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However, the Apex Court said that it would be open to RBI to take such necessary steps against BOB as the facts and circumstances call for "in the modification of the direction of the High Court".
The Supreme Court on Monday dismissed a plea filed by Bank of Baroda against the order passed by the Calcutta High Court in February this year asking RBI to consider revocation of Bank's licence for not honouring unconditional bank guarantee invoked by IOCL.
The Supreme Court, however, left it open for the Reserve Bank of India to take necessary steps as per the facts and circumstances of the case "in the modification of the directions" passed by the High Court. (Bank of Baroda vs Indian Oil Corporation Ltd.)
Bank of Baroda (BOB) had approached the Supreme Court against an order passed by the Calcutta High Court in February this year asking the Reserve Bank of India (RBI) to consider taking certain measures against Bank of Baroda which include considering revocation of BOB's licence.
This order of the Calcutta High Court was passed in relation to BOB's handling of the payment release against an unconditional bank guarantee issued by Simplex Projects Ltd to Indian Oil Corporation (IOCL).
The matter was heard by a vacation Bench of Justices Hemant Gupta and Aniruddha Bose which refused to interfere with the High Court's order and dismissed the plea challenging the Calcutta High Court's order.
However, the Apex Court said that it would be open to RBI to take such steps against BOB as the facts and circumstances call for "in the modification of the direction of the High Court as contained in page 4 of the impugned Order"
The High Court had, in its order had said,
The root cause of the matter lies in the instance of Bank of Baroda refusing to release the payment of an amount of over Rs 6 Crores with respect to an unconditional bank guarantee issued by Simplex Project Ltd to the IOCL.
It was claimed by the IOCL that upon its invocation of the unconditional Bank guarantee, instead of releasing the payment forthwith, the Bank informed Simplex about the invocation. Simplex, then approached the Delhi High Court under Section 9 of the Arbitration and Conciliation Act of 1996 on account of the arbitration agreement between the parties.
The Delhi High Court too had observed that the Bank ought to have released the payment once the IOCL had invoked an unconditional bank guarantee, a thought which was resounded by the Calcutta High Court as well.
The Division Bench of the Calcutta High Court comprising Justices Sanjib Banerjee and Kaushik Chanda subsequently asked the RBI to consider taking steps against BOB for this conduct which may include "revoking its licence or the authority to carry on banking business."
Bank of Baroda was represented by Senior Counsel Mukul Rohatgi with Advocate Rajeeta Rohatgi and briefed by Cyril Amarchand Mangaldas Partner Biswajit Dubey before the Supreme Court whereas IOCL was represented by Solicitor General Tushar Mehta.
Read Supreme Court's order:
Read the Calcutta High Court order