HC fines bank Rs 5L for dishonest conduct

Bengaluru: The high court recently imposed Rs 5 lakh in costs on Union Bank of India (UBI) for what it termed as acting in a "dishonest manner" over honouring bank guarantees.
In his order, Justice Suraj Govindaraj said the amount should be deposited with the Karnataka State Legal Services Authority (KSLSA) within 15 days of receipt of the order copy and failure to do so will entitle it to initiate proceedings against the nationalised bank for recovery of the sum.
In April 2016, petitioner NHDPL South Private Limited, formerly Nitesh Housing Developers Private Limited, entered into an agreement with Al Fara'a Infra Projects Private Limited for the Nitesh Melbourne Park project at Byrathi village, Bengaluru east. As part of the agreement, two cheques, totalling nearly Rs 8.4 crore, drawn on UBI, were issued in favour of the petitioner as bank guarantees vis-a-vis performance guarantee by Al Fara'a. One of them was valid till March 31, 2019, and the other till April 30 of that year. On March 29, 2019, and April 26, 2019, the petitioner wrote to UBI requesting the renewal/invocation of the two bank guarantees respectively.
However, the petitioner was told that since the physical copies of the request were received on April 1, 2019, and May 2, 2019, respectively, i.e, after the expiry of their validity, the request for renewal/invocation could not be entertained. The banking ombudsman, Mumbai, dismissed NHDPL South's complaint on Dec 21, 2020, observing that it was not a deficiency of service. NHDPL South appealed to the high court.
Justice Suraj Govindaraj held that the petitioner's invocation of bank guarantees was proper and correct and the bank had no alternative but to make payment of the money covered under the bank guarantees.
"The bank's conduct is completely mala fide, and its failure to honour the bank guarantees is not on the basis of the alleged improper invocation of the right of the beneficiary, but apparently on the fear of the bank not being able to recover the money from the borrower," the judge added.
"A bank guarantee, being a commercial service, requires the bank to act in a fair manner and discharge its obligation in a proper manner. The banking ombudsman, having been established with the object of enabling the resolution of complaints relating to certain banking services, could not have in such a lackadaisical manner dismissed the complaint without even providing an opportunity to the petitioner to make known how the complaint would come under the provisions of the Banking Ombudsman Scheme," the judge observed.
Quashing the order passed by the ombudsman, the judge directed UBI to make payments in respect of the two bank guarantees with 18% interest, from the respective dates of the requisitions in March-April 2019.
The judge said the bank had in not paying the amounts under bank guarantees issued by it "acted in a dishonest manner".
The judge also termed as "an afterthought and completely dishonest" the bank's contention that it could not honour the bank guarantees as it did not have the petitioner's email ID and thus could not verify the invocation request.