Allowed

Karur Vysya Bank v. Elangovan

DRT30 Jul 2026OA/488/2023

Case brief

AI extract

What is this about?

The Debt Recovery Tribunal allowed the bank's application for recovery of a debt balance. While admitting the claim, the tribunal directed the applicant to deduct capitalized penal interest from the principal before calculating interest, modifying the interest computation frequency to half-yearly rests.

What did the court decide?

Deduction of capitalized penal interest from the claimed outstanding amount; recovery of the balance along with interest at reduced rests.

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

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OA No. 488/2023

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Fair Order

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IN THE DEBTS RECOVERY TRIBUNAL AT MADURAI DATED THIS 30^th DAY OF JULY, 2026 PRESENT: SEEMA SINHA, [PR. DISTRICT & SESSIONS JUDGE – Retd] PRESIDING OFFICER

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OA No. 488/2023

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Between

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The Karur Vysya Bank Ltd., Asset Recovery Branch, R.S. No. 170/9, Uthankudi Village, 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. Elangovan, S/o Mr. S. Pandi, Prop. M/s Roopasri Agencies,

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Plot No. 114, Vasan Nagar, White Avenue, Madurai – 625 018.

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Also at Moondram Pirai Van Services, Munnamalai Complex, Shikkandar Cgavady Main Road, Madurai – 625 018.

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And also at

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Burma Colony, Chinthamani, Madurai – 625 009.

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Mrs. E. Valliyammal, W/o Mr. P. Elangovan, Plot No. 114, Vasan Nagar, White Avenue, Madurai – 625 018.

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Also at Burma Colony, Chinthamani, Madurai – 625 009. --- Defendants

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Page 1 of 10

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OA No. 488/2023

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Counsel for the Applicant Bank : Mr. R. Pandivel.

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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 04.05.2023 to recover from the Defendants a sum Rs. 24,16,105.44 ps (i.e) (i) Rs. 5,24,381.49 ps as on 16.03.2023 to the Applicant Bank with subsequent interest at the rate of 13.15% p.a. with monthly rests plus 3% penal interest from 17.03.2023 towards Housing Loan A/c No. 1750753000000196, and (ii) Rs. 18,91,723.95 ps as on 16.03.2023 to the Applicant Bank with subsequent interest at the rate of 8.45% p.a with monthly rests plus 3% penal interest from 17.03.2023 towards Overdraft Facility A/c No. 1750280000000061 from the date of application till the date of realization with cost and by sale of Hypothecated Goods, 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 defendants approached the applicant bank for availing Overdraft Facility for their business purpose and Housing Loan. The applicant bank has also sanctioned the said Overdraft Facility initially to the limit of Rs.20,00,000/- and Housing Loan for a sum of Rs.23,00,000/-

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Housing Loan

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(a) The Applicant Bank submits that the terms of sanction along with terms & conditions were communicated to the defendants by the applicant bank through its sanction letter dt.13.07.16 and the same was duly accepted by defendants by counter signing the same on 13.07.16. 1^st defendant executed a Demand Promissory Note on 13.07.16 for a sum of Rs.23,00,000/- in favour of the Applicant Bank promising to repay the loan amount on demand with interest at the rate of 10.15% Per annum with monthly rest or at such other rates as may be revised by the Applicant Bank

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Page 2 of 10

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OA No. 488/2023

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from time to time. Defendants have executed Term Loan Agreement for Housing Finance and Letter of Undertaking on 13.07.16 in favour of the Applicant Bank and by promising to repay the loan in 300 monthly installments of Rs. 21,144/-with interest at the rate of 10.15% per annum with monthly rests or at such other rates or rest as may be revised by the applicant bank from time to time with penal interest at the rate of 3% p.a in case of default.

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(b) The Applicant bank submitted that by admitting & acknowledging their liabilities, the defendants issued letters dt. 19.12.20 & 21.12.20 in favour of the applicant bank and made payment on various dates. The defendants have availed the above said Housing Loan as per the particulars mentioned in the Statement of Accounts maintained by the Applicant Bank in the regular course and conduct of business.

