Delhi District Court
Canara Bank vs M/S Aditya Construction on 13 January, 2026
IN THE COURT OF MS. SHILPI SINGH
ACJ-cum-CCJ-cum-ARC, SOUTH
DISTRICT COURTS COMPLEX, SAKET, NEW DELHI
Suit no. 1042/2024
CNR No.DLST03-001829-2024
1.Canara Bank having its head office at:-
112 JC Road, Banglore-560002 Branch Office:
Canara Bank, F-213, A BAR, 1, Old Mehrauli Road, Badarpur Road, Lado Sarai, Delhi-110030 ...............Plaintiff Versus
1. M/s Aditya Construction Through its partners At: H.no.297, Near Union Bank, Mukhmelpur-110036.
2. Ms. Archana W/o Rakesh R/o Tikar, Barhaj, Deoria, U.P.-274602
3. Rakesh Kumar Dubey S/o Ram Ashish Dubey R/o 219B, Arya Samaz Mandir Ke Pas Mukhmelpur, Delhi-110036 .......Defendants Date of Institution : 06.12.2024 Date of Pronouncement : 13.01.2026 Decision : Allowed.
Digitally signed by SHILPI SHILPI SINGH SINGH Date:
2026.01.13 15:19:52 +0530 CS SCJ No. 1042 of 2024 CANARA BANK vs M/S ADITYA CONSTRUCTION & ORS. Pages 1 of 16 SUIT FOR RECOVERY OF RS.2,74,001.96/- (RUPEES TWO LACS SEVENTY FOUR THOUSAND AND ONE RUPEE AND, NINETY SIX PAISA ONLY).
EX PARTE JUDGMENT:
1. Succinctly, the case of the plaintiff is that the plaintiff is a bank and a body corporate constituted under the Banking Companies (Acquisition and Transfer of Undertaking) Act, 1970, with its head office at 112, J.C. Road, Banglore, and with one of its branch at F-213, A BAR, 1, Old Mehrauli Road, Badarpur Road, Lado Sarai, Delhi-110030 (hereinafter called the branch) and defendant no.1 is a partnership firm and defendant no.2 and 3 are partners of defendant no.1 and are responsible for day to day affairs of defendant no.1. It is alleged that defendant no.2 on behalf of defendant no.1 approached the plaintiff bank seeking term loan facility for their construction related work and thereby, applied through loan application dated 02.11.2021. The plaintiff bank submits that it sanctioned the loan of Rs. 1,00,000/- to the defendant, vide sanction letter dated 02.11.2021 with an interest @ 8.85% per annum along with other charges to be paid to the plaintiff bank on the principal amount as per terms and conditions. The plaintiff bank submits that loan account bearing no. 170001467167 (hereinafter called first loan account) was opened in the name of the defendant and to secure the financial facility, the defendants hypothecated present and future goods/materials of M/s Aditya Construction with plaintiff bank. It is alleged that on 24.02.2023, defendants again approached the plaintiff bank seeking fresh term loan of Rs.
1,90,000/- and thereby, applied through fresh loan application dated 24.02.2023. The plaintiff bank submits that it sanctioned the further loan of Rs. 1,90,000/- to the defendant vide sanction letter dated 24.02.2023 with an interest @ 11.30% per annum along with other charges to be paid to the plaintiff bank on the principal amount as per terms and conditions. The plaintiff bank submits that fresh loan account bearing no. 170007633990 (hereinafter called second loan Digitally signed by SHILPI SHILPI Date:
SINGH SINGH 2026.01.13 15:20:21 +0530 CS SCJ No. 1042 of 2024 CANARA BANK vs M/S ADITYA CONSTRUCTION & ORS. Pages 2 of 16 account) was opened in the name of the defendant. The plaintiff bank alleges that in course of time, defendant intentionally and deliberately committed default in payment despite repeated reminders and eventually, the loan accounts were declared NPA on 23.12.2023.
2. For cause of action, the plaintiff bank has explained that it last arose on 23.12.2023 when the loan accounts were declared NPA and is still continuing. For jurisdiction, it is explained that the loan documents were executed from Lado Sarai Branch, which is within the jurisdiction of this Court.
3. Summons of the suit were sent to the defendant on 09.01.2025 and they were served upon the defendants but the defendants did not appear before the Court and eventually, on 24.04.2025, they were proceeded ex-parte.
