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In setback to Bank of Baroda, SC refuses to interfere with HC's order; allows RBI regulatory action

Team SoOLEGAL 24 Jun 2020 3:05pm

In setback to Bank of Baroda, SC refuses to interfere with HC's order; allows RBI regulatory action

On 10th February, Calcutta High Court directed the Reserve bank of India for taking up necessary actions against Bank of Baroda, one of the public sector banks in India which may include revocation of license for not honoring bank guarantees. A bank guarantee is a form of guarantee offered by a lending institution. It means, if the debtor fails to settle the debt, it will be covered by the bank. A bank guarantee allows the buyer or the investor to buy products, acquire assets or secure a loan. Bank of Baroda being aggrieved by the decision filed an appeal to Supreme Court, but on Monday the Supreme Court had rejected the plea.

The Court upheld the order of Calcutta High Court by allowing Reserve Bank of India to take necessary actions against Bank of Baroda for not honoring bank guarantee. Supreme Court has also directed Reserve Bank of India to modify the obstinate directions which are being given by Calcutta High Court if necessary.        

A bank guarantee of a sum of Rs 6.97 crore was claimed by Indian Oil Company against Simplex Infra for non-performance. The bank guarantee was made from Bank of Baroda but IOC claimed that no payment was received from the bank regarding the bank guarantee. The IOC also argued that when an arbitration proceeding was being launched by Simplex Infra in Delhi High Court, the High Court did not issue any order regarding restriction on the invocation of bank guarantee. The IOC also prayed for cancellation of banking license of Bank of Baroda for not paying the money of the bank guarantee.

 After Bank of Baroda’s petition was denied by Calcutta HC, the Bank moved to the Supreme Court. The Supreme Court saw no reason to interfere with the Calcutta HC order. The Supreme Court order stipulated that it should be open to the RBI to take action on the basis of the facts and circumstances of this case.

According to RBI Master Circular of July 2013, it is mandatory for all banks to clear all payments when a bank guarantee is invoked without any delay.



Tagged: Delhi High Court   Safoora Zargar   Delhi Violence   Jamia Milia Islamia   Delhi Riots   Delhi Police   Solicitor General Tushar Mehta   advocate Nithya Ramakrishna   Justice Rajiv Shakhder  
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