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Overdraft Facility

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(a) The Applicant Bank submitted that the terms of sanction along with terms & conditions were communicated to the defendants by the applicant bank through its sanction letter dt.16.10.17 and the same was duly accepted by defendants by counter signing the same on 16.10.17. The 1^st defendant executed a Demand Promissory Note on 16.10.17 for a sum of Rs.20,00,000/- in favour of the Applicant Bank promising to repay the loan amount on demand with interest at the rate of 12.75% Per annum with monthly rest or at such other rates as may be revised by the Applicant Bank from time to time. The 1^st defendant has executed Letter of Continuity dt.16.10.17 in favour of the Applicant Bank containing several undertakings & acceptance with regard to security of pro-note, operation of accounts, Charging of interest, liabilities of the defendants etc., and tendering the said pro-note as continuing security for the said cash credit facility. Further, the 1^st defendant executed Agreement of Secured Overdraft for Fixed Asset dt.16.10.17 by hypothecating goods which are fully described in the schedule hereunder in favour of the Applicant Bank as security for repayment of the said Loan with interest at the rate of 12.75% per annum with monthly rests or at such other rates and rests as may be revised by the Applicant Bank from time to time with penal interest at the rate of 3% p.a. in case of default.

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(b) The Applicant Bank submitted that the 2^nd defendant agreed to stand as Continuing Guarantor for the repayment of the said loan with interest & costs thereon and executed an Agreement of Continuing Guarantee on 16.10.17 in favour of the Applicant Bank. Tshe 1^st defendant has executed revival letters dt.16.09.20 in favour of the applicant bank. Statement of Accounts maintained by the Applicant Bank in the regular course and conduct of business.

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Page 3 of 10

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OA No. 488/2023

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Common to Both loans

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The Applicant Bank submits that in consideration of the above said facility & loan, the 2nd defendant offered her properties as Security and thereby she deposited/re-deposited her Title Deeds on 12.07.16 & 10.10.17 with the Applicant Bank pertaining to her properties with an intention to create an Equitable Mortgage over the said properties. To evidence the said fact as well as by confirming the same, the 2nd defendant executed Registered Memorandum of Deposit of title deeds dt. 13.07.16 & 11.10.17 pertaining to her properties in favour of the Applicant Bank.

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(ii) The Applicant Bank submits that the defendants have not repaid the loans as agreed and promised by them. The defendants have committed default in repaying the loan amount with interest & costs. Hence the Applicant Bank issued demand notice on 28.12.18 and recall notice on 17.07.19. Even after the receipt of the said notices the defendants have not repaid the loan amount. Despite repeated demands made by the Applicant Bank the defendants did not take any sincere steps to discharge the loan. Hence the applicant bank sold the mortgage properties under the SARFAESI Act and thereby the sale proceeds were adjusted & appropriated towards the loan account. The applicant bank further submits that after crediting the sale proceeds yet there is a balance amount payable by the defendants. Despite the repeated demands, the defendants have not repaid the balance amount. Hence the applicant bank is constrained to file this original application for recovery of the balance loan amount.

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(iii) The Applicant Bank submitted that as per the books of account maintained by the Applicant Bank in regular course and conduct of the business, the defendants have to pay a sum of Rs.5,24,381.49 as on 16.03.23 with subsequent interest at the rate of 13.15% P.A with monthly rests plus 3% penal interest from 17.03.23 till the date of realisation and costs thereon towards Housing Loan.

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The Applicant Bank submitted that as per the books of account maintained by the Applicant Bank in regular course and conduct of the business, the defendants have to pay a sum of Rs. 18,91,723.95 as on 16.03.23 with subsequent interest at the rate of 8.45% P.A with monthly rests plus 3% penal interest from 17.03.23 till the date of realisation and costs thereon towards Overdraft Facility.

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(iv) The Applicant Bank submitted that the defendants have agreed to pay interest at such rates as fixed by the Applicant Bank from time to time. The present rate of interest is stated above. It is submitted that the interest has

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Page 4 of 10

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OA No. 488/2023

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been charged as permitted by the Reserve Bank of India and do not run counter to the directives of the Reserve Bank of India.

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(v) The Applicant Bank submits that the liability of the 2^nd defendant as Continuing Guarantor is Co-extensive with that of the principal debtor, namely the 1^st defendant. Hence 2^nd defendant is jointly and severally liable to repay the loan with interest and cost to the Applicant Bank.

