New Delhi : Ministry of Finance has directed all central government entities to release 75% of the disputed amount – Estimated 50,000 crore in 600 projects under litigation – where contractors have won arbitration, but their money has been blocked due to appellate tribunals of government bodies, two officials said.
The directive, issued by the finance ministry, will implement the cabinet’s decision taken on November 20, 2019, to bail out the construction sector, which is facing liquidity crunch, the officials said, requesting anonymity.
“In fact, it was a long pending issue. It is one of the proposals of NITI Aayog in 2016 to address the problems faced by the construction sector. The Cabinet Committee on Economic Affairs (CCEA) on 31 August 2016 gave its They were considered in the meeting and approved it.”
According to a NITI Aayog statement issued on 5 September 2016, it was decided that for claims cases where arbitral awards were challenged by central government departments or state-run agencies, 75% of the award money would be paid by a bank. will be paid to the contractor against Guarantee without prejudice to the final order of the Court.
“The decision was again reiterated by the cabinet on 20 November 2019, but it could not be implemented in letter and spirit. Therefore, on 29 October 2021, the Ministry of Finance specified it as part of the GFR (General Financial Rules) dealing with arbitration awards,” said a second official. The GFR gives directions to the government and its agencies on matters relating to public finance. Huh.
As per the revised GFR, the contractor will have to pay bank guarantee for 75% of the arbitration award and not the interest amount, he said.
“However, the contractor is not allowed to utilize the amount as per his wish. Payment will be made in an escrow account. The amount will be used first to pay the dues of the lenders, then to complete the project.
The move is aimed at preventing government agencies from filing “frivolous appeals” aimed at delaying payments to the contractor. “It has been observed that government agencies lose most of these cases to the courts of law, but not without increase in project cost and time,” the first official said.
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