Borrowers Cannot Ignore Bank Accounting Systems And Suspense Accounts To Claim Arbitrary Reductions In Loan Dues: Supreme Court

"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." Supreme Court, in a significant ruling dated August 12, 2026, held that borrowers cannot ignore institutional banking accounting practices, such as maintaining separate suspense accounts for post-NPA interest, to arbitrarily claim reduced settlement amounts.

A bench of Justices Sanjay Kumar and Sanjeev Sachdeva observed that oversimplifying loan calculations by relying solely on partial loan confirmation certificates without factoring in accrued interest components reflected in suspense accounts is legally unsustainable.

United Bank of India, predecessor-in-interest of Punjab National Bank, sanctioned a Rs 5 crore loan to M/s Shree Jyoti Education and Management Trust World in 2011 for constructing a college building. After the loan account was classified as a non-performing asset on June 30, 2017, the bank instituted recovery proceedings before the Debts Recovery Tribunal at Cuttack. While the Debts Recovery Tribunal and subsequently the Debts Recovery Appellate Tribunal at Kolkata determined the exact outstanding dues after adjusting substantial payments made by the borrowers, the Orissa High Court interfered under Article 226 of the Constitution of India.

The primary question before the court was whether a borrower could selectively rely on a bank certificate while ignoring standard banking accounting systems regarding suspense accounts for post-NPA interest. The court was also called upon to determine the legitimacy of altering repayment calculations to arrive at self-serving negative loan balances.

Bank Accounting Systems Must Be Respected - "Standard Banking Practice Of Suspense Accounts Explained"

The court meticulously examined the banking accounting mechanism where interest ceases to be applied to the active loan account once it is classified as a non-performing asset. Instead, subsequent interest is maintained in a separate suspense account in accordance with applicable regulatory guidelines and banking norms.

The bench noted that the certificate issued by Punjab National Bank on December 24, 2010, reflecting an outstanding principal amount of Rs 31,99,000, had to be understood in the proper context of this dual-ledger accounting system. The High Court committed a grave error by oversimplifying calculations and ignoring the suspense account containing the interest component.

"Borrowers Cannot Alter Stance To Suit Convenience"

The Supreme Court strongly deprecated the conduct of the Trust and its trustees in shifting their legal stance across different judicial forums. While the borrowers had previously disputed interest rates before the Debts Recovery Tribunal and admitted to substantial liability, they conveniently abandoned that stand before the High Court to claim arbitrary reductions based on a misread certificate.

"Attempt To Claim Refund Described As Mischievous"

The bench observed that the attempt by the borrowers to produce a self-serving statement of account showing a negative balance and claiming refunds from the bank was patently erroneous and mischievous. Such tactics run completely counter to running account statements produced by financial institutions.

Statutory Definition Of Debt Under The 1993 Act - "Interest Forms An Integral Component Of Debt"

Referring to statutory provisions, the court highlighted that Section 2(g) of the Recovery of Debts and Bankruptcy Act, 1993, explicitly defines 'debt' to mean any liability inclusive of interest claimed as due by a bank. Therefore, there can be no legal dispute regarding the interest component forming an intrinsic part of the total debt due to the financial institution.

"Tribunals Empowered To Award Pendente Lite And Future Interest"

The bench underscored that Section 19(20) of the Act of 1993 empowers the Tribunal to pass interim or final orders for the payment of interest from the date the amount is found due up to actual realization. Furthermore, Section 21A of the Banking Regulation Act, 1949, explicitly bars courts from reopening transactions between banking companies and debtors on the ground of excessive interest rates.

"Binding Precedents On Capitalization Of Interest"

Reiterating the constitutional bench ruling in Central Bank of India v. Ravindra, the court reaffirmed that subject to binding stipulations or established banking practices, interest on loans may be charged on periodical rests and capitalized on unpaid amounts, forming a composite principal sum on the date of suit.

Final Directions And Restitution Of Appellate Tribunal Order

"Appellate Tribunal Calculation Restored By Supreme Court"

Concluding its analysis, the Supreme Court allowed the appeals filed by Punjab National Bank, setting aside the erroneous orders passed by the Division Bench of the Orissa High Court. The judgment and order dated September 1, 2023, passed by the Debts Recovery Appellate Tribunal at Kolkata in Appeal No. 16 of 2021 was restored in its entirety.

The apex court confirmed that Punjab National Bank is entitled to recover its dues in terms of the Appellate Tribunal's order, which capped pendente lite and future simple interest at 9% per annum on the decretal amount of Rs 54,90,413 from February 5, 2018, onwards, after giving due credit for any subsequent payments made by the borrowers.

Date of Decision: 12 August 2026