Allowed

Karur Vysya Bank v. Kannan S

DRT28 Jul 2026OA/225/2023

Case brief

AI extract

What is this about?

The Debts Recovery Tribunal allowed the bank's recovery application but directed the deduction of capitalized penal interest from the claimed amount, citing RBI guidelines and Supreme Court precedent prohibiting capitalization of penalties.

What did the court decide?

Deduction of capitalized penal interest from the claimed sum of Rs. 50,56,053.05; recovery of the balance with future simple interest on WC Loan at 14.25% p.a. and on Green Card Loan at 6% p.a.

Karur Vysya Bank versus Kannan S — Specific Performance | DRT (2026)

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OA No. 225/2023

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Fair Order

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IN THE DEBTS RECOVERY TRIBUNAL AT MADURAI DATED THIS 28^th DAY OF JULY, 2026 PRESENT: SEEMA SINHA, [PR. DISTRICT & SESSIONS JUDGE – Retd] PRESIDING OFFICER

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OA No. 225/2023

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Between

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The Karur Vysya Bank Ltd., Asset Recovery Branch, Madurai – 625 107. Rep. by its Senior Manager. --- Applicant Bank

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And

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Mr. S. Kannan, S/o Subbaiyan,

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Ward No. 10, Amuthamuthu Street, Hanumanthanpatty Village,

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Uthamapalayam Taluk, Theni District.

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Mrs. K. Dhanalakshmi, W/o S. Kannan, Ward No. 10, Amuthamuthu Street, Hanumanthanpatty Village,

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Uthamapalayam Taluk, Theni District.

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Mr. S.K. Bose, S/o Kanagaraj, East Street. Gikilapuram Village,

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Uthamapalayam Taluk, Theni District. --- Defendants

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Counsel for the Applicant Bank : Mr. M. Muthukumaran.

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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:

Page 1 of 11

OA No. 225/2023

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 20.02.2025 to recover from the Defendants a sum of Rs. 50,56,053.05ps with subsequent interest as under:-

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(i) Rs. 31,96,106.35ps as on 01.01.2023 towards Working Capital Term Loan (A/c No. 1148761000000137) with subsequent interest at the rate of 14.25 % p.a. with Monthly Rest plus 3% Penal Interest and

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(ii) Rs. 18,59,946.70ps as on 31.01.2023 towards KVB Greed Card Loan (A/c No. 1148272000000761) with subsequent interest at the rate of 11.50 % p.a. with Monthly Rest plus 3% Penal Interest,

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from the date of filing of Application till the date of realization with cost and by sale of Hypothecated Goods / Mortgaged 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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(i). The applicant bank submitted that the 1st Defendant had availed Working Capital Term Loan of Rs.10,00,000/- and KVB Green Card of Rs.5,00,000/- and the same were sanctioned by the applicant bank to the 1st Defendant. The 2^nd defendant stood as guarantor for the KVB Green Card Loan availed by the 1^st defendant and 3^rd defendant stood as Guarantor for the Working Capital Term Loan availed by the 1^st defendant. The defendants Working Capital Term Loan account number is 1148761000000137 and KVB Green Card account number is 1148272000000761. The details of the credit facility is as follows:

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SL. No	Type of Loan	Date of Loan	Loan amount	Date of execution of documents
1	Working Capital Term Loan	01.11.2013	Rs.10,00,000/-	01.11.2013
2	KVB Green Card	30.01.2014	Rs.5,00,000/-	30.01.2014

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Page 2 of 11

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OA No. 225/2023

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(ii) The Defendants executed necessary loan documents in favour of the Applicant Bank and the 1 defendant had mortgaged his properties and to abide by the terms of the Bank that may be stipulated by the Applicant Bank in the matter of repaying the amounts availed under the said accounts and the interest accrued there under. The details of the interest, repayment and present outstanding as follows:

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S. No.	Name of loan	Rate of interest	Repayment schedule	Outstanding Loan amount
1	Working Capital Term Loan	14.25% + 3% PI	20 Quarterly instalments of Rs.67,150.84	Rs. 31,96,106.35 As on 01.01.2023
2	KVB Green Card	11.50% + 3% PI	Running Limit upto 25.04.2014	Rs, 18,59, 946.70 As on 31.01.2023
			Total =	Rs. 50,56,053.05

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(iii) The Applicant submitted that the 1^st defendant had hypothecated the Schedule "A" properties and created mortgage over his Schedule "B" properties by deposit of title deeds and in favour of applicant bank.

