Fake bank guarantee cases are rare, but they are happeningAt least two such incidents have already been identified, officials say
A recent court order to arrest a provincial minister in a fake bank guarantee case has brought to the fore the fact that the instances of issuing fraudulent bank guarantees, though rare, are not uncommon.
The Patan High Court had last week issued an order to arrest Khadka Bahadur Khatri, minister for physical infrastructure development in Karnali Province, for allegedly committing a banking offence.
As per the chargesheet, Khatri, as a shareholder of MK Nirman Sewa, issued fake advance payment guarantee of Rs10.1 million in collusion with four other individuals to the District Technical Office, Bhojpur, to get an advance payment for the construction of Bhojpur-Taksar-Gogane-Lekkharka road.
Khatri, Raju Prasad Shrestha, Chhabi Lal Dhakal, Randhir Tumba and Dev Jung Shahi had received funds from the District Technical Office against fake bank guarantee of the Agriculture Development Bank Limited, Bagbazaar, and used the amount for personal purposes, the chargesheet has mentioned.
Khatri, who has been sacked over the scandal, is still at large, according to police.
Officials say Khatri’s is not an isolated case where contractors used fake guarantees to receive advance mobilisation—a payment given to the contractor to start work.
On July 7, the Patan High Court had convicted four people in a case where two bank guarantees worth Rs31.44 million were issued in collusion between some employees of the Agriculture Development Bank Limited and a promoter of Sunaulakhimti Construction Limited.
Sunaulakhimti had requested bank guarantees for starting work related to improving various road projects with the loan from Exim Bank of India.
Four employees of the Agriculture Development Bank’s Lagankhel branch—immediate past branch chief Badri Raj Subedi, branch chief
Umesh Bahadur Rana, credit officer Furnamgel Sherpa and office assistant Tara Prasad Kafle—were found involved in issuing guarantees without following the due procedure. They also had not sought adequate collateral from Sunaulakhimti Construction Company.
They had conspired with Dharma Raj Bhandari, the promoter of Sunaulakhimti Construction Company, to get bank guarantees without putting adequate collateral.
In June 2015, the police had arrested them all.
The Patan High Court convicted all four of them in banking fraud and slapped them with fines.
As per the verdict, Subedi was involved in issuing bank guarantees by violating the bank regulations. He had received a commission from the customer in cash for the job.
The two bank guarantees were worth Rs20.02 million and Rs11.22 million.
For this offence, the court had slapped Subedi with a four-year jail term and a fine of Rs 32.29 million, in addition to confiscation of amount related to the bank guarantee.
Likewise, a four-year jail term and a fine of Rs31.44 million in addition to confiscation of the equivalent amount were imposed on Kafle.
According to the court verdict, Dharmaraj Bhandari, the contractor, had colluded with the bank employees and paid them commissions which should have gone to the bank .
The bank had notified the court that the commission amount worth Rs294,551 was to be recovered from Sunalakhimti.
Bhandari was sentenced to four years in jail and ordered to pay a fine of Rs31.74 million in addition to the recovery of an amount equivalent to the misappropriated amount.
The court halved the penalty for Rana, stating that he did not have direct involvement in the case. Rana was found guilty of providing office letter pads and stamps and regularising the illegally issued bank guarantee.
Another accused, Furnamgel Sherpa, who died before the court verdict, was not penalised.
As the Banking Offense Act does not have a clear legal provision on whether a dead person should be penalised, the court said that it should not speak on the matter.
The court confirmed that the bank should recover Rs31.44 million from the convicts and ordered for the recovery of the amount from the collateral put at the bank by Sunalakhimti.
In case the collateral is not enough, the court ordered recovery of the amount from Subedi, Bhandari and Kafle on an equal share basis.
Officials at the central bank and Department of Roads said that cases of fake bank guarantees were rare.
Laxmi Prapana Niraula, the spokesperson for Nepal Rastra Bank, said banks are self-regulated hence they should ensure that such incidents do not occur.
Shiva Hari Sapkota, the spokesperson for the Department of Roads, echoed Niraula.
"Usually, we ask the concerned bank about the bank guarantee of the contractors before we start the evaluation of their bids. The bidders who are not genuine are disqualified," said Sapkota. "Cases of fraudulent bank guarantee take place as a result of collusion between contractors and bank staff.”