Page 21 - Banking Finance April 2019

LEGAL UPDATE

LEGAL

CASES
CASES
CASES
CASES
CASES

Award of interest in arbitration Bank should honour
The Delhi High Court recently asserted that if there is no provision in a work drafts issued by it
contract for paying interest for delay, the ar- "By issuing a draft, every bank un-
bitrators cannot award it. The court was deal- dertakes a liability
ing with the recurring theme of demand of which it is bound to
interest for delay in projects in the case, Tehri discharge at the
Hydroelectic Development Corporation vs instance of the
Jaiprakash Associates. person in whose
The letter was given a contract related to favour it has issued the draft or any
spillways on Tehri dam. Disputes arose and those were referred to a three-mem- person claiming through him. It
ber arbitration tribunal. The award was mainly in favour of Jaiprakash Associ- would lead to unimaginable uncer-
ates. The corporation appealed to the high court under the Arbitration and tainty in the business and the finan-
Conciliation Act. The court upheld the award on most issues but not on the cial world if bank drafts were to be
countermanded easily," wrote the
question of interest. For this, the judgment relied on last month's Supreme Court
Calcutta High Court last week in its
judgment in another arbitration case between the same parties.
judgment in Nepal Bangladesh Bank
Ltd vs Everett (India) Ltd. In this
Rule on staff director in bank upheld
case, two drafts were issued to the
An employee of a nationalised bank can be chosen as a director in the board of company, which were rejected by
directors if he/she has rendered five years' con- the bank where it was presented.
tinued service in that bank and will not super- This led to a suit that was decreed
annuate while holding the office of the direc- by a single judge bench of the high
tor. The Supreme Court stated so while dismiss- court. The division bench dismissed
ing the appeal of the Federation of Bank of the bank's appeal, observing that "in
India Staff Unions against the ruling of the the current scenario where the in-
Bombay High Court. tegrity of the financial system in gen-
eral and banking channels, in par-
The Banking Companies (Acquisition & Transfer
ticular, are under ominous dark
of Undertakings) Act provides for the nomination of directors. The employees
clouds such conduct of the bank can-
can suggest names from among them for one director. In this case, the union not be countenanced." The court
suggested three names. But they were rejected as they would retire during their imposed a penalty of Rs. 1 lakh on
terms as directors. This was challenged by the unions in the high court. Their the bank which will be given over to
petitions were dismissed. The Supreme Court also dismissed their appeal and the mediation cell of the West Ben-
upheld the rules about qualifications for employees' candidate. gal legal services authority.

BANKING FINANCE | APRIL | 2019 | 21