Bank policy waiving penalties bars premature-closure charges on NRE deposits of ₹1 crore or more.

The petitioners, both non-resident Indians, held NRO savings accounts and term deposits with Canara Bank.

In 2018, they converted funds from NRO deposits into NRE deposits with the Bank’s permission, relying on an assurance that the conversion would not attract a premature-closure penalty.

The Bank later demanded a 1% penalty of ₹13,81,000, asserting that the petitioners had closed their NRE accounts and transferred the funds to HDFC Bank.

The Bank rejected the petitioners’ objections, and they challenged both communications under Article 226 of the Constitution.

1. Whether the Bank’s policy permitted a 1% penalty for premature closure of NRE term deposits of ₹1 crore or more

2. Whether the Bank was justified in imposing the penalty despite the policy provisions relied on by the petitioners

3. Whether the Bank’s communications dated 26 October 2018 and 26 March 2019 were sustainable

Clause 5.16.1(1) provided for a 1% penalty on premature closure or extension of NRE deposits below ₹1 crore, while Clause 5.16.1(2) waived that penalty for deposits of ₹1 crore and above.

The Court also applied the principle that a bank relying on its policy to impose a charge must act consistently with the policy as a whole; policy provisions should be read harmoniously, and a charge cannot be imposed without an applicable provision authorising it.

Article 226 provided the basis for the Court’s review; no judicial precedent was identified as forming part of the reasoning.

The petitioners’ funds had been converted into NRE term deposits with the Bank’s permission, and the deposits exceeded ₹1 crore.

The Court held that the policy governing NRE deposits therefore applied, including its express waiver of the 1% penalty for deposits at or above that threshold.

The Bank’s reliance on the NRO-to-NRE conversion provision did not displace the separate provision governing premature closure of NRE deposits.

Nor did the subsequent transfer to HDFC Bank create liability where the Bank had produced no policy provision authorising the penalty in those circumstances.

It allowed the petition, directed the Bank to permit operation of the petitioners’ NRO and NRE savings accounts in accordance with applicable terms, and ordered any penalty amount recovered to be refunded within eight weeks.

The Bank remained free to make any other lawful interest adjustment under the applicable policy; there was no order as to costs.