Relief for contractors: in arbitration cases, 75 percent of the amount in dispute will be paid by bank guarantee


Agency, New Delhi.

Published by: Yogesh sahu
Updated Wed, Nov 10, 2021 05:22 AM IST

Summary

According to the CCEA, to provide relief to the construction sector facing a capital crisis, the Department of Expenditures has also added a new rule 227A in the General Finance Rules. The CCEA had prepared a proposal in this regard in November 2019, on which standards have already been established.

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The government has developed new rules to complete stagnant projects in the construction sector and provide capital for projects. After the approval of the Cabinet of Economic Affairs of the Union (CCEA), it has been decided that if the decisions of the Arbitration Tribunal are challenged, 75% of the amount in dispute will be paid by bank guarantee to the construction sector contractors.

According to the CCEA, to provide relief to the construction sector facing a capital crisis, the Department of Expenditures has also added a new rule 227A in the General Finance Rules. The CCEA had prepared a proposal in this regard in November 2019, on which standards have already been established. The Department of Expenditures, which depends on the Ministry of Finance, said in an order issued on October 29 that if any ministry or department disputes the decision of the arbitration award and the amount involved is not paid, then the department or ministry in question can take Contractor’s bank guarantee.You can pay 75% of the amount involved in the judgment. Along with this, interest will also be given on the outstanding amount until the final decision is made. The contractor must also give a bank guarantee only for 75% of the amount to be paid.

The amount will be used to pay off the loan and complete the construction, the amount will be sent to the escrow account
For payment, contractors will need to open escrow accounts subject to certain conditions and the proceeds will first be used to offset lenders’ fees. The funds will then be used to complete the project and start a new project. Even after this, if the amount remains in the account, before using it, the permission of the bank and the corresponding ministry or department must be requested. Any amount withheld by the contractor can be granted by bank guarantee.

Increased NPA burden due to pending decisions
The CCEA said government departments will have to take the opinion of the Attorney General, Attorney General or Additional Attorney General before challenging arbitration decisions. Right now, disputes take years to resolve and arbitration decisions are contested. This not only leaves the construction project in limbo, it also increases the burden on bank balance sheets and increases NPAs. The CCEA has also consulted NITI Aayog on this matter and has agreed to release 75 percent of the amount included in the judgment in lieu of bank guarantee.

Expansion

The government has developed new rules to complete stagnant projects in the construction sector and provide capital for projects. After the approval of the Cabinet of Economic Affairs of the Union (CCEA), it has been decided that if the decisions of the Arbitration Tribunal are challenged, 75% of the amount in dispute will be paid by bank guarantee to the construction sector contractors.

According to the CCEA, to provide relief to the construction sector facing a capital crisis, the Department of Expenditures has also added a new rule 227A in the General Finance Rules. The CCEA had prepared a proposal in this regard in November 2019, on which standards have already been established. The Department of Expenditures, which depends on the Ministry of Finance, said in an order issued on October 29 that if any ministry or department disputes the decision of the arbitration award and the amount involved is not paid, then the department or ministry in question can take Contractor’s bank guarantee.You can pay 75% of the amount involved in the judgment. Along with this, interest will also be given on the outstanding amount until the final decision is made. The contractor must also give a bank guarantee only for 75% of the amount to be paid.

The amount will be used to pay off the loan and complete the construction, the amount will be sent to the escrow account

For payment, contractors will need to open escrow accounts subject to certain conditions and the proceeds will first be used to offset lenders’ fees. The funds will then be used to complete the project and start a new project. Even after this, if the amount remains in the account, before using it, the permission of the bank and the corresponding ministry or department must be requested. Any amount withheld by the contractor can be granted by bank guarantee.

Increased NPA burden due to pending decisions

The CCEA said government departments will have to take the opinion of the Attorney General, Attorney General or Additional Attorney General before challenging arbitration decisions. Right now, disputes take years to resolve and arbitration decisions are contested. This not only leaves the construction project in limbo, it also increases the burden on bank balance sheets and increases NPAs. The CCEA has also consulted NITI Aayog on this matter and has agreed to release 75 percent of the amount included in the judgment in lieu of bank guarantee.


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