Delhi High Court Sets Aside No-Dues Direction Against PNB; Holds Disputed ₹8.33 Crore Liability and Zero-Balance Entries Cannot Be Decided in Writ Proceedings
Delhi High Court Sends PNB-Borrower Dispute to Civil Remedy; Says Writ Jurisdiction Unsuitable for Contested Loan Recalculation
Facts
Punjab National Bank had sanctioned credit facilities to M.A. Enterprises in 2016, which were later renewed. During the COVID-19 period, the Bank granted restructuring under an RBI-approved One Time Restructuring (OTR) framework on 16 August 2021, including concessional interest rates.
The borrower subsequently failed to comply with the restructuring terms. Two of its three accounts were classified as NPAs on 2 July 2022, whereupon the Bank treated the OTR concessions, including concessional interest rates, as withdrawn.
The Bank thereafter issued a demand notice under Section 13(2) SARFAESI and a possession notice under Section 13(4), claiming approximately ₹31.66 crore plus interest and charges.
The borrower later made substantial payments and asserted that all dues had been cleared. Its account statements eventually reflected zero balances.
It therefore sought a no-dues certificate and return of the original title deeds.
The Bank, however, asserted that because the borrower had defaulted under the OTR, the original contractual interest rates revived. On recalculation, the Bank claimed approximately ₹8.33 crore remained payable.
A learned Single Judge accepted the borrower’s case, held that the Bank had not properly communicated withdrawal of the OTR concessions and directed PNB to:
- issue a no-dues certificate;
- release the title deeds; and
- intimate closure of the account for updation of the borrower’s credit record.
PNB challenged that judgment in the intra-court appeal.
Issues
The Division Bench identified two principal issues:
- Whether PNB was required to separately communicate withdrawal of the concessional rate of interest after the borrower failed to comply with the OTR.
- Whether the zero balance shown in the Bank’s statements prevented PNB from subsequently claiming any outstanding amount resulting from recalculation.
The wider procedural issue was whether such disputed questions concerning actual outstanding liability could properly be adjudicated in writ jurisdiction.
Petitioner/Appellant’s Arguments
PNB argued that the Single Judge had effectively determined a complex contractual and accounting dispute in writ proceedings.
According to the Bank, the borrower had committed a substantial default under the OTR. Once the restructuring failed and the accounts became NPAs, the concessional interest regime ceased to apply and the original contractual interest rate stood restored.
The Bank maintained that under Clause 10 of the OTR, it had expressly reserved the right to withdraw concessions without assigning reasons.
It therefore argued that the Single Judge had wrongly imported a requirement of prior or separate communication from Clause 13 of the original sanction terms.
PNB further contended that the statements showing zero balance were generated because the system continued applying the concessional rate, which the Bank characterised as an inadvertent accounting error.
A zero balance, according to PNB, could not conclusively extinguish liability where a subsequent recalculation under the correct contractual rate showed substantial dues.
It also submitted that the inter-branch e-mail dated 1 April 2024 was merely conditional and could not amount to a binding admission that nothing remained payable.
Respondent’s Arguments
M.A. Enterprises relied heavily upon PNB’s own statements of account showing a zero balance.
It argued that the Bank’s claim that approximately ₹8.33 crore remained payable was an afterthought based upon an alleged withdrawal of concessional interest that had never been communicated before the writ proceedings.
The borrower submitted that the Single Judge correctly held that the Bank could not unilaterally withdraw the OTR concessions without informing it.
It also relied upon the Bank’s internal communication dated 1 April 2024 requesting closure of the accounts and release of securities as corroborating the contention that its liability had been discharged.
Analysis of the Law
The Division Bench examined the relationship between the original Sanction Letter and the subsequent OTR.
Clause 13 of the general sanction terms permitted the Bank to withdraw or modify conditions under intimation to the borrower.
However, Clause 10 of the later and more specific OTR expressly reserved the Bank’s right to withdraw concessions without assigning any reason.
The Court applied the principle that a specific contractual stipulation governs over a general one in relation to the subject specifically dealt with.
Accordingly, the OTR clause prevailed over the general sanction condition insofar as withdrawal of restructuring concessions was concerned.
