SC says banks should honour commitments

The Supreme Court has held that banks should not dishonour commitments given to the investors or depositors. Otherwise, all commercial and business transactions would get bounced, the apex court warned.
Banks, particularly nationalised, should know that their conduct would adversely affect the people’s faith in banking institutions, a bench of Justices Tarun Chatterjee and Dalveer Bhandari, while dismissing Bank of India’s appeal against a Delhi High Court judgment that raised serious doubts over the bank’s conduct in a bank guarantee encashment case.
“It is unfortunate that a nationalised bank is finding excuses for refusing to make the payment on totally untenable and frivolous grounds,” the judges said.
Upholding the HC’s observation about BoI, the bench said: “The entire trust, faith and confidence of people depends on the conduct and credibility of nationalised bank. In the present day world, the national and international commercial transactions largely depend on bank guarantees.”
In the present appeal, a beneficiary of the bank guarantee had moved the Delhi HC seeking a direction to BoI to extend the bank guarantee till the disputes were finally adjudicated upon by arbitration between the parties.
However, BoI had refused to renew the bank guarantee and pay the amount guaranteed by it on the ground that the charges for renewal of the bank guarantees were not paid.
While imposing costs on BoI, the court said that the bank guarantee had been invoked during the validity period of the demand bank guarantee and BoI was bound to honour its commitment and pay the amount of guarantee.
HC passed strictures on BoI and observed: “It is surprising that a nationalised bank which has given an unconditional on-demand bank guarantee takes up such a contention…No ground to refuse payment was shown to the lower court or to us. It is surprising that the nationalised bank wants to use delays of law in order not to comply with its unconditional obligations under a bank guarantee.”
HC also said that “the nationalised bank should know that it is such conduct which is adversely affecting the faith of the public in banking institutions and in transaction.”
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Rakesh Bhatnagar / DNA MONEY Wednesday, 21 May , 2008, 09:29


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