Bank guarantee conduct may trigger regulatory scrutiny, with RBI directed to consider action including possible licence revocation.

In a dispute concerning non-payment under an unconditional bank guarantee and the bank's conduct, the HC did not adjudicate the appeal on merits because it was dismissed for default. On the cross-objection, the Court noted the sequence of events arising from the contract, invocation of the guarantee, and proceedings under Section 9 of the Arbitration and Conciliation Act, 1996. Finding the bank's conduct warranted regulatory scrutiny, the Court directed the Reserve Bank of India to consider what action, if any, should be taken against the bank, including the question of revocation of its licence or authority to carry on banking business.

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Issues: Whether, on the facts concerning non-payment under an unconditional bank guarantee and the conduct of the bank, the Reserve Bank of India should be called upon to consider taking appropriate action against the bank, including revocation of its licence.

Analysis: The appeal was dismissed for default and no substantive adjudication arose on the appeal itself. On the cross-objection, the Court took note of the sequence of events leading from the contract, invocation of the unconditional guarantee, and the proceedings under Section 9 of the Arbitration and Conciliation Act, 1996. In view of the conduct attributed to the bank, the Court considered it appropriate that the Reserve Bank examine what action, if any, should be taken against the bank, including the question of revocation of its licence or authority to carry on banking business.

Conclusion: The cross-objection was allowed to the limited extent of directing consideration by the Reserve Bank of India of appropriate action against the bank; the appeal itself stood dismissed for default.

Final Conclusion: The only substantive relief granted was a direction for regulatory consideration against the bank, while the appeal did not survive for adjudication.

Ratio Decidendi: Where the conduct of a bank in relation to an unconditional bank guarantee warrants scrutiny, the Court may direct the banking regulator to consider appropriate action, including the question of licence revocation.

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