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Calcutta High Court confirms ₹780 crore arbitration award for Reliance Infrastructure against DVC, releases ₹600 crore bank guarantee. Impact on DVC share price anticipated.
In a significant legal victory, the Calcutta High Court upheld the arbitration award of ₹780 crores in favour of Reliance Infrastructure against Damodar Valley Corporation (DVC). The court has also ordered the release of a ₹600 crore bank guarantee provided by Reliance Infrastructure, marking a crucial financial reprieve for the company.
The court's decision comes after a protracted legal battle concerning the 1200 MW Raghunathpur thermal power project in West Bengal, which Reliance Infrastructure contracted to build for DVC. The project was commissioned in 2012 but soon became mired in contractual disputes due to delays attributed to DVC.
In April 2017, Reliance Infrastructure initiated arbitration, claiming financial damages due to prolonged delays in project execution, which escalated input costs significantly. The arbitration tribunal initially ruled in Reliance's favour in 2019, ordering DVC to pay ₹896 crores and return bank guarantees amounting to ₹354 crores. The tribunal imposed a hefty interest rate of 15% per annum for any payment delay exceeding four weeks.
Although the High Court's ruling slightly modifies the original arbitration award by reducing the applicable interest rates — reducing the award by ₹181 crore — it largely sides with Reliance Infrastructure. This legal affirmation enables Reliance to enforce the arbitration award to the extent upheld and recover substantial financial dues.
The release of the ₹600 crore bank guarantee is a significant aspect of the court's decision, providing Reliance Infrastructure with enhanced liquidity, which could influence its strategic financial planning and execution of ongoing projects.
For DVC, the court's ruling poses financial challenges, particularly in how it manages its capital allocation and project financing moving forward. The organisation will need to reassess its operational and financial strategies to mitigate the impact of this substantial financial outlay.
Investors keenly observe the market's reaction to this development, which has potential implications for the DVC share price. Reliance Infrastructure, on its part, has indicated plans to conduct a detailed review of the judgment and will decide on further legal steps based on comprehensive legal advice.
This ruling not only underscores the importance of stringent contract management and adherence to project timelines but also highlights the pivotal role of arbitration in resolving complex commercial disputes in India’s infrastructure sector.
Disclaimer: Investments in the securities market are subject to market risk, read all related documents carefully before investing.
This content is for educational purposes only. Securities quoted are exemplary and not recommendatory.
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