Bank Must Honour FDR Payment Despite Fraudulent Loan to Third
Judgment dated 28.10.2026 of the High Court at Madras in Original Side Appeal No.151 of 2022 of Indian Overseas Bank and another Vs. Sree Gokulam Chit and Finance Company
Unauthorised Loan on FDR to Third Party Does Not Extinguish Depositor’s Right on Maturity
Unauthorised Loans on FDR to Third Party & Without Authority of Depositor Does Not Extinguish Bank Obligation for Payment
The respondent – plaintiff had given three fixed deposits with the appellant no.1 Bank. However, on 03.11.2011, when the respondent contacted the second appellant, they were informed that loans had been availed as against the first and second fixed deposit receipts. The respondent went to the second appellant branch, who claimed that as against the first and second fixed deposit receipts totalling to Rs.3,00,00,000/-, the second appellant had advanced a loan of Rs.2.70 crores to third persons. The respondent claimed that they had never authorised anyone to avail such loan. It was also stated that the third fixed deposit was also about to get discharged with a fake seal of the respondent’s company and timely intervention prevented loan being advanced as against the same also.
The respondent lodged the police complaint and also requested the Bank to restore FDRs. However, the Bank had given maturity amount of third FDR.
The respondent – plaintiff filed the suit for Rs.4,94,15,400/- with interest. The plaintiff had three fixed deposits with the appellant no.1 Bank.
In this regard, the bank had also given a complaint to CBI. Since specific loans had been availed over the two fixed deposit receipts and the trial was also pending before the XI Additional Special Judge for CBI cases and the matter was sub judice, the Bank was not able to repay the amount which had matured on the two fixed deposit receipts. However, a fraud had been committed on the Branch Manager of the Bank and as a matter of fact, he was a victim of the fraud. It was said that the suit was liable to be dismissed owing to the negligence of the plaintiff and also for the act of assisting the fraudsters by handing over cheques to them.
6 ( Uploaded on: 30/10/2026 01:14:27 pm ) https://www.mhc.tn.gov.in/judis OSA No. 151 of 2022 procedure. The loan was processed even without any enquiry with the respondent. Even thereafter, the respondent had deposited further amounts under fixed deposit with the second appellant and the second appellant should have realised that the respondent had no reason to avail loan. The pendency of a criminal case cannot be a ground for denying repayment of the proceeds of fixed deposits on maturity to the respondent and hence the suit should be decreed as prayed for.
The specific case of the appellants is that when a loan of Rs.2.70 crores had been availed for and on behalf of the respondent company against the maturity value of the two fixed deposit receipts, the appellants are not liable to repay the proceeds to the respondent, as a fraud has been committed on the Bank owing to the negligence of the respondent.
it is for the second appellant to prove the contrary that the respondent obtained the loan for Rs.2.70 crores against the first and second fixed deposits through authorised persons and therefore they are not obligated to return the proceeds for non-payment of the loan. It is also to be noted that even the loan document is not in order and subsequently the investigation into the criminal complaint proceeded and the 14 ( Uploaded on: 30/10/2026 01:14:27 pm ) https://www.mhc.tn.gov.in/judis OSA No. 151 of 2022 official of the second appellant was admittedly convicted for the charged offence. Once the respondent proved the foundational fact that they made the fixed deposits and the proceeds on maturity were not paid to the respondent by the second appellant, having discharged their initial burden, the onus has been shifted on the appellants to prove that the respondent obtained loan on the fixed deposits and subsequently failed to repay the same. The learned single Judge had dealt with the case and from the oral and documentary evidence found that the respondent is entitled for a decree representing the suit claim. This Court, as an appellate Court, while re-appreciating the pleadings and oral and documentary evidence, finds that the respondent has proved their claim and the appellants have failed to discharge their onus.
