No new bank guarantee from Axis Bank to be accepted, says DoT

Telecom department has ordered that bank guarantees from Axis Bank should not be taken as the country's third-largest private sector lender had failed to honour a guarantee issued previously.

The Department of Telecommunications (DoT) in a March 16 office memorandum titled 'non-adherence to contractual obligation of bank guarantees by Axis Bank' said no new bank guarantee from the lender should be accepted.

"Axis Bank has failed to invoke a Bank Guarantee issued by them on behalf of Aircel Group of Companies," DoT said. "This action by Axis Bank is a serious breach of trust and contract with Government of India."

Telecom companies have to routinely furnish bank guarantees to meet their contractual commitments. A failure may result in the government encashing the bank guarantee as a tool to punish the defaulter.

Typically, a bank guarantee is issued by a bank or any other lending institution promising to make up for a pre-stated sum of money in case of default by the entity on whose behalf it is issued.

When contacted, an Axis Bank official spokesperson, said: The bank guarantees have been issued by us on behalf of Bharti Airtel."

Listing the reason for not honouring encashment of the bank guarantee, he said, "Payment of the said guarantees, at present, will be in violation of the orders of the Telecom Disputes Settlement and Appellate Tribunal (TDSAT)".

Without giving details of the injunction passed or the matter before TDSAT, the spokesperson said: "Once the order is vacated, the bank will be pleased to honour the said guarantees, as per the underlying terms. This matter has been communicated to the Dept. of Telecom (DoT)."

A source who did not wish to be named explained that said bank guarantee was not issued for Aircel but rather Bharti Airtel, in a matter involving the use of Aircel's spectrum by Bharti Airtel.

The source said a TDSAT order on a dispute involving Aircel and Telecom Department prevented Axis Bank from making payments on the invoked bank guarantee.

The order has to be vacated before Axis Bank can make the payment, the source pointed out.

Meanwhile, the directive of DoT states that the action (failure by Axis Bank to invoke the said bank guarantee issued by them) is "a serious breach of trust and contract with Government of India."

"In view of this, you are hereby directed not to accept any new bank guarantee from Axis Bank, including renewals," DoT added.

The specific instructions by Department of Telecom (DoT) have gone out to all operators including Bharti Airtel, Vodafone India, Idea Cellular, Reliance Jio Infocomm, Reliance Communications and Aircel amongst others. Multiple people confirmed receiving the said order.