Punjab National Bankv.M/s Shree Jyoti Education and Management Trust World & Ors

Supreme Court Restores DRAT Order, Holds High Court Erred by Ignoring Interest Component in Suspense Account

Case Snapshot

Case Name: Punjab National Bank v. M/s Shree Jyoti Education and Management Trust World & Ors

Citation: 2026 INSC 836

Bench: Justice Sanjay Kumar & Justice Sanjeev Sachdeva

Date of Judgment: August 12, 2026

Area of Law: Banking Law, Recovery of Debts, Interest, Suspense Accounts

The Judgment in One Line

High Court erred in ignoring the interest component maintained in a suspense account while calculating outstanding loan dues based solely on a bank certificate.

Why This Judgment Matters

This judgment clarifies the accounting treatment of interest in banking transactions, particularly when a loan account is classified as a non-performing asset (NPA). The Supreme Court held that when a loan account becomes an NPA, the interest component is transferred to a suspense account but remains part of the debt. Banks are entitled to claim this interest along with the principal amount. The Court criticized the High Court for oversimplifying the calculation by ignoring the suspense account and relying solely on a bank certificate. The judgment also reaffirms that borrowers cannot selectively interpret bank certificates or account statements to suit their interests.

Background

United Bank of India (predecessor of PNB) sanctioned a ₹5 crore loan to the Trust for construction of a college building. The loan was disbursed over two years. On June 22, 2017, the bank confirmed a balance of ₹1,27,33,669. The account was classified as an NPA on June 30, 2017. The bank filed a recovery application before the DRT claiming ₹75,56,680 (principal ₹64,25,915 + interest in suspense ₹11,30,765).

The DRT allowed recovery of only ₹1,83,268. The DRAT reversed this and determined the dues at ₹54,90,413 with 9% interest. The Trust approached the High Court, which relied on a PNB certificate dated December 24, 2020, stating the outstanding amount was ₹31,99,000. The High Court directed the Trust to pay only ₹29,55,678 in full and final settlement. PNB appealed.

Issues Before the Court

1. Whether the High Court was justified in relying solely on the bank's certificate dated December 24, 2020, while ignoring the interest component in the suspense account.

2. Whether the interest component maintained in a suspense account after classification of a loan as an NPA forms part of the debt.

3. Whether the borrower can give a self-serving interpretation of the account statement to arrive at a lower liability.

What Did the Supreme Court Hold?

The Supreme Court allowed PNB's appeals, set aside the High Court's orders, and restored the DRAT's order. The Court's reasoning was comprehensive:

Interest in Suspense Account Is Part of Debt: The Court explained the banking system: when a loan account becomes an NPA, interest is transferred to a separate suspense account. This does not mean the interest is waived—it remains part of the debt. The certificate dated December 24, 2020, showing ₹31,99,000, did not include the interest component in the suspense account.

High Court Oversimplified the Calculation: The High Court erred by deducting ₹2,43,321.98 paid by the Trust from the ₹31,99,000 figure to arrive at ₹29,55,678. This ignored the fact that the ₹31,99,000 was only the principal component and did not include the interest in the suspense account (₹11,30,765). The High Court's calculation was contrary to the record and the accounting system.

Borrower Cannot Give Self-Serving Interpretation: The Trust had taken inconsistent positions—before the DRT, it claimed liability of ₹32.63 lakhs, but before the High Court, it claimed only ₹29.55 lakhs based on the bank's certificate. The Court held that the Trust could not blithely ignore the accounting system and come up with calculations to suit its interests.

Statement of Account Filed by Bank Prevails: The running account statement filed by the bank showed that the principal amount along with interest calculated up to June 29, 2017, stood at ₹1,25,30,842—not ₹64,25,915 as claimed by the Trust. The Trust's self-serving statement of account was contrary to the record.

DRAT's Order Restored: The DRAT had correctly determined the dues at ₹54,90,413 with 9% interest from February 5, 2018. PNB accepted this without demur, but the Trust challenged it. The High Court erred in interfering.

Banking Regulations Must Be Respected: The Court referred to Section 21A of the Banking Regulation Act, which provides that transactions between a bank and its debtor shall not be re-opened on the ground that the rate of interest is excessive. The Court also applied the Constitution Bench decision in Central Bank of India v. Ravindra regarding the capitalisation of interest.

Key Legal Principles

1. Interest in suspense account is part of debt — when a loan account becomes an NPA, the interest component is transferred to a suspense account but remains part of the debt recoverable from the borrower.

