Partly allowed

Ms .Hotel poonja International Pvt. Ltd. and Ors. v. Corporation Bank and amp amp; Ors.

DRAT11 Nov 2025REGULAR APPEAL/29/2016

Case brief

AI extract

What is this about?

The Division Bench set aside the lower court's order to the extent it recovered dues from non-guarantor directors. The Bank is allowed to recover the agreed settlement amount from guarantors with interest from the settlement date, but uncharged interest is allowed only after the settlement failure.

What did the court decide?

Appeal partly allowed. OA against D4 to D6 dismissed. Bank entitled to recover Rs. 23,54,655.37 plus 12% simple interest from 30.03.2001 from Appellants 1 to 3 jointly and severally and personally.

Ms .Hotel poonja International Pvt. Ltd. and Ors… — Contract and Commercial Disputes | DRAT (2025)

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IN THE DEBTS RECOVERY APPELLATE TRIBUNAL AT CHENNAI

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Dated the 11^th of November, 2025

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PRESENT: Hon’ble Mr. Justice G. Chandrasekharan CHAIRPERSON

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R.A. 29 of 2016

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(OA 339/2012 on the file of DRT, Bangalore)

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M/s. Hotel Poonja International Pvt. Ltd. A company constituted under the Indian Companies Act, 1956 Having its office at K.S. Rao Road, Mangalore - 575 001.

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Sri. Prabhakar N. Shetty @ Prabhakar N. Poonja S/o. Mr. Narsu Shetty aged about 57 years Managing Director M/s. Hotel Poonja International Pvt. Ltd. K.S. Rao Road,

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Mangalore - 575 001.

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Sri. Anand N. Shetty, S/o. Mr. Narsu Shetty aged about 61 years Director M/s. Hotel Poonja International Pvt. Ltd. K.S. Rao Road, Mangalore - 575 001.

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Smt. Tejaswini P. Poonja W/o. Mr. Prabhakar N. Poonja aged about 53 years Director M/s. Hotel Poonja International Pvt. Ltd. K.S. Rao Road, Mangalore - 575 001.

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Smt. Poonja P. Nidhi D/o. Mr. Prabhakar N. Poonja aged about 27 years Director M/s. Hotel Poonja International Pvt. Ltd. K.S. Rao Road, Mangalore - 575 001.

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Sri. Yuvaraj P. Poonja S/o. Mr. Prabhakar N. Poonja aged about 24 years Director M/s. Hotel Poonja International Pvt. Ltd. K.S. Rao Road, Mangalore - 575 001.

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…. Appellants

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And

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M/s. Corporation Bank A body corporate constituted under the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 (Act V of 1980) having its Head Office at Mangala Devi Temple Road, Mangalore, Karnataka State and Branches inter alia one at 1st Floor, Poonja Arcade Building, K.S. Rao Road, Hampanakatta P. B. NO. 224, Mangalore - 575 001 Represented by its Chief Manager Sri. Subodh Shetty.

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M/s. Vijaya Bank Light House Hill Road, Mangalore.

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M/s. Karnataka State Industrial Investment and Development Corporation Limited 36, Cunningham Road, Bangalore - 560 052.

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Union Bank of India,

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A body corporate constituted under the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 (Act V of 1980) having its Head Office at Mangala Devi Temple Road, Mangalore, Karnataka State and Branches inter alia one at 1st Floor, Poonja Arcade Building, K.S. Rao Road, Hampanakatta P. B. NO. 224, Mangalore - 575 001 Represented by its Chief Manager

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Counsel for Appellants : Learned Senior Counsel Mr. Srinath Sridevan

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for Mr. Bhardwajaramasubramaniam R for M/S. VIVRTI LAW Counsel for R1 : Mr. S. Sethuraman

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ORDER

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Challenging the order passed in OA No. 339/2012 by Learned Presiding Officer, DRT, Bangalore, this Appeal is filed under section 20 of RDB Act, 1993.

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Appellants are Defendants 1 to 6 in the OA before Tribunal. First Respondent is the Applicant before the Tribunal. Second Respondent is the Bank and third Respondent is the Financial Institution. R1 and R2, R3 had advanced loan to 1^st Appellant. There is a pari passu agreement among first appellant, Respondents 1 to 3.

