Allowed

Tamilnad Mercantile Bank Limited v. M Karthick Rajaa

DRT21 Jul 2026OA/501/2022

Case brief

AI extract

What is this about?

The Deputy DRT allowed an Original Application by Tamilnad Mercantile Bank Limited to recover a term loan. The tribunal accepted the bank's evidence but directed deduction of capitalized penal interest not permitted by RBI guidelines. The order granted recovery of the balance amount along with interest.

What did the court decide?

Respondents to pay outstanding amount after deducting capitalized penal interest, with interest at 10.20% p.a., failing which secured properties can be sold.

Tamilnad Mercantile Bank Limited versus M Karthick Rajaa — Specific Performance | DRT (2026)

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OA No. 501/2022

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Fair Order

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IN THE DEBTS RECOVERY TRIBUNAL AT MADURAI DATED THIS 21^ST DAY OF JULY, 2026 PRESENT: SEEMA SINHA,

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[PR. DISTRICT & SESSIONS JUDGE – Retd] PRESIDING OFFICER

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OA No.501/2022

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Between

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Tamilnad Mercantile Bank Limited, Thoothukudi SME Branch, 48 D & C, 7^th Street(Middle), Briyant Nagar, Thoothukudi - 628 008 Rep. by its Branch Manager.

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---Applicant Bank

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And

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Mr.M. Karthick Rajaa, S/o. V. Mariappan, No.2F/1503, Asirvatha Nagar, P & T Colony Extension, Thoothukudi – 628 008

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Also at

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2F/563, P & T Colony 12th Street, Thoothukudi – 628 008

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Mr.V. Mariappan, S/o. Velusamy, No.2F/1503, Asirvatha Nagar, P & T Colony Extension, Thoothukudi – 628 008

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Also at

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2F/563, P & T Colony 12th Street, Thoothukudi – 628 008

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Page 1 of 7

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OA No. 501/2022

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Mr.Kamaraj Balasubramanian, S/o. Balasubramanian, 81/9F/1F, 6th Street, Muthukrishnapuram, Thoothukudi – 628 001 ---- Defendants

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Counsel for the Applicant Bank : M/s T Thevan

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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 25.05.2022 to recover from the Defendants a sum of Rs.30,75,328/- together with interest at the rate of 10.20 % p.a. with monthly rests plus penal interest at the rate of 2 % 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 1^st defendant has approached the applicant bank on 02.08.2017 seeking a Term Loan facility to purchase a truck for commercial use. The 1^st defendant has approached the applicant bank on 31.05.2019 seeking request to restructure the credit facility already availed. In consideration of the request made by the 1^st defendant a Term Loan facility for Rs.23,50,000/(Rupees Twenty-Three Lakhs Fifty Thousand Only) was sanctioned to the 1st defendant by the Applicant Bank on 31.05.2019.

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The 1^st defendant executed a Demand Promissory Note on 31.05.2019 for a sum of Rs.23,50,000/- (Rupees Twenty-Three Lakhs Fifty Thousand Only) in favour of the Applicant Bank in consideration of the said Term Loan facility as a continuing security promising to repay the loan amount on

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Page 2 of 7

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OA No. 501/2022

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demand with compound interest at the rate of 10.20% per annum from this date and at the bank's ruling rate prevailing from time to time with monthly rests. In case of default they have agreed to charge 2% penal interest in addition to the above rate of interest. The 1^st defendant had executed demand promissory note take delivery letter and had also waived the presentment thereof on 31.05.2019 in favour of the applicant bank.

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The 1^st defendant had executed undertaking letter to keep the demand promissory note as part and parcel of security documents. On 31.05.2019 the 1^st defendant had executed Term Loan agreement and thereby he had agreed with all the terms and conditions of the bank. According to that agreement he had agreed to repay Rs.23,50,000/-(Rupees Twenty-Three Lakhs Fifty Thousand Only) in 60 monthly installments of Rs.39,167/- and the first installment commence from 30.06.2019. The applicant had undertaken in event of default of anyone installment as per the agreement the bank is at liberty to demand the entire loan amount immediately.

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The 1st Defendant executed a Hire Purchase Agreement on 31.05.2019 wherein he had hypothecated New Mahindra Blazo 31 Cowl 9 Speed Chassis Mode vehicle bearing registration number TN 69 BD 6021 which is mentioned in A schedule herein and agreed with all the terms and conditions of the applicant bank. On 31.05.2019 the 2^nd and 3^rd defendants had given consent letter in favour of the bank to stood as guarantor for the credit facility availed by the 1stdefendant. They had also executed guarantee agreement in favour of the applicant bank.