2. Bank certificates must be read in context — a certificate showing outstanding principal does not waive the interest component in the suspense account.

3. Borrowers cannot give self-serving interpretations — inconsistent positions taken at different stages of litigation will not be countenanced.

4. Banking regulations must be respected — Section 21A of the Banking Regulation Act prevents courts from re-opening bank transactions on the ground of excessive interest.

5. DRAT's determination must be given due weight — when a specialized appellate tribunal has determined the dues, the High Court should not lightly interfere.

6. Banks must maintain proper account statements — the statement of account filed by the bank, showing details of debit entries and interest charges, is the primary evidence.

Important Precedents

Central Bank of India v. Ravindra, (2002) 1 SCC 367 (Constitution Bench)

• Held that banks may charge interest on periodical rests and capitalise it on the remaining unpaid amount; the principal sum coupled with capitalised interest is capable of being adjudged as the principal sum on the date of the suit.

Union of India v. Association of Unified Telecom Service Providers of India, (2011) 10 SCC 543

• Applied the principle from Central Bank of India v. Ravindra that interest on periodical rests and capitalisation is permissible.

Practical Impact

For advocates: This judgment is crucial when advising clients in debt recovery matters. It clarifies that the interest component in a suspense account remains part of the debt and cannot be ignored. Advocates must scrutinize bank certificates and account statements carefully—a certificate showing only the principal amount does not waive the interest. Borrowers cannot take inconsistent positions at different stages of litigation.

For future litigation: The judgment reinforces that specialized tribunals like DRTs and DRATs are better placed to determine complex debt calculations. High Courts should not lightly interfere with their orders. It also clarifies the banking accounting system regarding NPAs and suspense accounts.

May be cited: In any debt recovery matter where the borrower seeks to rely on a bank certificate ignoring the interest component, and in cases where the High Court interferes with DRT/DRAT orders.

Lawcurb Quick Insight

The Court's criticism of the High Court's "oversimplification" is significant. The High Court treated the bank certificate as the final word, ignoring the separate suspense account for interest. This is a classic example of a court not understanding banking accounting practices.

Lawcurb Practice Note

When advising borrowers in debt recovery matters, ensure that all components of the debt—principal, interest in the suspense account, and future interest—are accounted for. Do not rely solely on a bank certificate that may only show the principal component.

Remember This Ratio

Interest transferred to a suspense account after a loan becomes an NPA remains part of the debt and cannot be ignored while calculating outstanding dues.

Exam Lens

Q: What is the significance of the suspense account when a loan account is classified as an NPA? A: When a loan account becomes an NPA, the interest component is transferred to a separate suspense account. This is a banking accounting practice. The interest does not cease to be due; it remains part of the debt recoverable from the borrower. The borrower cannot claim that the interest has been waived merely because it is in the suspense account.

Q: Can a borrower challenge the rate of interest charged by a bank on the ground that it is excessive? A: No. Section 21A of the Banking Regulation Act provides that 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 is excessive. This protects banks from challenges to their interest rates.

Q: What is the standard of proof for debt recovery in banking matters? A: The statement of account maintained by the bank in the regular course of business is the primary evidence. The bank must file a statement showing details and giving particulars of debit entries, setting out the rate of and period for which interest has been charged. This statement is presumed to be correct unless rebutted by cogent evidence.

Final Outcome

• Appeals allowed — the Supreme Court set aside the High Court's orders.

• DRAT order restored — the Trust and trustees are liable to pay ₹54,90,413 with 9% interest from February 5, 2018.

• High Court's calculations rejected — the High Court erred in relying on the bank certificate and ignoring the interest component in the suspense account.

• PNB entitled to recover dues — after giving credit to amounts paid after the DRAT's order, PNB may recover its dues in accordance with law.

• No costs — parties to bear their own costs.

Lawcurb Verdict

This judgment is a significant clarification of banking accounting practices and debt recovery law. By holding that the interest component in a suspense account remains part of the debt, the Court has protected banks from borrowers seeking to avoid legitimate interest liabilities. The judgment also serves as a warning to High Courts against oversimplifying complex financial calculations and interfering with specialized tribunals' orders. A principled decision that upholds banking regulations and accounting standards.

This report is prepared by Lawcurb for educational and informational purposes only. It is a concise summary of the judgment and should not be construed as legal advice. Readers are encouraged to refer to the original judgment before relying on any legal proposition.