The Court also held that the classification of the accounts as NPAs, followed by recall and possession notices under the SARFAESI Act, sufficiently communicated that the restructuring had failed.
There was therefore no further contractual requirement for PNB to issue a separate communication specifically stating that the concessional rate of interest stood withdrawn.
Precedent / Principle Analysis
The judgment is driven more by established principles of writ jurisdiction, contractual interpretation and banking law than by an extended discussion of individual precedents.
The Court applied three important principles.
First, specific contractual terms prevail over general contractual provisions where both regulate the same subject. Thus, the specific OTR provision concerning withdrawal of concessions governed over the broader original sanction terms.
Second, writ jurisdiction is inappropriate where relief depends upon adjudicating seriously disputed questions of fact, particularly where calculation of financial liability requires evidence, accounting examination and interpretation of contractual arrangements.
Third, a nationalised bank dealing with public funds cannot be compelled through writ jurisdiction to waive or abandon an amount that may genuinely be due without first determining the underlying liability.
The Court therefore treated the actual quantum of outstanding debt as an evidentiary dispute to be determined before a competent civil forum rather than summarily under Article 226.
Court’s Reasoning
The Division Bench disagreed with the Single Judge’s conclusion that the Bank’s failure to separately communicate withdrawal of the OTR concession prevented it from claiming the contractual interest rate.
The Court noted that the borrower had admittedly failed to comply with the OTR and its accounts had consequently become NPAs.
Once this occurred, the original sanction terms revived.
The SARFAESI notices themselves clearly demonstrated that PNB no longer regarded the restructuring arrangement as operative.
The Court next examined the crucial zero-balance entries.
PNB explained that after an account becomes an NPA, interest is not necessarily reflected in the main account on an accrual basis. Instead, unrealised interest may be tracked separately through a Memorandum Account / Interest Suspense Account.
Accordingly, the mere appearance of a zero balance in the operative account did not necessarily mean that the entire contractual liability had disappeared.
The Bank’s calculation placed the differential liability at ₹8.33 crore, representing the difference between dues under the original sanction terms and the amounts paid applying the OTR concession.
The Court did not finally hold that ₹8.33 crore was in fact due.
Rather, it held that PNB had provided a plausible explanation and that determining the correct figure required factual adjudication and evidence.
Therefore, the Single Judge could not conclusively declare the borrower’s liability discharged merely because the statements showed zero balance.
Similarly, the inter-branch e-mail of 1 April 2024 was not an unconditional admission of no dues. It expressly contemplated closure and release of securities only subject to compliance with the Bank’s guidelines and verification that matters were otherwise in order.
Conclusion
The Delhi High Court held that the dispute over the borrower’s actual outstanding liability involved contested factual and accounting questions that could not appropriately be decided in writ proceedings.
It held that:
- the OTR’s specific clause permitting withdrawal of concessions prevailed over the general sanction terms;
- separate communication of withdrawal of the concessional rate was not required in the circumstances;
- NPA classification and SARFAESI proceedings sufficiently conveyed failure of the OTR;
- zero-balance account statements were not conclusive proof that all liability had been discharged; and
- PNB’s claim of approximately ₹8.33 crore could not be summarily rejected without evidence.
Accordingly, the Division Bench set aside the Single Judge’s judgment.
It directed that PNB would issue the no-dues certificate and release the secured property’s title deeds only upon payment of the entire dues calculated by the Bank under the Sanction Letter, applicable guidelines and law.
At the same time, the borrower was expressly given liberty to recover any excess amount paid by pursuing appropriate civil proceedings before a competent court.
Case Details
Case: Punjab National Bank v. M.A. Enterprises & Anr.
Court: High Court of Delhi at New Delhi
Case Number: LPA 486/2026 with CM APPL. 42088/2026; CNR No. DLHC010287312026
Judge: Chief Justice Devendra Kumar Upadhyaya and Justice Tejas Karia; judgment authored by Justice Tejas Karia
Date: 18 August 2026; reserved on 9 July 2026
Result: PNB’s appeal allowed; Single Judge’s no-dues and title-deed release directions set aside. Borrower must first pay dues calculated by PNB, subject to its right to recover any excess through civil proceedings