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First Respondent filed OA 339/2012 for recovery of Rs.16,97,44,657/- from Defendants 1 to 6, jointly and severally, personally, and issue recovery certificate with pendente lite interest and future interest at 18% per annum (inclusive of 2% penal interest) compounded with monthly rests as the transaction/loan is secured by immovable properties. There is also prayer for sale of mortgaged/hypothecated properties described in

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schedule A and B to the OA towards pro tanto satisfaction of dues payable by D1 to D6.

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3.1 The case of the 1^st Respondent, in brief, is that Defendants 2 and 3 and Smt. Yamuna N Shetty, Sri. Prakash N Shetty, Sri. Gajanana N Shetty and Sri. Ramakirshna N Shetty, constituted a partnership firm under the name and style of M/s Poonja Arcade. M/s Poonja Arcade acquired the property known as Ranga Bhavan described in ‘A’ Schedule. For construction of fivestar hotel in ‘A’ schedule property, it entered into a deed of partnership with D1, and D1 was inducted as a partner of the partnership firm. The firm, M/s Poonja Arcade was dissolved and all the assets and liabilities of this firm was made over to 1^st Defendant company. ‘A’ Schedule property, thus, vested with 1^st Defendant company. First Defendant is a private limited company, in which D2 is a Managing Director and D3 to D6 are the Directors. D2 and D3 stood as guarantors for the loan availed by D1. On due verification of the project report submitted by D1, the 1^st Respondent Bank sanctioned a term loan of Rs. 40 Lakhs,

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on 04.04.1986 in Term Loan Account No. TLS 860002.

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This amount has to be repaid in 8 years in 84 monthly instalments, as detailed in the Original Application. The installments have to be paid along with interest at 12.5% per annum compounded monthly rests, and in case of default, with overdue interest at 2% per annum compounded at monthly. D1 executed loan documents. D2 and D3 executed guarantee agreements. D1 executed mortgage of Schedule ‘A’ property by memorandum of deposit of title deeds and also hypothecated the movables described in B Schedule.

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3.2 First Appellant availed a Term Loan of Rs. 40 Lakhs from 2^nd Respondent, Vijaya Bank on the security of ‘A’ and ‘B’ Schedule properties at the ratio of 1:1. A pari passu agreement dated 23.11.1987 was executed among first Respondent Bank, 2^nd Respondent Bank and first Appellant.

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3.3 First Appellant also availed a loan of Rs.45 Lakhs from the 3^rd Respondent, Karnataka State Industrial Investment and Development Corporation Limited

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(KSIIDC) on the security of ‘A’ and ‘B’ Schedule properties. A pari passu agreement dated 03.02.1988 was executed among the 1^st Appellant, R2 Bank and R3 Institution. First Appellant represented by 2^nd Appellant, executed acknowledgement of debt on 24.05.1988 and on subsequent dates. First Appellant failed to operate the loan account satisfactorily and repay the loan in spite of repeated requests and issuance of Legal Notice dated 01.11.2011. Even after receiving the Legal Notice, First Appellant had not paid any amount, therefore, the aforesaid Original Application was filed for recovery of the money due.

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In the Reply Statement filed to Original Application, there is no strong denial of borrowal of the loan amount. The case of the Appellants/Defendants 1 to 6 is that the claim of Rs.15,06,77,811/- towards uncharged interest from 31.03.1992 to 30.04.2011 is barred by limitation. Appellants have not acknowledged the said liability and do not admit this liability. Appellants/D1 to D6 admit that they are liable to pay only Rs.23,54,665.37p and

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Appellants/D1 to D6 were never intimated about the uncharged interest from 31.03.1992. The borrowal of

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Rs.40 Lakhs on 04.04.1986 from 1^st Respondent/Applicant is admitted. There was an agreement for One Time Settlement (OTS) during 2001. This agreement superseded the earlier agreement between the parties. First Appellant/D1 filed a complaint before National Consumer Disputes Redressal Commission seeking compensation for deficiency of service. Some of the Defendants deposited money exceeding Rs.5 crores in 1995. The request of D1 to D6 to adjust the deposit amount was totally disregarded by the Bank. First Appellant/D1 proposed to settle the dues in 2001 by offering Rs. 1 Crore towards full and final settlement. The said offer was accepted by the Bank in its letter dated 08.03.2001. As per the settlement, 1^st Appellant/D1 took steps to withdraw the complaint given in National Consumer Disputes Redressal Commission. Payments were also made. Only a sum of Rs 23,54,665.37p was due. Thereafter, the Bank had gone back from its commitment and filed its OA claiming uncharged interest

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from 31.03.1992 to 30.04.2011. In a certificate dated 29.08.2008 issued by the Applicant, the liability of the Appellant was shown as Rs.23,54,665.37p as on 31.03.2008. There is no mention about uncharged interest. Thus, it is claimed that, if at all any amount is payable, the Appellants are liable to pay only a sum of Rs.23,54,665.37p.

