HBL‚ BoK to move apex court to halt guarantee payment

KATHMANDU:

Himalayan Bank Ltd (HBL) and Bank of Kathmandu (BoK) will soon move the Supreme Court in a bid to halt the process of extending bank guarantee payments of around Rs 1.5 billion to Melamchi Water Supply Development Board (MWSDB).

The announcement was made a day after the Appellate Court quashed the injunction issued in favour of the two banks that prevented release of funds in the custody of Nepal Rastra Bank (NRB), the central bank.“We are yet to receive a copy of the court verdict. Once we receive it, we will file a case at the apex court,” a high-ranking official of one of the two banks said.

If Supreme Court upholds the Appeals Court’s decision, the two banks will have no option but to let NRB release the payment.

The two banks ran into trouble after they decided to work on behalf of China Construction Bank’s client China Railway 15 Bureau Group Corporation — the ousted contractor of Melamchi Water Supply Diversion Project.

Based on the agreement, BoK issued advance payment guarantee of $6.62 million and 1.4 million euros on behalf of the Chinese bank. HBL, on the other hand, provided guarantee of $6.2 million against performance bond issued by China Railway 15 Bureau Group Corporation via China Construction Bank.

The performance bond is usually issued by contractors undertaking construction projects as a security against job completion. It guarantees full payment to contract provider — or MWSDB in this case — if the contractor — China Railway in this case — fails to complete the project. This is the same with advance payment guarantee.

As per International Chamber of Commerce Uniform Rules for Demand Guarantee, bank guarantees are independent, meaning contractors cannot prevent a bank from making payment against such guarantees. However, contractor can protect itself if it is able to prove that payment against guarantee is being demanded in a fraudulent manner.

In other words, contractors, who can provide evidence of fraud, can file lawsuit against contract providers and banks, and halt payment process.And this is what the Chinese contractor did.

China Railway 15 Bureau Group had moved the Chinese court after MWSDB terminated its agreement to dig a crucial 26.3-km tunnel for the Melamchi Water Supply project in 2012. The agreement was annulled after the ‘Chinese contractor demanded more funds than mentioned in the bid document to complete the work’.

“But in a case filed in China, Chinese contractor has claimed it was the first to send a notification for contract termination after it did not receive adequate support from MWSDB and locals,” the banker said, adding, “Documents presented at the court show China Railway sending notification of contract termination on September 12, 2012, while MWSDB had sent contract termination notice on September 25, 2012.”Based on this, Chinese court issued a verdict in favour of the Chinese contractor, and barred China Construction Bank from releasing the payment to two domestic banks.

MWSDB agrees that the Chinese contractor had sent a notice on contract termination on September 12, 2012. “At that time, it also gave eight different reasons that compelled it to terminate the contract. But they were not logical and included unfounded claims,” MWSDB Executive Director Ghanashyam Bhattarai told The Himalayan Times.

“Besides, it didn’t follow the dispute settlement course mentioned in the pact. Had MWSDB been unfair to the Chinese firm, it had the option to present its case before the dispute board, a joint mechanism that comprised representatives of MWSDB and the Chinese firm. If the board had failed to solve the problem, the matter could have been sorted through arbitration. But the firm did not choose the two available options and went for litigation.”The contract agreement between MWSDB and Chinese firm allows any one of the party to knock on the doors of the court.

“But such a court should be in Nepal, whereas the Chinese company chose a court in its own country, which is against the terms of our agreement,” said Bhattarai, adding, “So, the Chinese company has breached numerous contract norms.”Yet, the two banks are urging MWSDB to join their legal battle against the Chinese contractor.

“We can get a favourable verdict from a higher court if MWSDB joins us,” high-ranking official of another bank said.But MWSDB has shown no interest in accepting the proposal.“It’s responsibility of two banks to settle the dispute, as we have paid them millions of rupees in commissions to provide counter guarantee,” Bhattarai said.

Source: THT