New Delhi: The Delhi high court held that banks cannot reduce interest rates on fixed deposits maintained under court orders without proper justification or notice. The judgment came while dismissing an appeal filed by NatWest Markets PLC in a long-running dispute involving Hero Exports and Tiffins Barytes, Asbestos and Paints Limited.
The decision highlights that banks must act fairly and cannot arbitrarily alter the terms of deposits that are protected by judicial orders.
Bank Fixed Deposit Interest Rule: Delhi High Court Rejects NatWest’s Appeal
A Division Bench comprising Justice Avneesh Jhingan and Justice Shail Jain dismissed NatWest Markets PLC’s appeal against an earlier order requiring the bank to pay higher interest on a fixed deposit worth ₹5.89 crore.
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The deposit was being maintained during the pendency of arbitration proceedings between Hero Exports and Tiffins Barytes, Asbestos and Paints Limited. The Court found no legal or factual error in the earlier decision and upheld the directions issued by the single-judge bench.
Background Of The Dispute
The dispute originated between Hero Exports and Tiffins Barytes, Asbestos and Paints Limited. Before arbitration proceedings began, Hero Exports approached the Delhi High Court under Section 9 of the Arbitration and Conciliation Act seeking interim protection.
In July 2008, the Court directed that ₹8.5 crore lying in Tiffins Barytes’ bank accounts be secured. Out of this amount, ₹5.89 crore was held with ABN Amro Bank, which later became part of Royal Bank of Scotland and is now known as NatWest Markets PLC.
Court Ordered Fixed Deposit Protection
The Court had directed that the ₹5.89 crore amount be kept in a fixed deposit earning the maximum available rate of interest. Initially, the deposit earned interest at rates ranging from approximately 7.75% to 8.25%. However, after January 2018, the bank reduced the interest rate to 3.5%. This significant reduction later became the central issue in the case.
Why The High Court Disagreed With The Bank
NatWest argued that an RBI circular allowed commercial banks to determine interest rates on domestic term deposits.
The bank also claimed that after the fixed deposit matured without renewal, the amount could earn only savings bank interest rates. However, the Court was not convinced by these arguments.
No Proof Of Similar Interest Rate Reduction
The High Court observed that while banks may have discretion to set deposit rates, such discretion cannot be exercised in a discriminatory manner.
The Court noted that NatWest failed to provide evidence showing that interest rates on all similarly placed fixed deposits had also been reduced to 3.5%. Because of this lack of evidence, the bank’s justification was rejected.
Parties Were Not Properly Informed
Another important factor was the absence of proof that either Hero Exports or Tiffins Barytes had been informed that the fixed deposit had matured and required renewal.
The Court noted that the affected parties were not adequately notified about the changes that would impact the interest earnings on the deposit. This weakened the bank’s defence further.
Bank Fixed Deposit Interest Rule: Earlier Court Order Upheld
In May 2019, a single-judge bench had directed NatWest to deposit the entire amount with the Registrar General of the Delhi High Court.
The judge also ordered that interest from January 30, 2018, should be calculated using the average of the preceding three years’ interest rates. NatWest challenged this order before the Division Bench. After reviewing the facts, the Division Bench upheld the earlier ruling and dismissed the appeal.
FAQs
The Delhi High Court ruled that banks cannot unilaterally reduce interest rates on fixed deposits maintained under court orders without proper justification and evidence.
The dispute centered around a fixed deposit of ₹5.89 crore that was maintained pursuant to a court order during arbitration proceedings.
The Court found that NatWest failed to prove that similar fixed deposits were also subjected to the same interest rate reduction and failed to show that affected parties were properly informed.
