Government Directs DoT Against Accepting Bank Guarantees from Axis Bank
Axis Bank which is the nation’s third-largest bank in the private sector has again come under the government lens with the Centre directing all concerned with the telecom industry not to deal in bank guarantees with the bank. All telecom companies, telecom ministry officials and organizations have been refrained from associating with Axis Bank for obtaining or renewing bank guarantees due to the bank dishonoring one such guarantee leading to ‘serious breach of trust’.
The bank guarantee which was not honored pertained to companies headed by the Aircel group as per the DoT order dated 16 March 2018.DoT claimed that it amounted to breach of contract and trust of severe magnitude with the Government of India. Therefore, it gave directions to the effect for not accepting fresh bank guarantee or renewing one from Axis Bank.
It is normal routine for bank guarantees to be furnished by telcos for meeting contractual commitments and if it fails to do so they can be encashed by the government. A lending institution or a bank, normally issues bank guarantee with the promise that it will provide the pre-stated money sums if the entity for whom it is given defaults in payment. As per the license agreement, the bank guarantee can be invoked by DoT for not adhering to network rollout requirements by the telco.
However, Axis Bank responded to DoT’s directive on Monday quoting a valid reason. It firstly clarified that the name of Aircel was wrongly quoted as the issuance of the bank guarantee was made in the name of Bharti Airtel and further stated that there was a stay order by the telecom tribunal on making the promised payment. On lifting of the stay, the bank would be honoring its commitment. The bank guarantee amount remained unspecified.
Axis Bank further explained that they would be violating TDSAT’s orders if they paid the bank guarantee amount then but did not give the TDSAT order specifications.