Allahabad High Court Upholds Fixed Deposit Interest Rates, Protects Depositors' Rights

Landmark ruling affirms depositor entitlements against unilateral interest rate reductions by banks

In a significant judgment delivered on November 17, 2025, the Allahabad High Court protected the rights of depositors by ruling against unilateral reductions in contracted interest rates on Fixed Deposit Receipts (FDRs) by banks. The Division Bench, comprising Justices Ajit Kumar and Swarupama Chaturvedi, addressed two writ petitions filed by Nem Kumar Jain and another against the Union of India and Oriental Bank of Commerce, now merged with Punjab National Bank.

The petitioners challenged the bank's decision to reduce the interest rates on their FDRs from 10.75% and 10.25% to 9.25% and 8.25% respectively, citing various RBI circulars and bank clarifications. These reductions were made without prior notice, and the petitioners argued that such actions violated principles of contract law, legitimate expectation, and promissory estoppel.

The court meticulously examined the regulatory framework, including the Reserve Bank of India's directions on interest rates and the conditions governing additional interest for bank staff and retirees. It observed that none of the circulars or provisions cited by the bank authorized a retrospective reduction of contracted interest rates on issued FDRs. The court emphasized that the doctrine of legitimate expectation ensures that depositors are entitled to the interest rate agreed upon at the time of issuance, which should remain unchanged until maturity.

The judgment reaffirmed the legal principle that banks must adhere to the agreed terms of FDRs, and any unilateral alterations are impermissible. The bench noted that the bank's reliance on discretionary provisions for additional interest to staff was misplaced, as these provisions did not empower banks to revise contracted rates on existing deposits.

Referencing previous judgments, the court highlighted the doctrine of promissory estoppel, underscoring that depositors cannot be penalized for any oversight by bank officials in offering higher interest rates. In its final order, the court directed the bank to compute and pay interest at the originally contracted rates until the maturity of the FDRs, with any deductions made to be refunded with applicable interest.

This ruling is expected to have far-reaching implications for banking practices, reinforcing depositor rights and ensuring fairness in financial transactions. Legal experts praise the judgment for upholding principles of contractual integrity and depositor protection, setting a precedent that banks must honor their commitments.

Bottom Line:

Fixed Deposit Receipts (FDRs) - Bank cannot unilaterally reduce the contracted rate of interest mentioned in FDRs after issuance - Doctrine of legitimate expectation and principle of promissory estoppel apply, ensuring depositor's entitlement to interest at the agreed rate till maturity.

Statutory provision(s): Article 226 of the Constitution of India, Reserve Bank of India (Interest Rate on Deposits) Directions, Doctrine of Legitimate Expectation, Principle of Promissory Estoppel.

Nem Kumar Jain v. Union of India, (Allahabad)(DB) : Law Finder Doc Id # 2814794