The Debt Recovery Tribunal upheld the bank's claim for approximately Rs. 26.21 crores against the borrower and mortgagor, holding the lessee liable. Interest rates were reduced from 13.70% to 11.40% to avoid capitalization of penal interest.
Defendant D-1 directed to pay Rs.26,21,290.33 with interest at 11.40% p.a.; bank allowed to sell properties for recovery.
This page shows the compact analysis of this judgement. The full analysis — procedural history, issue-by-issue holdings with ratio and obiter, advocates, and paragraph-level evidence for every claim — is being added to the record in batches and will appear here when this judgement has been through it.
OA No. 79/2025
Fair Order
IN THE DEBTS RECOVERY TRIBUNAL AT MADURAI DATED THIS 06th DAY OF JULY, 2026 PRESENT: SEEMA SINHA,
[PR. DISTRICT & SESSIONS JUDGE – Retd] PRESIDING OFFICER
OA No.79/2025
Between
Bank of Baroda, Annanagar Branch, HIG 16, 80 Feet Road, Annanagar, Madurai-625 020 Rep. by its Chief Manager.
---Applicant Bank
And
Also at
Door No. 41/42, Kulamangalam Main Road, Poonthamalle Nagar, Sellur, Madurai- 625 002
Page 1 of 12
OA No. 79/2025
Counsel for the Applicant Bank : M/s V Kasirajan, A Meenakshi Sundaram & R Ajay Janarthana
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:
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 02.01.2025 to recover from the Defendants a sum of Rs.26,21,290.33p i.e., i) Rs13,48,374.79p together with interest at the rate of 13.70% p.a. with monthly rests along with penal interest at the rate of 2 % p.a. in respect of Cash Credit loan and ii) Rs.12,72,915.54p together with interest at the rate of 13.70 % p.a. with monthly rests along with 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.
2 . The brief averments of the application filed by the Applicant Bank are as follows:-
The defendant No.1 is a sole Proprietor of M/s. N.K.TRADERS. The defendant No.2 is the owner of the "A" schedule property who is impleaded as a formal party to get a binding adjudication.
The under mentioned "A" schedule property is a part of developed industrial plots in SIPCOT Industrial park at Manamadurai. The second defendant who is promoting industries in Tamilnadu has developed industrial estate and allotted plots to entrepreneurs as long lease of 99 years with the aim to sell the same to the allottees itself. The object behind is that characticstics and homogeneity of industrial park should not be destroyed and second defendant should have control over the amenties (such as water, road, street lights, drainage) so that these facilities shall be made available to all the industrialists in reasonable and equitable manner.
The second defendant has leased the undermentioned "A" schedule property for a period of 99 years on the application of the 1 defendant. The registered lease deed dated 25.08.2022 entered into between 1st and 2nd defendants shall be read and parcel of our original application. The relevant facts are gathered as follows:
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a. Rs.37,500/- towards plot initial deposit.
b. Rs.3,56,350/- towards Balance amount, Caution deposit and lease rent in advance.
Rs.100/- towards lease rent as advance. (Lessee has to pay lease rent of Rs.1 per year for 98 years and Rs.2 for 99th year). The amounts due to the 2nd defendant is paid and they are confirmed in the lease deed.
The defendant No.1 has approached the applicant bank for below mentioned two credit facilities, to develop his business and the defendant No.1 has agreed to hypothecate his under mentioned 'B' Schedule. On condition of the defendant No.1 has agreeing to various terms and conditions , the applicant bank sanctioned the following two credit facilities and the defendant No.1 has executed loan security documents on 26.12.2022 viz,:-
| Sl. No. |
Nature of Facility | Loan No. |
Amount / Limit (Rs.) |
Repayment |
|---|---|---|---|---|
| 1 | Cash Credit | I | ₹12,00,000/- | 12 months subject to renewal |
| 2 | Term Loan (Under MSME Scheme) |
II | ₹12,00,000/- | 78 Equated Monthly Installments and commencingfrom 10.07.2022 |
Further, the applicant is entitled to recall any time, the entire loan or balance thereof as the case may be, in case of default of payment of any installment or violation of the terms and conditions of sanction.The defendant No.1 has agreed to pay 2% additional interest, in case of default in repayment of loan or violation of terms and conditions of sanction. As security, evidence and cover, for the aforesaid two credit facilities to be availed, the defendant No.1 has executed the following documents at Annanagar, Madurai Town in favour of the applicant bank on 26.12.2022 namely demand promissory note, letter of sole proprietorship, letter of continuing security, composite hypothecation agreement, power of attorney in respect of Book debts, declaration cum undertaking cum authority and letter of undertaking for cash credit loan and term loan.