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Learned Presiding Officer on going through the

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records, submissions of Counsels appearing for the parties and evidence produced, allowed the OA as prayed for. Thus, this Appeal.

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Learned Counsel for Appellants submitted that the

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Appeal against Respondents 2 and 3 is given up. The main submission of the Learned Counsel for Appellants is that the claim against the Appellants, especially the unclaimed interest, from 31.03.1992 to 30.04.2011 is barred by limitation and that there is a novation of contract in the place of original loan agreement when OTS was approved in 2001. Appellants 2 and 3 are personal guarantors, and their guarantee is limited guarantee, only

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to the extent of guarantee. Appellants 4 to 6 are not guarantors, but only the Directors of the 1^st Appellant company. Thus, there is no personal decree that can be passed against them. In fact, there is no pleadings against Appellant Nos.4 to 6/Defendants 4 to 6 as to how they are personally liable. The loan documents are signed only by D1, D2 and D3. The findings of Learned Presiding Officer that all the Defendants signed the OTS offer is wrong. In terms of OTS, Appellants/Defendants 1 to 6 had made a substantial payment. Only a sum of Rs.23,54,665.37p was due and payable. The Original Application was not filed within the period of 3 years, and thus, the Original Application itself is barred by limitation.

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In reply, Learned Counsel of 1^st Respondent submitted that the loan of Rs.40 Lakhs was sanctioned in 1986 and it should have been repaid before June 1993. The account became NPA (Non-Performing Asset) on 31.03.1999. The OTS proposal of the Appellants was accepted by the Bank on 08.03.2001. However,

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Appellants failed to make payment in terms of OTS. When the OTS terms are not complied by making payments, OTS sanction reads that the Bank is entitled to recover its dues as per the Original Application (OA) claim. Accordingly, by calculating the uncharged interest from 31.03.1992 to 30.04.2011, the OA was filed for recovery of the amount and it is fairly conceded that the Appellants 4 to 6 have not executed any loan documents.

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Considered the rival submissions and perused the records.

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The perusal of the typed set produced by Appellants shows that Appellants have produced all necessary documents right from the agreement of Partnership dated 29.11.1981, Deed of Partnership dated 02.02.1985, loan application dated 04.04.1986, Demand Promissory Note dated 04.04.1986, Take Delivery Letter to DPN, Agreement for Term Loan, Agreement for Term Loans under IDBI and ARDC loans, Unattested Deeds of Hypothecation of Movables, Guarantee Agreements executed by Appellants 2 and 3, Memorandum of Deposit of Title Deeds, etc. All

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these documents came into existence on 04.04.1986. Pari passu agreements dated 23.11.1987 and 03.02.1988 have also been produced.

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On 05.02.2001, a letter had been sent to the first Respondent for a proposal for settlement of Term Loan account TL No. 2/86 along with SDL account for Rs.3 Lakhs. The Bank issued a certificate of balance dated 29.08.2008 stating that closing balance as on 31.03.2008 was Rs.23,54,665.37p. There were several communications between Appellants and first Respondent with regard to OTS. On 24.03.2001, the Appellants sent a proposal for settlement by expressing their willingness to pay Rs.1 Crore in full and final settlement of dues in respect of term loan 2/86 and SDL 112/96. First Respondent Bank accepted this proposal, and in its reply dated 30.03.2001 to 1^st Appellant, it was informed that the OTS proposal for 100 Lakhs was agreeable subject to the terms and conditions.

