Explained: Why a Chinese company has demanded Rs 443 crore in damages from India for breach of a Railways contract

China 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 Dedicated Freight Corridor Corporation of India (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, officials said.

What is the dispute and the claims on both sides?

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 Indian side 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 Chinese side 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.

Was this an important contract for the Chinese?

For China this contract was significant on multiple fronts.

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.

The termination of the contract by India as the two armies faced off on the Line of Actual Control, was a body blow of sorts to the Chinese.

What is India’s official reason for ending the contract?

Indian officials did not attribute the decision to terminate the contract to the political tensions between the two countries. One of the key reasons, they said, was the poor progress of the work. Despite work having begun in 2016, there was only around 20 per cent progress by 2020, not to mention missed targets.

The “post mortem” of the performance threw up some glaring facts.

The Chinese giant 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.

Indian officials also said that the Chinese organization 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.

What happened after the Chinese were thrown out?

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.