Surat Diamond Bourse Gets Relief: High Court Quashes Order to Pay Rs 125 Crore Bank Guarantee

Advocate Zaki Mukhtyar Sheikh, representing the Surat Diamond Bourse, argued that PSP Projects had itself breached the contract terms


SURAT, GUJARAT : In a major development for the Surat Diamond Bourse (SDB), the Gujarat High Court has quashed an order by the Surat Commercial Court demanding a Rs 125 crore bank guarantee payment. This comes as a significant relief for the diamond bourse, which was facing financial strain due to the earlier order.

The dispute arose between the SDB and Ahmedabad-based PSP Projects Private Limited, the construction company responsible for building the iconic Surat Diamond Bourse, the world’s largest. PSP Projects had filed a petition under Section 9 of the Arbitration Act, claiming non-payment of dues exceeding Rs 500 crore, which included a 2.5% retention deposit allegedly withheld by the SDB even after project completion.

Following this petition, the Surat Commercial Court had ordered the SDB to pay a hefty Rs 125 crore bank guarantee. This order caused a ripple effect, leading to a decline in property prices within the SDB complex. With tenants like Kiran Gems leaving and maintenance costs rising, the situation seemed bleak for the diamond bourse.

However, the SDB challenged the order in the Gujarat High Court. Advocate Zaki Mukhtyar Sheikh, representing the SDB, argued that PSP Projects had itself breached the contract terms. The SDB claimed that certain works remained incomplete, despite being included in the agreement.

The SDB further clarified the payment structure. According to them, a project management consultancy oversaw the contract, with PSP Projects submitting monthly bills based on completed work. The SDB could retain 2.5% of the bill amount, of which 1.25% was released upon virtual completion and the remaining 1.25% after the defect liability period.

Furthermore, the contract stipulated that PSP Projects was to provide a 5% bank guarantee of the total contract value, amounting to approximately Rs 78.75 crore. This guarantee, however, was contingent upon the company applying for a completion certificate after finishing the project. Additionally, a 24-month defect liability period was established to address any construction issues.

The SDB argued that PSP Projects failed to fulfill these conditions, particularly regarding the completion of virtual work and the defect liability period. As per the contract, the retention amount of 1.25% could only be released after the defect liability period, which the construction company allegedly did not adhere to.

The High Court, after considering these arguments, quashed the Surat Commercial Court’s order, offering a sigh of relief for the Surat Diamond Bourse. This decision is likely to have a positive impact on the SDB’s financial health and stability within the diamond trading industry.