Madras High Court orders Indian Overseas Bank to repay FDs used for unauthorised loans

The Madras High Court has held that Indian Overseas Bank must repay a company's two fixed deposits of Rs 3 crore, even though loans of Rs 2.70 crore were taken against them by people the company never authorised. A division bench dismissed the bank's appeal on 28 October 2026 and upheld a 2020 decree in favour of Sree Gokulam Chit and Finance Company.

What Happened

According to the judgment, the company sent three cheques of Rs 1 crore, Rs 2 crore and Rs 3 crore in 2011 to the bank's Koyambedu branch in Chennai, which encashed them and issued fixed deposit receipts in the company's name. On 3 November 2011, the company was told that loans had been taken against the first two deposits. The branch said it had advanced Rs 2.70 crore to third persons. The company said it had authorised no such loan, and received the maturity value only of the third deposit.

The bank argued, as the judgment records, that impersonators had obtained the loans, that the bank was itself a victim of fraud, and that the company's carelessness with its cheques was to blame. The court noted that the criminal investigation found, according to the judgment, that third persons had obtained the loans by impersonation, that the loan documents were not in order, and that an official of the branch had been convicted in that case.

The court held that once the company proved it made the deposits and was not paid on maturity, the burden shifted to the bank to prove that the company itself had taken the loans. The bank failed to do so. The company's suit, filed in 2014, sought Rs 4,94,15,400 with interest. A single judge decreed the suit with costs on 15 October 2020, and the division bench found no reason to interfere.

What It Means

The ruling says a bank that pays out a loan against a fixed deposit to someone the depositor did not authorise cannot refuse to repay the deposit on maturity, unless it proves the depositor took the loan. Depositors should keep the original receipts safe and check their deposit status regularly. A bank customer with a complaint can approach the RBI at https://cms.rbi.org.in. The judgment may be appealed to the Supreme Court.

Source: High Court judgment