A Chinese high court has ruled in favor of two Nepali banks, following hearings on a case between a Chinese company contracted for the construction of the Melamchi Water Supply Project (MWSP) and the two Nepali banks.
The Chinese construction company China Railway 15 Bureau Group Corporation and China Machinery Industry Group Corporation Inc Joint Venture had won the construction contract for the MWSP. However, they left the work midway, stalling the project. Then the contract for the project with them was canceled.
The Chinese company had secured performance security and advance payment guarantee from China Construction Bank (CCB) while agreeing to the construction contract. Nepal’s Himalayan Bank and Bank of Kathmandu (BoK) were its counter guarantors. After the Chinese company left in the middle of the construction, their contract was canceled and USD 6.65 million as performance security and EUR 1.41 million as advance payment guarantee were confiscated from the two Nepali banks.
After the Melamchi Project received funds from the Nepali banks, a dispute arose because the Chinese bank did not reimburse the Nepali banks.
The dispute went to a Chinese district and then to the high court. On Monday, the high court ruled in favor of the Nepali banks. After this decision, the Chinese bank has to pay about Rs 1.5 billion to the Nepali banks.
According to Senior Advocate Gandhi Pandit, who had fought the case on behalf of the Nepali banks, the Higher People’s Court of China’s Henan Province on Monday decided that CCB should return about Rs 1.5 billion to the two Nepali banks.
After the cancellation of the contract, both banks of Nepal had paid about Rs 1.5 billion as performance security and advance payment guarantee to the MWSPon behalf of the CCB. However, CCB was hesitating to reimburse the Nepali banks.