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DETAILS OF THE MORTGAGED PROPERTIES

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Mortgagors	: S. Kannan
Mortgagee	: The Karur Vysya Bank Limited, Kombai Branch, Theni District.
Date of Mortgage	: 18.10.2013 & 24.01.2014
Rate of Interest	: 14.25% p.a
Details of Properties	: As per Schedule "B"

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(iv) The applicant bank submitted that as per the accounts of the Applicant maintained in the name of the Defendants, kept in their regular course of business and as certified under the Bankers Books of Evidence Act, As on 31.01.2023 for a sum of Rs. 50,56,053.05 ps has become due and to be liable to pay the said amounts with future interest till realization.

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(v) The Applicant bank submits that the Defendants though have availed the entire sanctioned housing and crop loans and they have not chosen to repay the loan amounts as agreed, despite the repeated demands and reminders by the Applicant Bank.

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Page 3 of 11

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OA No. 225/2023

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(vi) Despite repeated demands and reminders, made by the Applicant Bank, the Defendants have failed and neglected to repay and adjust their liability. Hence, the Applicant Bank has filed the OA for recovery of a sum of Rs. 50,56,053.05ps with subsequent interest as under:-

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(i) Rs. 31,96,106.35ps as on 01.01.2023 towards Working Capital Term Loan (A/c No. 1148761000000137) with subsequent interest at the rate of 14.25 % p.a. with Monthly Rest plus 3% Penal Interest and

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(ii) Rs. 18,59,946.70ps as on 31.01.2023 towards KVB Greed Card Loan (A/c No. 1148272000000761) with subsequent interest at the rate of 11.50 % p.a. with Monthly Rest plus 3% Penal Interest,

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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	18.10.2013	Memorandum of Deposit of Title Deeds	Ex. No. A-01
2	01.11.2013	Loan Application for Working Capital Term Loan	Ex. No. A-02
3	01.11.2013	MDP Sanction Communication	Ex. No. A-03
4	01.11.2013	Demand PromissoryNote	Ex. No. A-04
5	01.11.2013	WorkingCapital Term Loan Agreement	Ex. No. A-05
6	01.11.2013	Guarantee Agreement executed by 3^rd Defendant	Ex. No. A-06
7	01.11.2013	Letter of Waiver of Notice in case of revision in rate of interest	Ex. No. A-07
8	24.01.2014	Agreement relating to Deposit of Title Deeds for Additional/Enhancement Loan	Ex. No. A-08
9	30.01.2014	Sanction Letter	Ex. No. A-09
10	30.01.2014	Demand PromissoryNote	Ex. No. A-10
11	30.01.2014	Hypothecation Agreement	Ex. No. A-11
12	30.01.2014	Guarantor’s Consent Letter	Ex. No. A-12
13	30.01.2014	Agreement of Guarantee	Ex. No. A-13
14	30.01.2014	Letter of Waiver of Notice in case of revision in rate of interest	Ex. No. A-14
15	30.01.2014	Borrower’s Consent Letter	Ex. No. A-15
16	30.01.2014	Letter of Continuity	Ex. No. A-16
17	18.01.2017	Revival Letter	Ex. No. A-17

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Page 4 of 11

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18	---	Account Statement for Working Capital Loan	OA No Ex. No.	. 225/2023 A-18
19	---	Account Statement for KVB Green Card Loan	Ex. No.	A-19
20	---	Account Statement for KVB Green Card Loan	Ex. No.	A-20
21	09.02.2009	Sale Deed executed by R, Dinesh Kumar in favour of S. Kannan in D. No. 349/2009	Ex. No.	A-21
22	10.10.1994	Gift Deed executed by S. Ravi in favour of R. Dinesh Kumar in D. No. 1532/1994	Ex. No.	A-22
23	17.06.1992	Partition Deed among S. Ravi and others in D. No. 948/1992	Ex. No.	A-23
24	26.08.1983	Sale Deed executed by Varadharaj in favour of Renganathan in D. No. 1023/1983	Ex. No.	A-24
25	26.081983	Sale Deed executed by Varadharaj in favour of Seshathri in D. No. 1024/1983	Ex. No.	A-25
26	03.12.1983	Released Deed executed by Varadharaj in favour of Subbaiah Naidu in D. No. 1393/1983	Ex. No.	A-26
27	04.04.2013	Kist Receipt No. 214908 issued by VAO, Hanumamthanpatti for Fasli 1422	Ex. No.	A-27
28	05.04.2013	Extract of Field Map issued by VAO, Hanumamthanpatti	Ex. No.	A-28
29	05.04.2013	Computerised Patta issued by Deputy Tahsildhar, Uthamapalayam	Ex. No.	A-29
30	05.04.2013	Possession Certificate issued by VAO, Hanumamthanpatti in the name of S. Kannan	Ex. No.	A-30
31	05.04.2013	“A” Register issued by VAO, Hanumamthanpatti	Ex. No.	A-31
32	05.04.2013	Adangal Extract issued by VAO, Hanumamthanpatti	Ex. No.	A-32
33	28.03.2013	Encumbrance Certificate No. 635/2013 for the Period from 01.01.1982 to 31.12.1986 issued by SRO, Uthamapalayam	Ex. No.	A-33
34	21.02.2013	Encumbrance Certificate No. 331/2013 for the Period from 01.01.1987 to 11.02.2013 issued by SRO, Uthamapalayam	Ex. No.	A-34

