India news December 15, 2011

Court rules BCCI can't invoke Nimbus bank guarantees

The Bombay High Court has ruled that the BCCI cannot invoke bank guarantees worth Rs 1600 crore (approximately $300 million) given by Nimbus Communications, who held the broadcast rights to cricket in India before the contract was terminated earlier this week. The court also directed that Nimbus be given three days' notice should the banks decide to encash the guarantees.

The court, with Justice SJ Vazifdar presiding, was hearing an application filed by Nimbus seeking an injunction on the BCCI's notice to three banks - Punjab National Bank, Union Bank of India and Indian Bank - for forfeiture of the guarantee following Nimbus's default on payments.

The hearing began with banks' counsel Janak Dwarkadas telling the court that the invocation of the guarantee was not in accordance with the terms of the original contract. Hence, as far as the banks were concerned, the guarantee was null and void and there was no question of encashment.

Vazifdar then asked Nimbus counsel Iqbal Chagla if his client was happy with the banks' stand. Chagla raised a concern over the possibility of the banks changing their statement in future, which would then leave Nimbus at a loss. The judge then passed an order that the banks must give notice of three working days should they decide to invoke the guarantee in future. Those 72 hours would allow Nimbus to challenge that banks' move in court if need be.

Chagla told the court that though his client had defaulted, Nimbus had asked the BCCI for an extension on the payment deadline but was turned down by the Indian board. "We agree that Nimbus was in default of approximately Rs 50 crore (approximately $9 million), but we had sought extension of time to make payments. Before that the BCCI sought to terminate the contract and seek forfeiture of the bank guarantees."

In the petition, Chagla contended that the BCCI, despite saying that it would consider the request of the extension by a few days, terminated the contract without asking Nimbus to make the payment.

The banks' stand is good news for Nimbus. "The bank guarantee remains valid only so long as the contract is not terminated," Dwarkadas told ESPNcricinfo. "Once the contract is terminated the bank guarantee is no longer valid. The guarantee was invoked after the termination of the contract."

Nagraj Gollapudi is an assistant editor at ESPNcricinfo