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 Airports 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
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
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