4. In ex-parte evidence, AR of plaintiff bank, Sh. Soumya Chakma, appeared as PW-1 and filed the evidence by way of affidavit on behalf of plaintiff bank as Ex.PW1/A. In the affidavit, he reiterated the allegations made in the plaint and relied upon the following documents:-
a) Ex. PW1/1 i.e. Copy of power of attorney/authority letter.
b) Ex.PW1/2 (OSR) i.e. Copy of loan application form dated 02.11.2021.
c) Ex.PW1/3 (OSR) i.e. Copy of sanction letter dated 02.11.2021.
d) Ex. PW1/4 (OSR) i.e. Copy of pronote dated 02.11.2021.
e) Ex.PW1/5 (OSR) i.e. Copy of agreement cum deed of hypothecation dated 02.11.2021.
f) Ex.PW1/6 (OSR) i.e. Copy of particulars of vehicle/machinery/equipment dated 02.11.2021.
g) Ex.PW1/7 (OSR) i.e. Copy of letter of undertaking dated 02.11.2021.
h) Ex.PW1/8 (OSR) i.e. Copy of particulars of guarantors dated 02.11.2021.
i) Ex.PW1/9 (OSR) i.e. Copy of loan application form dated 24.02.2023.
Digitally signed by SHILPI SHILPI Date:
SINGH SINGH 2026.01.13 15:20:32 +0530 CS SCJ No. 1042 of 2024 CANARA BANK vs M/S ADITYA CONSTRUCTION & ORS. Pages 3 of 16
j) Ex.PW1/10 (OSR) i.e. Copy of sanction letter dated 24.02.2023.
k) Ex. PW1/11 (OSR) i.e. Copy of pronote dated 24.02.2023.
l) Ex.PW1/12 (OSR) i.e. Copy of agreement cum deed of hypothecation dated 24.02.2023.
m) Ex.PW1/13 (OSR) i.e. Copy of letter of undertaking dated 24.02.2023.
n) Ex. PW1/14 (colly) i.e. Copy of statement of defendant of both loan accounts.
o) Ex. PW1/15 i.e. Certificate u/s 63(3) of BSA.
5. No other witness was examined by the plaintiff and AR of plaintiff closed his evidence on 17.07.2025. During ex-parte final arguments, the Ld. counsel reiterated the allegations made in the plaint and evidence by way of affidavit and further said that the installment amount was not paid on time and therefore, the suit should be decreed in the favour of plaintiff.
6. I have heard the arguments and perused the record.
7. In the present case, the plaintiff bank is claiming recovery of Rs. 2,74,001.96/- (hereinafter called the recovery amount) as on 29.08.2024. The plaintiff bank is also claiming interest at 11.35% on the first loan account and at 15.90% on the second account, at compound monthly rest, pendente lite and future along with penal interest at 2 % and, cost. Now, in order to show that the plaintiff bank is entitled for this amount, PW-1 relied on Ex PW1/1 to Ex PW1/15. Since the defendants were proceeded ex-parte, there is no question raised on the mode of proof and admissibility of these documents and therefore, they stand unchallenged. Coming to the appreciation of these documents, Ex. PW1/1 is the authority letter of the AR on behalf of plaintiff bank to pursue the present suit; Ex. PW1/2 is the copy of loan application dated 02.11.2021 submitted by the defendant no.2 on behalf of defendant no.1 wherein, signatures of defendant Digitally signed by SHILPI SHILPI Date:
SINGH SINGH 2026.01.13 15:20:42 +0530 CS SCJ No. 1042 of 2024 CANARA BANK vs M/S ADITYA CONSTRUCTION & ORS. Pages 4 of 16 no.2 can be seen on page 22 & 23. As per the said document, the defendant no.1 applied for loan of Rs. 1 lac through defendant no.2 under PMMY Scheme. Further, Ex. PW1/3 is the sanction letter as per which loan to the limit of Rs. 1,00,000/- was granted to the defendant no.1 @ 8.85%, tenable till 30.11.2026 in 60 monthly EMI's. The said document is also signed by defendant no.2 as the partner of defendant no.1. Ex. PW1/4 is the pronote, which is signed by two witnesses and defendant no.2 and the defendant no.2 had promised to pay Rs. 1,00,000/- with 8.85% p.a. to the plaintiff bank. Further, Ex. PW1/5 is the agreement cum deed of hypothecation executed between the plaintiff bank and the defendant no.1, through defendant no.2 wherein it is mentioned that the defendants are in need of financial assistance purchase of construction material to complete the construction work and accordingly, loan to the extent of Rs. 1,00,000/- was granted, with payment of first installment to begin from 06.12.2021. In Ex. PW1/6, the defendants undertook to hypothecate stocks which would be purchased out of the said loan. Ex. PW1/7 is the letter of undertaking by defendants, signed by defendant no.2 permitting the plaintiff bank to deduct a sum of Rs. 50,000/- from account bearing no. 542201000120 as margin amount. Ex. PW1/8 is the form of guarantee wherein defendant no.2 kept a scooty and a bike as guarantee for recovery of loan.
