Construction sector may get ₹50,000 crore liquidity push
1 min read 11 Nov 2021, 11:09 PM ISTThe finance ministry has directed all central govt agencies to release 75% of the award money to the contractor against a bank guarantee without prejudice to the final order of the court
PremiumNEW DELHI : The finance ministry has directed all central government entities to release 75% of the disputed amount—estimated at ₹50,000 crore in 600 projects under litigation—where contractors have won the arbitration but find their money blocked as government entities move appellate tribunals, two officials said.
The directive, issued by the finance ministry, will enforce the cabinet decision taken on 20 November 2019 to salvage the construction sector, which is facing a liquidity crisis, the officials said, requesting anonymity.
“In fact, it was a long-pending issue. It is one of the NITI Aayog’s proposals in 2016 to address problems faced by the construction sector. The Cabinet Committee on Economic Affairs (CCEA) had considered them in its meeting on 31 August 2016 and approved it," one of the officials said.
According to a NITI Aayog statement issued on 5 September 2016, it was decided that for such cases of claims where central government departments or state-run agencies had challenged arbitral awards, 75% of the award money would be paid to the contractor against a bank 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. Hence, the finance ministry on 29 October 2021 specified it as part of GFRs (general financial rules) dealing with arbitration awards," a second official said. GFRs direct the government and its agencies on matters related to public finance.
According to the amended GFR, the contractor is required to pay the bank guarantee for 75% of the arbitral award and not for the interest amount, he said.
“However, the contractor is not allowed to appropriate the amount as per his will. The payment will be made into an escrow account. The amount will first be used for payment of lenders’ dues, then for the completion of the project," he said.
The move is aimed at dissuading government agencies from filing “frivolous appeals" aimed at delaying payments to the contractor. “It is seen that government agencies eventually lose the majority of these cases in courts of law, but not without escalating project cost and time overrun," the first official said.
