New Delhi: The department of telecommunications has written to all telecom and Internet service providers that it will not accept any bank guarantees by Axis Bank after the lender failed to invoke a bank guarantee issued by it on behalf of Aircel.

“Axis Bank has failed to invoke a bank guarantee issued by them on behalf of Aircel group of companies. This action by Axis Bank is a serious breach of trust and contract with the government of India. In view of this, you are hereby directed not to accept any new bank guarantee from Axis Bank, including renewals," a 16 March letter from DoT to all operators stated. Mint has seen a copy of the letter.

A bank guarantee is a pledge from a bank or a lending institution that if a certain borrower defaults on a loan, the bank will cover the loss.

“The matter pertains to Aircel. So just before Aircel went to NCLT... because we knew once NCLT gives a go-ahead, we will not be able to encash (the bank guarantee)... so before that we issued the letter requesting Axis bank (to pay)," a senior official of the DoT said requesting anonymity, adding that Aircel owes the government Rs411 crore in spectrum usage charges, licence fee, etc.

Aircel had on 28 February filed an application at the Mumbai bench of National Company Law Tribunal (NCLT) along with its units, citing high unsustainable debt, price wars, and legal and regulatory challenges. The NCLT on 8 March admitted Aircel’s bankruptcy petition.

However, Axis Bank said that if it encashes the guarantee, it will be a violation of an order by the telecom tribunal.

“The bank guarantees have been issued by us on behalf of Bharti Airtel," an official spokesperson for Axis Bank said. Bharti Airtel had in April 2016 entered into an agreement with Aircel to acquire its 2,300-MHz spectrum band in eight circles for Rs3,500 crore.

“Payment of the said guarantees, at present, will be in violation of the orders of the Telecom Disputes Settlement and Appellate Tribunal (TDSAT). Once the order is vacated the bank will be pleased to honour the said guarantees, as per the underlying terms. This matter has been communicated to the DoT," Axis Bank said in the statement.

A recent TDSAT order on a dispute involving DoT and Aircel prevents Axis Bank from making payments on the invoked bank guarantee.

“They (Axis Bank) have mentioned some case in TDSAT...but that is between the DoT and the operator. It is not between DoT and Axis Bank. Axis Bank has fiduciary relationship with DoT and in no way can the bank refuse our demand, it is against the law," the official cited above said.

“Aircel had gone to TDSAT seeking a stay so that the DoT is not able to encash bank guarantees. But that does not give Axis Bank any elbow room to refuse our demand...We have written to CMD of Axis Bank also that we will not honour any bank guarantee," the official added.

However, the DoT’s demand to invoke bank guarantee may be illegal, a legal professional said requesting anonymity, adding that “If the invocation of a bank guarantee is stayed by a court order then how can the bank pay? The DoT cannot force the bank to committ contempt of court".

An email query sent to Bharti Airtel remained unanswered at press time.

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