I was heading Lucknow branch then. In the course of business, like any other bank, we also used to issue bank guarantees.
A bank guarantee in effect guarantees a sum of money to the beneficiary that bank will pay the amount if the applicant doesn’t fulfill the obligations outlined in the contract within the period of validity.
A contractor (applicant) came to us with request to issue a bank guarantee in favour of Bihar State Electricity Board (BSEB) (the beneficiary) for Rs fifteen lac. After completing formalities of taking collateral, commission etc, guarantee was issued in normal course for one year.
After completion of one year, we received an intimation from BSEB that the guarantee has been invoked by them and demanded the amount. But there was a discrepancy in the copy of the guarantee they had forwarded along with the notice of invocation.
The date of expiry appeared to be overwritten. As per our record, the validity period had already expired, while it was one year ahead as per the forwarded copy. We asked the contractor, and he confirmed that his bank guarantee had expired, as his work had been completed.
I went to the office of BSEB to have the first hand information and met the officer concerned with request to show the original bank guarantee issued by us, as we had to verify that it was in their possession. He obliged me, but the the date was overwritten, as suspected by us. It was easily discernible.
I coolly told him that this was the case of forgery made either by his office or the contractor, “Bank is not in the picture now. The validity period has already expired and the bank is discharged from its liability. You now take up the case with the contractor. We’ll confirm that this is not the guarantee we had issued.”
He got angry with me stating that he should not have shown the documents.
But we never received another communication from them. Later we came to know that the officer concerned couldn’t take action against the contractor for his non-compliance in time and to save his own skin, used this trick. But he was probably not aware that it was difficult to make the bank a scapegoat for his own omission or commission.