Court Dismisses Appeal, Directs Bank to Compensate Respondents with Average Interest of Previous Three Years
In a significant ruling, the Delhi High Court dismissed an appeal by Natwest Markets PLC, formerly known as ABN Amro Bank N.V. and Royal Bank of Scotland, against an order to compensate M/s Hero Exports and Tiffins Barrytes by applying an average interest rate from previous years rather than a reduced savings bank rate. The judgment was delivered by a division bench comprising Justices Avneesh Jhingan and Shail Jain, who upheld the earlier decision requiring the bank to deposit the disputed amount with the Registrar General along with interest calculated at the average rate of the last three years.
The case stems from a dispute between Hero Exports and Tiffins Barrytes, leading to arbitration proceedings and a court order in 2008 to secure a sum of Rs. 8.5 crores lying in Tiffins Barrytes’ bank account. The bank was directed to maintain the amount in a fixed deposit offering the maximum rate of interest. However, the bank later reduced the interest rate from 7.75%, 8.25%, and 7.75% to a mere 3.5% as of January 30, 2018, without notifying the parties or the court.
Natwest Markets PLC cited a Reserve Bank of India (RBI) circular granting banks the freedom to set their own interest rates as justification for the reduction. However, the court found the bank's action unjustified due to the lack of evidence showing a uniform rate reduction across similar deposits and the absence of any notice to the affected parties regarding the maturity and renewal of the fixed deposit.
The court emphasized that the unilateral reduction of interest by the bank without proper disclosure could not be sustained. The judgment mandates that the bank deposit the entire amount with the Registrar General, along with interest calculated at the average rates of 7.75%, 8.25%, and 7.75% for the past three years, effectively rejecting the bank's reliance on the RBI circular.
This decision reinforces the principle that banks must adhere to fair practices in interest rate adjustments, ensuring transparency and non-discrimination among depositors. The appeal dismissal by the Delhi High Court serves as a reminder to financial institutions about their obligations under the law and the importance of maintaining transparency in their operations.
Bottom Line :
Arbitration and Conciliation Act, 1996 Section 9 Amount lying in bank account attached to secure arbitral claim - Bank directed to keep attached amount in fixed deposit carrying maximum rate of interest - Bank subsequently reducing interest to savings bank rate of 3.5% without notice to parties or Court and without proving similar reduction for all comparable deposits - RBI circular permitting banks to fix interest rates does not justify discriminatory or unilateral reduction - Direction to deposit entire amount with average of previous three years' interest upheld.
Statutory provision(s):
Arbitration and Conciliation Act, 1996 Section 9, Reserve Bank of India circular Clauses 3.3 and 3.4
Natwest Markets PLC v. M/s Hero Exports, (Delhi)(DB) : Law Finder Doc id # 2991191