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As per this condition, the Bank agreed to receive Rs.97 Lakhs in full and final settlement of the dues. Rs.22 Lakhs to be paid immediately on the receipt of this communication. Rs.75 Lakhs to be paid within one year from the date of initial payment. Of course, there are other conditions with regard to charging of interest in case of non-payment within time, withdrawal of complaint registered in National Consumer Disputes Redressal Commission, etc. The important condition is, if the Appellants fail to comply with terms and conditions, concession offered shall stand withdrawn/cancelled automatically without any further notification and the Bank will be entitled to recover its dues with interest as if no concession whatsoever was offered. After this letter, there were communications dated 18.03.2002 and 27.06.2002 addressed by 1^st Appellant seeking extension of payments on the basis of OTS.

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On 11.11.2002, the 1^st Appellant sent a letter to the Bank stating that the hotel is suffering loss and requested the Bank that the debt is serviced in full and requested to release all original documents with the Bank. On

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20.05.2003, a letter was sent to the Bank to give some more time to settle the liability and offering the premises at Rs.5500 per sq. ft., to the Bank. On 19.07.2003, another letter was sent by 1^st Appellant informing about the payment of nearly Rs.50 Lakhs towards OTS and offering another Rs.50 Lakhs towards the payment of Rs.1 Crore. A similar letter was sent on 05.09.2003.

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On 15.10.2003, the Bank replied to letter dated 05.09.2003 to receive Rs.50 Lakhs. At the same time, it was informed that if the amount was not paid, the Bank is entitled for recovery of its dues in terms of the loan documents. Thereafter a cheque for Rs.12.50 Lakhs was sent along with letter dated 27.12.2003 with a request to give time till 31.03.2004 for paying the balance of Rs.37.50 Lakhs. On 13.05.2004, a letter had been sent to the Bank to pay Rs.32.50 Lakhs instead of 37.50 Lakhs. By letter dated 18.06.2004, the Bank insisted for payment of Rs.37.50 lakhs with interest from 15.11.2003. This was reiterated by letter dated 01.09.2004 by the Bank that if failed to comply with the payment of Rs.37.50 Lakhs, it

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was stated that the OTS will be cancelled.

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Another letter dated 07.09.2004 was sent by the 1^st Appellant to pay Rs.30 Lakhs instead of Rs.37.50 Lakhs, and on 09.06.2008, there was an offer to pay Rs.35 Lakhs by the Appellants to the Bank. By letter dated 17.09.2008, an offer was made to pay Rs.23,54,665.37p, as per the Certificate of Balance issued by the Bank, in 3 installments, at Rs. 7 Lakhs by October 2008, Rs.8 Lakhs by November, 2008 and Rs.8,54,665.37p by the end of December, 2008. It was replied by Bank on 15.10.2008 by stating that this offer is not acceptable to the Bank. There was also an information that the loan account was showing an amount of Rs.9,86,46,449.80p as outstanding towards the interest.

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This claim was disputed by Appellants by letter dated 21.10.2008 . By letter dated 12.05.2011, the Bank informed about the amount disbursed towards the borrowal, OTS of Rs.1 Crore, repayment made, and the balance as per the Certificate of Balance dated 29.08.2008 at Rs.23,54,665.37p. It was followed by letter dated

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12.05.2011 by the Bank stating the amount shown as Rs.23,54,665.37p reflects only the Book Balance and they are also liable to pay the uncharged interest parked in a separate account as per the RBI Prudential Norms. The uncharged interest till 30.04.2011 works out Rs.15,06,77,811/-. The total amount due Rs.15,30,32,476.37p. Thus, the Bank requested the Appellants to revise the offer to upward and submit a fresh

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proposal. It was replied by the 1^st Appellant on 30.05.2011 challenging the claim of uncharged interest.

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On 28.09.2011, 1^st Appellant sent a letter to pay Rs.23,54,665.37p. Thereafter, the 1^st

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Respondent/Applicant issued a Legal Notice dated 01.11.2011 claiming a sum of Rs.16,49,48,817/-.

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The aforesaid communications clearly show that the Appellants were offered OTS of Rs.1 Crore through letter of acceptance of offer dated 30.03.2001 by the Bank. This Rs.1 Crore was not paid in full, till 2011. In the said

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background, Legal Notice was issued for

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Rs.16,49,48,817/-.

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The claim of Learned Counsel for Appellants is that as per Certificate of Balance issued on 29.08.2008, there was only a balance of Rs.23,54,665.37p cannot be accepted, for the reason that this balance is, balance payable in terms of OTS offer. It is not in dispute that the offer is not fully complied with by the Appellants. As per OTS offer, if Appellants fail to comply with terms and conditions of OTS, the OTS stands withdrawn/cancelled, and the Bank is entitled to recover its dues as per loan documents.

