The spat between IT solutions provider i-flex solutions and its customer Saraswat Bank over the computerisation of the latter's branches is now threatening to escalate with both sides taking an aggressive stand.
While Saraswat Bank has gone ahead and issued instructions to its solicitors Little & Co to appoint an arbitrator in the matter, sources close to i-flex said they are contemplating filing of a defamation suit against Saraswat Bank.
Saraswat Bank had earlier sent a legal notice to i-flex solutions claiming damages to the tune of Rs 250 crore on account of opportunity loss, loss of business and other costs. However, instead of suing for damages immediately, the bank has chosen to appoint an arbitrator and then file a writ petition seeking certain injunctions.
According to D R Shirodkar, managing director, Saraswat Bank "the bank has already intimated our solicitors Little & Co to proceed with the appointment of an arbitrator in the matter since, under the agreement with i-flex, we can unilaterally appoint an arbitrator in case the need arose. Further we will be filing a writ petition in the high court seeking an injunction on i-flex from selling any modules which have been developed by the research and development wing at Saraswat Bank."
The writ petition is expected to be filed within 10 to 15 days, according to Shirodkar, and it would be done after the appointment of the arbitrator has been decided.
i-flex solutions on its part is contemplating filing a defamation suit of more than Rs 250 crore against Saraswat Bank for wrongful damage to its reputation especially at the time of its initial public offering when the company was constrained in replying to the charges due to regulatory compulsions.
According to sources, Saraswat Bank had already signed the user acceptance test (UAT) before it decided to send the company a legal notice and threatened to sue i-flex for flouting its contract and not completing the computerisation of the bank's operations on time. The UAT was signed for all the modules except for the treasury module. Some of the public sector banks have been using the same treasury modules, sources added.
Shirodkar, however, refutes this. "The UAT was conditional and subject to the fulfillment of certain terms which were not complied with," he said. However, according to an i-flex spokesperson, all the terms were complied with except for where Saraswat was supposed to bring in the ATM switch so that the company could finish off its work.
Back in May 1999, Saraswat Co-operative Bank had selected i-flex solutions to provide it with 'Flex Cube', a complete core banking solution package which would enable the bank to operate through a centralised network. The bank also mandated i-flex solutions to computerise its retail, treasury and wholesale banking operations with the total contract value working out to a sum of Rs 3.5 crore.
The bank had earlier claimed that says the package it bought from i-flex was not compatible with the Indian banking requirements, and had to be modified as per the contract by December 2000. The bank claims that i-flex has not delivered the modified package as yet.
Saraswat Bank claimed that i-flex violated the contract agreement of May 1999 and that it spent, at the request of i-Flex, another Rs 35 crore on additional hardware which is now redundant. The bank also charged i-flex with changing its project managers six times in three years causing delay in the training of the bank's IT staff.
Saraswat Bank had earlier sent a legal notice to i-flex claiming damages to the tune of around Rs 250 crore on account of opportunity loss, loss of business and other costs.
