Chinese firm demands ₹443 crore compensation from Indian Railways for breach of a contract

Vinod Shah Posted on: 2022-09-04 09:25:00 Viewer: 33,089 Comments: 0 Country: India City: New Delhi

Chinese firm demands ₹443 crore compensation from Indian Railways for breach of a contract

New Delhi, India (Urban Transport News): Two years after the Dedicated Freight Corridor Corporation of India (DFCCIL) terminated a Rs 471 crore contract of the Chinese Railway’s signalling and telecom arm CRSC Research & Design Institute Groupfor its works in Uttar Pradesh, the Chinese firm has locked Indian Railways in international dispute and claimed Rs 279 crore compensation.

As India and China work slowly to repair political ties put under strain by the ongoing border standoff in Ladakh, they are also fighting over a mega Rs 471 crore Railways contract that India terminated in the aftermath of the crisis that broke out in the summer of 2020.

In June 2020, DFCCIL cancelled the contract given to CRSC Research & Design Institute Group to install signalling and telecom systems in a 417-km stretch between Kanpur and Deen Dayal Upadhyay junction on the upcoming Eastern Dedicated Freight Corridor (EDFC).

CRSC has now taken the case to international arbitration under the aegis of the International Chamber of Commerce in Singapore. It has claimed, among other things, that the DFCCIL did not pay it for the portion of the work that did get done. It has cited various issues that it faced during the work in India that were beyond its control.

CRSC first filed a claim of Rs 279 crore in damages, and subsequently revised it to Rs 443 crore. Among other things, it wants its bank guarantee to be returned, which the DFCCIL has forfeited. A bank guarantee is a deposit that a contractor has to put down as a precondition for securing a contract.

The claimed amount includes interest on various forfeited amounts, claims for various kinds of overheads and contractual deployment, etc.

In response, the India has filed a counter-claim of Rs 234 crore, revised from the Rs 71 crore it claimed initially. The DFCCIL has raised its claim on the basis of recovery of its mobilisation advance, retention money, and balance under the termination, apart from the regularisation of forfeiture of the bank guarantee.

The China contends that the termination of the contract was illegal in as much as DFCCIL did not comply with the procedure set out for termination in the contract.

A Tribunal under the ICC rules as per the terms of the contract has been constituted. The Tribunal has called for various submissions which are in the process of being prepared by the parties.

This contract was significant on multiple fronts for China. Firstly, this was China’s biggest contract in the rail sector’s crucial, and security-sensitive, signalling and telecommunications works in India which it won in 2016.

Secondly, this was a toehold in the Dedicated Freight Corridor project, whose Western arm is being financed through Japanese financial and technical assistance. With India looking to expand its dedicated freight corridors, this work would have been of advantage to the Chinese side to bid for future similar works in India.

DFCCIL had listed several issues with the Chinese company in the document terminating the contract including:

  • Reluctance of the company to furnish technical documents, as per contract agreement, such as logic design of electronic interlocking
  • Non-availability of their engineers/authorised personnel at site was serious constraint
  • Physical work could not progress as they have no tie-up with the local agencies
  • Material procurement, which is an independent activity, has not been done earnestly.

CRSC was unable to mobilise adequate resources on the ground as they had no local tie-ups. As a result, visits by DFCCIL officials to project sites often caught them off-guard, and engineers and authorized personnel were found to be absent on many occasions. Their material procurement was also found to be sluggish.

DFCCIL officials also said that the CRSC was “reluctant” to share technical documents with them, like logic design and interlocking. “This was part of contract conditions since we needed a system that could be seamlessly synced with our other systems. So we needed the technical documents and proactive collaboration, which was not happening,” a senior official said.

After termination, the contract was re-tendered, and an Indian consortium led by Siemens is carrying out the work for Rs 494 crore. So far, there is 48 per cent progress.

Now the both parties are preparing to make submissions to the international tribunal.

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