In a significant ruling addressing arbitrary banking recoveries, the High Court of Judicature at Allahabad (Lucknow Bench) held that a bank cannot unilaterally liquidate and debit a wife’s independent fixed deposit to recover the outstanding personal loan dues of her deceased husband without privity of contract or due process of law. A Division Bench comprising Justice Shekhar B. Saraf and Justice Abdhesh Kumar Chaudhary allowed the writ petition filed by a widow against the State Bank of India, terming the lender’s conduct an egregious breach of trust, ordering a complete refund with accrued interest, and imposing exemplary compensation of Rs. 1 lakh on the bank.
Background of the Case
The petitioner, Neha Mishra, is the widow of a former Assistant Professor at Medicine Hospital, Lucknow, who had availed a personal loan (“Xpress Credit Loan”) amounting to Rs. 15 lakhs from the State Bank of India (SBI) on November 3, 2020. The petitioner was neither a co-applicant, co-borrower, guarantor, surety, indemnifier, nor a nominee to the credit facility, meaning no privity of contract existed between her and the bank. The loan had also been secured with an insurance cover through SBI General Insurance against a paid premium of Rs. 8,803.
While obtaining the loan, the deceased had executed an irrevocable standing instruction authorizing SBI’s Jankipuram branch to receive any dues payable towards provident fund, gratuity, pension, or similar terminal dues in the event of discontinuation of his service. Following his demise due to Covid-19 on May 6, 2021, the petitioner received his gratuity and retiral benefits in August 2022. Subsequently, in 2025, she opened an independent fixed deposit account with SBI at its Ashiyana Branch.
Rather than pursuing legally permissible recovery measures, the bank issued a legal notice on September 23, 2025, demanding Rs. 13,87,382 with interest under threat of litigation. The bank then put a punitive hold on her salary account on September 12, 2025, which was lifted only after the intervention of the Reserve Bank of India (RBI) Ombudsman. However, during subsequent negotiations, the bank transferred her fixed deposit account from the Ashiyana Branch to the Jankipuram Branch (where the deceased held the loan), liquidated the fixed deposit, debited an amount of Rs. 19,90,693 to satisfy the deceased husband’s outstanding dues, and then shifted the account back to the Ashiyana Branch. Aggrieved by this unauthorized debit, the petitioner approached the High Court under Article 226 of the Constitution of India.
Arguments of the Parties
Appearing for the petitioner, learned counsel argued that there was no privity of contract between the petitioner and the bank, rendering the recovery impermissible and violative of banking norms. It was submitted that the undertaking executed by the deceased husband could not authorize lien or forfeiture over retiral benefits such as gratuity outside statutory limits, such as Section 4(6) of the Payment of Gratuity Act, 1972. The petitioner relied on the Andhra Pradesh High Court ruling in Arevarapu Indira v. Indian Overseas Bank (2021 SCC OnLine AP 1004), which cited the Supreme Court decision in Radhey Shyam Gupta v. Punjab National Bank (AIR 2009 SC 930) to emphasize that retiral benefits retain their protected character even upon receipt and cannot be attached or unilaterally appropriated.
Opposing the petition, learned counsel for SBI relied heavily on the irrevocable standing instructions executed by the borrower, arguing they legally permitted the bank to adjust outstanding amounts from gratuity. Counsel cited the Karnataka High Court Division Bench decision in M/s. Canara Bank v. Smt. Shantha Kumari (2024 SCC OnLine Kar 21264) to argue that while forfeiture as a punishment requires statutory procedure, adjusting or recovering dues from gratuity is not barred. Reliance was also placed on the Supreme Court ruling in State of Haryana and others v. K.N. Dutt ((1995) 3 SCC 144), where the withholding of retiral dues by an employer was upheld.
The Court’s Analysis
The High Court distinguished the precedents cited by the bank, observing that they involved an employer withholding retiral benefits of its employee. In contrast, SBI was not the employer of the deceased, and the dispute concerned the illegal deduction of money from a third party’s independent bank account without establishing any traceable connection to the retiral benefits received years earlier.
The Bench noted that while the bank may possess a legal right to proceed against the petitioner in her capacity as a legal heir to recover dues from the estate of the deceased, it could only do so through the due process established by law, rather than through arbitrary measures.
Scrutinizing the bank’s administrative conduct, the Court observed:
“The entire process stinks of mala fide action on the part of the State Bank of India not only with regard to the procedure adopted in debiting the fixed deposit account but also with regard to substantive law that did not allow the State Bank of India from debiting an account of an individual with whom they had no privity of contract or any relation under law.”
The Bench highlighted that counsel for the bank conceded no such debit would have been possible had the petitioner’s account been situated in a different bank. The Court held:
“According to this Court, this is a serious breach of trust reposed on the Banks, who were merely custodian of the bank account and were holding the money in trust for and on behalf of the petitioner.”
Condemning the inter-branch transfer maneuvers executed to facilitate the debit, the Bench remarked:
“The entire process that has been adopted by the Bank of surreptitiously transferring the fixed deposit from one Branch to another to debit the same and upon debiting the same once again transferring the account back clearly indicates that the intention of the Bank was to achieve its purpose in a surreptitious manner. The entire process is abominable and clearly an anathema to banking practice. The action of the Bank cannot be justified in any manner whatsoever.”
The Decision
Holding the action to be arbitrary, capricious, and whimsical, the High Court allowed the writ petition and issued the following directions:
- The respondent bank must immediately refund the debited amount of Rs. 19,90,693 to the petitioner’s account, together with interest at the applicable fixed deposit rate she was enjoying, within four weeks.
- Considering the deplorable conduct of the bank authorities, SBI was ordered to pay Rs. 1,00,000 as exemplary and punitive compensation to the petitioner within four weeks.
Case Details
Case Title: Neha Mishra Versus Reserve Bank Of India Thru. Governor Central Office Building Mumbai And 5 Others
Case No.: WRIT-C No. 6722 of 2026
Bench: Justice Shekhar B. Saraf and Justice Abdhesh Kumar Chaudhary
Date: September 10, 2026