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For nearly 10 years, first Appellant has not paid this Rs.1 Crore in full, leaving the balance of Rs.23,54,665.37p. Thereafter, the Bank issued the Legal Notice calculating the uncharged interest from 31.03.1992 to 30.04.2011 and filed the Original Application. It is seen from the typed set of papers, there is periodical acknowledgement of debts or liability deed

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executed by second Appellant on behalf of first Appellant, last of which was executed, on 31.03.1999. This OA was filed on 29.11.2011.

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Be that as it may, 1^st Appellant acknowledging the loan amount due and payable to the 1^st Respondent Bank, submitted a proposal for settlement through letter dated 05.02.2001. In the said letter, it is acknowledged that there is an outstanding liability in terms of TL account No.

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2/86 and SDL account for a sum of Rs.3 Lakhs. As already discussed above, the 1^st Respondent Bank accepted the proposal of OTS through its letter dated 30.03.2001 to receive Rs.100 Lakhs as full and final settlement of the dues. As seen from the communications between Appellants and the 1^st Respondent Bank that this Rs.1 Crore was not paid within the time granted. Through several communications, time had been extended. On 15.10.2003, the Bank, after considering payment of Rs.51,44,683/-, out of Rs.1 Crore, agreed the proposal of the Appellants given in letter dated 05.09.2003, to receive Rs. 50 Lakhs in full and final settlement of the dues within

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a month. Even this amount was not paid within the time stipulated. Still there is due of Rs.23,54,655.37p. Certainly, the Appellants are liable to pay this amount.

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The 1^st Respondent Bank has not initiated recovery proceedings immediately on the Appellants’ failure to comply with terms of the OTS. The amounts had been received even after the time set for the compliance was over. Appellants had also not shown bonafides in paying even the amount agreed for OTS in the year 2001. Thus, this Tribunal is of the view that the 1^st Respondent Bank is entitled to receive Rs.23,54,655.37p along with interest at 12% p.a. (simple) from 30.03.2001, the date of OTS offer, till the date of realization, along with costs of the 1^st Respondent Bank.

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In view of the fact that D4 to D6 i.e., the Appellants 4 to 6 are not the guarantors, they are not personally liable for the repayment of this amount. Therefore, the Appeal filed by the Appellants 4 to 6, against the order fastening the liability on them is allowed. The OA against D4 to D6/Appellants 4 to 6 is dismissed.

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As regards the novation, Section 62 of the Contract

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Act reads as follows :-

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“62. Effect of novation, rescission, and alteration of contract.—If the parties to a contract agree to substitute a new contract for it, or to rescind or alter it, the original contract, need not be performed.”

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What is required under this Section to claim novation of contract is, substitution of new contract or rescind or alter the original contract and that original contract need not be performed. In the case before hand, there is no substitution of contract. On the basis of requests made by the Appellants for OTS, the Bank offered OTS with conditions. At no stretch of imagination, it can be considered as a substitution of the original loan agreement between the parties.

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In the light of the discussions held above, the order of Learned Presiding Officer, DRT, Bangalore, is set aside to the extent allowing the OA claim in toto against the Defendants 1 to 6 and modified to the extent that the 1^st Respondent Bank, (now merged with Respondent No.4,

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the Union Bank of India), is entitled to recover a sum of Rs.23,54,655.37p along with interest at 12% p.a. (simple) from 30.03.2001, the date of OTS offer, till the date of realization, from Appellants 1 to 3/Defendants 1 to 3, jointly and severally and personally, along with costs of the 1^st Respondent Bank. Accordingly, this Appeal is allowed in part as indicated above. All pending IAs, if any, stand closed.

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[Dictated to Athistamani, PS, transcribed by her, corrected, signed and pronounced by me this 11^th of November, 2025]

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[Justice G. Chandrasekharan] CHAIRPERSON

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Ms .Hotel poonja International Pvt. Ltd. and Ors. v. Corporation Bank and amp amp; Ors.

Case brief

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Ms .Hotel poonja International Pvt. Ltd. and Ors. v. Corporation Bank and amp amp; Ors.

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