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Relief To Contractors: In Cases Of Arbitration, 75 Percent Of The Disputed Amount Will Be Paid By Taking Bank Guarantee

Agency, New Delhi.

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

Summary

According to the CCEA, to give relief to the construction sector facing capital crisis, the Department of Expenditure has also added a new rule 227A in the General Finance Rules. The CCEA had prepared a proposal in this regard in November 2019 itself, on which rules have now been made.

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

According to the CCEA, to give relief to the construction sector facing capital crisis, the Department of Expenditure has also added a new rule 227A in the General Finance Rules. The CCEA had prepared a proposal in this regard in November 2019 itself, on which rules have now been made. The Department of Expenditure, which comes under the Ministry of Finance, said in an order issued on October 29 that if any ministry or department challenges the decision of the arbitration award and the amount involved is not paid, then the concerned department or ministry can take bank guarantee from the contractor. may pay 75% of the amount involved in the judgment. Along with this, interest will also be given on the outstanding amount till the final decision is taken. The contractor will also have to give a bank guarantee only for 75% of the amount to be paid.

The amount will be used to pay the loan and complete the construction, the amount will be sent to the escrow account
For payment, contractors will have to open escrow accounts subject to certain conditions and the proceeds will first be used to clear the dues of the lenders. 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, then before using it, permission will have to be taken from the bank and the ministry or the department concerned. Any amount withheld by the contractor can be given by taking bank guarantee.

NPA burden increasing due to pending decisions
The CCEA said that government departments will have to take the opinion of the Attorney General, Solicitor General or Additional Solicitor General before challenging the arbitration decisions. Right now, disputes take years to settle with arbitration decisions being challenged. This not only hangs the construction project in limbo, but also increases the burden on the balance sheets of the banks and increases the NPAs. The CCEA has also consulted NITI Aayog on this matter and has agreed to release 75 per cent of the amount included in the judgment in lieu of bank guarantee.

Expansion

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

According to the CCEA, to give relief to the construction sector facing capital crisis, the Department of Expenditure has also added a new rule 227A in the General Finance Rules. The CCEA had prepared a proposal in this regard in November 2019 itself, on which rules have now been made. The Department of Expenditure, which comes under the Ministry of Finance, said in an order issued on October 29 that if any ministry or department challenges the decision of the arbitration tribunal and the amount involved is not paid, then the concerned department or ministry can take bank guarantee from the contractor. may pay 75% of the amount involved in the judgment. Along with this, interest will also be given on the outstanding amount till the final decision is taken. The contractor will also have to give a bank guarantee only for 75% of the amount to be paid.

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

For payment, contractors will have to open escrow accounts subject to certain conditions and the proceeds will first be used to clear the dues of the lenders. 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, then before using it, permission will have to be taken from the bank and the ministry or the department concerned. Any amount withheld by the contractor can be given by taking bank guarantee.

NPA burden increasing due to pending decisions

The CCEA said that government departments will have to take the opinion of the Attorney General, Solicitor General or Additional Solicitor General before challenging the arbitration decisions. Right now, disputes take years to settle with arbitration decisions being challenged. This not only hangs the construction project in limbo, but also increases the burden on the balance sheets of the banks and increases the NPAs. The CCEA has also consulted NITI Aayog on this matter and has agreed to release 75 per cent of the amount included in the judgment in lieu of bank guarantee.

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