bench comprising Justice Sanjay Kumar and Justice Sanjeev Sachdeva set aside an Orissa High Court order that had reduced a borrower’s loan liability by relying solely on a balance certificate issued by the bank without accounting for interest accumulated in the suspense account. Restoring the order of the Debts Recovery Appellate Tribunal (DRAT), Kolkata, the apex court affirmed that borrowers cannot ignore established bank accounting practices or submit self-serving statements to evade interest liabilities.
Background of the Case
The dispute originated from a loan of ₹5 crore sanctioned on June 27, 2011, by United Bank of India (later amalgamated with Punjab National Bank on April 1, 2020) to M/s. Shree Jyoti Education and Management Trust World for constructing a college building. Its managing trustee, Tara Prasad Satpathy, along with other trustees, acted as guarantors.
On June 22, 2017, the bank issued a confirmation letter reflecting an outstanding balance of ₹1,27,33,669/-. Subsequently, on June 30, 2017, the trust’s loan account was classified as an NPA. United Bank of India then filed O.A. No. 258 of 2018 before the Debts Recovery Tribunal (DRT), Cuttack, claiming ₹75,56,680/- as of May 4, 2018, along with future interest. The claim comprised ₹64,25,915/- towards loan balance (including interest up to June 29, 2017) and ₹11,30,765/- towards interest at 12.90% per annum from June 30, 2017, to May 5, 2018.
During pendency, PNB issued a certificate dated December 24, 2020, stating that the trust had paid ₹93,31,842/- since the NPA date up to October 13, 2020, and that the outstanding amount was ₹31,99,000/- as of October 13, 2020.
On February 5, 2021, DRT Cuttack permitted PNB to recover only ₹1,83,268/- with interest, after deducting ₹93,88,516/- paid post-NPA from the total calculated liability. On appeal, DRAT Kolkata modified this decision on September 1, 2023, determining that after giving credit to payments made and adjusting interest on post-NPA deposits, the trust and its trustees were liable to pay ₹54,90,413/- along with simple interest at 9% per annum from February 5, 2018.
The trust and its managing trustee challenged the DRAT order before the Orissa High Court. A Division Bench of the High Court, relying heavily on PNB’s certificate dated December 24, 2020, deducted subsequent deposits of ₹2,43,321.98 made by the trust and directed PNB to accept ₹29,55,678.02 in full and final settlement of the loan account. PNB’s recall application was subsequently dismissed by the High Court, prompting the bank to approach the Supreme Court.
Arguments and Bank Accounting Mechanism
Before the Supreme Court, PNB submitted a statement of account and an affidavit dated December 3, 2024, clarifying its accounting process. As of the NPA classification date (June 30, 2017), the principal loan amount together with interest stood at ₹1,25,30,842/-.
The bank explained that under applicable banking guidelines, post-NPA interest (from July 1, 2017) is not reflected in the main loan running account statement; instead, it is maintained separately in a suspense account. Consequently, the certificate dated December 24, 2020, mentioning an outstanding figure of ₹31,99,000/-, pertained strictly to the running loan account and did not include the accrued interest component residing in the suspense account.
Conversely, the trust submitted a self-serving statement of account claiming a principal amount due of ₹64,25,915/- as of June 29, 2017, asserting a negative balance and alleging that it had paid ₹57,12,857/- in excess, which should be refunded by PNB.
Court’s Analysis and Statutory Provisions
The Supreme Court rejected the High Court’s approach and found the calculations accepted by the High Court unsustainable. The Bench highlighted Section 2(g) of the Recovery of Debts and Bankruptcy Act, 1993, which defines ‘debt’ to include interest liabilities, and Section 19(20) of the Act, which empowers the DRT to order payment of interest until actual realization. The Court also referred to Section 21A of the Banking Regulation Act, 1949, which prohibits courts from reopening bank transactions on the ground that the rate of interest charged is excessive.
CRITICAL OBSERVATIONS OF THE COURT:
“Oversimplification of calculation by the High Court with respect to the amount payable, ignoring the existence of the suspense account for the interest component since the date of classification of the loan account as a non-performing asset, and giving effect only to the figure mentioned in the PNB’s certificate dated 24.12.2020, viz., ₹31,99,000/-, thereby accepting the plea of the Trust that the sum of ₹2,43,321.98 paisa paid by it needed to be deducted therefrom reducing its dues to 29,55,678.02 paisa, is therefore clearly unsustainable.”
“The Trust and its trustees cannot blithely ignore the accounting system followed by banks and come up with different calculations at different points of time to suit their own interests.”
“The attempt on the part of the Trust and its trustees in coming up with a self-serving statement of account, showing the principal amount due as on 29.06.2017 as ₹64,25,915/-, contrary to the record, so as to arrive at a negative balance of ₹93,981.40 paisa as on 04.06.2018, whereupon they claimed that they paid in excess to the tune of ₹57,12,857/- and that the said sum is liable to be refunded to them by PNB, is patently erroneous and mischievous.”
Precedents Discussed
The Court cited the Constitution Bench judgment in Central Bank of India vs. Ravindra and others (2002), which settled that banks must submit statements of account specifying details of debit entries and interest charged in accordance with Reserve Bank of India directives, and that unpaid interest on periodical rests is capable of being adjudged as part of the principal sum. The Court further noted that a three-judge Bench in Union of India vs. Association of Unified Telecom Service Providers of India and others (2020) had subsequently applied these exact principles.
Final Decision
The Supreme Court allowed the appeals filed by PNB and set aside the Orissa High Court’s orders dated January 11, 2024, and May 14, 2024. The apex court restored the DRAT Kolkata order dated September 1, 2023, holding PNB entitled to recover its dues of ₹54,90,413/- along with pendente lite and future simple interest at 9% per annum from February 5, 2018, till realization, after giving due credit to any amounts paid by the trust and its trustees after that date.
Case Title: Punjab National Bank v. M/s. Shree Jyoti Education and Management Trust World and others
Case No.: Civil Appeal Nos. of 2026 (@ Special Leave Petition (C) Nos. 27363-27364 of 2024)
Bench: Justice Sanjay Kumar and Justice Sanjeev Sachdeva
Date: August 12, 2026
