BHEL is pulling out all stops to recover arbitral awards worth ₹1,500 crore

The recovery is important as BHEL plays a key role in the country's strategic sectors, such as aerospace and defence.
The recovery is important as BHEL plays a key role in the country's strategic sectors, such as aerospace and defence.

Summary

  • BHEL is accelerating its efforts to ensure that these awards, which were in favour of the company, are collected as soon as possible

NEW DELHI : State-run industrial equipment manufacturer Bharat Heavy Electricals Ltd (BHEL) is pulling out all stops to secure arbitral awards worth nearly 1,500 crore, which is about 15x the company's September quarter net profit.

BHEL is accelerating its efforts to ensure that these awards, which were in favour of the company, are collected as soon as possible, according to two people close to the matter.

The payment of most arbitral awards, accumulated between 2018 and 2022, has been delayed due to appeals and legal challenges. Some awards were delayed due to the winding up of parties who were mandated to pay, and a few were stuck in the enforcement procedure in courts.

In 2018, BHEL won an arbitral award worth more than 830 crore, but the payer went under liquidation, according to the parliamentary committee report cited above. BHEL was declared as a secured creditor of the payer, but legal tiffs between BHEL and the liquidators led to the issue being challenged till the apex court, where the matter is stuck currently. Another case from 2019, worth over 223 crore is still pending before the Karnataka High Court as the arbitral award was challenged by the payer.

Also Read | Can BHEL reclaim its crown?

"There is constant oversight on this issue, and all developments related to these matters are being monitored. All possible methods are being used to recover these dues," said one official on the condition of anonymity.

The recovery is important as BHEL, which marked a turnaround in recent quarters on the back of demand for boilers and railway equipment, plays a key role in the country's strategic sectors, such as aerospace and defence. 

BHEL received orders worth nearly 78,000 crore in 2023-24, the most in a fiscal year. This was a threefold jump from 2022-23's orders worth 23,548 crore and nearly seven times higher than 2020-21's 11,470 crore.

In the September quarter (Q2, 2024-25), BHEL reported a net profit of over 96 crore, compared to a loss of over 200 crore in the year-ago period.

The government owns about 63.17% of BHEL, while the public holds the remaining 36.83%. 

Strategic PSU

Mint reported on 19 January that BHEL may be off the government's disinvestment list and may be given the "strategic PSU" status following a parliamentary committee nudge.

In its December report, the Committee on Public Undertakings noted that BHEL had significant receivables from arbitral disputes and urged the company to resolve them expeditiously.

"Delayed arbitral awards are a key issue for the company and the government, and efforts are underway to fast-track the recovery process. There have been a few review meetings also about this... hopefully, the recovery of these dues will gain pace," said the official.

The parliamentary committee also noted that BHEL had approximately 118 unresolved commercial contract disputes valued over 10 crore in arbitration at the end of 2021-22. 

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Taking cognisance of claims and counterclaims related to BHEL, the committee said that at the end of 2022-23, BHEL had filed claims amounting to more than 12,000 crore but had received counterclaims worth twice that amount in arbitration cases.

BHEL should "expeditiously resolve these cases, collaborating with the administrative ministry wherever necessary, and explore alternative dispute resolution methods, too", the panel suggested.

BHEL's recovery is also integral as India looks to bolster local production of industrial equipment across sectors, including renewable energy and defence. The company—having forayed into electric mobility and nuclear and renewable power—has seen its fortunes revive with large thermal power and railway equipment orders.

Arbitration cost

Alternative dispute resolution methods include arbitration and mediation, where both parties argue before a mutually agreed upon arbitrator or mediator. 

While arbitration is more adversarial, ending in one party winning and the other losing, mediation involves parties coming to a common consensus over a dispute.

Arbitration between public sector undertakings (PSUs) and private parties has been a cause for concern for years, as such disputes are an expensive affair for the biggest disputant in the country—the government.

The Union finance ministry also took action against this issue in June 2024, when it published an advisory asking all government entities to reduce their exposure to arbitration and pursue mediation or litigation instead, as arbitration was putting a dent in the public purse.

Read this | BHEL's fortunes poised for revival as order book fills up on demand for coal-fired power

In the 2019 case of Hindustan Construction Co. Ltd versus the Union of India, private contractors claimed upwards of 6,000 crore from the government as PSUs had failed to pay arbitral awards, leading to many businesses winding up. 

The Union government then said this figure was overstated. However, the government also admitted that PSUs had paid private contractors over 3,000 crore in arbitration dues from 2008 to 2019.

The finance ministry also disclosed to the Lok Sabha in July 2024 that as many as 60% of arbitrations undertaken by PSUs such as National Highways Authority of India Ltd and NTPC Ltd ended up being challenged or appealed, leading to extra costs.

BHEL shares closed at 206.15, up 0.44% on 23 January.

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