The Delhi High Court has ruled that banks cannot arbitrarily lower the interest payable on a fixed deposit created under a court direction. Any such reduction must be supported by a valid basis, the High Court said.
A Division Bench of Justices Avneesh Jhingan and Shail Jain rejected an appeal filed by NatWest Markets PLC against an order directing it to pay higher interest on a ₹5.89 crore fixed deposit maintained in connection with an ongoing arbitration dispute involving Hero Exports.
The dispute originated between Hero Exports and Tiffins Barrytes, Asbestos and Paints Limited. Before the commencement of arbitration, Hero Exports approached the High Court under Section 9 of the Arbitration and Conciliation Act, seeking interim measures to secure the amount in dispute.
In July 2008, the High Court directed that ₹8.5 crore held in the bank accounts of Tiffins Barrytes be secured. A sum of ₹5.89 crore was held with ABN Amro Bank, which subsequently became Royal Bank of Scotland and later NatWest Markets PLC.
The court subsequently directed that the ₹5.89 crore be placed in a fixed deposit carrying the highest applicable rate of interest.
The deposit initially earned interest at 7.75 per cent, 8.25 per cent and again 7.75 per cent.
However, from January 30, 2018, the bank reduced the rate to 3.5 per cent.
Hero Exports challenged the reduction. In May 2019, a single judge directed the bank to deposit the entire amount with the High Court’s Registrar General. The judge further ordered that the interest payable from January 30, 2018, be worked out on the basis of the average interest rate applicable during the preceding three years.
NatWest challenged the decision before the Division Bench, contending that an RBI circular allowed commercial banks to independently determine interest rates for domestic term deposits.
It also submitted that where a fixed deposit matured and was not renewed, the amount could subsequently earn interest at the savings bank rate.
The Division Bench rejected the submissions.
The court said the RBI framework did permit banks to determine interest rates on term deposits, but that discretion was subject to a requirement of non-discrimination among deposits falling within the same category.
NatWest, the court noted, had failed to place any evidence showing that the interest rate for other similarly situated fixed deposits had also been brought down to 3.5 per cent.
The Bench further found no evidence that either Hero Exports or Tiffins Barrytes had been notified that the deposit had matured and needed to be renewed.
The court also took note of proceedings initiated by NatWest before the arbitrator in 2017, when the bank sought permission to transfer the funds to another bank as it was winding down its operations.
The application, however, did not indicate that such a transfer would result in a reduction in the interest rate.
Finding no legal or factual infirmity in the single judge’s order, the Division Bench dismissed NatWest’s appeal.