8. Similar to the first loan account, Ex. PW1/9 is the copy of loan application dated 24.02.2023 for the second loan applied by the defendant no.1 and signed by defendant no.3 for a sum of Rs. 1,90,000/-. Ex. PW1/10 is the sanction letter as per which loan to the limit of Rs. 1,90,000/- was granted to defendants tenable till 29.02.2028 at rate of interest at 11.30%, payable in 60 monthly EMI's. Further, Ex. PW1/11 is the pronote wherein the defendant no.1 thought defendant no.2 promised to pay Rs. 1,90,000/- with 11.90% p.a.; Ex. PW1/12 is the agreement cum deed of hypothecation executed between the plaintiff bank and the defendant no.1 though defendant no.2 and 3 wherein it is mentioned Digitally signed by SHILPI SHILPI Date:
SINGH SINGH 2026.01.13 15:20:53 +0530 CS SCJ No. 1042 of 2024 CANARA BANK vs M/S ADITYA CONSTRUCTION & ORS. Pages 5 of 16 that financial assistance was required by the defendant for construction work and and the same was granted to the extent of Rs. 1,90,000/- and Ex. PW1/13 is the letter of undertaking by the defendants. Ex. PW1/14 (colly) is the statement of account for both the loan account which is supported by Ex. PW1/15. Ex PW-1/14 (colly) corroborates the disbursement of Rs. 1,00,000/- & Rs. 1,90,000/- as loan to the defendants and, further shows that the EMI was not paid regularly by the defendants.
9. Now, in light of the above documents, if the averments in the plaint are seen, it would show that the plaintiff bank declared both the accounts NPA on 23.12.2023 but the plaintiff bank continued to apply interest in the first loan account till 21.08.2024 and in the second account till 24.08.2024. Thus, the first question to be answered is whether Plaintiff bank is entitled to charge interest on a loan account after it is declared NPA. The liability to make payment of interest by the borrower to bank arises strictly in accordance with the loan agreement and it continues to subsist so long as the dues are not cleared by the borrower. The mere fact that a loan account has been declared as NPA would not absolve the borrower from its liability of payment of interest to the bank, unless the law forbids it. Now the definition of NPA can be taken from Banking Regulations Act, 1949 which is made by Reserve Bank of India, as constituted under Section 3 of the Reserve Bank of India Act. Under sub section 21(3) of the Banking Regulations Act, 1949, every Banking Company is under obligation to comply with the directions given to it by the Reserve Bank of India. The definition of Non Performing Assets has been provided under Clause 2.1 of Master Circular on 1.7.2013 issued by Reserve Bank of India prescribing Prudential Norms of Income Recognition, Assets Classification and Provisions pertaining to advances for all Commercial banks (excluding Regional Rural Banks). The definition reads as under:- Digitally signed by SHILPI SHILPI SINGH SINGH Date:
2026.01.13 15:21:00 +0530 CS SCJ No. 1042 of 2024 CANARA BANK vs M/S ADITYA CONSTRUCTION & ORS. Pages 6 of 16 "2.1 Non performing Assets: An asset, including a leased asset, becomes non performing when it ceases to generate income for the bank.
