Computation Of Interest Liability Must Take Into Account Actual Date On Which Each Instalment Was Disbursed: Delhi High Court Sets Aside DRAT Order In Loan Default Case
The Delhi High Court was considering a Petition assailing the common order passed by the Debt Recovery Appellate Tribunal (DRAT).
Justice Vivek Chaudhary, Justice Renu Bhatnagar, Delhi High Court
While dealing with a matter pertaining to the exercise of discretion by the DRT (Debt Recovery Tribunal) and the DRAT (Debt Recovery Appellate Tribunal) in computing the interest liability in a loan default case, the Delhi High Court has held that the computation of liability must, necessarily take into account the actual date on which each installment was disbursed and the period for which the amount remained outstanding.
The High Court was considering a Petition assailing the common order passed by the Debt Recovery Appellate Tribunal (DRAT) whereby the order arising out of an Original Application before the Debt Recovery Tribunal–III, Delhi (DRT) was challenged. By way of the impugned order, the respondent-bank was asked to refund to the petitioner a sum of Rs 30,832.27 with interest.
The Division Bench of Justice Vivek Chaudhary and Justice Renu Bhatnagar held, “The computation of liability must, therefore, necessarily take into account the actual date on which each instalment was disbursed and the period for which the amount remained outstanding.”
Advocate Avadh Bihari Kaushik represented the Petitioner while Advocate Yogesh Pachauri represented the Respondent.
Factual Background
The first petitioner, along with his son, approached the respondent-bank for grant of an educational loan of Rs.15,00,000 under the Education Loan Scheme, for pursuing a four-year undergraduate course at Indiana University, Bloomington, USA. By a sanction letter, the respondent-bank sanctioned the said educational loan, secured by the personal guarantees of Preeti Jain and Savitri Jain, along with a re-charge on the property already mortgaged with the respondent-bank in the account of M/s Rishabh Electricals Pvt. Ltd., belonging to Savitri Jain. Pursuant thereto, an Agreement for Educational Loan was executed. Out of the sanctioned loan amount of Rs.15,00,000, the respondent-bank disbursed only three instalments aggregating to Rs.11,25,000. The fourth and final instalment of Rs.3,75,000 was withheld by the respondent-bank for want of adequate security.
The petitioners also did not repay the loan amount disbursed by the respondent-bank, claiming that fourth and final instalment was not received and the repayment had to start after they had received the full education loan amount during the course. Alleging default in repayment, the respondent-bank instituted an application before the DRT seeking recovery of Rs 24,93,511 together with further interest. During the pendency of the recovery proceedings, in order to protect their property from attachment and coercive recovery proceedings, the petitioners furnished Fixed Deposit Receipts (FDR) aggregating to Rs.35.11 lakh before the DRT as security. Thereafter, upon the application being allowed, the respondent-bank encashed and appropriated the said FDR amount towards the alleged outstanding dues. The petitioners preferred the Appeal which came to be dismissed. Aggrieved thereby, the petitioners approached the High Court and the matter was remanded to the DRT.
By the impugned common order, the DRAT held that the Tribunal is empowered to reduce pendente lite and future interest depending upon the facts and circumstances of each case and to award such rate of interest as would meet the ends of justice. While also affirming the finding of the DRT that the respondent-bank had withheld the fourth and final instalment of the educational loan and that the same had caused hardship to the student, the DRAT set aside the computation made by the DRT. Aggrieved by the consequent recalculation of liability, the petitioners preferred the writ petition before the High Court.
Reasoning
The Bench noted that in the impugned order, the DRAT, in the same manner as DRT, found that the respondent-bank had also illegally withheld the fourth and final instalment and, thus, caused hardship to the student. However, it modified the simple interest granted by the DRT to compound as well as penal interest.
The Bench noted, “The law as laid down in Wander Ltd. (supra) holds that the discretion exercised by a Court can be varied by the Appellant Court only when the same is arbitrary, capricious, perverse or contrary to the settled principles of law. In the present case, the DRAT has not given any such finding. On the contrary it affirms the reason given by the DRT that mistake is also on part of the respondent-bank. In the given circumstances, the DRAT could not have varied the discretion exercised by the DRT. Thus, we find the order of the DRAT dated 14.10.2025 to be illegal and deserves to be set aside.”
The Bench further noted that the DRT proceeded to calculate the interest liability by treating the entire amount of Rs 11,25,000 as having been disbursed as a lump sum. The record, however, demonstrated that the said amount was not disbursed to the petitioners in one go. Considering that the respondent-bank had disbursed three separate instalments, the Bench held that the interest was required to be calculated separately with reference to each of the three actual dates of disbursement.
The Bench was of the view that while the exercise of discretion by the DRT in directing that simple interest be applied was justified, the actual computation undertaken by the DRT being faulty could not be sustained. Thus, setting aside the impugned common order passed by the DRAT, the Bench held that the order passed by the DRT was required to be modified only to the limited extent in which the liability was to be computed.
“The entire exercise of recalculation shall be undertaken by the respondent-bank within a period of four weeks from the date of this judgment”, the Bench ordered while allowing the appeal.
Cause Title: Yogesh Jain & Anr v. Central Bank of India (Neutral Citation: 2026:DHV:6071-DB)