![Interest in NPA Suspense Account Is Part of Bank's Recoverable Debt: Supreme Court in Punjab National Bank v. Shree Jyoti Education and Management Trust World [2026 INSC 836]](/assets/images/article-corporate.svg)
Quick Answer: Interest that a bank keeps in a separate suspense account after a loan turns into a non-performing asset is still part of the debt it can recover. The Supreme Court set aside an Orissa High Court order that let a borrower trust close its loan by paying about Rs. 29.55 lakh. The High Court had relied only on a bank certificate that left out the suspense-account interest. The Court restored the Debts Recovery Appellate Tribunal's decree of Rs. 54,90,413 with 9% simple interest.
In Punjab National Bank v. M/s. Shree Jyoti Education and Management Trust World & Ors. (2026 INSC 836), the Supreme Court held that the High Court oversimplified the calculation by ignoring the interest kept in a suspense account after the loan became a non-performing asset (NPA), and wrongly accepted the borrower's figure of Rs. 29,55,678.02 as full and final settlement (paras 10–11). A Bench of Justice Sanjay Kumar and Justice Sanjeev Sachdeva held that interest is part of the "debt" under Section 2(g) of the Recovery of Debts and Bankruptcy Act, 1993, and restored the Debts Recovery Appellate Tribunal's order dated 01.09.2023 (paras 12, 15).
Status: Orissa High Court's orders dated 11.01.2024 in W.P. (C) No. 32036 of 2023 and 14.05.2024 in I.A. No. 2279 of 2024 set aside; DRAT, Kolkata order dated 01.09.2023 in Appeal No. 16 of 2021 restored; appeals allowed (paras 2, 15).
Headnote: NPA Suspense Account Interest as Part of Bank Debt
Recovery of Debts and Bankruptcy Act, 1993 – Sections 2(g), 19(2), 19(20) – Banking Regulation Act, 1949 – Section 21A – Loan recovery – Non-performing asset – Interest kept in suspense account – Bank certificate of outstanding dues – Writ jurisdiction – High Court directing full and final settlement – Statement of account – Debts Recovery Appellate Tribunal decree restored.
Held: (i) Under the bank's accounting system, interest is applied in the loan account only till the NPA date and is then kept in a separate suspense account; the certificate showing Rs. 31,99,000 outstanding did not include that interest (para 10).
(ii) The High Court's calculation, which relied only on the certificate and deducted later payments to arrive at Rs. 29,55,678.02, was an oversimplification and clearly unsustainable (para 11).
(iii) A borrower cannot ignore the banks' accounting system and put forward different calculations at different times to suit its interests (paras 11, 14).
(iv) "Debt" under Section 2(g) of the Act of 1993 includes interest; Section 19(20) empowers the DRT to award interest till realisation, and Section 21A of the Banking Regulation Act bars re-opening of a transaction on the ground that the interest is excessive (para 12).
(v) The Trust's self-serving statement of account, claiming excess payment and a refund, was patently erroneous and mischievous (para 14).
(vi) PNB may recover the suspense-account interest in addition to the principal, and the DRAT's determination of Rs. 54,90,413 with 9% simple interest from 05.02.2018 must be acted upon (para 15).
(paras 10–15)
Case Details: Punjab National Bank v. Shree Jyoti Education and Management Trust World (2026 INSC 836)
Final Outcome: Appeals allowed; High Court's orders set aside; DRAT's order dated 01.09.2023 restored; PNB entitled to recover in terms of it after giving credit for later payments; parties to bear their own costs.
Case: Punjab National Bank v. M/s. Shree Jyoti Education and Management Trust World and others
Neutral Citation: 2026 INSC 836
Case No.: Civil Appeal Nos. ___ & ___ of 2026 (arising out of SLP (C) Nos. 27363–27364 of 2024)
Court: Supreme Court of India (Civil Appellate Jurisdiction) – Non-Reportable
Date of Decision: 12 August 2026
Bench: Justice Sanjay Kumar (author) and Justice Sanjeev Sachdeva
Relevant Acts & Sections: Recovery of Debts and Bankruptcy Act, 1993 (formerly the Recovery of Debts due to Banks and Financial Institutions Act, 1993) – Sections 2(g), 19(2), 19(20); Banking Regulation Act, 1949 – Section 21A
Impugned Order(s): Orissa High Court (Division Bench) – order dated 11.01.2024 in W.P. (C) No. 32036 of 2023 directing PNB to accept Rs. 29,55,678.02 in full and final settlement, and order dated 14.05.2024 dismissing PNB's recall/modification application, I.A. No. 2279 of 2024 (paras 2, 9)
Source: Supreme Court of India (official website)
Key Holdings of the Supreme Court
- Interest kept in a suspense account after NPA classification is part of the debt recoverable by the bank (paras 10, 12, 15).