2.1.2 A non performing asset (NPA) is a loan or an advance where;
i. interest and/ or instalment of principal remain overdue for a period of more than 90 days in respect of a term loan, ii. the account remains 'out of order' as indicated at paragraph 2.2 below, in respect of an Overdraft/Cash Credit (OD/CC), iii. the bill remains overdue for a period of more than 90 days in the case of bills purchased and discounted, iv. the instalment of principal or interest thereon remains overdue for two crop seasons for short duration crops, v. the instalment of principal or interest thereon remains overdue for one crop season for long duration crops, vi. the amount of liquidity facility remains outstanding for more than 90 days, in respect of a securitisation transaction undertaken in terms of guidelines on securitisation dated February 1, 2006.
vii. in respect of derivative transactions, the overdue receivables representing positive mark-to-market value of a derivative contract, if these remain unpaid for a period of 90 days from the specified due date for payment.
2.1.3 In case of interest payments, banks should, classify an account as NPA only if the interest due and charged during any quarter is not serviced fully within 90 days from the end of the quarter." Further, Clause -3 of the Circular defines Income Recognition and lays down the policy in respect thereof. Clause-3.1 of the circular is reproduced hereinafter: " 3.1 Income Recognition Digitally signed by SHILPI SHILPI Date:
SINGH SINGH 2026.01.13 15:21:09 +0530 CS SCJ No. 1042 of 2024 CANARA BANK vs M/S ADITYA CONSTRUCTION & ORS. Pages 7 of 16 Policy: The policy of income recognition has to be objective and based on the record of recovery. Internationally income from non - performing assets (NPA) is not recognised on accrual basis but is booked as income only when it is actually received. Therefore, the banks should not charge and take to income account interest on any NPA. This will apply to Government guaranteed accounts also".
3.4 Interest Application: On an account turning NPA, banks should reverse the interest already charged and not collected by debiting Profit and Loss account, and stop further application of interest. However, banks may continue to record such accrued interest in a Memorandum account in their books. For the purpose of computing Gross Advances, interest recorded in the Memorandum account should not be taken into account". By another circular of the same date, Reserved Bank of India has provided guidelines for assets classification and NPA. According to it, an asset becomes Non Performing, when it ceases to generate income for the bank. Further, 4.5.1 says that in case of NPAs, where interest has not been received for 90 days or more, as a prudential norm, there is no use in debiting the said account by interest accrued in subsequent quarters and taking this accrued interest amount as income of the bank as the said interest is not being received. It is simultaneously desirable to show such accrued interest separately or park in a separate account so that interest receivable on such NPA account is computed and shown as such, though not accounted as income of the bank for the period.
Digitally signed by SHILPI SHILPI SINGH SINGH Date:
2026.01.13 15:21:15 +0530 CS SCJ No. 1042 of 2024 CANARA BANK vs M/S ADITYA CONSTRUCTION & ORS. Pages 8 of 16
10.As far as rate of interest is concerned, in civil suits, the relevant statutory provision for interest is explained in Section 34 CPC, which is reproduced hereunder for reference:
(i)"Where and in so far as a decree is for the payment of money, the Court may, in the decree, order interest at such rate as the Court deems reason able to be paid on the principal sum adjudged, from the date of the suit to the date of the decree, in addition to any interest adjudged on such principal sum for any period prior to the institution of the suit, with further interest at such rate not exceeding 6% per annum as the Court deems reasonable on such principal sum from the date of the decree to the date of payment, or to such earlier date as the court thinks fit.
(ii) Provided that where the liability in relation to the sum so adjudged had arisen out of a commercial transaction, the rate of such further interest may exceed 6% per annum but shall not exceed the contractual rate or interest or where there is no contractual rate, the rate at which moneys are lent or advanced by nationalized banks in relation to commercial transactions.
Explanation: (i) In this sub-section, "nationalized bank" means a corresponding new bank as defined in the Banking Companies (Acquisition and Transfer of Undertakings) Act 1970.
Explanation: (ii) For the purposes of this section, a transaction is a commercial transaction, if it is connected with the industry, trade or business of the party incurring the liability. Where such a decree is silent with respect to the payment of further interest (on such principal sum) from the date of the decree to the date of the payment or other earlier date, the Court shall be deemed to have refused such interest, and a separate suit therefore shall not lie.