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The defendant No.1 has agreeing to various terms and conditions and executed the loan agreement in respect of both loans. The defendant No.1 with an intention to create security for the above said credit facilities a sum of Rs.24,00,000/-availed and to be availed by defendant No.1 from the applicant bank, he has deposited the original title deeds of his under mentioned 'A' schedule of property at Kattu udaikulam village, Manamadurai Taluk in Sivagangai District and executed memorandum of Agreement of Mortgage by deposit of title deeds dated 29.12.2022 by defendant No.1 was duly registered as document No.5257 of 2022. Hence, a valid mortgage was created over the under mentioned 'A' schedule of property in favour of the mortgagee in respect of the entire outstanding amount due from the above said two credit facilities availed and to be availed.
The 1st defendant has availed the loan and constructed an Industrial Shed in "A" schedule. Thus it is the absolute owner of Industrial Shed in "A" schedule.
Bank before sanctioning loan requested for security of immovable property from defendant No.1 who proposed to offer "A" Schedule property. "A" Schedule property comprises two components i.e. Site and Industrial Shed.
The site belonged to defendant No.2 who has allotted to defendant No.1 vide order of allotment dated 12.07.2022. Possession of site identified as plot No.S-11 was delivered by defendant No.2 to defendant No.1. A registered lease deed was executed on 25.08.2022 between defendant No.2 and 1 in respect of site comprised in "A" Schedule. Lease is for a period of 99 years. The purpose of lease is to promote industrial growth without any legal impediment to the entrepreneurs and to encourage them. Hence the second defendant would encourage the entrepreneurs to construct shed and to carry manufacturing activities with financial assistance from bank. In furtherance second defendant issues no objection for creating mortgage in favour of Mortgagee banks in respect of the site allotted to the entrepreneurs. In this circumstances, the applicant bank requested the first defendant to get no objection from 2nd defendant for creating mortgage over the site comprised in "A" Schedule. Accordingly, the first defendant vide its letter dated 16.11.2022 along with the sanction letter of the applicant bank requested for no objection from defendant No.2 for creating mortgage over site. The second defendant after perusing the applicant bank, bank sanction letter dated 15.11.2022 granted no objection in favour of first defendant for creating equitable mortgage in favour of Bank of Baroda.
The defendant No.1 has failed to repay the loan amount as agreed to. Hence the defendants' Loan Account was classified as Non-Performing Assets
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on 10.11.2023. The applicant bank issued notice under Sec 13(2) of the SARFAESI Act, dated 18.11.2023, demanding the defendants to repay the loan amount with interest and the same was received by him. But even after the period of 60 days after the receipt of the notice, the defendant No.1 was not inclined to clear the liability. Thus the opportunity given by applicant Bank was not utilized by the defendant No.1 and hence, the applicant bank without alternative issued possession notice dated 06.03.2024 in respect of 'A' schedule. Symbolic possession of the property was taken by the applicant Bank under SARFAESI Act and the possession notice was published in Tamil and English daily newspaper. But even thereafter, he has not taken efforts to clear the liability and the said SARFAESI proceedings are pending.
Despite repeated demands made by the Applicant Bank the defendants did not take any sincere steps to discharge the loan. Hence, the Applicant Bank has filed the OA for recovery of a sum of Rs.26,21,290.33p i.e., i) Rs13,48,374.79p together with interest at the rate of 13.70% p.a. with monthly rests along with penal interest at the rate of 2 % p.a. in respect of Cash Credit loan and ii) Rs.12,72,915.54p together with interest at the rate of 13.70 % p.a. with monthly rests along with 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.
