The Bombay High Court has asked Axis Bank to deposit $15.45 million (around Rs 104 crore) with the court in a dispute with motor racing franchisee Formula One World Championship Ltd.
Justice SJ Kathawala, on December 21, directed the country's third-largest private-sector lender to deposit the money by 28 December. The money will be put in a nationalised bank for 90 days and the court will hear the matter again on 9 January.
The court clarified that the 14 December order wherein it had restrained Lloyds Bank and RBS to make any demand against Axis Bank will continue till the case is decided. The two foreign banks are seeking to recover around $50 million from Axis Bank by invoking a letter of credit.
Senior counsel FE Divitre, who appeared for Royal Bank of Scotland, argued that this court had no jurisdiction to hear the suit and questioned Axis Bank's ability to pay the money. To prove the bank’s ability, the court directed it to deposit money in the court.
The genesis of the dispute lies in the fight between Formula One and its India franchisee owner Jaiprakash Associates Ltd, which had entered into the contract to organise an Indian Grand Prix event from 2011 to 2015. However, the event was held only for the first three years and Jaiprakash later failed to pay the amount to Formula One as per the contractual agreement.
Jaiprakash had furnished the guarantee in the form of a letter of credit to set up the business. Formula One wanted to invoke the guarantee and move the money to a designated bank in the UK. Axis Bank opposed this arguing that the country’s revenue department had issued an order to attach the letter of credit, which can’t be invoked until this attachment order was vacated.
Axis Bank had issued the four guarantees, with combined value of $50.5 million, on behalf of Jaiprakash and RBS is acting as the intermediary. If Formula One encashes the letter of credit, Axis Bank will have to pay RBS, which in turn will pay Formula One. Axis Bank will then recover the money from Jaiprakash by invoking the corporate guarantee the company has given.
Chandubhai Mehta, managing partner at law firm Dhurve Liladhar & Co, who is representing Axis Bank, confirmed the development but refused to comment since the matter is in court.
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