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The 1^st Defendant failed to repay the Term Loan in accordance with the terms and conditions of the loan and thereby committed default in repayment of the loan amount together with interest and other charges. Despite repeated demands made by the Applicant Bank, the Defendants failed to take any sincere steps to discharge the loan liability. Consequently, the loan account was classified as a Non-Performing Asset (NPA) on 31.12.2019.

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Hence, the Applicant Bank has filed the OA for recovery of a sum of Rs.30,75,328/- together with interest at the rate of 10.20 % p.a. with monthly rests plus penal interest at the rate of 2 % 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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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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Page 3 of 7

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OA No. 501/2022

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Sl. No.	Date	Particulars	Exhibit No.
1.	31.05.2019	Sanction intimation Letter	Ex. No. A-01
2.	31.05.2019	Requisition to avail the loan	Ex. No. A-02
3.	31.05.2019	Demand promissory Note	Ex. No. A-03
4.	31.05.2019	Take delivery letter	Ex. No. A-04
5.	31.05.2019	Loan agreement	Ex. No. A-05
6.	31.05.2019	Hire purchase agreement	Ex. No. A-06
7.	31.05.2019	Hypothecation agreement	Ex. No. A-07
8.	31.05.2019	Guarantee agreement	Ex. No. A-08
9.	30.09.2019	Balance confirmation letter	Ex. No. A-09
10.	31.03.2020	Balance confirmation letter	Ex. No. A-10
11.	19.02.2020	Reminder letter	Ex. No. A-11
12.	03.03.2020	Reminder letter	Ex. No. A-12
13.	14.03.2020	Legal Notice	Ex. No. A-13
14.	—	Account statement	Ex. No. A-14

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“A” SCHEDULE

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HYPOTHICATED VEHICLE

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Mahindra Blazo 31 cowl 9 speed Chassis Mode Vehicle bearing registration number TN 69 BD 6021

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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. Chairman Durai, who is the Manager of the Applicant Bank.

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Page 4 of 7

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OA No. 501/2022

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He has stated in his affidavit that the defendants have availed Term Loans 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 signed by the defendants at the time of sanctioning the loan amount, which have been marked as exhibits No.A-01 to A-14 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 Sanction Intimation letter dated 31.05.2019 was marked as Ex.No.A-01; the Requisition to Avail the Loan dated 31.05.2019 was marked as Ex.No.A02; the Demand Promissory Note dated 31.05.2019 was marked as Ex.No.A03; the Take Delivery Letter dated 31.05.2019 was marked as Ex.No.A-04; the Loan Agreement dated 31.05.2019 was marked as Ex.No.A-05; the Hire Purchase Agreement dated 31.05.2019 was marked as Ex.No.A-06; the Hypothecation Agreement dated 31.05.2019 was marked as Ex.No.A-07; the Guarantee Agreement dated 31.05.2019 was marked as Ex.No.A-08; the Balance Confirmation Letter dated 30.09.2019 was marked as Ex.No.A-09; the Balance Confirmation Letter dated 31.03.2020 was marked as Ex.No.A10; the Reminder Letter dated 19.02.2020 was marked as Ex.No.A-11; the Reminder Letter dated 03.03.2020 was marked as Ex.No.A-12; the Legal Notice dated 14.03.2020 was marked as Ex.No.A-13; and the Statement of Account was marked as Ex.No.A-14.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-14, I find that the applicant bank has capitalized the penal interest in the 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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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

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Page 5 of 7

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OA No. 501/2022

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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 Term Loan amount of Rs.30,75,328/-, and the Applicant Bank shall be entitled to recover only the balance amount due after such deduction, together with interest at the rate of 10.20% p.a. with halfyearly rests from the date of filing of the Application till the date of realization with costs . A ccordingly, it is hereby

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ORDERED

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(a) That the Defendants 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.30,75,328/-, together with interest at the rate of 10.20% p.a. with halfyearly rests from the date of filing of the Application till the date of realization with costs 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 / 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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Page 6 of 7

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OA No. 501/2022

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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 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 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 21^{st July} , 2026.

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Sd/- (SEEMA SINHA) PRESIDING OFFICER

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Uploaded on 31.07.26

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Page 7 of 7

Tamilnad Mercantile Bank Limited v. M Karthick Rajaa

Case brief

What is this about?

What did the court decide?

Tamilnad Mercantile Bank Limited v. M Karthick Rajaa

Case brief

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