Back
Banks Can't Unilaterally Reduce Interest on Court-Ordered Fixed Deposits:
The has firmly ruled that banks cannot unilaterally reduce the interest rate on fixed deposits that are being maintained pursuant to court orders, without any justification or transparency. A Division Bench comprising Justice Avneesh Jhingan and Justice Shail Jain dismissed an appeal by , which had challenged a single-judge order directing it to pay interest at the average of the preceding three years' rates on a ₹5.89 crore deposit.
Background: A Court-Ordered Deposit in a Corporate Feud
The dispute originated from a commercial conflict between and . Before arbitration proceedings began, filed a petition under , seeking . In , the High Court directed that ₹8.5 crore lying in the bank accounts of Tiffins Barrytes be secured. Of this, ₹5.89 crore was held with what was then (later , now ). The court further ordered that the amount be placed in a fixed deposit yielding the maximum rate of interest.
For nearly a decade, the bank complied: it paid interest at rates of 7.75%, 8.25%, and 7.75% until . Thereafter, without any notice or explanation, the interest rate was slashed to 3.5%.
Legal Standoff: Can a Bank Rely on an RBI Circular to Slash Rates?
When the matter came before a single-judge in , the court took strong exception to the . It directed the bank to deposit the entire sum with the Registrar General and ordered that interest from , be calculated at the average of the preceding three years' rates—effectively around 7.9%.
Aggrieved, NatWest appealed to the Division Bench, arguing that under clauses 3.3 and 3.4 of a circular, banks have the freedom to fix their own interest rates on term deposits. It further contended that once a fixed deposit matures without renewal, the amount could attract only the savings bank rate.
Court's Analysis: No Evidence of or Renewal Notice
The Division Bench closely scrutinised the RBI circular and found that the discretion granted to banks under clause 3.3 was subject to a critical caveat: banks
"are not allowed to discriminate in the matter of interest paid on deposits, between one deposit and another, accepted on the same date and for the same maturity."
The court noted that NatWest had placed no material before it to demonstrate that the interest rate on all similarly placed fixed deposits—those of the same date and maturity—had been uniformly reduced to 3.5%. The affidavit filed before the single-judge merely stated that thirty branches of the bank had been closed in a phased manner, but it did not disclose the rates offered to customers at the two remaining branches.
Key Observation:
"The appellant neither before the learned Single Judge nor in the present appeal has substantiated the fact that the ROI for all the similar FDR was reduced to 3.5%."
Moreover, the court found that the bank had failed to notify the affected parties— and Tiffins Barrytes—about the maturity of the fixed deposit receipt (FDR) or the need for its renewal. No application was filed before the arbitrator or the court seeking directions for renewal or informing about the reduced rate due to the bank's winding down process.
Key Observation:
"There is nothing on record to establish that the appellant informed the affected parties i.e. and Tiffins Barrytes about the maturity of the FDR and that it was required to be renewed."
The court distinguished the bank's reliance on the RBI circular, stating that clause 3.4—which deals with —did not apply because the deposit was actively maintained under court orders and no period for the FDR had been specified.
Final Ruling: Appeal Dismissed, Interest to Be Calculated at
The Division Bench concluded that the directions issued by the learned Single Judge suffered from no factual or legal error. The appeal was dismissed in its entirety.
Key Observation:
"The directions issued by the learned Single Judge suffer from no factual or legal error calling for interference in the appeal."
The ruling serves as a strong reminder that banks acting as custodians of must maintain transparency and cannot unilaterally alter interest rates without justification or notice. The decision reinforces the principle that granted by courts to secure disputed amounts must not be diluted by the unilateral actions of financial institutions, especially when those institutions are themselves undergoing restructuring or winding down operations.
All pending applications were disposed of.
