The Supreme Court has ruled that NPA Interest Recovery remains permissible when a bank records accrued interest in a suspense account after classifying a loan as a Non-Performing Asset (NPA).
A Bench of Justice Sanjay Kumar and Justice Sanjeev Sachdeva set aside an Orissa High Court judgment. The Court held that interest kept in a suspense account remains part of the borrower’s debt.
The Bench allowed Punjab National Bank’s appeal. It restored the amount determined by the Debts Recovery Appellate Tribunal (DRAT).
Interest in Suspense Account Remains Recoverable
The dispute involved a ₹5 crore credit facility. United Bank of India sanctioned the facility in 2011 to M/s. Shree Jyoti Education and Management Trust World.
The bank sanctioned the loan to fund the construction of a college building. The borrower later defaulted on its repayment obligations.
The bank then classified the account as an NPA. It also started recovery proceedings before the Debts Recovery Tribunal (DRT).
After the NPA classification, the bank transferred the accrued interest to a separate suspense account. The bank continued to maintain this amount in accordance with its accounting practices.
The DRT initially reduced the amount claimed by the bank. The DRAT later reassessed the dues at ₹54.90 lakh. It included the interest maintained in the suspense account.
Orissa High Court Excluded Interest Component
The dispute later reached the Orissa High Court. A Division Bench relied on a PNB balance certificate issued in December 2020.
The certificate showed an outstanding balance of around ₹31.99 lakh. Based on that figure, the High Court directed the bank to accept ₹29.55 lakh as full and final settlement.
PNB challenged the High Court’s decision before the Supreme Court.
Supreme Court Rejects Simplified Calculation
The Supreme Court found a fundamental error in the High Court’s calculation. The Bench noted that the High Court had ignored the interest maintained in the suspense account.
Justice Sanjay Kumar explained that the bank had followed an established accounting system. The Court held that such accounting treatment does not cancel the borrower’s liability.
The Bench also criticized the trust and its trustees for relying on different calculations at different stages of the dispute.
The Court restored the DRAT’s decision and recognized the interest component maintained in the suspense account.
Interest Forms Part of Legally Recoverable Debt
The Supreme Court also examined Section 2(g) of the Recovery of Debts and Bankruptcy Act, 1993.
The provision defines “debt” to include a liability together with interest. The liability must arise from business conducted by a bank or financial institution.
The Court held that contractually and legally chargeable interest remains part of the recoverable debt.
Recording that interest under a separate accounting head does not remove the borrower’s obligation. The bank can therefore claim the amount along with the principal loan liability.
Supreme Court Restores Bank’s Recovery Claim
The judgment confirms that banks do not lose their right to recover accrued interest merely because they place it in a suspense account after NPA classification.
The ruling strengthens the position of financial institutions in recovery proceedings. It also clarifies that accounting treatment cannot, by itself, determine the actual amount legally owed by a borrower.
The decision therefore provides important guidance on NPA Interest Recovery and the treatment of accrued interest in bank recovery proceedings.
