Delhi High Court Says NatWest Can't Reduce Interest On ₹5.89 Crore Court-Ordered FDR Without Notice

The Delhi High Court on 23 September dismissed an appeal filed by NatWest Markets PLC against a direction requiring it to pay interest at the higher applicable rate on a fixed deposit maintained pursuant to a court order.

A Bench comprising Justices Avneesh Jhingan and Shail Jain passed the order while dealing with NatWest's challenge to the Single Judge's direction to deposit the entire amount with the Registrar General along with interest calculated at the average rate applicable during the preceding three years. It observed:

“The contention is that in the application filed before the arbitrator seeking modification of the order and permission to transfer the amount to another bank there was no reference to the reduction in the ROI on the deposit. Moreover, no evidence was adduced to establish that the ROI on the FDR for all similarly placed customers was reduced to 3.5%.”

The dispute arose between Hero Exports and Tiffins Barrytes, Asbestos and Paints Limited, following which Hero Exports approached the High Court under Section 9 of the Arbitration and Conciliation Act, 1996, seeking security for the amount lying in Tiffins Barrytes' bank accounts.

On 18 July 2008, the Court directed that Rs. 8.5 crore lying in Tiffins Barrytes' bank accounts be secured. Of this, Rs. 5.89 crore was lying in its account with ABN Amro Bank, now known as NatWest Markets PLC. The bank was directed to retain the amount, which was subsequently placed in a fixed deposit carrying the maximum rate of interest.

After arbitration proceedings commenced, the Section 9 petition was disposed of with liberty to the parties to seek further directions from the arbitrator. In 2017, NatWest, which was winding down its operations, approached the arbitrator seeking permission to transfer the amount to another bank.

Subsequently, the Resolution Professional of Tiffins Barrytes sought release of the amount lying with NatWest. The bank disclosed that Rs. 11.22 crore was lying in the frozen account. The Court noted that interest had been paid at rates of 7.75%, 8.25% and 7.75% until 30 January 2018, after which it was reduced to 3.5%.

The Single Judge directed NatWest to deposit the entire amount with the Registrar General along with interest for the period after 30 January 2018, calculated at the average of the preceding three years' rates. NatWest challenged the direction before the Division Bench.

NatWest contended that Clause 3.3 of the RBI circular dated 1 July 2015 permitted the bank to determine the rate of interest, while Clause 3.4 provided that an FDR not renewed after maturity would carry interest at the savings bank rate.

The judges noted that the amount had been placed in the FDR pursuant to the High Court's specific direction that it carry the maximum rate of interest. They further noted that NatWest neither informed the affected parties or the Court about the reduction in interest nor notified them about the FDR's maturity and the need for renewal. NatWest also failed to establish that the 3.5% rate was being applied uniformly to similarly placed FDRs.

Referring to Clause 3.3 of the RBI circular, the Court observed that while banks have discretion to determine interest rates on domestic term deposits, the discretion is subject to the requirement that there be no discrimination between deposits accepted at the same or different offices of the bank. It rejected NatWest's reliance on Clause 3.4 of the RBI circular. It held:

“It is pertinent to note that no period was specified for which the FDR was to be maintained. There is nothing on record to establish that the appellant informed the affected parties i.e. Hero Exports and Tiffins Barrytes about the maturity of the FDR and that it was required to be renewed. No application was filed either before the arbitrator or this Court seeking directions for renewal of the FDR or informing that owing to the winding down of the bank the ROI on the deposit was reduced to savings bank rate.”

The Bench also noted that although NatWest had approached the arbitrator in 2017, its application was limited to seeking permission to transfer the deposited funds to another bank.

Accordingly, the High Court dismissed NatWest's appeal, finding no factual or legal error in the Single Judge's directions.

For Appellant: Advocate Sanjeev Pathak

For Respondents: Advocates Shubham Seth, Nikilesh Ramachandran and A Venkata Subramanian