The Applicant Bank has submitted the following documents in support its claim in the OA, which are as follows:
List of Documents
| Sl. No. |
Date | Particulars | Exhibit No. |
|---|---|---|---|
| Part-I Cash Credit loan | |||
| 1. | ----- | Original Loan Application | Ex. No. A-01 |
| 2. | 26.12.2022 | Original Sanction Letter issued by the applicant bank dulyaccepted byDefendant No.1 |
Ex. No. A-02 |
| 3. | 26.12.2022 | Original Demand Promissory Note executed by defendant No.1 in favour of applicant bank |
Ex. No. A-03 |
| 4. | 26.12.2022 | Original Letter of Sole Proprietorship executed by defendant No.1 in favour of applicant bank |
Ex. No. A-04 |
| 5. | 26.12.2022 | Original Letter of Continuing Security executed bydefendant No.1 in favour of applicant bank |
Ex. No. A-05 |
Page 5 of 12
OA No. 79/2025
| 6. | 26.12.2022 | Original Composite Hypothecation Agreement executed by defendant No.1 in favour of applicant bank |
Ex. No. A-06 |
|---|---|---|---|
| 7. | 26.12.2022 | Original Declaration-cum-Undertaking-cum- Authority executed by defendant No.1 in favour of applicant bank |
Ex. No. A-07 |
| 8. | 26.12.2022 | Original Power of Attorney in respect of Book Debts executed by defendant No.1 in favour of applicant bank |
Ex. No. A-08 |
| 9. | 26.12.2022 | Original Letter of Undertaking executed by defendant No.1 in favour of applicant bank |
Ex. No. A-09 |
| Part- II Term Loan | |||
| 10. | 26.12.2022 | Original Demand Promissory Note executed by defendant No.1 in favour of applicant bank |
Ex. No. A-10 |
| 11. | 26.12.2022 | Original Letter of Sole Proprietorship executed by defendant No.1 in favour of applicant bank |
Ex. No. A-11 |
| 12. | 26.12.2022 | Original Letter of Installment with Acceleration Clause executed by defendant No.1 in favour of applicant bank |
Ex. No. A-12 |
| 13. | 26.12.2022 | Original Letter of Continuing Security executed bydefendant No.1 in favour of applicant bank |
Ex. No. A-13 |
| 14. | 26.12.2022 | Original Composite Hypothecation Agreement executed by defendant No.1 in favour of applicant bank |
Ex. No. A-14 |
| 15. | 26.12.2022 | Original Power of Attorney in respect of Book Debts executed by defendant No.1 in favour of applicant bank |
Ex. No. A-15 |
| 16. | 26.12.2022 | Original Declaration-cum-Undertaking-cum- Authority executed by defendant No.1 in favour of applicant bank |
Ex. No. A-16 |
| 17 | 26122022 | Original Letter of Undertaking executed by | Ex. No. A-17 |
| . |
.. Part |
defendant No.1 in favour of applicant bank III- Common Document in respect of both loans |
|
| Original Loan Agreement executed by defendant | |||
| 18. | 26.12.2022 | No.1 in favour of applicant bank in respect of |
Ex. No. A-18 |
both loans |
|||
| Part IV Mortgage documents | |||
| 19. | 25.08.2022 | Original Lease Deed between SIPCOT and M/s. N.K. Tradersproprietor Mr H Abdu Malik |
Ex. No. A-19 |
| 20. | 29.12.2022 | Original Memorandum of Agreement of Mortgage by Deposit of Title Deeds executed by defendant |
E N A-20 |
No.1 in favour of applicant bank Part - V |
x. o. | ||
| 21. | 18.11.2023 | Xerox Copy of Demand Notice under Section 13(2) |
Ex. No. A-21 |
| 22. | 06.03.2024 | Xerox Copy of Possession Notice under Section 13(4) |
Ex. No. A-22 |
Page 6 of 12
OA No. 79/2025
| 23. – | Extract Copy of Statement of Accounts (Ist Loan) | Ex. No. A-23 |
|---|---|---|
| 24. – | Extract Copy of Statement of Accounts (IInd Loan) |
Ex. No. A-24 |
‘A’ SCHEDULE
All that piece and parcel of land known as Plot No. S-11 (0.75 acre) in the SIPCOT's Industrial park at Manamadurai within the village limits of K.K.Pallam Group, Kattu udaikulam village, Taluk of Manamadurai, subRegistration District of Manamadurai of Sivagangai Revenue District containing by admeasurements 0.75 acre marked by green coloured boundary lines on the plan, bearing survey No.222/1 and bounded,
On the North by : 12M SIPCOT Road On the South by : Plot No. S-22 On the East by : Plot No. S-12 On the West by : Plot No. S-10
Measuring
East west on Northern side 44 Metres East west on Southern side 44 Metres North South on Western side 69 Metres North South on Eastern side 69 Metres
Totalling 3,036 Sq.m., i,e., 75 cents
‘B’ SCHEDULE
I. The whole of the Borrower's stocks, both present and future and including but without prejudice to the generality of the foregoing words, all stocks of raw materials, work-in-process, semi-finished goods and finished goods such as electrical goods and home appliances etc., whatsoever and where so ever situate and/or in transit whether now belonging to or that may at any time during the continuance of this security belong to the Borrower or that may be held by any party anywhere to the order and disposition of the Borrower.
