Dismissed

Canara Bank v. Kids International Pvt. Ltd. And 9 Ors.

DRAT18 Jun 2025

Case brief

AI extract

What is this about?

This is an appeal by Canara Bank challenging the Debt Recovery Tribunal's reduction of contractual interest from 17.5% to 9% per annum. The Tribunal held that while contractual rates apply until NPA classification, the post-NPA period warrants reduced simple interest based on MCLR, especially as borrowers deposited dues.

What did the court decide?

The appeal filed by the appellant-Bank was dismissed with no order as to costs.

Canara Bank versus Kids International Pvt. Ltd… — Contract and Commercial Disputes | DRAT (2025)

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IN DEBTS RECOVERY APPELLATE TRIBUNAL, ALLAHABAD

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Appeal Dy. No. 408/2024

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Canara Bank, A Banking Company constituted under the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970, having its Head Office at 112, J.C. Road, Bangalore Branch Office at SME Branch, Sanjay Place, Agra, U.P.

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……….…....……………………...……………………………………………...Appellant

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Versus

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M/s Kids International Pvt. Ltd., office address at 1/185, Professor Colony, Third Floor, Branch Factory, Agra-282002 through its Director Smt. Rimi Jain.

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Smt. Rimi Jain, W/o Shri Ravi Jain, R/o 1/185, Professor Colony, Third Floor, Branch Factory, Agra-282002 (Director/Guarantor)

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Keshav Kalantri, S/o Shri Ram Gopal, R/o 114, New Vijay Nagar Colony, Agra-282002 (Director/Guarantor)

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Ravi Jain, S/o Shri Prem Chand Jain, R/o 1/184, Professor Colony, Delhi Gate, Agra-282002 (Guarantor)

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Atul Jain, S/o Shri Prem Chand Jain, R/o 1/184, Professor Colony, Delhi Gate, Agra-282002 (Guarantor)

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Ram Gopal Maheshwari, S/o Late Sita Ram Maheshwari, R/o 114, New Vijay Nagar Colony, Agra-282002 (Guarantor/Mortgagor)

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Anand Maheshwari, S/o Late Sita Ram Maheshwari, R/o 114, New Vijay Nagar Colony, Agra-282002 (Guarantor/Mortgagor)

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Ashok Kumar Agarwal, S/o Shri H. C. Agarwal, R/o 56, Dushyant Nagar, Sikandara Bolda Road, Agra-282002 (Guarantor/Mortgagor)

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Smt. Mamta Maheshwari, W/o Shri Anand Maheshwari, R/o 114, New Vijay Nagar Colony, Agra-282002 (Guarantor/Mortgagor)

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Ram Maheshwari, S/o Late Sita Ram Maheshwari, R/o 114, New Vijay Nagar Colony, Agra-282002

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.………....……………………...…………………………………………….Respondents

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Advocates, who appeared in this case :

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For the appellant-Bank For the respondents

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Shri Maneesh Mehrotra, Advocate Shri V. K. Shukla along with Shri Ravi Data, Advocate

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JUDGMENT Date of Decision: 18.06.2025

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JUSTICE R. D. KHARE, CHAIRPERSON

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The present appeal has been filed under section 20 of the Recovery of Debts and Bankruptcy Act, 1993 (in short “the RDB Act, 1993”) against the judgment and order dated 16.01.2024, whereby the original application filed by the appellant has been allowed partly.

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The brief facts of the present case are that the respondent no. 1 was granted certain credit facilities by the appellantBank through its Directors respondent nos. 2 & 3, which was renewed and enhanced from time to time. In order to secure the said facilities, the respondent nos. 2 to 10 stood as guarantors and respondent nos. 6 to 10 created equitable mortgage over there immovable properties by depositing their title deeds with the appellant-Bank. Since the respondents-borrowers did not adhere to the terms of loan agreements, therefore, the accounts were classified as NPA on 24.06.2019 and the appellant-Bank filed an Original Application before the Tribunal below for recovery of its dues of Rs. 5,00,04,600/- along with pendentelite and future interest @ 17.50% per annum with monthly rests including penal interest from the date of filing of the said O.A. till realization, which has been allowed by the Tribunal below vide judgment dated 16.01.2024, but the rate of interest has been reduced from 17.50% to 9% per annum simple w.e.f. the date of NPA. Being aggrieved by the said part of the judgment, the present appeal has been filed by the appellant-Bank.

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Learned counsel for the appellant-Bank submitted that the Tribunal below has reduced the contractual rate of interest from 17.50% to 9% per annum simple, which is contrary

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to the loan documents executed and signed by the respondents-borrowers. It was further contended that the respondents-borrowers acknowledged the sanction of the Bank and executed the loan documents from time to time and agreed the said rate of interest and prior to filing of the O.A., they had not raised any objection regarding excess charging of interest at any point of time. It was also contended that the base rate or the MCLR is the minimum interest rate, which may be charged by the Bank from its customers while lending the loan and and the Banks are permitted to charge the rate of interest over and above the base rate. It was thus contended that the Tribunal below has arbitrarily reduced the contractual rate of interest, which was agreed to between the appellantBank and the respondents-borrowers. Hence, it was prayed that the judgment impugned may be set aside to the extent of reducing the contractual rate of interest @ 17.50% to 9% and the appeal may be allowed.

