Allowed

Karur Vysya Bank v. P Alagarsamy

DRT6 Aug 2026OA/191/2024

Case brief

AI extract

What is this about?

The Debts Recovery Tribunal allowed the Banking Company's application for recovery of a term loan but ordered deduction of capitalized penal interest due to RBI violation. The Court directed recovery of the balance amount plus interest at 10.95% p.a., adjusting for SARFAESI sale proceeds appropriated in the loan account.

What did the court decide?

Allow recovery of balance dues after deducting capitalized penal interest and sale proceeds; interest fixed at 10.95 p.a.

Karur Vysya Bank versus P Alagarsamy — Banking and Recovery | DRT (2026)

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OA No. 191/2024

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Fair Order

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IN THE DEBTS RECOVERY TRIBUNAL AT MADURAI DATED THIS 06^th DAY OF AUGUST, 2026 PRESENT: SEEMA SINHA, [PR. DISTRICT & SESSIONS JUDGE – Retd] PRESIDING OFFICER

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OA No.191/2024

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Between

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The Karur Vysya Bank Limited, Asset Recovery Branch, RS.No.170/9, Mattuthavani-Melur Road, Near Mattuthavani Bus Stand, Madurai- 625 107 Rep. by its Senior Manager. ---Applicant Bank

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And

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Mr.P.Alagarsamy, S/o.Late.Mr.Parasuraman, Door No.18, Taluk Office Road, Papanasam, Papanasam Taluk, Thanjavur District- 614 205

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Minor.A.Rakshanasree,(Represented by Guardian D-1) D/o.Mr.P.Alagarsamy, Door No.18, Taluk Office Road, Papanasam, Papanasam Taluk, Thanjavur District- 614 205

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Minor.A.Bhavanesh,(Represented by Guardian D-1) S/o.Mr.P.Alagarsamy, Door No.18, Taluk Office Road, Papanasam, Papanasam Taluk, Thanjavur District- 614 205 ---- Defendants

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Page 1 of 7

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OA No. 191/2024

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Counsel for the Applicant Bank : M/s. P.Madhan Alexandar, P.Priyadharshini & M.Madhumathi

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This Original Application was heard and fixed for passing final order before me in the presence of the above said Advocate for Applicant Bank and the Defendants having been set ex-parte and upon hearing the arguments of Counsel for Applicant Bank and upon perusing the material available on the records and having stood over for consideration till this day, this Tribunal delivered the following:

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JUDGEMENT

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1 . This Application has been filed under Sec.19 (1) of the "The Recovery of Debts due to Banks and Financial Institutions Act, 1993" now amended as The Recovery of Debts and Bankruptcy Act, 1993 by the Applicant Bank on 27.02.2024 to recover from the Defendants a sum of Rs.25,05,128/- together with subsequent interest at the rate of 13.95 % p.a. with monthly rests plus penal interest at the rate of 3 % p.a. in respect of Term Loan from the date of filing of Application till the date of realization with cost and by sale of mortgaged/hypothecated properties, more fully described in Schedules of the application.

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2 . The brief averments of the application filed by the Applicant Bank are as follows: -

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The Applicant Bank submits that Late.Mrs.Nithya Devi Alagarsamy along with 1^st defendant approached the Applicant Bank for availing Term Loan for their personal purpose. The Applicant Bank has also sanctioned the said Term loan for a sum of Rs.15,00,000/-. In consideration of the said loan, the letter of sanction along with terms & conditions were communicated to the Late.Mrs.Nithya Devi Alagarsamy along with 1st defendant by the applicant bank through its sanction letter dt.20.08.18 and the same was duly accepted by them. Further Late.Mrs.Nithya Devi Alagarsamy executed all loan documents as power agent on behalf of 1^st defendant.

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The Applicant Bank submits that in consideration of the said loan, the Late.Mrs.Nithya Devi Alagarsamy for herself & as power agent of 1st defendant has executed a Demand Promissory Note on 20.08.18 (vide Account No.1204 791 000 000 349 for a sum of Rs.15,00,000/- in favour of the Applicant Bank by promising to repay the loan amount on demand with interest at the rate of 13.90% Per annum with monthly rest or at such other rates & rests as may be revised by the Applicant Bank from time to time.

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Page 2 of 7

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OA No. 191/2024

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The Applicant Bank submits that in consideration of the said Term Loan, the Late.Tmt.Nithya Devi Alagarsamy for herself & as power agent of 1^st defendant has executed a Term Loan Agreement dt.20.08.18 for a sum of Rs.15,00,000/- in favour of the Applicant Bank containing various terms & conditions and by agreeing to repay the loan amount in 100 monthly installments of Rs.17,500/- in favour of the applicant Bank. Further the Late.Mrs.Nithya Devi Alagarsamy for herself & as power agent of 1st defendant promised to repay the loan amount with compound interest at the rate of 13.90% Per annum with monthly rest or at such other rates as may be revised by the applicant bank from time to time with penal interest at the rate of 3% per annum in case of default.