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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. 24,16,105.44 ps (i.e) (i) Rs. 5,24,381.49 ps as on 16.03.2023 to the Applicant Bank with subsequent interest at the rate of 13.15% p.a. with monthly rests plus 3% penal interest from 17.03.2023 towards Housing Loan A/c No. 1750753000000196, and (ii) Rs. 18,91,723.95 ps as on 16.03.2023 to the Applicant Bank with subsequent interest at the rate of 8.45% p.a with monthly rests plus 3% penal interest from 17.03.2023 towards Overdraft Facility A/c No. 1750280000000061 from the date 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.	Date	Description of document	Exhi	bits
No.		Housing Loan
1.	13.07.16	Sanction Letter along with Terms & Conditions countersigned by the defendants in favour of the Applicant Bank	Ex. No.	A-01
2.	13.07.16	Demand Promissory Note executed by the defendants in favour of the Applicant Bank	Ex. No.	A-02
3.	13.07.16	Term Loan Agreement for Housing Loan executed by the defendants in favour of the Applicant Bank	Ex. No.	A-03
4.	13.07.16	Letter of Undertaking executed by the defendants in favour of the Applicant Bank	Ex. No.	A-04
5.	19.12.20	Letter issued by the defendants to the Applicant Bank	Ex. No.	A-05
6.	21.12.20	Letter issued by the defendants to the Applicant Bank	Ex. No.	A-06
7.	17.07.19	Recall Notice issued by the Applicant Bank to the defendants	Ex. No.	A-07
8.	—	Statement of Accounts maintained by the Applicant Bank in the regular course and conduct of business.	Ex. No.	A-08

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Page 5 of 10

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OA No. 488/2023

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		Overdraft Facility
9.	16.10.17	Sanction Letter along with Terms & Conditions countersigned by the defendants in favour of the Applicant Bank	Ex. No. A-09
10.	16.10.17	Demand Promissory Note executed by the 1^stdefendant in favour of the Applicant Bank	Ex. No. A-10
11.	16.10.17	Letter of Continuity executed by the 1^st defendant in favour of the Applicant Bank	Ex. No. A-11
12.	16.10.17	Agreement for Overdraft – Fixed Asset executed by the 1st defendant in favour of the Applicant Bank	Ex. No. A-12
13.	16.10.17	Agreement of Continuing Guarantee executed by the 2nd defendant in favour of the Applicant Bank	Ex. No. A-13
14.	16.09.20	Revival Letter executed by the 1st defendant in favour of the Applicant Bank	Ex. No. A-14
15.	28.12.18	Demand Notice issued by the Applicant Bank to the defendants	Ex. No. A-15
16.	—	Statement of Accounts maintained by the Applicant Bank in the regular course and conduct of business	Ex. No. A-16
		Common to both Loans
17.	13.07.16	Registered memorandum of deposit of title deeds executed by the 2nd defendant in favour of the applicant bank (DOL. NO. 6635/2016)	Ex. No. A-17
18.	11.10.17	Registered memorandum of deposit of title deeds executed by the 2nd defendant in favour of the applicant bank (DOC-NO- 1080/2017)	Ex. No. A-18
19.	11.10.17	Registered memorandum of deposit of title deeds executed by the 2nd defendant in favour of the applicant bank (DOC NO. 8012/2017)	Ex. No. A-19

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SCHEDULE OF HYPOTHECATED PROPERTIES

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Item No.1:

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All Current Assets and Stocks and Goods etc., all stored & kept at Moondram Pirai Van Services, Munnamalai Complex, Shikkandar Chavady Main Road, Madurai – 625 018 and also at Burma Colony, Chinthamani, Madurai – 625 009.

Page 6 of 10

OA No. 488/2023

Item No. 2

All Book Debts, Outstandings, Money Receivables, Claims and Bills due and owing to the 1^st Defendant.

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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 Housing Loan and Overdraft Facility 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-19 in support of its claim in the OA.