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Page 5 of 11

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OA No. 225/2023

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SCHEDULE OF PROPERTIES

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SCHEDULE – “A” Hypothecated Properties

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ITEM No. 1 :

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Hypothecation of Stocks (Coconuts)

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ITEM No.2:

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Hypothecation of coconut crops already grownup and to be grown in Schedule "B" properties

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SCHEDULE-"B" Mortgaged Property

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ITEM No.1

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Periyakulam Registration District, Uthamapalayam Sub-Registration District, Hanumanthanpatti Village, an extent of 05 cents (0-02-0 hect.) (2180 sq.ft.) at the western tail end out of 24-2/5 Cents on the southern side next of northern side out of 1 Acre 22 Cents comprised in S.No.412 with all its usual pathway rights, cart track rights, etc. situate at Hanumanthanpatti Village, Uthamapalayam Sub-Registration District. Periyakulam Registration District

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Boundaries:

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North : Site allotted to Thulasi East : Site belonging to Kannan South : 10 ft.wide east to west road on the Cumbum Main Road to Canal West : Site belonging to Kannan

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ITEM No.2:

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Periyakulam Registration District, Uthamapalayam Sub-Registration District, Hanumanthanpatti Village, an extent of 02 cents (872 sq.ft.) in the middle out of 24 2/5 cents on the southern side next of northern side out of 1 Acre 22 Cents comprised in S.No.412 with all its usual pathway rights, cart track rights, etc. situate at Hanumanthanpatti Village. Uthamapalayam Sub-Registration District, Periyakulam Registration District

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Boundaries:

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West : Site belonging to Kannan East : Site belonging to Dinesh kumar South : 10 wide cast to west road upto the Canal North : Site allotted to Tulasi

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Total 7 cents of Punja Lands.

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Page 6 of 11

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OA No. 225/2023

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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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5. 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 Working Capital Term Loan and KVB Green Card Loan from the Applicant Bank, but they failed to pay the outstanding loan amount, hence he has filed the case. The applicant bank has also filed the documents given by the defendants at the time of sanctioning the loan amount, which have been marked as Exhibits Nos. A-01 to A-34 in support of its claim in the OA.

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Defendants availed the Working Capital Term Loan for Rs. 10,00,000/- and KVB Green Card Loan for Rs. 5,00,000/- and the Applicant Bank also sanctioned the said loans. The defendants have agreed to abide by all terms and conditions of the Applicant Bank and also executed the loan documents in favour of the Applicant Bank. Memorandum of Deposit of Title Deeds has been marked as Ex. No. A-01. The Loan application for Working Capital Loan has been marked as Ex. No. A-02. MDP Sanction Communication has been marked as Ex. No. A-03. Demand Promissory Note dated 01.11.2013 has been marked as Ex. No. A-04. Working Capital Term Loan Agreement dated 01.11.2013 has been marked as Ex. No. A-05. Guarantee Agreement executed by the 3^rd Defendant dated 01.11.2013 has been marked as Ex. No. A-06. Letter of Waiver of Notice in case of Revision in Rate of Interest dated 01.11.2013 has been marked as Ex. No. A-07.

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Agreement relating to Deposit of Title Deeds for Additional / Enhancement Loan dated 24.01.2014 has been marked as Ex. No. A-08. Sanction Letter dated 30.01.2014 has been marked as Ex. No. A-09. Demand Promissory Note dated 30.01.2014 has been marked as Ex. No. A- 10. Hypothecation Agreement dated 30.01.2014 has been marked as Ex. No. A-11. Guarantor's Consent Letter dated 30.01.2014 has been marked as Ex. No. A-12. Agreement of Guarantee dated 30.01.2014 has been marked as Ex. No. A-13. Letter of Waiver of Notice in case of Revision in Rate of Interest dated 30.01.2014 has been marked as Ex. No. A-14. Borrower's Consent Letter dated 30.01.2014 has been marked as Ex. No. A-15. Letter of Continuity dated 30.01.2014 has been marked as Ex. No. A-16.

