A bank cannot apply savings-bank rates to court-secured deposits without establishing maturity and renewal notice.

A dispute between Hero Exports and Tiffins Barrytes led Hero Exports to seek interim relief under Section 9 of the Arbitration and Conciliation Act, 1996.

The High Court directed that Rs. 8.5 crore be secured; Rs. 5.89 crore held in Tiffins Barrytes’ account with the appellant bank was placed in a fixed deposit carrying the maximum rate of interest.

Those directions continued after the Section 9 petition was disposed of, subject to further orders of the arbitral tribunal.

The bank paid interest at rates of 7.75%, 8.25% and 7.75% until 30 January 2018, then reduced it to 3.5%.

On an application by Tiffins Barrytes’ Resolution Professional, the Single Judge directed the bank to deposit the account balance with interest calculated from 30 January 2018 at the average of the preceding three rates.

The bank appealed, relying on clauses 3.3 and 3.4 of the RBI circular governing term deposits.

Whether the bank could reduce the interest on the court-directed fixed deposit to 3.5% by relying on clause 3.4 of the RBI circular concerning matured, unpaid deposits.

Whether the Single Judge’s direction to calculate interest at the average of the preceding three rates warranted appellate interference.

Section 9 of the Arbitration and Conciliation Act, 1996 provided the basis for the interim order securing the disputed funds.

Under clause 3.3 of the RBI circular, banks may set interest rates on domestic term deposits, but may not discriminate between deposits accepted on the same date for the same maturity; the rates must follow the bank’s published schedule and are not subject to negotiation.

Clause 3.4 provides that an amount left unclaimed after a fixed deposit matures and its proceeds remain unpaid attracts the savings-bank rate of interest.

The court-directed requirement to keep the funds in a deposit carrying the maximum rate remained operative unless modified by the court or arbitral tribunal.

The bank had not established that it reduced the rate to 3.5% for all comparable fixed deposits, as clause 3.3 required to avoid discriminatory treatment.

Nor had it shown that the affected parties were notified that the deposit had matured and required renewal, or that its proceeds had become unpaid within the meaning of clause 3.4.

Although the bank had applied to the arbitral tribunal to transfer the funds to another bank, that application did not seek a change in the interest rate and remained pending.

The bank also had not disclosed the rates offered to depositors at its operating branches.

In these circumstances, the RBI circular did not justify the reduction, and the Single Judge’s direction disclosed no factual or legal error.

It found no factual or legal error in the Single Judge’s order and dismissed the appeal, disposing of any pending applications.