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Sanction Letter along with Terms & Conditions countersigned by the defendants in favour of the Applicant Bank dated 13.07.2016 has been marked as Ex. No. A-01 . Demand Promissory Note executed by the defendants in favour of the Applicant Bank dated 13.07.2016 has been marked as Ex. No. A-02 . Term Loan Agreement for Housing Loan executed by the defendants in favour of the Applicant Bank dated 13.07.2016 has been marked as Ex. No. A-03 . Letter of Undertaking executed by the defendants in favour of the Applicant Bank dated 13.07.2016 has been marked as Ex. No. A-04 . Letter issued by the defendants to the Applicant Bank dated 19.12.2020 has been marked as Ex. No. A-05 . Letter issued by the defendants to the Applicant Bank dated 21.12.2020 has been marked as Ex. No. A-06 . Recall Notice issued by the Applicant Bank to the defendants dated 17.07.2019 has been marked as Ex. No. A-07 . Statement of Accounts maintained by the Applicant Bank in the regular course and conduct of business has been marked as Ex. No. A-08 .

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Page 7 of 10

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OA No. 488/2023

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Sanction Letter along with Terms & Conditions countersigned by the defendants in favour of the Applicant Bank dated 16.10.2017 has been marked as Ex. No. A-09 . Demand Promissory Note executed by the 1st defendant in favour of the Applicant Bank dated 16.10.2017 has been marked as Ex. No. A-10 . Letter of Continuity executed by the 1st defendant in favour of the Applicant Bank dated 16.10.2017 has been marked as Ex. No. A-11 . Agreement for Overdraft – Fixed Asset executed by the 1st defendant in favour of the Applicant Bank dated 16.10.2017 has been marked as Ex. No. A-12 . Agreement of Continuing Guarantee executed by the 2nd defendant in favour of the Applicant Bank dated 16.10.2017 has been marked as Ex. No. A-13 . Revival Letter executed by the 1st defendant in favour of the Applicant Bank dated 16.09.2020 has been marked as Ex. No. A-14 . Demand Notice issued by the Applicant Bank to the defendants dated 28.12.2018 has been marked as Ex. No. A-15 . Statement of Accounts maintained by the Applicant Bank in the regular course and conduct of business has been marked as Ex. No. A-16 .

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Registered Memorandum of Deposit of Title Deeds executed by the 2nd defendant in favour of the Applicant Bank (Doc. No. 6635/2016) dated 13.07.2016 has been marked as Ex. No. A-17 . Registered Memorandum of Deposit of Title Deeds executed by the 2nd defendant in favour of the Applicant Bank (Doc. No. 1080/2017) dated 11.10.2017 has been marked as Ex. No. A-18 . Registered Memorandum of Deposit of Title Deeds executed by the 2nd defendant in favour of the Applicant Bank (Doc. No. 8012/2017) dated 11.10.2017 has been marked as Ex. No. A-19 .

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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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In this OA, from Perusal of Statement of Accounts (Ex. No. A-08), 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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Page 8 of 10

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OA No. 488/2023

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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. 24,16,105.44 ps (i.e) (i) Housing Loan (A/c No. 1750753000000196) amount of Rs. 5,24,381.49 ps and the Applicant Bank shall be entitled to recover only the balance amount due after such deduction, together with interest at the rate of 13.15% p.a. with half yearly rests, and (ii) towards Overdraft Facility (A/c No. 1750280000000061) amount of Rs. 18,91,723.95 ps with subsequent interest at the rate of 8.45% p.a with half yearly rests from the date 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 Defendants are directed personally / jointly / severally to pay the outstanding amount to the Applicant Bank for a sum o f Rs. 24,16,105.44 ps (i.e)

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(i) Housing Loan (A/c No. 1750753000000196) amount of Rs. 5,24,381.49 ps and the Applicant Bank shall be entitled to recover only the balance amount due after such deduction, together with interest at the rate of 13.15% p.a. with half yearly rests , and

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(ii) towards Overdraft Facility (A/c No. 1750280000000061) amount of Rs. 18,91,723.95 ps with subsequent interest at the rate of 8.45% p.a with half yearly rests

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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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Page 9 of 10

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OA No. 488/2023

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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 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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(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 Housing Loan and Overdraft Facility 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 30^th July, 2026.

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Sd/-

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(SEEMA SINHA) PRESIDING OFFICER

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Uploaded on 04.08.2026

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Karur Vysya Bank v. Elangovan

Case brief

What is this about?

What did the court decide?

Karur Vysya Bank v. Elangovan

Case brief

What is this about?

What did the court decide?

What the court decided

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