The Bank of India refused to pay a bank guarantee to a construction company when its client committed a breach of contract.
Calling the action of the Bank unprofessional, a Bench of the Supreme Court comprising Justices Tarun Chatterjee and Dalveer said, “In case the banks are permitted to dishonour their commitments by adopting such subterfuges, the entire commercial and business transactions will come to a grinding halt.â€
The Bank claimed that it had no obligation to pay since the two companies involved had substituted their original contact and by doing so, they made the original contract inoperative.
It had earlier been directed to pay the guarantee by both a single judge and a Bench of the Delhi High Court which had said, “It is surprising that a nationalised bank wants to use delays of law in order not to comply with its unconditional obligations under a bank guarantee.â€
The Supreme Court spoke in similar terms saying, “It is unfortunate that a nationalised bank is finding excuses for refusing to make the payment on totally untenable and frivolous grounds. … The entire trust, faith and confidence of people depend on the conduct and credibility of the nationalised bank.”