NEW DELHI: A government cannot be allowed to dishonour its sovereign guarantee on grounds of lack of funds, the Delhi High Court has said, while ordering the Jammu-and-Kashmir-government to redeem its bonds bought from its financial institution by Airport Authority of India (AAI).
"The state cannot say that it does not have the fund to honour its sovereign guarantee. The court would enforce the sovereign guarantee, because a sovereign guarantee cannot be allowed to fail, if rule of law is to be upheld," Justice Vipin Sanghi said.
The court's direction came on the plea of AAI against default in payment of redemption of bonds as well as the half yearly interest payable by Jammu and Kashmir State Financial Corporation.
The AAI had bought the JKSFC bonds to finance its own employee's provident fund.
The court also directed the state government to pay Rs 10.4 crore to the AAI for redemption of the bonds bought by it from JKSFC.
The court also disallowed the plea that the matter did not fall under its territorial jurisdiction saying that the financial transactions between the parties took place here.
The bench directed the Jammu and Kashmir government to "honour its sovereign guarantee" and "to make payments of the amount due comprising of the face value of the bonds which is Rs 10.4 crore along with interest up to the date of redemption at the rates prescribed in the said bonds".
It further asked the state to pay overdue interest to AAI on the amount due and payable on the date of redemption at the rate of 8 per cent.
The AAI had subscribed to the bonds to "prudently manage and invest the Contributory Provident Fund (CPF) of its employees."
Source: economictimes
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