Allowed

State Bank of India v. R.Hariharan prop of Tamil Agency

DRT17 Jul 2026OA/197/2024

Case brief

AI extract

What is this about?

The Debt Recovery Tribunal allowed the bank's application for recovery of dues after verifying loan documentation and documents, directing the removal of unlawfully capitalized penal interest from the principal.

What did the court decide?

Defendant directed to pay Rs.37,77,471.03 excluding capitalized penal interest plus 12.75% interest; liberty to sell mortgaged properties on default.

State Bank of India versus R.Hariharan prop of Tamil Agency — Banking and Recovery | DRT (2026)

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OA No. 197/2024

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Fair Order

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IN THE DEBTS RECOVERY TRIBUNAL AT MADURAI DATED THIS 17^th DAY OF JULY, 2026 PRESENT: SEEMA SINHA, [PR. DISTRICT & SESSIONS JUDGE – Retd] PRESIDING OFFICER

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OA No.197/2024

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Between

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State Bank of India, Stressed Asset Recovery Branch, No.8, Dr. Ambedkar Road, Vinayaga Nagar Branch Upstairs, Madurai - 625 020, Represented by its Chief Manager.

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---Applicant Bank

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And

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R. Hariharan, S/o.Raja Perumal, Prop: Tamil Agency, 68A, East Veli Street, Madurai-625001 ---Defendants

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Counsel for the Applicant Bank : M/s C. Deepak, M. Venkatesh,

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M. Chandra Sekar, S. Janani.

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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 Defendant has 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:

Page 1 of 6

OA No. 197/2024

JUDGEMENT

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 11.03.2024 to recover from the Defendant a total sum of Rs.37,77,471.03ps i.e., i) Rs. 24,42,336.03ps together with subsequent interest at the rate of 12.75% p.a. plus 2% penal interest with monthly rests in respect of Cash Credit ii) Rs. 13,35,135/- together with subsequent interest at the rate of 12.75% p.a. plus 2% penal interest with monthly rests 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 defendant has sought the loan towards running a business and submitted an application on 10.5.2022 and the same was positively considered by the applicant and the same was sanctioned to the tune of Rs. 25,00,000/- as an Cash Credit and Rs. 14,50,000 /- as an Term Loan on 15.06.2022 with the Rate of Interest fixed at 10.50% and the defendant has accepted the sanction and the terms by executing the Letter of Arrangement on 16.06.2022. It is vital to inform the Defendant hypothecated plant and machineries. In consideration of loan facilities the defendant has executed the Agreement of Loan Cum Hypothecation on 16.6.2022.

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After availing the loan, defendants were not regular in the matter of repayment. The defendants made several promises, but they failed to keep up their promises and Thus the loan account has become NPA. The defendants is liable to pay a sum of Rs.24,42,336.03/ as on 06-03-2024 in Account No. 41062399256 and Rs.13,35,135/- as on 06.03.2024 in Account No.41058794320 as per account maintained by the Plaintiff. The total amount due and payable by the defendants to the Plaintiff on the date of filing of the Suit is Rs. 37,77,471.03/-.

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The defendants is liable to pay the above said amount with interest at 14.75% per annum in Account Nos. 41062399256 and 41058794320 (including penal interest at 2% per annum) with compounded monthly rests from the date of Suit till the date of realization. At present the interest rate charged is at 12.75% per annum in Account No. 41062399256 and Account no.41058794320 separately with compounded monthly rests. The defendant is liable to pay 2% penal interest. Thus, the Applicant is seeking subsequent interest at 14.75% per annum in Account No. 41062399256 and Account no.41058794320 with compounded monthly rests.

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Page 2 of 6

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OA No. 197/2024

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The applicant Bank submits that when the defendant availed the loan like MSME Loan on 10.05.2022 and when the same was sanctioned on 15.06.2022 and when the defendant has accepted the sanction by executing the Letter of Arrangement on 16.06.2022 and when the Agreement of Loan Cum Hypothecation on 16.06.2022 and on subsequent dates when the defendants failed and neglected to settle the amount and on subsequent dates when the defendant failed and neglected to repay the loan due.