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Page 7 of 11

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OA No. 225/2023

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Revival Letter dated 18.01.2017 has been marked as Ex. No. A-17. Account Statement for Working Capital Loan has been marked as Ex. No. A-18, Account Statement for KVB Green Card Loan has been marked as Ex. No. A-19. Account Statement for KVB Green Card Loan has been marked as Ex. No. A-20.

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Sale Deed executed by R. Dinesh Kumar in favour of S. Kannan in Document No. 349/2009 dated 09.02.2009 has been marked as Ex. No. A-21. Gift Deed executed by S. Ravi in favour of R. Dinesh Kumar in Document No. 1532/1994 dated 10.10.1994 has been marked as Ex. No. A-22. Partition Deed executed among S. Ravi and others in Document No. 948/1992 dated 17.06.1992 has been marked as Ex. No. A-23. Sale Deed executed by Varadharaj in favour of Renganathan in Document No. 1023/1983 dated 26.08.1983 has been marked as Ex. No. A-24. Sale Deed executed by Varadharaj in favour of Seshathri in Document No. 1024/1983 dated 26.08.1983 has been marked as Ex. No. A-25. Release Deed executed by Varadharaj in favour of Subbaiah Naidu in Document No. 1393/1983 dated 03.12.1983 has been marked as Ex. No. A-26. Kist Receipt No. 214908 issued by the VAO, Hanumamthanpatti for Fasli 1422 dated 04.04.2013 has been marked as Ex. No. A-27. Extract of Field Map issued by the VAO, Hanumamthanpatti dated 05.04.2013 has been marked as Ex. No. A-28. Computerised Patta issued by the Deputy Tahsildhar, Uthamapalayam dated 05.04.2013 has been marked as Ex. No. A-29. Possession Certificate issued by the VAO, Hanumamthanpatti in the name of S. Kannan dated 05.04.2013 has been marked as Ex. No. A-30. "A" Register issued by the VAO, Hanumamthanpatti dated 05.04.2013 has been marked as Ex. No. A-31. Adangal Extract issued by the VAO, Hanumamthanpatti dated 05.04.2013 has been marked as Ex. No. A-32. Encumbrance Certificate No. 635/2013 for the period from 01.01.1982 to 31.12.1986 issued by the Sub-Registrar Office, Uthamapalayam dated 28.03.2013 has been marked as Ex. No. A-33. Encumbrance Certificate No. 331/2013 for the period from 01.01.1987 to 11.02.2013 issued by the SubRegistrar Office, Uthamapalayam dated 21.02.2013 has been marked as Ex. No. A-34.

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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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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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Page 8 of 11

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OA No. 225/2023

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In this OA, from Perusal of Statement of Accounts (Ex. No. A-18), I find that Applicant Bank has capitalized the penal interest in the loan account of the defendants, 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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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 a mount of Rs. 50,56,053.05ps (i.e) (i) Working Capital Loan (A/c No. 1148761000000137) amount of 31,96,106.35ps and the Applicant Bank shall be entitled to recover only the balance amount due after such deduction, together with interest at the rate of 14.25% p.a. with half yearly rests, and (ii) KVB Green Card Loan (A/c No. 1148272000000761) amount of Rs. 18,59,946.70ps with subsequent interest at the rate of 6% p.a with Simple Interest from the date of application till the date of realization with cost. Accordingly, it is hereby

Page 9 of 11

OA No. 225/2023

ORDERED

(a) That the Defendants are directed personally/jointly/severally to pay a sum of Rs. 50,56,053.05ps (i.e)

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(i) Working Capital Loan (A/c No. 1148761000000137) amount of 31,96,106.35ps and the Applicant Bank shall be entitled to recover only the balance amount due after such deduction, together with interest at the rate of 14.25% p.a. with half yearly rests, and

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(ii) (ii) KVB Green Card Loan (A/c No. 1148272000000761) amount of Rs. 18,59,946.70ps with subsequent interest at the rate of 6% p.a with Simple Interest from the date of application till the date of realization with cost within one month from the date of receipt of this order.

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(b) In case of default of payment by the above mentioned Defendants, the Applicant Bank is at liberty to sell the movable and 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 defendants are personally/jointly/severally 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 defendants.

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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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Page 10 of 11

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OA No. 225/2023

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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 Working Capital Term Loan and KVB Green Card 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 SKP (Typist), taken down, transcribed, typed by her, corrected and pronounced by me in the Open Court in this the 28^th July, 2026.

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Sd/- (SEEMA SINHA) PRESIDING OFFICER

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Uploaded on 04.08.2026

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Page 11 of 11

Karur Vysya Bank v. Kannan S

Case brief

What is this about?

What did the court decide?

Karur Vysya Bank v. Kannan S

Case brief

What is this about?

What did the court decide?

What the court decided

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