On Monday, in what comes as a setback for Bank of Baroda (BoB), the Supreme Court allowed the Reserve Bank of India (RBI) to take “necessary” action against the Bank for failing to meet its commitments, on the invocation of a bank guarantee.
The Supreme Court dismissed the plea by BoB, directing for regulatory action.
SC was hearing a plea by BoB, challenging a Calcutta High Court order. On Feb 10, the Calcutta HC had directed for RBI to consider “appropriate steps” against BoB, “including revoking its license” for refusing to honor the bank guarantee.
Though the SC dismissed the BoB's appeal, it has granted liberty to the Reserve Bank of India to take such action as necessary, in modification of the peremptory directions of the Calcutta HC.
"However, it shall be open to the Reserve Bank of India to take such action as may be necessary in the facts and circumstances of the case, in the modification of the direction of the High Court as contained in page 4 of the impugned Order"
This means that the compulsory tone of the the Calcutta HC direction has been diluted by the SC. The top court has now left the matter to the discretion of the RBI.
Indian Oil Co (IOC) had invoked a Bank Guarantee of ₹6.97 crore against Simplex Infra for non-performance. IOC had claimed that Bank had stalled immediate payment upon invocation. The IOC had argued that while Simplex Infra launched arbitration proceedings in the Delhi HC, the HC had issued no orders restricting the invocation or honoring of bank guarantee. IOC had submitted that the failure of BoB to release money warrants regulatory action, seeking revocation of the banking license.
After the Calcutta HC had dismissed the BoB plea, the Band moved the SC. However, the SC held that it saw no reason to interfere with the Calcutta HC order, directing regulatory action. The SC order directed that it shall be open for the RBI to take action as per the facts and circumstances of this case.
The RBI Master Circular of July 2013 clearly directs Banks to release payment when Bank Guarantees are invoked, without “delay or demur”.
The Court after considering all submissions, concluded:
"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."
The order has been passed by JUSTICE HEMANT GUPTA and JUSTICE ANIRUDDHA BOSE on 22-06-2020.
Read Order Here:
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