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Learned counsel for the respondents-borrowers submitted that the Tribunal below has passed the well reasoned and speaking order after considering the facts and circumstances of the case and the respondents-borrowers have complied with the said order impugned by depositing the entire decretal amount along with interest and the same has been received/accepted by the appellant-Bank without any protest and the appellant-Bank has been directed by the Recovery Officer to withdraw the DRC. The learned counsel has drawn attention of this Court to Section 19(20) of the RDB Act and has stated that as per the said section, the Tribunal below has right to adjudicate the interest component after giving proper opportunity of hearing to both the parties, therefore, the contention of the appellant-Bank that the Tribunal below cannot reduce

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the contractual rate of interest is not sustainable. In support of his contention, the learned counsel has referred to a judgment passed by the Hon’ble Supreme Court in the case of NM Veerappa Vs. Canara Bank, reported in AIR (1998) SC 1101, wherein it is held that in case of mortgage suit for recovery of Bank loan, the ground of interest @ 6% from the date of filing of the suit till realization is proper. It was, therefore, prayed that the order impugned does not call for any interference by this Appellate Tribunal and the appeal filed by the appellantBank may be dismissed with heavy costs.

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I have considered the rival contentions of the learned counsels for the parties and perused the material available on record.

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The main controversy involved in the present case is, as to whether the Tribunal below has rightly reduced the rate of interest as agreed between the parties or not?

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So far as the contention of the appellant-Bank that the Tribunal below has no discretion to reduce the contractual rate of interest as agreed between the parties is concerned, section 19(20) of the RDB Act is relevant, which reads as under:

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“(20) The Tribunal may, after giving the applicant and the defendant, an opportunity of being heard, in respect of all claims, set-off or counter-claim, if any, and interest on such claims, within thirty days from the date of conclusion of the hearings, pass interim or final order as it deems fit which may include order for payment of interest from the date on which payment of the amount is found due up to the date of realization or actual payment.”

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From the above, it is clear that the Tribunal below may reduce the rate of interest for pendentelite and future in its discretion, if there is plausible/convincing reason.

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It is relevant to state that before the Tribunal below, the respondents-Borrowers without controverting any averments made by the appellant in its O.A. had clearly admitted the availing of loan and execution of all documents with the appellant-Bank, but they have only disputed the interest charged by the appellant-Bank and sought some relaxation in the same, which was charged @17.50% per annum with monthly rest along with penal interest. It is to be noted that after declaration of account as NPA, they deposited Rs. 1.25 crore with the Bank. If a party is willing to liquidate the dues of the Bank, for which he makes a part payment and only asks for some relaxation in the rate of interest, in my opinion such party definitely deserves some relaxation in the same. Thus the Tribunal below has rightly reduced the rate of interest from 17.50% to 9% on the basis of reason assigned above.

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While going through the order impugned, it is found that the Tribunal below has already granted the contractual rate of interest until the classification of the account as NPA and for the period thereafter, the Tribunal below exercised its discretion to award simple interest, which can be interfered with, if the discretion has been exercised arbitrarily or without application of mind. In para 13 of the order impugned, the Tribunal below prior to reducing the rate of interest has dealt with the matter in detail and has held that the base rate and the MCLR never exceeded more than 10% and on the basis of the MCLR, which was enforced in the year 2016, the interest @9% per annum simple was awarded, which is a minimum rate of interest of the Bank as stated by the learned counsel for the appellant-Bank in para no. 5.22 of the memo of appeal. In the said para, the appellant has stated that the base rate

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and MCLR are minimum interest rate, which is charged by the Bank from its costumer while lending the loan. It is thus clear that if the Bank charges said rate of interest at the time of sanctioning the loan, then after becoming the account as NPA, the said rate can also be charged, because after NPA, the account becomes defunct and does not earn any interest. If the account does not earn any amount, then whatever amount realizes from the borrower, in my opinion, is sufficient and reasonable. In the present case, the Tribunal below has awarded the contractual rate of interest from the date availing the loan till the date of NPA and subsequent to that, MCLR, on which the Banks give the loan to its customers, which is held to be genuine and reasonable for the Non Performing Account.

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Apart from above, it is relevant to state that after passing the decree and judgment impugned in the present case, the respondents-Borrowers have deposited the entire amount including interest and costs, which has been received/accepted by the Bank without any protest. The said contention is recorded in the order dated 28.03.2025 passed by the Recovery Officer in DRC No. 206/2024. In the said order, it is also recorded that the amount of Recovery Certificate has been satisfied and the Bank has been directed to withdraw the DRC proceeding. If the entire dues have been deposited by the borrowers as per the decree passed by the Tribunal below and accepted by the Bank unconditionally, then the Bank cannot be permitted to litigate the matter subsequent to it, because at one point of time, they cannot be permitted to play on two different ways. On this count also, the present appeal is liable to be dismissed.

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In view of the aforesaid, the order impugned does not call for any interference by this Appellate Tribunal, hence the appeal is liable to be dismissed. Accordingly, the same is dismissed with no order as to costs.

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A copy of this judgment be sent to the parties as well as to the DRT concerned and be also uploaded on e-DRT portal.

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CHAIRPERSON

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VN GIRI,PS

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Canara Bank v. Kids International Pvt. Ltd. And 9 Ors.

Case brief

What is this about?

What did the court decide?

Canara Bank v. Kids International Pvt. Ltd. And 9 Ors.

Case brief

What is this about?

What did the court decide?

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