IOCL had argued that BoB, instead of releasing the payment upon its invocation of the unconditional bank guarantee, had informed Simplex about it.
In a setback to public sector lender Bank of Baroda (BoB), the Supreme Court has upheld the Calcutta High Court’s February order that asked the RBI to consider revoking the bank’s licence for failing to honour Simplex Projects’ unconditional bank guarantee given to Indian Oil Corporation (IOCL).
A bench led by Justice Hemant Gupta, while dismissing the BoB’s appeal, left it open for the banking regulator to take necessary action as per the facts and circumstances of the case. “We do not find any ground to interfere against the order impugned. The Special Leave Petitions are, accordingly, dismissed. However, it shall be open to the RBI 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….,” the judges said.
BoB had in February moved the apex court challenging the HC’s order in a case where the PSU lender had refused to release the payment of over Rs 6 crore with respect to an unconditional bank guarantee issued by the infrastructure firm to the oil marketing company.
While taking note of BoB’ conduct , the HC in its February 10 order stated that the RBI “should consider what appropriate steps may be taken against the BoB, including revoking its licence or the authority to carry on banking business, if necessary” for delaying to honour a bank guarantee given by a third party.
IOCL had argued that BoB, instead of releasing the payment upon its invocation of the unconditional bank guarantee, had informed Simplex about it. While Simplex approached the Delhi High Court for invoking an arbitration clause, the Delhi High Court too observed that BoB should have released the payment once the IOCL invoked the bank guarantee.
IOCL had entered into an agreement with Simplex Projects in 2017 for undertaking work at the Bongaigaon facility of IOCL in Assam. For the security deposit, an unconditional bank guarantee was furnished by BoB on behalf of Simplex for about Rs 6.97 crore. When no work was impending from Simplex, IOCL sent several notices before invoking the bank guarantee.