KUALA LUMPUR (April 7): Railtrack solutions provider Emrail Sdn Bhd has taken Kuwait Finance House (KFH) to court over its alleged failure to issue a compliant performance bond for the Light Rail Transit Line 3 (LRT3) project, which was awarded to Emrail by MRCB George Kent Sdn Bhd acting as Prasarana Malaysia Bhd’s partner in 2017.

The first day of hearing in the High Court here on Friday, before judge Ahmad Murad Abdul Aziz, began with Emrail’s first witness — its chief executive Amrish Hari Narayanan — who was cross-examined by KFH's counsel on whether the documentary requirements needed for the performance bond to be issued were met.

According to details of Emrail's suit, Prasarana had stipulated that Emrail must submit a “performance bond” for almost RM40 million in favour of Prasarana and MRCB George Kent, upon undertaking the contract worth RM738 million.

In January 2018, KFH granted Emrail a financing facility of up to RM320 million, which included the Murabahah Tawarruq General Working Capital Financing and Kafalah Bank Guarantee (KBG) to part finance Emrail's working capital and other requirements as the contractor of the works package.

Emrail alleged that KFH would have to issue a compliant performance bond as requested by Emrail and as required by MRCB George Kent and Prasarana which guarantees due performance of work as stipulated in the contract between Prasarana and Emrail.

Emrail further claimed that a compliant performance bond was crucial to the project as it served as a pre-requisite for the project, and MRCB George Kent and Prasarana were entitled to terminate the contract if a compliant performance bond was not provided.

However, in its statement of defence, KFH stated that they were under no obligation to issue the performance bond based on the format requested, and that it was not part of the terms under the Kafalah Bank Guarantee Agreement.

They also said it would be contrary to shariah laws if they issued the performance bonds based on the format requested by Emrail and MRCB George Kent, given that the performance bond made reference to an agreement that has not been executed and dated.

During cross-examination, Amrish agreed when asked by KFH’s lead counsel Datuk Firoz Hussein Ahmad Jamaluddin, who was assisted by co-counsel Wafiy Azman, if the letter of acceptance had to be dated and added into the performance bond template for KFH to issue the bonds.

He also agreed when the counsel put it to him that the articles of agreement for the contract were never signed. Below is an excerpt of their exchange:

Firoz: You were sure you had to insert the letter of acceptance (into the performance bond template). Any reasonable person would require the date of contract to be inserted. Both dates ought to be inserted. And the contract here refers to articles of agreement. When a performance bond is given to any financial institution, they would say we would have to put in the date of acceptance and contract. It’s reasonable right?

Amrish: Right.

Firoz: Do you agree with me that no dates can be inserted because ultimately articles of agreement were never signed. Correct?

Amrish: They were not signed.

Firoz: So you cannot insert the date. But you agree that the template provided for the insertion of the date?

Amrish: Yes.

Amrish also testified that its other shareholders in the company are Tan Sri Hari Narayanan and former Chief Justice of Malaysia Tun Zaki Azmi, who are also plaintiffs in this case.

He also said that after the 14th General Election in 2018, Emrail was asked by the government, via Prasarana, to cut the RM738 million cost of the project to RM575 million.

In August 2019, MRCB George Kent terminated the LRT3 contract given to Emrail.

Emrail is represented by Louise Azmi, Shaarvin Raj and Craig Ho.

The trial will continue on May 26 with Amrish still on the stand.