DoT says no new bank guarantee from Axis Bank to be accepted

NEW DELHI: The government has directed all telcos, associations and officials in the telecom ministry not to accept any new bank guarantees from Axis Bank, including renewals, saying the lender had failed to honour one such pledge, causing a “serious breach of trust”.

The country’s third-largest private sector lender failed to honour a bank guarantee it had issued on behalf of Aircel group of companies, the department of telecommunications said in an order dated March 16.

“This action by Axis Bank is a serious breach of trust and contract with Government of India,” DoT said. “In view of this, you are hereby directed not to accept any new bank guarantee from Axis Bank, including renewals.”


Axis Bank, in its response on Monday, said the bank guarantee in question was issued on behalf of Bharti Airtel — not Aircel — and that a telecom tribunal had stayed the payment promised in the undertaking. The bank said it would honour its commitment once the stay is lifted. The amount in the bank guarantee was not disclosed.

Telecom companies routinely furnish bank guarantees to meet contractual commitments, failing which the government can encash them.

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

DoT can invoke a performance bank guarantee if a telco does not meet network rollout requirements, as prescribed in the licence agreement.

“The bank guarantees have been issued by us on behalf of Bharti Airtel. Payment of the said guarantees, at present, will be in violation of the orders of TDSAT,” the bank said in response to a query on DoT’s directive. It did not specify the TDSAT order.