Rahughat Hydro : ICICI releases over Rs 785m to Nepal Investment, Laxmi Bank

The High Court of Hyderabad on Monday vacated an injunction order, allowing ICICI to make the payments to the two Nepali banks.

Kathmandu, August 12

ICICI Bank, India’s largest private sector bank, has released millions of rupees of payments related to counter bank guarantee issued by Nepal Investment Bank Ltd (NIBL) and Laxmi Bank after an Indian high court ruled in its favour.

The High Court of Hyderabad on Monday vacated an injunction order issued by the City Civil Court of the south Indian city that barred ICICI from making payments related to bank guarantee to the two Nepali banks.

Immediately after the order was issued, ICICI released payments to the tune of over Rs 785 million to the two Nepali banks.

High-ranking officials of both the domestic banks told The Himalayan Times the amount was deposited in their bank accounts within a few hours of the delivery of the verdict on Monday.

The latest development comes at a time when two other domestic banks — Himalayan Bank Ltd (HBL) and Bank of Kathmandu (BoK) — have been forced to provision over Rs one billion after a Chinese court ruled against a Nepali contract provider on a lawsuit of a similar nature.

“It is true that the Indian bank released the payments after a favourable court order, whereas, in the Chinese case, the court had ruled against the Nepali contract provider. Yet, what needs to be noted here is the motive of the Indian bank,” said NIBL CEO Jyoti Prakash Pandey.

Pandey told THT that ICICI worked with good intentions and took the initiative on its own to move the high court after City Civil Court of Hyderabad issued a verdict which was not in favour of Nepali banks.

“The proactive attitude shown by ICICI needs to be appreciated,” said Pandey, implying China Construction Bank, which had received court order to withhold payment against counter bank guarantee issued by HBL and BoK, should take a leaf from the move made by ICICI.

The case involving two Nepali financial institutions and an Indian bank had reached the Hyderabad court after Nepal Electricity Authority (NEA) terminated a contract with India-based contractor, IVRCL Infrastructures and Project Ltd. NEA had entrusted IVRCL with the task of completing civil works, such as construction of dam and powerhouse, at the 32-megawatt Rahughat hydroelectric project site.

But after IVRCL continued missing the construction deadline of crucial components of the hydro project, NEA scrapped the contract.

Dissatisfied with NEA’s decision, IVRCL knocked on the doors of Patan Appellate Court and sought a stay order to prevent payment of advance guarantee. However, the appeals court did not entertain the plea of the company.

Then around the same time, it moved the City Civil Court of Hyderabad. At Hyderabad’s city court, IVRCL said it was preparing to take the case to an arbitration panel and, thus, sought injunction order to bar ICICI from releasing payments related to advance guarantee.

In construction projects, contractors generally seek advance payment from contract providers to meet start-up and procurement costs incurred prior to the commencement of construction works. In this regard, a bond or guarantee is issued by banks against advance payment to ensure the contract provider recovers the money in case of a default made by the contractor.

So, advance payment guarantee ensures repayment to contract providers even if contractors fail to fulfil their contractual obligations.

In this case, NIBL had issued advance payment guarantee worth Rs 93.52 million and $2.48 million on behalf of ICICI. Likewise, Laxmi Bank had issued bank guarantee worth $3.29 million and Rs 115.15 million on behalf of the Indian bank.

As per the 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, the contractor can protect itself if it is able to prove at a court that the payment against guarantee is being demanded in a fraudulent manner. And such evidence allows contractors to file a lawsuit against contract providers and banks, and halt payment process.

Although NEA had not terminated the contract with IVRCL in a fraudulent manner, the Indian contractor had moved the court to stop the payment process. Had the High Court of Hyderabad not issued a verdict in favour of ICICI, NIBL and Laxmi would have to provision hundreds of millions of rupees, as they had already released payments to NEA. This would have ultimately hit their profits.

Source : THT