11.A plain reading of the statutory provision explained above would show that in case of commercial transactions, the Civil Court can travel beyond the rate of 6% per annum but are not supposed to exceed the contractual rate of interest. In such cases court can refer to the rate of interest at which money is lent by Nationalized Bank for commercial loans. Reference is also made to section 21A of Banking Regulation Act, 1949: Rates of interest charged by banking Digitally signed by SHILPI SHILPI SINGH SINGH Date:
2026.01.13 15:21:22 +0530 CS SCJ No. 1042 of 2024 CANARA BANK vs M/S ADITYA CONSTRUCTION & ORS. Pages 9 of 16 companies not to be subject to scrutiny by Courts: Notwithstanding anything contained in the Usurious Loans Act, 1918 (10 of 1918), or any other law relating to indebtedness in force in any State, a transaction between a banking company and its debtor shall not be re-opened by any Court on the ground that the rate of interest charged by the banking company in respect of such transaction is excessive.
12.As per the above section, in banking transactions between the Bank and a Debtor, the rate of interest levied by the bank in the course of its business is not subject to judicial scrutiny, meaning thereby that once a bank and a borrower enters into a contract of loan at a particular rate of interest or as per rate fixed by RBI, the borrower cannot question the rate of interest under a judicial petition. However, once the contract is breached by either side, the above statutory provisions has to be read in conjunction with Section 34 of Code of Civil Procedure which gives vast powers to a civil court to assess and adjudicate the rate of interest to be awarded to a bank for pre-institution, pendente lite and future period on the principal sum. The word Interest is explained in Black's Law Dictionary (Fifth Edition): "Interest": Interest is the compensation allowed by law or fixed by the parties for the use or forbearance or detention of money...Payments a borrower pays a lender for the use of the money."
13.Reference is also being made to Section 2(1) of the Usurious Loans Act which says that interest is a return to be made, over and above what was actually lent, where the sum is charged or sought to be recovered specifically by way of interest or otherwise. The concept of principal sum and interest was also explained by the Constitution Bench of the Hon'ble Apex Court in Central Bank of India Vs Ravindra 2002 (1) SCC 367, wherein the meaning and implication of words "the principal sum adjudged" and "such principal sum", as Digitally signed by SHILPI SHILPI SINGH SINGH Date:
2026.01.13 15:21:29 +0530 CS SCJ No. 1042 of 2024 CANARA BANK vs M/S ADITYA CONSTRUCTION & ORS. Pages 10 of 16 occurring in Section 34 CPC, 1908 was decided. After carrying out detailed discussion in para 41 it was ruled by Hon'ble Supreme Court as under:
"A few points are clear from a bare reading of the provision. While decreeing a suit if the decree be for payment of money, the Court would adjudge the principal sum on the date of the suit. The Court may also be called upon to adjudge interest due and payable by the defendant to the plaintiff for the pre- suit period which interest would, on the findings arrived at and noted by us hereinabove, obviously be other than such interest as has already stood capitalised and having shed its character as interest, has acquired the colour of the principal and having stood amalgamated in the principal sum would be adjudged so. The principal sum adjudged would be the sum actually loaned plus the amount of interest on periodical rests which according to the contract between the parties or the established banking parties has stood capitalised. Interest pendente lite and future interest (i.e. interest post-decree not exceeding 6 per cent per annum) shall be awarded on such principal sum i.e. the principal sum adjudged on the date of the suit. It is well settled that the use of the word 'may' in Section 34 confers a discretion on the Court to award or not to award interest or to award interest at such rate as it deems fit. Such interest, so far as future interest is concerned may commence from the date of the decree and may be made to stop running either with payment or with such earlier date as the Court thinks fit. Shortly hereinafter we propose to give an indication of the circumstances in which the Court may decline award of interest or may award interest at a rate lesser than the permissible rate."
"the general idea is that the creditor is entitled to compensation for the deprivation of money withheld from him by the debtor after the time when payment should have been made, in breach of his legal rights and, interest is a compensation to that. There are ostensibly three Divisions of 'Interest' in such scenarios:
Pre-lite: interest accrued due prior to the institution of the suit on the principal sum (due) adjudged. Interest for the period anterior to institution of suit is not a matter of Procedure as it SHILPI is referable to substantive law and can be sub-divided into two SINGH sub-heads; Digitally signed by SHILPI SINGH Date: 2026.01.13 15:21:35 +0530 CS SCJ No. 1042 of 2024 CANARA BANK vs M/S ADITYA CONSTRUCTION & ORS. Pages 11 of 16 a. where there is a stipulation for the payment of interest at a fixed rate (contract rate) and b. where there is no such stipulation as per statutory provisions providing certain rate of interest and in its absence as per the interest Act i.e. from date of demand (from date of service of demand notice) and at prevailing market rate and bank lending rate as guidance.
