Rajasthan High Court Slams Axis Bank for Unlawful Encashment of Court-Ordered Fixed Deposit

 

The Rajasthan High Court recently reprimanded Axis Bank for unilaterally encashing a fixed deposit (FD) that had been ordered by a trial court to be held in reserve, describing the bank’s act as “unwarranted” and in violation of the rule of law. The case arose from a criminal proceeding in which a number of farmers had complained of being cheated — the farmers’ agricultural produce had been mortgaged for a loan that went into default. As part of the trial process, the trial court in 2012 had directed creation of a “Fixed Deposit Reserve” of the auction proceeds of seized produce, placing the FD in the name of the court.

Years later, the bank moved an application asking permission to appropriate the proceeds, relying on a favourable order from a Debt Recovery Tribunal (DRT). On the basis of that order the bank proceeded to withdraw around ₹8 crore from the FD. The trial court rejected this appropriation, directing the bank to re-deposit the amount with interest and warning that failure to do so would invite action against the bank’s top management and branch officials. Notwithstanding this direction, the bank persisted, and challenged the trial court’s order before the High Court.

On review the High Court held that the bank’s action was plainly illegal. It noted that while the DRT may have permitted appropriation based on its own order, the bank had not disclosed to the DRT the earlier court orders which mandated that the proceeds remain in a court-reserved FD. Because the DRT was not made aware of these crucial orders, its permission to appropriate was based on incomplete information — permission that ought never to have been granted. The bank’s encashment was therefore in contempt of the earlier court’s directives.

The High Court emphasized that no person or institution, regardless of stature, is above the law, and must obey court orders. It rejected the bank’s plea and upheld the trial court’s direction that the ₹8 crore be refunded with interest. The High Court also sustained the notices issued to the bank’s Managing Director, Chief Executive Officer, and the branch manager demanding compliance and warning of further action. The Court’s verdict underscores the primacy of judicial orders over subsequent administrative or recovery-oriented steps.

The ruling marks a stern rebuke to banks and financial institutions that may be tempted to bypass court-mandated safeguards for recovery or appropriation of funds — serving as a reminder that compliance with judicial directions is mandatory and cannot be compromised under the guise of alternate routes such as DRT orders.

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