II. All the present and future book-debts, outstanding moneys, receivables, claims, bills, contracts, engagements and securities which are now due and owing or which may at any time hereafter during the continuance of this security become due and owing to the Borrower in the course of its business by any person, firm, company or body corporate or by the Government of India or any State Government or Indian Railways or any Government Department
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or Office or any Municipal or Local or Public or Semi-Government body or authority whatsoever including those relating to the assets leased out and/or given on hire purchase basis.
III. All the tangible movable machinery and plant and cranes, boats and crafts and the vehicles of the Borrower together with spares, tools and accessories and other movables, both present and future, and the furniture, fixtures and fittings and office equipment whether installed or not and whether lying loose or in cases which are now lying or stored in or about or shall be brought into or be stored or be in or upon or about the Borrower's premises and godowns or wherever else the same may be or be held by any party to the order or disposition of the Borrower(including those on lease or hire-purchase) relating or pertaining to the Borrower's works at Manamadurai.
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.
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?
He has stated in his affidavit that the defendants has availed cash credit loan and Term 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 signed by the defendants at the time of sanctioning the loan amount, which have been marked as exhibits No.A-01 to A-24 in support of its claim in the OA.
I scrutinized the document filed by the applicant bank and I find that the Original Loan Application was marked as Ex. No. A-01 . The Original Sanction Letter dated 26.12.2022 issued by the applicant bank and duly accepted by Defendant No. 1 was marked as Ex. No. A-02 . The Original Demand Promissory Note dated 26.12.2022 executed by Defendant No. 1 in favour of the applicant bank was marked as Ex. No. A-03 . The Original Letter of Sole Proprietorship dated 26.12.2022 executed by Defendant No. 1 in favour of the applicant bank was marked as Ex. No. A-04 . The Original Letter of Continuing Security dated 26.12.2022 executed by Defendant No. 1 in
Page 8 of 12
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favour of the applicant bank was marked as Ex. No. A-05 . The Original Composite Hypothecation Agreement dated 26.12.2022 executed by Defendant No. 1 in favour of the applicant bank was marked as Ex. No. A-06 . The Original Declaration-cum-Undertaking-cum-Authority dated 26.12.2022 executed by Defendant No. 1 in favour of the applicant bank was marked as Ex. No. A-07 . The Original Power of Attorney in respect of Book Debts dated 26.12.2022 executed by Defendant No. 1 in favour of the applicant bank was marked as Ex. No. A-08 . The Original Letter of Undertaking dated 26.12.2022 executed by Defendant No. 1 in favour of the applicant bank was marked as Ex. No. A-09 . The Original Demand Promissory Note dated 26.12.2022 executed by Defendant No. 1 in favour of the applicant bank in respect of the Term Loan was marked as Ex. No. A-10 .