- A bank certificate of outstanding loan must be read in light of the banks' accounting system; it may not reflect suspense-account interest (para 10).
- The High Court erred in fixing the dues on the basis of the certificate alone and ordering closure of the loan account on that basis (para 11).
- Borrowers cannot shift their calculations at different stages to suit their interests (paras 11, 14).
- "Debt" under Section 2(g) of the Act of 1993 includes interest, and Section 21A of the Banking Regulation Act bars re-opening transactions on the ground of excessive interest (para 12).
- Following Central Bank of India v. Ravindra, interest capitalised on periodical rests may form part of the principal sum (para 13).
- The DRAT's decree of Rs. 54,90,413 with 9% simple interest from 05.02.2018, accepted by PNB, governs recovery (para 15).
Brief Facts of the Case
United Bank of India, PNB's predecessor, sanctioned a loan of Rs. 5 crore to the Trust on 27.06.2011 for a college building, with the managing trustee and other trustees as guarantors. On 22.06.2017 the bank confirmed a balance of Rs. 1,27,33,669, and the account was classified as an NPA on 30.06.2017 (para 3).
The bank filed O.A. No. 258 of 2018 before the DRT, Cuttack for Rs. 75,56,680 as on 04.05.2018, made up of Rs. 64,25,915 in the loan account and Rs. 11,30,765 as interest at 12.90% (para 3). After the amalgamation with PNB on 01.04.2020, PNB issued a certificate dated 24.12.2020 stating that the Trust had paid Rs. 93,31,842 since the NPA date and that Rs. 31,99,000 was outstanding as on 13.10.2020 (para 4).
By judgment dated 05.02.2021, the DRT allowed recovery of only Rs. 1,83,268 with 10% interest (paras 5–6). On PNB's appeal, the DRAT, Kolkata, by order dated 01.09.2023, held the Trust liable for Rs. 54,90,413 with 9% simple interest from 05.02.2018 (paras 7–8).
PNB accepted the DRAT's order, but the Trust and its managing trustee filed a writ petition. Relying on the 24.12.2020 certificate and deducting later deposits of Rs. 2,43,321.98, the High Court directed PNB to accept Rs. 29,55,678.02 in full and final settlement within four weeks, and later dismissed PNB's recall application (para 9).
Issues Before the Supreme Court
- Whether the High Court could fix the Trust's dues by relying only on the bank's certificate dated 24.12.2020 (paras 9–11).
- Whether interest kept in a suspense account after NPA classification forms part of the recoverable debt (paras 10, 12, 15).
Court's Findings and Reasoning
Bank's accounting system (para 10): PNB's affidavit dated 03.12.2024 and the statement of account showed Rs. 1,25,30,842 due as on the NPA date. Interest was applied in the loan account only till 30.06.2017 and was thereafter kept in a separate suspense account. This explained the DRT claim of Rs. 75,56,680, and the certificate figure of Rs. 31,99,000 excluded the suspense-account interest.
High Court's oversimplification (para 11): By relying only on the certificate and ignoring the suspense account, the High Court reached a clearly unsustainable figure. The Trust's own statement of account contradicted the running account, and before the DRT it had claimed liability of Rs. 32,63,899.65, a stand it abandoned before the High Court.
Statutory position (para 12): Section 2(g) of the Act of 1993 defines debt to include interest. Section 19(20) empowers the DRT to award interest till realisation. Section 21A of the Banking Regulation Act bars courts from re-opening a transaction on the ground that the interest charged is excessive.
Precedent on interest (para 13): In Central Bank of India v. Ravindra, a Constitution Bench required banks to plead and show interest rates and periods consistent with RBI directives, and held that interest capitalised on periodical rests may be adjudged as principal. A 3-Judge Bench applied this in Union of India v. Association of Unified Telecom Service Providers of India.
Trust's refund claim rejected (para 14): The Trust's statement showing a negative balance and an excess payment of Rs. 57,12,857 to be refunded was patently erroneous and mischievous.
Final Outcome and Directions
- The High Court's orders dated 11.01.2024 and 14.05.2024 are set aside (para 15).
- The DRAT, Kolkata order dated 01.09.2023 in Appeal No. 16 of 2021 is restored, with pendente lite and future simple interest at 9% per annum on Rs. 54,90,413 from 05.02.2018 till realisation (para 15).
- PNB may recover its dues in terms of that order through appropriate proceedings, after giving credit for any amounts paid by the Trust and trustees after that date, in accordance with law (para 15).
- Appeals allowed; parties to bear their own costs (para 15).
