R.V.RAILS PRODUCTS PVT. LTD. vs ORIENTAL BANK OF COMMERCE

The dispute between the petitioner and the bank arose by reason of a decision taken by the petitioner to transfer its account from Oriental Bank of Commerce to Axis Bank Ltd. The petitioner was enjoying a cash credit facility with an outer limit of Rs.2 crores and bank guarantee facility with an outer limit of Rs.30 crores. The petitioner submits that as on date, there is no debt to be discharged save and except that in the event the bank guarantees as furnished by the Oriental Bank of Commerce to various concerns and/or agencies are invoked then the Oriental Bank of Commerce should be exposed to the extent of the liability covered by each of the bank guarantees.

The bank has raised three conditions for allowing shifting of accounts. The three conditions are mentioned in the letter dated 20th November, 2017 which read: " 1. Concession allowed on account of CC/LC/BG Charges/commission/process fee are to be recovered with pre payment penalty charges.

Please provide 100% Liquid security by way of CDR/FDR for outstanding amount of LC/BG OR Counter guarantee of any of the nationalized bank only.

All the other terms & condition of shifting of accounts be complied."

The learned counsel for the parties has relied upon Clause 11 of the sanction letter in support of their respective submissions. While the bank would like this Court to interpret that the words ''that bank'' appearing in Clause 11 would mean a nationalized bank, the submission of Mr. Thaker is that there is no requirement that the transferee bank should be a nationalized bank. Clause 11 of the sanction letter dated 2nd May, 2015 reads as follows: "11. Takeover of BG outstanding by other Bank

In case any guarantee is outstanding and the account is taken over by some other bank, the securities shall be released only after obtaining 100% margin or Guarantee of that bank containing a specific clause that their liability under the said guarantee shall exist till the original Guarantee Bond is received or a release letter from the beneficiary is received by OBC."

This Court is in agreement with the submission made by Mr. Thaker that Clause 11 of the sanction letter does not say that the transferee bank has to be a nationalized bank.

It is clear from the said clause that it could be of any bank and not necessarily a nationalized band. However, since it would be a transfer of accounts and the liabilities required to be discharged by the bank in the event the bank guarantees are invoked are required to be taken into consideration, the Court must be satisfied that the transferee bank would have the financial capacity and solvency to meet such liabilities as the transferee bank would be required to furnish a guarantee in favour of the Oriental Bank of Commerce covering the amounts of the bank guarantees that are being presently enjoyed by the plaintiff. The defendant bank, however, does not contend that Axis Bank Ltd. is in any way insolvent and not capable of meeting the liabilities in the event the bank guarantees are invoked and the Oriental Bank of Commerce is required to discharge such liabilities. However, on the 1st clause of the letter dated 20th November, 2017, the bank shall file a short affidavit indicating the claims that the bank has in respect of Clause 1 within 10 days from date.

The matter stands adjourned for two weeks.