Introduction:

In the case of Bank of India v. Paras Talkies & Ors., citation 2025 LiveLaw (Raj) 330, the Rajasthan High Court was called upon to decide a significant issue concerning the discretion vested in the Debt Recovery Appellate Tribunal (DRAT) under Section 19(20) of the Recovery of Debts and Bankruptcy Act, 1993 (RDB Act). The matter arose from a challenge by the Bank of India, the petitioner, against an order passed by the DRAT reducing the rate of interest decreed by the Debt Recovery Tribunal (DRT) from 15% per annum to 12% per annum simple. The dispute traces its origin to a loan transaction between the Bank of India and the respondent, Paras Talkies and others, wherein the borrower defaulted on repayment, compelling the bank to initiate recovery proceedings. The DRT decreed the suit in favor of the Bank of India, ordering repayment with interest at the contractual rate of 15% per annum. However, on appeal by the borrower, the DRAT exercised its discretion to modify the decree, reducing the interest rate to 12% per annum simple, reasoning that it was equitable and justified under the circumstances. This prompted the Bank of India to approach the High Court, arguing that such reduction was beyond the jurisdiction of the DRAT and contrary to the loan agreement.

Arguments:

The petitioner, Bank of India, through its counsel, advanced the argument that the DRAT had exceeded its authority by interfering with the contractual terms governing the interest rate. According to the petitioner, the loan agreement executed between the parties specifically provided for interest at the rate of 15% per annum. Once the DRT had decreed the suit in accordance with those terms, the DRAT could not arbitrarily reduce the rate of interest without violating the sanctity of the contract. The petitioner strongly contended that Section 19(20) of the RDB Act, which empowers the Tribunal to pass orders relating to interest, did not grant unbridled discretion to alter the contractual stipulations agreed upon by the parties. Instead, the provision was meant to ensure the smooth enforcement of recovery orders while respecting the binding contractual framework.

The petitioner also relied upon principles of banking jurisprudence to argue that financial institutions must be allowed to enforce loan agreements strictly, without unnecessary judicial interference. If appellate tribunals were permitted to alter interest rates at will, it would undermine the certainty and predictability essential for lending transactions. Such interventions, according to the petitioner, could erode the trust of financial institutions in recovery mechanisms, eventually discouraging credit flow in the economy. The petitioner highlighted that the DRT had rightly decreed the suit as per the agreed terms, and the DRAT’s intervention diluted the binding nature of the decree. It was argued that judicial discretion, if exercised contrary to contractual provisions, would amount to rewriting the contract between the parties, something courts and tribunals are not empowered to do.

In contrast, the respondents, Paras Talkies and others, defended the DRAT’s order by pointing out that Section 19(20) of the RDB Act explicitly vested discretion in the Tribunal and the Appellate Tribunal to determine the rate of interest to be awarded. They emphasized that the provision uses the expression “as it deems fit,” which grants ample latitude to the Tribunal to decide on a reasonable and just interest rate. The respondents further argued that such discretion is not unfettered but is guided by principles of fairness, justice, and equity. In their view, the DRAT’s decision to reduce the rate of interest from 15% to 12% was in line with these principles and reflected a balanced approach to ensure that the liability remained enforceable without being oppressive or excessive.

The respondents also drew support from Constitutional Bench decisions of the Supreme Court in State Bank of India v. M/s Sarathi Textiles and Others and State Bank of India v. M/s Material Marketing Company and Others, where it was categorically held that tribunals dealing with debt recovery matters have the discretion to award interest as deemed fit, even if it deviates from the contractual rate. According to these precedents, while the contract may prescribe a particular rate, tribunals retain jurisdiction to modify the same in the interest of justice. The respondents highlighted that the DRAT had considered the facts of the case, the financial condition of the borrower, and the overall equities involved before reducing the interest rate, thereby ensuring that the liability remained realistic and recoverable. They contended that this exercise of discretion was well within the scope of Section 19(20) and could not be interfered with lightly by the High Court.

Judgement:

The High Court, after hearing the parties and examining the record, turned to the language of Section 19(20) of the RDB Act. The provision empowers the Tribunal to award interest “at such rate as it deems fit” from the date of the application till realization. Justice Anoop Kumar Dhand noted that the plain reading of this section leaves no doubt that the Tribunal and the Appellate Tribunal are vested with discretion to determine the appropriate rate of interest. The Court further emphasized that this discretion has been judicially recognized and upheld by the Supreme Court in binding precedents, particularly in the cases cited by the respondents. These decisions affirmed that even where a contractual rate exists, the tribunal has the authority to reduce or modify it, provided the decision is guided by sound reasoning and principles of justice.

Justice Dhand carefully reviewed the circumstances considered by the DRAT while reducing the rate of interest. It was noted that the DRAT had not acted arbitrarily or capriciously but had applied its mind to the facts before it. The DRAT had considered the contractual rate, the financial capacity of the borrower, and the overall ends of justice before arriving at the decision. The reduction from 15% to 12% per annum was not so drastic as to undermine the contractual obligations but was a reasonable exercise of discretion to balance the competing interests of the creditor and debtor. The High Court observed that the role of tribunals under the RDB Act is not merely to enforce contractual terms mechanically but also to ensure equitable justice in debt recovery proceedings.

In dismissing the petition, the Court categorically held that no jurisdictional error had been committed by the DRAT in reducing the interest rate. The Court underscored that the petitioner’s argument of lack of jurisdiction was untenable in view of the express wording of Section 19(20) and the authoritative pronouncements of the Supreme Court. The decision of the DRAT was found to be legally sustainable, just, and equitable. The High Court reaffirmed that the discretion under Section 19(20) is a vital tool enabling tribunals to tailor relief in a manner that promotes both fairness and enforceability.

This judgment carries significant implications for the interpretation of Section 19(20) of the RDB Act. It clarifies that contractual interest rates, though binding between the parties, are not immune from judicial scrutiny in debt recovery proceedings. Tribunals and appellate tribunals retain discretion to modify interest rates where circumstances warrant such intervention. This ensures that debt recovery decrees remain realistic, enforceable, and not overly punitive. At the same time, the judgment does not dilute the rights of creditors entirely, as the discretion must be exercised judiciously and based on relevant considerations.

The case also highlights the delicate balance courts and tribunals must maintain between respecting contractual freedom and ensuring equitable justice. While creditors have a legitimate expectation of recovering loans as per agreed terms, debt recovery mechanisms must also prevent unjust enrichment or exploitation. By upholding the DRAT’s discretion, the Rajasthan High Court reaffirmed that the judiciary’s role is to temper strict contractual enforcement with considerations of fairness and equity. This approach aligns with the broader constitutional vision of justice as not merely mechanical adherence to contracts but as a balanced pursuit of fairness in economic transactions.

Thus, the decision in Bank of India v. Paras Talkies & Ors. reaffirms the legal position that Section 19(20) of the RDB Act empowers tribunals to exercise discretion in awarding interest, even where it deviates from contractual terms, so long as the exercise of such discretion is grounded in justice, fairness, and sound reasoning. By dismissing the bank’s challenge, the Court protected the integrity of tribunal discretion and reinforced the idea that debt recovery proceedings are not merely contractual enforcement actions but judicial processes guided by principles of equity.