Kerala High Court Directs SBI To Pay Interest On FD Subject To Auto-Renewal Under Its Own Circular

The Kerala High Court has recently directed the State Bank of India to pay interest on a firm's fixed deposit for the period between its maturity and May 12, 2013.

The court held that SBI's own circular required the deposit to be automatically renewed in the absence of any contrary instructions.

Justice M.A. Abdul Hakhim therefore, observed, "Ext.P18 Circular of the Respondent No.1 itself provides that on maturity, the Term Deposit is to be automatically renewed for the same period at the rate of interest prevailing on the date of maturity. The Respondents could not produce any Circular providing otherwise."

The dispute arose over interest payable on a fixed deposit of ₹7.22 crore placed by Asiatic Export Enterprises with SBI on July 19, 2011, for one year. After the deposit matured on July 18, 2012, disputes among the firm's partners prevented the firm's accounts from being operated. Pursuant to earlier directions of the High Court, SBI released the maturity amount to the firm on December 10, 2015.

Narayan Bharathan, one of the firm's partners, later sought payment of the balance interest. During the pendency of the writ petition, SBI admitted liability to pay interest for the period between May 13, 2013, and December 10, 2015. It paid the admitted amount in compliance with an interim order. The surviving dispute before the court concerned interest from July 18, 2012, to May 12, 2013.

Bharathan argued that, in the absence of any contrary instruction, SBI was bound by its own circular to automatically renew the fixed deposit on maturity. According to him, the renewal had to be for the same period at the rate of interest prevailing on the date of maturity.

SBI contended that the amount had been transferred to the firm's current account after maturity. It also argued that the dispute arose out of a contractual relationship. Therefore, according to the bank, the claim ought to be pursued before a civil court rather than through a writ petition.

The court rejected the preliminary objection. It observed that settled precedent does not impose an absolute bar on entertaining writ petitions involving contractual disputes. It added that the maintainability of such petitions depends on the facts and circumstances of each case.

On the merits, the court noted that SBI had no case that the deposit amount was transferred to the firm's current account at the request of Bharathan or any other person interested in the fixed deposit.

The court observed,"The Respondents do not have a case that the amount was transferred to the Current Account on the request of the Petitioner or any other person interested in the Fixed Deposit."

The court also examined SBI's contention that the amount had later been placed under the Army Group Insurance Fund with retrospective effect. It held that even assuming Bharathan had requested such a course, the bank should not have made such a deposit with retrospective effect.

Observing that the petitioner could not be blamed for the bank's actions, the court held,

"It is to be found that the deposit is made in the Army Group Insurance Fund and that too with retrospective effect only on account of the fault attributable to the Respondent No.1/Bank alone, and the Petitioner could not be blamed for it."

The court held that there was no necessity to relegate the petitioner to a civil court. It noted that SBI had not contended that the retrospective deposit under the Army Group Insurance Fund had been made at the instance of Bharathan or the firm.

The court further observed that there was nothing to be adjudicated by adducing evidence and that complicated adjudication was not required on the admitted facts.

Allowing the petition, the court directed SBI to calculate interest at 8.5% per annum on ₹8 crore for the period from July 18, 2012 to May 12, 2013. It directed the bank to credit the amount to the firm's current account within two months.

For Petitioner: Senior Advocate A.V Thomas, Advocates Lijo Joseph (Thoppil) and Nidhi Sam John

For Respondents: Advocate Jawahar Jose, SC, SBI