South Indian Bank Limited Vs Propello Innovations Private Limited & Ors. (Calcutta High Court)
Summary: The appeal before the Calcutta High Court arose against an order dated 26 February 2026 whereby the Learned Single Judge held that the appellant bank had violated the Fair Lending Practice Penal Charges in Loan Accounts Guidelines dated 18 August 2023 issued by the Reserve Bank of India (RBI).
The respondent no. 1 was a Micro Small and Medium Enterprise and respondent no. 2 was its director. The borrowers had availed credit facilities from the appellant bank in or about 2013. The loans were subsequently restructured in 2020 on the ground of financial crisis due to global downturn and stoppage of LOUs, and the facilities were renewed on the ground of Covid-19. The borrowers later sought reduction in interest rate including penal interest. In November 2023, the bank granted a renewal sanction order increasing the rate of interest. The bank subsequently informed the borrowers regarding possible classification of their accounts as Non Performing Asset (NPA), and after further communications and deposits by the borrowers, the accounts were declared as NPA on 8 July 2024.
The borrowers challenged the debit of penal interest and additional interest and consequential NPA classification through a writ petition. The Learned Single Judge held that the bank had violated the RBI Guidelines by realizing amounts as penal interest contrary to clause 3(vii) of the Guidelines.
