Citi Locks Horns Over 3 Banks

Citibank is at loggerheads with three nationalised banks -- Allahabad Bank, Punjab National Bank (PNB) and Canara Bank -- over making payment under the bank guarantees, which was issued by it in favour of the three banks on behalf of Incab Industries Ltd.

While Canara Bank chairman has complained to the Reserve Bank of India (RBI) governor Bimal Jalan on the issue, PNB has written a letter to the local RBI office.

According to the three bankers, under the guarantees, repayment of the first instalment fell due on January 10, 2000. Accordingly, the banks demanded payment of the same from the company and on its refusal they invoked the guarantees issued by Citibank on behalf of Incab. In terms of the said guarantees, the entire amount payable can be invoked even if there is a default of a single instalment, the banks pointed out. The company also pleaded that it has sought registration under provisions of Sick Industrial Companies (Special Provisions) Act, 1985.

 

In the meantime, Incab moved Calcutta High Court to restrain the banks from invoking the guarantees and prohibit Citibank from making any payment on invocation of the guarantees. The court, while considering the matter as an interim measure, advised the three beneficiary banks to claim only the first instalment due under the said guarantees, the three banks told Business Standard. They further added that the Court has opined that the plea taken by Incab under Section 22 of SICA is not applicable since this is a guarantee issued by Citibank. Citibank, when contacted by Business Standard, said that under SICA when the matter is under active consideration of Board for Industrial and Financial Reconstruction (BIFR), no suits can be filed without the approval of BIFR.

"Incab filed a suit possibly ignoring such statutory provisions with the object to obtain an order restraining the guaranteeing banks from making payment under the guarantees," Citibank added.

The matter is sub judice, the foreign bank pointed out, and the parties have been directed by the court to file their affidavits. Whether in view of the statutory provisions, the guarantors can make payment is an important issue on which the court would make its pronouncement after the parties submit their respective affidavits, Citibank has said.