Further I find that the Original Letter of Sole Proprietorship dated 26.12.2022 executed by Defendant No. 1 in favour of the applicant bank was marked as Ex. No. A-11 . The Original Letter of Installment with Acceleration Clause dated 26.12.2022 executed by Defendant No. 1 in favour of the applicant bank was marked as Ex. No. A-12 . The Original Letter of Continuing Security dated 26.12.2022 executed by Defendant No. 1 in favour of the applicant bank was marked as Ex. No. A-13 . The Original Composite Hypothecation Agreement dated 26.12.2022 executed by Defendant No. 1 in favour of the applicant bank was marked as Ex. No. A-14 . The Original Power of Attorney in respect of Book Debts dated 26.12.2022 executed by Defendant No. 1 in favour of the applicant bank was marked as Ex. No. A-15 . The Original Declaration-cum-Undertaking-cum-Authority dated 26.12.2022 executed by Defendant No. 1 in favour of the applicant bank was marked as Ex. No. A-16 . The Original Letter of Undertaking dated 26.12.2022 executed by Defendant No. 1 in favour of the applicant bank was marked as Ex. No. A- 17 .The Original Loan Agreement dated 26.12.2022 executed by Defendant No. 1 in favour of the applicant bank in respect of both the Cash Credit Loan and the Term Loan was marked as Ex. No. A-18 . The Original Lease Deed dated 25.08.2022 entered into between SIPCOT and M/s. N.K. Traders, Proprietor Mr. H. Abdul Malik, was marked as Ex. No. A-19 . The Original Memorandum of Agreement of Mortgage by Deposit of Title Deeds dated 29.12.2022 executed by Defendant No. 1 in favour of the applicant bank was marked as Ex. No. A-20 . The Xerox Copy of the Demand Notice dated 18.11.2023 issued under Section 13(2) of the SARFAESI Act was marked as Ex. No. A-21 . The Xerox Copy of the Possession Notice dated 06.03.2024 issued under Section 13(4) of the SARFAESI Act was marked as Ex. No. A- 22 . The Extract Copy of the Statement of Accounts relating to the First Loan was marked as Ex. No. A-23 . The Extract Copy of the Statement of Accounts relating to the Second Loan was marked as Ex. No. A-24 . 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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After perusal of the loan documents, I find that the materials on record disclose that the 2nd defendant is neither the borrower nor a guarantor in respect of the loan facilities availed by the 1st defendant. The role of the 2nd defendant is confined to having leased the subject property to the 1st defendant and having issued a No Objection Certificate permitting the 1st defendant to create a mortgage over its leasehold rights in favour of the applicant bank for the purpose of securing the loan. The mere execution of the lease deed and issuance of consent for the creation of the mortgage do not render the 2nd defendant liable for repayment of the dues of the 1st defendant. Hence, the liability to repay the loan rests solely upon the 1st defendant.
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.
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).
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 ".
Therefore, this Original Application is partly allowed . The Applicant Bank is entitled for a final order on the following lines:-
The Applicant Bank is entitled to recover from the Defendant D-1 only, a sum of Rs.26,21,290.33p i.e., i) Rs13,48,374.79p together with interest at the rate of 11.40% p.a. with half yearly rests in respect of Cash Credit loan and ii) Rs.12,72,915.54p together with interest at the rate of 11.40 % 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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OA No. 79/2025
ORDERED
(a) That the Defendant D-1 alone is directed to pay personally a sum of Rs.26,21,290.33p i.e., i) Rs13,48,374.79p together with interest at the rate of 11.40% p.a. with half yearly rests in respect of Cash Credit loan and ii) Rs.12,72,915.54p together with interest at the rate of 11.40 % 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 within one month from the date of receipt of this order.
(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.
(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.
(d) Any amount remitted during the course of this proceedings shall be given due credit, to the loan account of the defendants.
(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 and 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.
Dictated to P N, taken down, transcribed, typed by him, corrected and pronounced by me in the Open Court in this the 06th July, 2026.
Sd/- (SEEMA SINHA) PRESIDING OFFICER
Uploaded on 21.07.26
Page 12 of 12
2 issues framed by the court
Whether the second defendant (landlord) is liable for repayment of the loan availed by the first defendant (lessee).
Whether applying penal interest would be opposed to public policy and thus not allowable.
Colour shows how this judgement treated each authority
N.M. Veerapa Vs Canara BankReferred¶80
N.M. Veerapa Vs Canara Bank (reported in AIR 98(1), 1101
Central bank of India Vs RavindraReferred¶80
Central bank of India Vs Ravindra and OS (AIR, 2001(1), 3095 · Who else cites this
3 provisions across 2 enactments
Bank of Baroda, Annanagar Branch Rep. by its Chief Manager
M/s. N.K.Traders Proprietor Mr H Abdul Malik
SIPCOT Industrial Park
Seema Sinha
As recorded by the court registry
Judgements on the same questions, provisions and authorities, from every court
Seema Sinha
Parties & counsel
