Karnataka High Court Asks Centre To Consider Digitally Verifiable Bank Guarantees With Tamper-Proof QR Codes To Prevent Fraud

The Karnataka High Court has suggested some measures for the Union Ministry of Finance to take into consideration while evolving a comprehensive and standardised system for verification of bank guarantees furnished during the tendering process or otherwise, so as to prevent frauds.The court was informed by the Government that it has taken cognisance of the issue of wider systemic vulnerability in the existing processes governing the submission, acceptance, and verification of bank guarantees, particularly in the context of public procurement and large-scale contractual engagements.Noting the same, Justice Suraj Govindaraj said “The absence of a uniform, secure, and verifiable mechanism for authentication of bank guarantees creates fertile ground for fraud, undermines commercial certainty, and poses risks to public funds and institutional trust.” The judge added “While the formulation of policy measures and institutional mechanisms lies within the domain of the executive, the Court cannot be oblivious to the fact that repeated instances of fraudulent bank guarantees, if left unaddressed at a systemic level, have the potential to result in recurring financial loss, multiplicity of litigation, and diminished confidence in tendering frameworks administered by the State and its instrumentalities.” It gave the following suggestion:Measures may include the issuance of bank guarantees in a digitally verifiable form incorporating secure and tamper-proof QR codes or similar authentication tools, enabling instant verification of the guarantee particulars, such as the issuing bank and branch, beneficiary, amount, period of validity, and subsisting status, directly from the issuer's system.The adoption of a centralised or interoperable digital verification platform, accessible to procuring authorities, public sector undertakings, and other beneficiary institutions, may also merit consideration, so as to enable verification of bank guarantees directly from the issuing bank without reliance on physical documents or intermediaries.The feasibility of secured electronic interfaces or application programming interfaces (APIs) enabling real-time or near real-time confirmation of bank guarantees between issuing banks and beneficiary authorities, particularly at the stages of tender evaluation, award, or contract administration, may likewise be examined, with a view to reducing discretion, delay, and scope for manipulation. The assignment of a unique, non-reusable identification number to each bank guarantee, capable of verification throughout its lifecycle, including issuance, amendment, extension, invocation, and discharge, may assist in preventing duplication, alteration, or reuse of fraudulent instruments.The transition towards digital-only issuance of bank guarantees, supported by bank-grade encryption, digital signatures, and date and time-stamped issuance records, may also be explored, with physical copies, if any, being treated only as nonauthoritative representations of the electronically issued instrument.For bank guarantees involving higher monetary thresholds, the requirement of direct issuer-side confirmation to the beneficiary authority, through secure electronic communication, may merit consideration as an additional safeguard against fraud.Standardisation of the minimum data fields, format, and verification parameters of bank guarantees across issuing banks may further facilitate automated verification and reduce ambiguity arising from divergent formats and practices. The maintenance of an auditable electronic trail of verification attempts, including the date, time, verifying authority, and outcome, may enhance transparency, accountability, and institutional oversight, and may also assist in vigilance, audit, and dispute resolution processes. The bench clarified that its suggestions are only illustrative, solely to underscore the systemic importance of robust verification processes in safeguarding public interest, protecting public funds, maintaining financial discipline, and preserving confidence in public procurement and contractual frameworks.The suggestions were given while allowing a petition filed by M/s DRN Infrastructure Pvt Ltd, questioning the levy of liquidated damages and initiation of any further proceedings in terms of Clause 4.1 and 4.2 of the Request for Proposal ('RFP' for short) and Clause 7.1.2 of Engineering Procurement and Construction Agreement after it provided fabricated bank guarantees. AppearancesFor Petitioners: Senior Advocate. Vikram Huilgol (WP 31939/2025) Instructed by Advocates Aditya Bhat, and Suyash Dugar, AdvocateSenior Advocate Devadatt Kamat instructed by Aditya Bhat, Suyash Dugar, Lal Kishan, Safina Kawser J, Advocates for PetitionerFor Respondents:Sri Aravind Kamath, ASGI, for the Union of India for Advocate B.S.VENKATANARYANA. Citation No: 2026 LiveLaw (Kar) 7Case Title: M/S DRN INFRASTRUCTURE PVT. LTD AND UNION OF INDIA & Others Case No: WRIT PETITION NO. 31939 OF 2025...

Karnataka High Court Asks Centre To Consider Digitally Verifiable Bank Guarantees With Tamper-Proof QR Codes To Prevent Fraud

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Karnataka High Court Asks Centre To Consider Digitally Verifiable Bank Guarantees With Tamper-Proof QR Codes To Prevent Fraud

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