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New rules to end disputes with infra companies

NHAI alone is to clear claims of over Rs 50,000 crore to road developers, despite losing cases in arbitration.

, TNN|
Updated: Sep 04, 2019, 04.12 PM IST
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Agencies
Infra cos
Till February, NHAI had not paid claims in 25 out of the 78 cases where the arbitration award was in favour of the contractors, who have been unable to submit bank guarantees.
(This story originally appeared in on Sep 04, 2019)
NEW DELHI: After dilly-dallying for years due to resistance from ministries dealing with infrastructure, the finance ministry has moved a plan to make it easier for companies to get 75% of the arbitration award in case of construction projects that were facing disputes.

National Highways Authority of India (NHAI) alone is to clear claims of over Rs 50,000 crore to road developers, despite the government agency losing cases in arbitration. The amount could easily top Rs 1 lakh crore if the claims related to railways and power are included, officials told TOI.

While a policy had been put in place three years ago, the awards are still not being made as the government agencies insist on bank guarantees equal to the 75% payout. Now, the finance ministry has moved a cabinet note to do away with this contentious issue, which companies said is resulting in payments being held back.

For companies, there is the additional issue of banks levying interest on the amount that is under dispute. Government officials said the finance ministry has suggested that the interest burden should be borne by the agency that holds back payments, a move that will put the burden on NHAI, railways and the power sector PSUs.

Payment to these companies will not only increase liquidity in the system but will also help some of the companies repay loans to banks. Several construction companies have turned NPAs as disputes with the government agencies have lingered on for years.

Till February, NHAI had not paid claims in 25 out of the 78 cases where the arbitration award was in favour of the contractors, who have been unable to submit bank guarantees. In some cases, the highway developers have been waiting for more than two-and-a-half years to get the guarantee.

Till February end, the NHAI had released nearly Rs 2,660 crore to road builders under this mechanism.Industry insiders said the 75% payment scheme has not been successful since the Indian Bank Association (IBA) came out with stringent guideline for giving bank guarantee.

“Initially, only a couple of big companies got the benefit. Banks got reluctant to give bank guarantee until they had 100% margin for such payments. So, now even reputed firms are unable to get the bank guarantee. Smaller developers have hardly got any benefit. We have suggested to banks that they should take into account of the projects being undertaken by a developer in any state while giving the bank guarantee,” said P C Grover, director general of NH Builders Federation.

Shailesh Pathak, CEO of L&T IDPL said, “Banks would need to issue quick bank guarantees without insisting on undue margin for such payments against arbitration awards.” Sources said the infrastructure major had received 75% advance in two cases. But banks require 100% margin — which ties up the entire amount, hence there is hardly any real gain.

Industry sources said the IBA needs to change this to 25% margin or 50% margin for bank guarantee against such payments received from government or Central Public Sector Enterprises such as NHAI, NTPC, NHPC and Railways.
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