Pendent-lite: In addition to pre-lite interest, it is the additional interest on the principal sum adjudged or declared due from the date of the suit either at contract rate if reasonable or at such rate as the Court deems reasonable in the discretion of the Court (as per Section 34 CPC till date of decree or under Order 34 Rule 11 C.P.C. in case of mortgage debt if contract rate is unreasonable and excessive to reduce even from date of suit till expiry of the period of redemption) as not a substantive law;
Post-lite: In addition to pre-lite interest on principal sum and pendent-lite interest on the principal sum adjudged or found due, it is the further interest on such principal sum as per Section 34 CPC from the date of the decree to the date of the payment and in mortgage decree from date of preliminary decree till expiry of period of redemption and thereafter till realization/payment as the case may be in any decree for money held due with or without charge preliminary or final or partly final decree or to such earlier date as the Court thinks fit, in the discretion of the Court, at a rate not exceeding 6 per cent per annum except where the transaction is a business or commercial one to grant above 6 percent but does not exceed contract rate.
14. The above dictum shows that the Five- Judge Constitution Bench has ruled that "the court would adjudge the principal sum on the date of suit." This observation shows that a civil court has the power in adjudging the principal sum of a money suit, as on date of filing of the suit and the line, "the court may be called upon to adjudge interest due and payable by the defendant to the plaintiff for pre-suit period...." shows that a civil court can also adjudicate or adjudge interest to be SHILPI SINGH CS SCJ No. 1042 of 2024 CANARA BANK vs M/S ADITYA CONSTRUCTION & ORS. Pages 12 of 16 Digitally signed by SHILPI SINGH Date:
2026.01.13 15:21:45 +0530 levied for pre-suit period. However, the latter part of the second line of the above dictum shows that such adjudication qua the interest levied in the pre-suit period would not apply to such period when the interest already stood amalgamated and capitalized in principal as it loses its character of being "interest" and acquires the colour of principal itself. Accordingly, it is evident that this pre-suit period has to be understood and divided into two segments. The first segment starts the moment the money sanctioned for lending is disbursed and interest starts to be levied as per contractual/regulatory terms. This segment may have stipulation for levying interest at agreed rate with monthly, quarterly or annual rests. During this period the bank is within its right to amalgamate the accrued interest into the principal and capitalizing it periodically as per agreed terms. This segment/term period would continue till such time both the parties i.e. the lending bank and the borrower continue to adhere the contractual terms and the terms of the loan contract are alive and binding. However, once as per agreed terms or by stipulation of any other binding law or regulation the contract comes to an end or is terminated viz. foreclosure or recalling of loan, the first segment too comes to an end. It is at this juncture that the contractual terms comes to an end and a dispute arises between the parties. This gives rise to right to sue/cause of action in favour of the bank and against the borrower defendant. All the interests up to this period can be suitably amalgamated and capitalized so as to arrive at "principal sum adjudged". This amount would become a suit amount in case the suit is filed on the very date of accrual of cause of action. However, in case the suit is not filed as soon as cause of action has arisen and the principal sum adjudged contains nothing but the principal amount due coupled with interest accrued as per contractual rate but the same is filed after substantial delay but within the window of three years of limitation as per Limitation Act, 1963, the rate of interest applicable to such period, i.e. the period post the accrual of cause of action falls under Second Segment and is not governed by Section 21A of the Banking Regulation Act but, is rather governed by Section 34 of the Code of SHILPI SINGH Digitally signed by CS SCJ No. 1042 of 2024 CANARA BANK vs M/S ADITYA CONSTRUCTION & ORS. Pages 13 of 16 SHILPI SINGH Date: 2026.01.13 15:21:54 +0530 Civil Procedure. This empowers the Civil Court to adjudge the principal sum amount which practically means adjudication of the amount payable by the defendant to the plaintiff on the date of filing of the suit only under second segment. This adjudication has to be carried out by giving a finding on the fact about the principal amount payable by the borrower to the lender on the date of cause of action, apart from rate of interest to which lender is found to be entitled between the period of accrual of cause of action and actual filing of the suit in the Court. Likewise, adjudication has to be carried out for rate of interest for pendente lite and future period as well.
