The Calcutta High Court has asked the Reserve Bank of India (RBI) to take “appropriate steps” against Bank of Baroda (BoB), including revoking its banking license, if needed, for its failure to honour a bank guarantee given by a third party to Indian Oil Corporation (IOCL)
The court was hearing a case between Bank of Baroda and Indian Oil Corp Ltd (IOCL) on a bank guarantee issued to Simplex Projects Ltd and later invoked by the oil marketing company (OMC).
Concerning an appeal by BoB against the oil company, a division bench which included Justices Sanjib Banerjee and Kaushik Chanda considered a cross-objection by respondent IOCL on February 10, instantly after rejecting the plea by BoB for default, as the appellants could not move ahead with the issue.
IOCL notified the court that it had signed an agreement with Simplex Projects Limited in 2017 for undertaking certain work at the Bongaigaon facility of IOCL in Assam.
With regard to such agreement, IOCL was indebted to issue a mobilisation advance against a bank guarantee. As noted by court, Simplex was also obliged to give a bank guarantee on account of security deposit. An unconditional bank guarantee of Rs 6.97 crore was provided by the bank on behalf of Simplex
As per the order, when no work was impending from Simplex, IOCL sent several notices before invoking the bank guarantee.
“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,” Justice Sanjib Banerjee and Justice Kausik Chanda said in the order on 10 February.
“It is 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,” the order said.