Autonomous Body Not a PSU; Contractual Dispute Requires Civil Remedy, Not Writ Jurisdiction
In a significant judgment dated October 13, 2026, the Division Bench of the Kerala High Court, comprising Justices Anil K. Narendran and Muralee Krishna S., overturned a Single Judge's decision that had allowed premature closure of non-callable fixed deposits by Kerala State Nirmithi Kendra, an autonomous body under the Government of Kerala. The Court clarified that the writ petition filed under Article 226 of the Constitution of India was not maintainable as the dispute arose out of contractual obligations involving disputed questions of fact.
Background:
Kerala State Nirmithi Kendra (KSNK), engaged in construction and infrastructure development activities in Kerala, had deposited Rs.17 crores in multiple fixed deposits classified as "non-callable deposits" with Bank of India. These deposits under a special non-callable deposit scheme were for a fixed tenure of 450 days, and premature withdrawal was allowed only under exceptional circumstances such as bankruptcy, winding up, or death, according to the scheme's terms.
Due to acute financial hardship starting February 2026, KSNK sought premature closure of two fixed deposits amounting to Rs.3.1 crores to meet urgent salary and statutory payments. Despite assurances from bank officials at the time of deposit that premature closure would be allowed with applicable penalties, the Bank declined the request citing RBI guidelines and the terms of the non-callable deposit scheme.
Single Judge's Decision:
The Single Judge had ruled in favor of KSNK, holding that it was a Public Sector Undertaking (PSU) and therefore ineligible to make non-callable deposits under the bank's scheme. Consequently, the deposits should be treated as normal fixed deposits permitting premature closure. The bank's refusal was thus declared illegal and the writ petition was allowed.
Kerala High Court's Division Bench Judgment:
The Division Bench reversed the Single Judge's findings on multiple grounds:
1. Autonomous Body vs PSU: The Court examined the Government Order and related documents establishing that KSNK is an autonomous body under the Government of Kerala and not a PSU. It noted that simply being a government undertaking does not automatically categorize an entity as a PSU. Therefore, the scheme's clause excluding PSUs from non-callable deposits did not apply to KSNK.
2. Contractual Terms Binding: The fixed deposits were made under a clearly defined non-callable deposit scheme, which explicitly allowed premature withdrawal only in exceptional cases: bankruptcy, winding up by court/regulators, or death of the depositor. KSNK's financial hardship did not fall within these categories.
3. No Right to Premature Closure on Financial Hardship: The Court rejected KSNK's reliance on internal Standard Operating Procedures (SOPs) and entries in fixed deposit receipts suggesting penalty-based premature withdrawal since these subordinate documents cannot enlarge the scope of the main scheme circular.
4. Maintainability of Writ Petition: The Court held that the dispute involved contractual rights and obligations with disputed facts such as whether the scheme terms were clearly explained by the bank. Such mixed questions of law and fact are not suitable for adjudication in writ jurisdiction under Article 226. The proper remedy lies in a civil forum.
5. Judicial Precedents: The Court relied on the Supreme Court's ruling in Joshi Technologies International INC v. Union of India (2015) 7 SCC 728 and its own earlier decisions that writ petitions are generally not maintainable to enforce or avoid contractual obligations, especially when serious disputed facts exist.
6. Locus Standi: Since the writ petition itself was dismissed, the Court refrained from deciding on the authority of the officer who filed the petition on behalf of KSNK.
7. Bank's Offer of Overdraft Facility: The Court did not address the bank's offer of overdraft against fixed deposits, deeming it beyond the scope of the writ petition.
Outcome:
The Division Bench set aside the Single Judge's judgment dated July 16, 2026, dismissed the writ petition filed by Kerala State Nirmithi Kendra, and restored the bank's right to adhere to the terms of the non-callable deposit scheme. This decision underscores that contractual disputes with disputed facts are to be resolved through civil proceedings, not writ petitions.
Legal Significance:
This judgment clarifies the distinction between autonomous government bodies and PSUs concerning eligibility for certain banking schemes. It also reinforces the limited scope of writ jurisdiction in contractual disputes, emphasizing judicial restraint where complex factual issues are involved. The ruling reiterates that financial hardship alone does not entitle a depositor to prematurely withdraw from non-callable fixed deposits unless exceptional circumstances stipulated in the scheme exist.
Bottom Line:
Writ petition under Article 226 is not maintainable for seeking premature closure of non-callable fixed deposits where dispute arises out of contractual terms and involves disputed questions of fact; autonomous body under State Government is not a PSU merely because it is a Government undertaking.
Statutory provision(s): Constitution of India, Article 226; Banking Regulation Act, 1949 (Sections 21 and 35A); Relevant RBI Master Circulars on Term Deposits (2016, 2023, 2025)
Bank of India v. Kerala State Nirmithi Kendra, (Kerala)(DB) : Law Finder Doc Id # 2997249