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For the said Term Loan facility , the Late.Mrs.Nithya Devi Alagarsamy has offered her property which is fully mentioned in the Schedule hereunder as Security and thereby she deposited her Title Deeds on 20.08.18 with the Applicant Bank pertaining to property, with an intention to create an Equitable Mortgage over the said property. To evidence the said fact as well as by confirming the same, the Late. Mrs.Nithya Devi Alagarsamy has executed a Registered Memorandum of Deposit of title deeds dt.20.08.18 pertaining to the said property in favour of the Applicant Bank. Thus the applicant bank is a mortgagee entitled to proceed against the mortgaged property for recovery of loan.

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The Applicant bank submits that above said Nithya Devi Alagarsamy died leaving behind the defendants 1 to 3 herein as her legal heirs who inherited the estate of Late.Tmt.Nithya Devi Alagarsamy including loan liabilities as per law of succession. Further the defendants 1 to 3 being the Legal heirs of Late.Tmt.Nithya Devi Alagarsamy have been benefited by the loan availed by her. The loan documents executed & mortgage created by the said Late.Tmt.Nithya Devi Alagarsamy will bind the defendants 1 to 3 and so they are liable to repay the loan dues.

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The defendants have not repaid the loans as agreed and promised by them. Thus the defendants have committed default in repaying the loan amount with interest & costs. Hence, the Applicant Bank has filed the OA for recovery of a sum of Rs.25,05,128/- together with subsequent interest at the rate of 13.95 % p.a. with monthly rests plus penal interest at the rate of 3 % p.a. in respect of Term Loan from the date of filing of Application till the date of realization with cost.

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During the pendency of the OA, the applicant bank sold the mortgage property for a sum of Rs.25,25,000/- situated at Tanjavur District under SARFAESI Proceedings and issued sale certificate dt.03.02.25 and appropriated the sale amount in the concerned loan account and handed over

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Page 3 of 7

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OA No. 191/2024

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the original title deeds to the auction purchaser namely Mrs.Nalini Panneer Selvam.

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The Applicant Bank has submitted the following documents in support its claim in the OA, which are as follows:

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List of Documents

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Sl. No.	Date	Particulars	Exhibit No.
1.	20.08.18	Sanction Letter along with terms & conditions countersigned by Late.Tmt. Nithya Devi Alagarsamy & 1st defendant in favourof ApplicantBank	Ex. No. A-01
2.	20.08.18	Demand Promissory Note executed by Late.Tmt. Nithya Devi Alagarsamy & 1st defendantin favourof ApplicantBank	Ex. No. A-02
3.	20.08.18	Term Loan Agreement executed by Late.Tmt. Nithya Devi Alagarsamy & 1st defendant in favourof ApplicantBank	Ex. No. A-03
4.	20.08.18	Registered Memorandum of Deposit of Title Deeds executed by Late.Tmt. Nithya Devi Alagarsamy in favour of the Applicant Bank (Doc. No. 1501/18)	Ex. No. A-04
5.	—	Statement of Accounts maintained by the Applicant Bank in the regular course and conduct of business	Ex. No. A-05

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3 . On the other hand, Notices were issued to Defendants and since from the beginning of the case, there was no representation on behalf of the Defendants. Hence, Defendants were set ex-parte.

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4. Now the main point for consideration before me is as to whether the Applicant has been able to prove his case on his own leg?

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Having gone through the affidavit of the applicant and the documents filed by them and also considering the submission of the counsel for the Applicant, I find that the Applicant Bank, in order to prove its claim, has filed Proof Affidavit executed by one Mr. S.Dhandapani , who is the Chief Manager of the Applicant Bank.

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He has stated in his affidavit that the defendants have availed Term Loan from the Applicant Bank, but they failed to pay the outstanding loan amount, hence she has filed the case. The applicant bank has also filed the documents signed by the defendants at the time of sanctioning the loan

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Page 4 of 7

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OA No. 191/2024

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amount, which have been marked as exhibits No.A-01 to A-05 in support of its claim in the OA.

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I scrutinized the document filed by the applicant bank and I find that the Applicant Bank has produced the following documents: the Sanction Letter along with the Terms and Conditions, duly countersigned by Late Mrs. Nithya Devi Alagarsamy and the 1st Defendant, dated 20.08.2018, marked as Ex. A-01; the Demand Promissory Note dated 20.08.2018 executed by Late Mrs. Nithya Devi Alagarsamy and the 1st Defendant in favour of the Applicant Bank, marked as Ex. A-02; the Term Loan Agreement dated 20.08.2018 executed by Late Mrs. Nithya Devi Alagarsamy and the 1st Defendant in favour of the Applicant Bank, marked as Ex. A-03; the Registered Memorandum of Deposit of Title Deeds dated 20.08.2018 executed by Late Mrs. Nithya Devi Alagarsamy in favour of the Applicant Bank (Document No. 1501 of 2018), marked as Ex. A-04; and the Statement of Account maintained by the Applicant Bank in the regular course of its business, marked as Ex. A- 05 . So the averments of the applicant as well as the statement of the pleading have been corroborated by the above mentioned documents.