15.In light of the aforesaid provision, it is clear that charging of interest on an asset declared as NPA does not cease rather, for the convenience of the bank and particularly for the accounting purposes the amount of interest due in the loan account declared NPA, is not shown in the loan account and details thereof are to be maintained in a separate account. Since the interest accrued to the bank is treated as income for the bank, therefore, after the loan is declared as NPA, the recovery of interest is not likely to take place, as such the amount of interest due is not reflected in the loan account. The interest in the loan account nevertheless remains payable under the loan agreement and the circulars of the Reserve Bank of India, and the bank would be clearly entitled to realize the interest from the borrower once the loan account is regularized. However, in the facts of the present case, after the account was declared NPA i.e. on 23.12.2023, it was never regularized again and no payment was made by the defendants in order for the account to become regularized, yet the plaintiff bank kept on imposing interest and is now claiming the same as recovery amount from the Court, which as per law is impermissible.
16.Similarly, for the prayer of plaintiff bank qua penal interest, it is claimed at 2% p.a till realization. The law on penal interest was clarified by the Hon'ble SHILPI SINGH Digitally signed by SHILPI SINGH Date: 2026.01.13 CS SCJ No. 1042 of 2024 CANARA BANK vs M/S ADITYA CONSTRUCTION & ORS. Pages 14 of 16 15:22:00 +0530 Supreme Court in Punjab & Sind Bank vs M/S Allied Beverages Company P.L.& Ors, 2010 (10) SCC 640, wherein it was held, "penal interest" has to be distinguished from "interest". Penal interest is an extraordinary liability incurred by a debtor on account of his being a wrongdoer by having committed the wrong of not making the payment when it should have been made, in favour of the person wronged and it is neither related with nor limited to the damages suffered. Thus, while liability to pay interest is founded on the doctrine of compensation, penal interest is a penalty founded on the doctrine of penal action. Penal interest can be charged only once for one period of default and therefore cannot be permitted to be capitalised....(1) Though interest can be capitalised on the analogy 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 capitalised. 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 capitalised. It will be opposed to public policy."
17.Applying the above principle to Ex. PW1/14, since recovery amount is computed by adding penal interest for defaults made by the defendants on the monthly installments and the further rate of interest is calculated by adding this amount, the said amount cannot be permitted to be recovered being against public policy The logic behind it is that the purpose of Court is to compensate a party and not punish the other party. Accordingly, in view of the above provisions, this Court is of the opinion that the amount as on 18.12.2023 for the first loan account and, amount as on 22.12.2023 for the second loan account should be the principal amount on which interest can be awarded by the Court. Consequently, the the principal amount for the present case is adjudicated by the Court at Rs. 59,632.25/- for the first loan account and Rs. 1,81,377.29/- for the second loan account which is awarded in favour of the plaintiff bank. Further, the interest SHILPI SINGH Digitally signed by SHILPI SINGH Date: 2026.01.13 CS SCJ No. 1042 of 2024 CANARA BANK vs M/S ADITYA CONSTRUCTION & ORS. Pages 15 of 16 15:22:07 +0530 which is being awarded to the plaintiff bank shall be @ 10.50% per annum pendente lite and future on both the amounts. However, in light of the law explained above, there is no relief qua penal interest in favour of the plaintiff bank.
18.Cost of the suit is also awarded in the favour of the plaintiff.
19.The suit of the plaintiff is decreed and accordingly disposed off. Decree sheet be prepared accordingly.
20.File be consigned to the record room after indexing and pagination.
Digitally signedSHILPI by SHILPI SINGH SINGH 2026.01.13 Date:
15:22:12 +0530 Announced in the open Court (SHILPI SINGH) on 13.01.2026 ACJ-CCJ-ARC/South, Saket Court/Delhi CS SCJ No. 1042 of 2024 CANARA BANK vs M/S ADITYA CONSTRUCTION & ORS. Pages 16 of 16