The Delhi High Court in a recent judgement gave relief to a deposit holder after the bank reduced his FD interest rate from 7.75% to 3.5%, citing an RBI circular permitting banks to do this for FDs that are not renewed after maturity.
Justice Avneesh Jhingan and Justice Shail Jain of Delhi High Court ruled that Clause 3.3 of the RBI circular permits banks to determine their own ROI in respect of domestic term deposits for various periods but this discretion is subject to the condition that there is no discrimination between deposits accepted on the same date whether at the same or different offices of the bank.
The Delhi High Court said that in this case, the interest on the FD which was made pursuant to an earlier court order, was reduced and the bank could not prove that the interest for all similar FDs was reduced to 3.5%.
On September 23, 2026, the deposit holder won the case in Delhi High Court as the court ordered the bank to pay the highest interest rate on this FD. If you want to know more about this case, keep reading.
Why was this Rs 5.89-crore FD created?
This FD is a court ordered FD created due to a dispute between two parties. To resolve this dispute the parties took the arbitration route under Section 9 of the Arbitration and Conciliation Act, 1996 . In an order dated July 18, 2008, the Delhi High Court ordered that the Rs 5.89 crore money lying in the deposit holder’s bank account be secured in a bank till the time the matter is resolved by the court. The Delhi High Court back then ordered the bank to make a FD of this Rs 5.89 crore amount giving maximum rate of interest.
The deposit holder’s FD got interest rates of 7.75%, 8.25% and 7.75% for a few months, after which, from January 30, 2018, the interest rate was reduced to 3.5%. This is why the deposit holder filed another court case saying the bank has reduced his FD interest rate without any reason or basis.
The bank’s lawyer told the Delhi High Court that in terms of Clause 3.3 of the RBI circular, the bank was at liberty to determine the FD interest rate. The bank’s lawyer also relied on Clause 3.4 of the RBI circular to argue that in the event of a non-renewal upon maturity of the fixed deposit receipt, the fixed deposit would bear interest at the savings bank rate.
Also read: FD rate up to 8.25% for senior citizens investing for five years; know the list of banks
Banks can reduce FD interest rate citing non-renewal?
Siddartha Karnani, Partner at King Stubb and Kasiva said to ET Wealth Online that a bank can reduce FD interest rate but within limits and by following RBI rules.
Karnani says that the RBI's rule is that when a term deposit, fixed deposit, matures and the money isn't paid out, the unclaimed FD amount earns interest at the savings account rate. That is what happened in this Delhi HC case also and what the RBI circular says.
However, since July 2021 the said RBI rule has been tweaked so that the overdue amount earns the savings rate or the rate originally contracted, whichever is lower. The wordings of this change can be found in paragraph 10.2 of the RBI's Master Direction on Interest Rate on Deposits, 2025.
However, since Co-operative banks have their own set of directions, so the exact source of the rule depends on the type of bank.
That said, a bank doesn't get a free hand. Karnani says that Banks can't treat two fixed deposits made on the same day for the same period differently. It has to explain how interest is calculated when it accepts a deposit and display that information at its branches. And if the depositor has given a clear auto-renewal instruction, the bank should act on it rather than let the FD drift into an overdue state at a lower rate.
If you think a bank has got this wrong, start with the FD receipt and the terms you signed, particularly what they say about maturity, auto-renewal and overdue treatment. Then check what rate was actually credited and whether it matches the lower of the savings rate and your contracted rate. Look at whether the bank sent any reminder as FD maturity date approached.
This Delhi High Court judgment treated the absence of any intimation as significant on its facts, though we should not read it as laying down a general rule that every bank must send one.
If the numbers don't add up, you can take it up with the bank's grievance officer, then escalate to the RBI Integrated Ombudsman, and finally pursue a civil or commercial claim for the interest shortfall.
Karnani says: "Where the deposit is held under a court order, an arbitral direction or a lien, the bank has much less room. As this Delhi HC case shows, it must follow the order and go back to the court before changing how the money is treated."
Why did the bank lose this FD interest case in Delhi HC?
Karnani says that the bank lost this case because it treated a court-ordered deposit like any ordinary customer FD, and it never told anyone it was doing so.
In this Delhi HC case (decided September 23, 2026), Rs. 5.89 crore belonging to the depositor had been frozen under a Delhi High Court order in a Section 9 arbitration proceeding. The bank was told to hold the money in an FDR earning the maximum rate of interest. It paid 7.75%, 8.25% and 7.75% until January 2018. After that, the rate fell to 3.5%, with no notice to the parties and no application to the court or the arbitrator. A Single bench Judge of Delhi noted that the FD interest rate cut came without any reasons or basis, and the Division Bench agreed.
The bank's defence rested on two clauses of an RBI circular. Clause 3.3 lets banks set their own term-deposit rates, but the Court pointed out that this freedom comes with a condition: no discrimination between deposits accepted on the same date for the same maturity. The bank never showed that 3.5% was applied across similar FDRs. Its affidavit said that thirty branches had been closed and that Gurgaon and Mumbai were still running, but it didn't say what rates those branches offered.
Clause 3.4, which deals with matured deposits left unclaimed, didn't rescue the bank either. No tenure had been fixed for this FDR, and nothing on record showed the bank had told anyone it had matured or needed renewing. The bank's own 2017 application, filed because it was winding down, asked only for permission to move the funds to another bank. It said nothing about the rate cut and was never pursued.
The result was that the bank had to pay interest from January 30, 2018 at the average of the earlier three rates, which works out to roughly 7.92%, and deposit the amount with the Registrar General.
Karnani says: "The bigger lesson is that when you hold money under a court order, you can't quietly apply your standard commercial terms. You have to disclose changes and ask for directions."
Delhi High Court discussion
Bank did not inform anybody about reducing interest rate on FD
The Delhi High Court said that reliance on clause 3.4 of the RBI circular does not enhance the case of the bank for payment of interest at the rate of 3.5% on the FD amount.
The Delhi High Court also noted that no period was specified for maintaining the FD. However, there is nothing on record to establish that the bank informed the affected parties i.e. deposit holder and third party about the maturity of the FD and that it needed to be renewed.
The bank did not file any application before the arbitrator or this court seeking directions for renewal of the FD or informing that owing to the winding down of the bank, the rate of interest on the fixed deposit was reduced to savings bank rate.
The bank’s affidavit did not state anything about reducing FD interest rate
The Delhi High Court observed that an application seeking modification of the court order dated March 4, 2009 was filed before the arbitrator on September 19, 2017 however, the prayer was confined to permission to transfer the deposited amount to another bank. The application was not pursued and is still pending.
The Delhi High Court said: “The affidavit filed before the learned Single Judge does not state that ROI on similar FDRs has been reduced to 3.5% across all branches of the appellant (bank) in India.”
The Delhi High Court observed that the affidavit merely states that 30 branches of the bank were closed in a phased manner and that the Gurgaon and Mumbai branches were operational but the rates of interest offered to customers on deposits at these branches were not disclosed.
Thus the Delhi High Court dismissed the bank’s plea and ordered the bank to follow the earlier court order and pay high FD interest rate.