Road ministry to end disputes with contractors, unlock blocked investments

The one-time settlement scheme for the roads and highways will be applicable for settlement of disputes involving only the National Highways Authority of India and National Highways and Infrastructure Development Corporation Ltd. (Photo: Bloomberg)
The one-time settlement scheme for the roads and highways will be applicable for settlement of disputes involving only the National Highways Authority of India and National Highways and Infrastructure Development Corporation Ltd. (Photo: Bloomberg)

Summary

  • The ministry has fixed two cut-of dates to be eligible for settlement: arbitration awards up to 30 September, 2023 and court awards up to 31 December, 2023

New Delhi: The ministry of road transport and highways has launched a one-time settlement scheme to end a backlog of contractual disputes blocking much-needed capital for the roads sector.

It is modelled on marquee Vivad Se Vishwas scheme that aims to settle contractual disputes involving the government and its undertakings.

The ministry has fixed two cut-of dates to be eligible for settlement: arbitration awards up to 30 September, 2023 and court awards up to 31 December, 2023.

Claims under the scheme can be submitted up to 31 March, 2024 through the government e-marketplace (GeM), for which the portal will provide a dedicated link.

According to an official aware of the development, the scheme will be applicable for settlement of disputes involving only the National Highways Authority of India (NHAI) and National Highways and Infrastructure Development Corporation Ltd (NHIDCL).

The scheme will cover all domestic contractual disputes where one of the parties is either the Union or an organization working under it.

Some 400 disputes between government agencies and contractors, involving a substantial sum of money, are stuck in arbitration and courts, the official quoted above said.

Quer iessent to MoRTH remained unanswered at press time.

MoRTH expects the scheme to help speed up resolution of disputed cases, unlocking investments for building roads and highways.

“The MoRTH scheme will result in clearing some backlog of disputed cases in the sector but the amount permitted for settlement cannot resolve all disputes, particularly high value ones that are often also stuck on account of litigations involving policy matters," said P.C. Grover, director general, National Highways Builders Federation (NHBF).

Under the scheme, in the case of court awards, the settlement amount offered to the contractor will be up to 85% of the net amount awarded or upheld by the court. It will be 65% of the net amount in cases of arbitral awards.

“There are various fundamental aspects that the scheme needs to address before it could be extensively used for settlement of disputes. Just by extending time, there would not be much of an impact," said an official from one of the big four audit and consultancy firms on condition of anonymity.

Vivad Se Vishwas scheme II was announced by finance minister Nirmala Sitharaman while presenting budget proposals for FY24. It was launched by the finance ministry in August.

MoRTH had urged the finance ministry to extend the eligibility criteria of awards (court and arbitral) citing the large number of disputes in the ministry and its subordinate organizations on orders passed after the finance ministry's eligibility dates.

Officials aware of the matter said the finance ministry while extending the date of submission under its scheme, advised MoRTH that it was free to launch a similar scheme.

Accordingly, after careful consideration the ministry has decided to implement a one-time settlement scheme on the same principles and provisions as Vivad se Vishwas-ll to resolve contractual disputes.

Highway construction has been slowing over the past couple of years and has progressed at a sluggish pace in FY24. In the first 10 months of the current fiscal year, only 7,658 km of highways had been constructed, falling well short of the 13,800 km target.

The pace of road awards is even slower, with only about 3,481 km awarded in April-January, compared with over 8,400 km a year ago. The target for awards this year is 12,500 km.

Delays in approving revised cost estimates for Bharatamala Phase 1 projects also impacted highway awards, while a significant portion of contractors’ and builders’ liquidity is tied up in disputes. According to a report by SBI Caps, national highway awards saw a subdued first half, though there was an uptick in September, with awards in Q2 closing only 6% up from a year ago.

Awards might decline compared with FY23, to 10,500 km in FY24, below the target set by MoRTH.

Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
more

MINT SPECIALS

Switch to the Mint app for fast and personalized news - Get App