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Despite repeated demands and reminders, made by the Applicant Bank, the Defendant has failed and neglected to repay and adjust their liability. Hence, the Applicant Bank has filed the OA for recovery of a total sum of Rs.37,77,471.03ps i.e., i) Rs. 24,42,336.03ps together with subsequent interest at the rate of 12.75% p.a. plus 2% penal interest with monthly rests in respect of Cash Credit ii) Rs. 13,35,135/- together with subsequent interest at the rate of 12.75% p.a. plus 2% penal interest with monthly rests in respect of Term Loan from the date of filing of Application till the date of realization with cost.

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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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S. No.	Date	Description of document		Exhibits
1.	10.05.2022	Application for MSME Loan		Ex. No. A-01
2.	15.06.2022	Sanction confirmation		Ex. No. A-02
3.	16.06.2022	Letter of Arrangement		Ex. No. A-03
4.	16.06.2022	Agreement of Loan Cum Hypothecation		Ex. No. A-04
5.		Statement of accounts maintained applicant bank in regular course conduct of business	by and	Ex. No. A-05

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SCHEDULE – “A”

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Hypothecation of Stock and Receivables.

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3 . On the other hand, Notice was issued to Defendant and since from the beginning of the case, there was no representation on behalf of the Defendant. Hence, Defendant was 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 him and also considering the submission of the counsel for the Applicant, I find that the Applicant Bank, in order to prove its claim, has

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Page 3 of 6

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OA No. 197/2024

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filed Proof Affidavit executed by one Mr. Vijayakumar, who is the Chief Manager of the Applicant Bank.

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He has stated in his affidavit that the defendant has availed Cash Credit & Term Loan from the Applicant Bank, but the defendant failed to pay the outstanding loan amount, hence he has filed the case. The applicant bank has also filed the documents signed by the defendant at the time of sanctioning the loan 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 perused the documents filed by the Applicant Bank and I find that the Application for MSME Loan dated 10.05.2022 has been marked as Ex. No. A-01, Sanction Confirmation dated 15.06.2022 has been marked as Ex. No. A-02, Letter of Arrangement dated 16.06.2022 has been marked as Ex. No. A-03, Agreement of Loan-cum-Hypothecation dated 16.06.2022 has been marked as Ex. No. A-04, Statement of Accounts maintained by the applicant bank in the regular course and conduct of its business has been marked as Ex. No. 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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On the other hand as the Defendant 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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In this OA, from Perusal of Statement of Accounts (Ex. No. A-05), I find that the Applicant Bank has capitalized the penal interest only in the Cash Credit Loan account of the defendant, which is against the policy of RBI 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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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 (reported in AIR 98(1), 1101 & in Central bank of India Vs Ravindra and OS (AIR, 2001(1), 3095).

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Page 4 of 6

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OA No. 197/2024

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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 Applicant Bank is entitled to recover from the Defendants, a total sum of Rs.37,77,471.03ps i.e.,

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i) Amount arrived after deduction of capitalized penal interest included in the cash credit outstanding amount of Rs. 24,42,336.03ps till before the filing of the Original Application, together with subsequent interest at the rate of 12.75% p.a. with half yearly rests and

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ii) Rs. 13,35,135/- together with subsequent interest at the rate of 12.75% p.a. with half yearly rests in respect of Term Loan from the date of filing of Application till the date of realization with cost. Accordingly, it is hereby

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ORDERED

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(a) That the Defendant is directed to pay personally for a total sum of Rs.37,77,471.03ps i.e.,

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OA No. 197/2024

(b) In case of default of payment by the above mentioned Defendant, the Applicant Bank is at liberty to sell the movable / immovable properties more fully described in Schedule of the original application for appropriation of sale proceeds towards the satisfaction of amount due to the Applicant Bank.

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(c) If the sale proceeds are not sufficient, after defraying the expenses of such sale, for the payment of all such amounts, the defendant is personally liable to pay the amount of such deficiency with interest mentioned above until realization.

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

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(e) 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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(f) 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 Cash Credit & 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. Sharmila, LDC, taken down, transcribed, typed by her, corrected and pronounced by me in the Open Court in this the 17^th July, 2026.

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Sd/- (SEEMA SINHA)

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PRESIDING OFFICER

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Uploaded on 24.07.2026

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Page 6 of 6

State Bank of India v. R.Hariharan prop of Tamil Agency

Case brief

What is this about?

What did the court decide?

State Bank of India v. R.Hariharan prop of Tamil Agency

Case brief

What is this about?

What did the court decide?

What the court decided

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