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Defence Ministry told to pay $3mn to Czech firm for terminating contract

Arbitration Tribunal finds Ministry at fault for rejecting company’s anti-mine boots

Written by Man Aman Singh Chhina | Chandigarh |
Updated: August 29, 2015 3:11:59 am

A Czech company manufacturing anti-mine boots for infantry personnel has been awarded nearly US $3 million as compensation and refund of bank guarantee by an arbitration tribunal after the Ministry of Defence (MoD) was found to have rejected their product on the basis of a test that was in “violation of the contract”.

The arbitration tribunal comprising Justice Mukul Mudgal, Justice HR Malhotra and KC Gangwal pronounced the award on Thursday in New Delhi, rejecting the MoD’s plea that the termination of the contract with Zeman Technogroup SRO was legal. The tribunal’s decision, in which Justice Malhotra wrote a dissenting note, said the MoD has to refund a performance bank guarantee of $377,698 along with 12 per cent interest. The tribunal further awarded a compensation of 25 per cent of the total amount of $ 7,553,960 claimed by the company along with an interest of 18 per cent from the date of the award.

This is perhaps the first time that a foreign military equipment supplier has managed to claim compensation from the MoD by contesting that its contract was wrongly terminated. The tribunal found that the test conducted by the Terminal Ballistic Range Laboratory (TBRL), Chandigarh, on the anti-mine boot was in violation of the contract which, in turn, had an adverse impact on the test report. The tribunal noted that, “The respondent ought to have followed the blast test procedure laid down in the contract as it is and any digression from the procedure i.e. using alluvial soil instead of dry sand, leads to declaring of the test void.”

In March 2009, a contract was drawn up for the supply of 29,740 pairs of Boot Anti Mine Infantry (BAMI) by Zeman Technogroup SRO to the Indian Army. The total value of the contract was $7,553,960. The Czech firm claimed that blast tests on the boots were carried out by ignoring the agreed ‘Acceptance Test Procedures’ in the contract and this was why the boots failed the test. The company got the same samples tested under conditions specified in the tender document of the Indian Army at Cranefield University of United Kingdom, where they passed the test.

The Army terminated the contract in 2012 following which the company approached the Supreme Court for the appointment of an arbitration panel.

Speaking to The Indian Express from Prague, Libor Zeman, Director of Zeman Technogroup, said the financial compensation is not as per the company’s expectations but he was happy that they have got some justice. “The Indian Army is yet to procure anti-mine boots after terminating our contract. Indian authorities have tried to manufacture the anti-mine boots for past many years but have failed,” he said.

Reacting to the award, Major Guneet Chaudhary (retd), partner of Chandigarh-based legal firm Jurisconsultus, which fought the case, said it was unfortunate that the case has been pending for so many years and that the Indian soldier is still without anti-mine boots.

“An efficient mechanism for dispute resolution must exist in the MoD or else foreign companies will be hesitant to participate in tenders,” he said.

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