The Calcutta High Court has directed the Reserve Bank of India to consider appropriate steps against Bank of Baroda (BoB), including revoking its licence or authority to carry on with banking business, if necessary, for failing to honour a bank guarantee given by a third party to Indian Oil Corporation Ltd (IOCL).
In a matter relating to an appeal by BoB against IOCL, a division bench comprising justices Sanjib Banerjee and Kaushik Chanda took up a cross-objection by respondent IOCL on February 10, immediately after dismissing the appeal by BoB for default, since the appellants could not proceed with the matter.
The oil company told the court that it had entered into an agreement with Simplex Projects Limited in 2017 for undertaking certain work at the Bongaigaon facility of IOCL in Assam.
In terms of such agreement, IOCL was obliged to make a mobilisation advance against a bank guarantee, while Simplex was also required to furnish a bank guarantee on account of security deposit, the court noted.
IOCL submitted that the agreement between it and Simplex envisaged the furnishing of a bank guarantee equivalent to 110 per cent of the security deposit if a combined bank guarantee on account of security deposit and mobilisation advance were to be furnished.
An unconditional bank guarantee was furnished by the appellants herein on behalf of Simplex for about Rs 6.97 crore, the court noted.
According to IOCL, despite Simplex being given 50 per cent of the mobilisation advance, no work was forthcoming.
After IOCL issued several notices to Simplex which went unheeded, the oil PSU invoked the bank guarantee, the oil PSU told the court.
It was submitted on behalf of IOCL that notwithstanding the bank having no right to stall immediate payment upon the invocation of an unconditional bank guarantee, the bank in this case sought some time.
Simplex had then instituted proceedings under Section 9 of the Arbitration and Conciliation Act, 1996 before the Delhi High Court by virtue of an arbitration agreement contained in the matrix contract between IOCL and Simplex.
IOCL further submitted that despite Simplex failing to obtain any order in such proceedings and the Delhi High Court observing that the bank guarantee was unconditional and payment thereunder could not be avoided once the guarantee was invoked, an appeal was preferred which was withdrawn by or about June 1, 2018.
The bank, however, refused to release the payment in terms of the unconditional guarantee on the ground that the money may not have been made available by Simplex to the bank, IOCL told the division bench of justices Banerjee and Chanda.
IOCL said that it was in such circumstances that IOCL was constrained to invoke the writ jurisdiction of this court for a direction on the BoB to release the payment under the unconditional bank guarantee.
IOCL maintained that in such circumstances and considering the conduct of BoB, an appropriate order ought to have been passed to revoke its licence since it had acted in a manner unbecoming of a bank, a nationalised bank at that.
The division bench, in its order, said that "considering the conduct of the appellants, the Reserve Bank of India should consider what appropriate steps may be taken against the Bank of Baroda, including revoking its licence or the authority to carry on banking business, if necessary.
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