Legal Principle Laid Down
Interest that a bank stops applying to the loan account on NPA classification, and keeps in a separate suspense account under applicable accounting norms, remains part of the "debt" recoverable under the Recovery of Debts and Bankruptcy Act, 1993. A bank certificate of the outstanding loan balance must be read in light of that accounting system. A High Court cannot direct closure of a loan account on a figure that ignores the suspense-account interest and disregards the dues determined by the Debts Recovery Appellate Tribunal.
Precedents Relied Upon
- Central Bank of India v. Ravindra, (2002) 1 SCC 367 (Constitution Bench) – Relied upon – interest capitalised on periodical rests may form part of the principal sum; banks must plead rates consistent with RBI directives. Discussed at para 13.
- Union of India v. Association of Unified Telecom Service Providers of India, (2020) 3 SCC 525 (3-Judge Bench) – Relied upon – applied the Ravindra principle. Discussed at para 13.
Important Paragraphs of the Judgment
Verbatim extracts from the judgment. For the full text, refer to the judgment PDF below.
Para 10: "The certificate dated 24.12.2020, therefore, had to be understood in the light of the accounting system as the figure of ₹31,99,000/- mentioned therein did not take into account the interest component, reflected in the suspense account."
Para 11: "The Trust and its trustees cannot blithely ignore the accounting system followed by banks and come up with different calculations at different points of time to suit their own interests."
Para 12: "Therefore, there can be no dispute as to the interest component being part of the debt due to PNB."
Para 14: "The attempt on the part of the Trust and its trustees in coming up with a self-serving statement of account, showing the principal amount due as on 29.06.2017 as ₹64,25,915/-, contrary to the record, so as to arrive at a negative balance of ₹93,981.40 paisa as on 04.06.2018, whereupon they claimed that they paid in excess to the tune of ₹57,12,857/- and that the said sum is liable to be refunded to them by PNB, is patently erroneous and mischievous."
Para 15: "PNB is entitled to claim the interest due, which was calculated and maintained in a separate suspense account, in addition to the outstanding principal loan amount and, therefore, the calculation in that regard by the Appellate Tribunal, in its order dated 01.09.2023 in Appeal No. 16 of 2021, would have to be acted upon."
Practical Impact of the Ruling
- For banks: Suspense-account interest after NPA classification can be recovered along with the principal; certificates of outstanding balance should make clear what they exclude (paras 10, 15).
- For borrowers: A bank certificate showing only the loan account balance cannot be used to close a loan while ignoring accrued interest (paras 10–11).
- For High Courts in writ jurisdiction: Directing a full and final settlement on a simplified calculation, contrary to the DRAT's determination, is unsustainable (para 11).
- For recovery proceedings: Changing stands on the amount due at different stages will count against the borrower (paras 11, 14).
- For practitioners: Section 2(g) and Section 19(20) of the Act of 1993 and Section 21A of the Banking Regulation Act together protect the bank's claim to interest (para 12).
FAQs on NPA Interest in Bank Loan Recovery
1. What did the Supreme Court hold in Punjab National Bank v. Shree Jyoti Education and Management Trust World?
It held that the bank can recover interest kept in a suspense account after NPA classification, set aside the High Court's settlement order and restored the DRAT's decree (paras 11, 15).
2. Why did the bank certificate show a lower amount?
After the NPA date, interest was not applied in the loan account but kept in a separate suspense account, so the certificate figure of Rs. 31,99,000 left out the interest (para 10).
3. Is interest part of the "debt" under the Recovery of Debts and Bankruptcy Act?
Yes. Section 2(g) defines debt to include any liability inclusive of interest claimed by a bank (para 12).
4. How much is the borrower now liable to pay?
Rs. 54,90,413 with 9% simple interest from 05.02.2018 till realisation, as determined by the DRAT, after credit for later payments (para 15).
5. What did the Court say about the borrower's refund claim?
It called the Trust's statement showing excess payment of Rs. 57,12,857 patently erroneous and mischievous (para 14).
Keywords: 2026 INSC 836, Punjab National Bank v. Shree Jyoti Education and Management Trust World, NPA suspense account interest, bank loan recovery, Recovery of Debts and Bankruptcy Act 1993, Section 2(g) debt includes interest, Section 19(20), Section 21A Banking Regulation Act, DRAT Kolkata, DRT Cuttack, Orissa High Court, full and final settlement, Central Bank of India v. Ravindra, Justice Sanjay Kumar, Justice Sanjeev Sachdeva, Supreme Court non-reportable judgment
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Download Judgment PDF – Punjab National Bank v. Shree Jyoti Education and Management Trust World
Source: Supreme Court of India (official website).