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In this OA, from perusal of statement of Accounts Ex.No.A-05, I find that the applicant bank has capitalized the penal interest in the Term loan account of the defendant, which is against the policy of the Reserve Bank of India guidelines.

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“The Reserve Bank of India strictly prohibits the capitalization of penal charges. Under current RBI regulations, any penalty for non-compliance with loan terms must be treated as a distinct “Penal Charge” rather than added to the principal outstanding amount. This ensures that banks and NBFCs cannot compute further interest on the penalty amount themselves”

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And also I find that during the pendency of the OA, the applicant bank sold the mortgage property for a sum of Rs.25,25,000/- situated at Tanjavur District under SARFAESI Proceedings and issued sale certificate (P.NO.42 in PAOD) and appropriated the sale amount in the concerned loan account and handed over the original title deeds to the auction purchaser.

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As the Defendants remained ex-parte, the claim of the Applicant Bank is neither disproved nor dislodged and goes on record as proved. Accordingly a cumulative analysis of both the Proof Affidavit and documents marked by the Applicant Bank would prove the claim of the Applicant Bank in the OA.

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So far the claim of interest is concerned, it is a well settled Law that the Tribunal has got powers to award pendente lite interest in view of the Judgment of the Hon’ble Supreme Court in N.M. Veerapa Vs Canara Bank

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Page 5 of 7

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OA No. 191/2024

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(reported in AIR 98(1), 1101 & in Central bank of India Vs Ravindra and OS (AIR, 2001(1), 3095).

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So far the penal interest is concerned Hon'ble supreme court stated in the said judgement as followed " Though interest can be capitalised on the anology that the interest falling due on the accrued date and remaining unpaid, partakes the character of amount advanced on that date, yet penal interest, which is charged by way of penalty for non payment, cannot be capitalized. Further interest, i.e interest on interest, whether simple, compound or penal, cannot be claimed on the amount of penal interest. Penal interest cannot be capitalized. It will be opposed to public policy ".

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Therefore, this Original Application is allowed . The Applicant Bank is entitled for a final order on the following lines: -

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The capitalized penal interest component shall be deducted from the claimed outstanding Term Loan amount of Rs.25,05,128/-, and the Applicant Bank shall be entitled to recover only the balance amount due after such deduction, together with interest at the rate of 10.95 % p.a. with halfyearly rests from the date of filing of the Application till before the date of appropriation (20.02.2025) of sale proceeds in the loan account,

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And after deducting sale proceeds of Rs.25,25,000/- from the outstanding amount realized on sale appropriation date (21.02.2025), the applicant is entitled to recover remaining amount, together with interest at the rate of 10.95 % p.a. with half yearly rests from the date of sale proceeds appropriation (21.02.2025) till the date of realization with costs . Accordingly, it is hereby

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ORDERED

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(a) That the Defendants D-1 and D-2 & D-3 both represented by their guardian D-1 are directed to pay jointly/severally to the Applicant Bank the outstanding amount due under the Term Loan after deducting the capitalized penal interest component from the claimed amount of Rs.25,05,128/-, together with interest at the rate of 10.95 % p.a. with halfyearly rests from the date of filing of the Application till before the date of appropriation (20.02.2025) of sale proceeds in the loan account,

Page 6 of 7

OA No. 191/2024

(b) Any amount remitted during the course of this proceedings shall be given due credit, to the loan account of the defendants.

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(c) Recovery Certificate be prepared, as per the directions given above, and issue accordingly. A copy of the order is to be communicated to the parties concerned, immediately.

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(d) It is further ordered that the Applicant Bank shall file cost memo within a period of one month from the date of receipt of this order, so as to prepare the recovery certificate with cost for the Term Loan and the Recovery Officer is also directed to proceed with the matter in accordance with law. In case, cost memo is not filed before said period of one month, Recovery Certificate will be prepared with available records.

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Dictated to P N, taken down, transcribed, typed by him, corrected and pronounced by me in the Open Court in this the 06^th August, 2026.

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Sd/- (SEEMA SINHA) PRESIDING OFFICER

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Uploaded on 13.08.2026

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Karur Vysya Bank v. P Alagarsamy

Case brief

What is this about?

What did the court decide?

Karur Vysya Bank v. P Alagarsamy

Case brief

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