New norms to ease funds flow in construction

KOZHIKODE, 12/05/2011: A view of 'HiLITE' Metromax, one of the first residential projects to be commissioned from the stables of ‘HiLITE’ Builders, on the Thondayad bypass in Kochi on May 12, 2011. Metromax is one of the biggest residential projects in north Kerala, with a builtup space of 5 lakh sq.ft and a common amenities area of 50,000 sq.ft. The 272 customised apartments have novel features such as a special department to take care of cleaning, laundry, and waste management. The facilities include a swimming pool, tennis and basketball courts, a party hall, a children’s play area, a yoga centre and a jogging track on the first floor. Photo: K. Ragesh

The Cabinet approved new arbitration norms to ease liquidity in the ailing construction sector and re-start stalled projects. The norms were proposed by the government think-tank Niti Aayog.

As per the new norms, in cases where arbitral awards have been made but challenged, the government agencies and public bodies will have to release 75 per cent of the amount against margin-free bank guarantee. This amount, Finance Minister Arun Jaitley said, will be used by contractors to complete projects and in discharging the dues of bank and financial institutions.

‘Major step’

“This will allow recovery of loans by banks and allow construction companies to speed up execution of ongoing projects,” according to an official statement. It added the norms would increase the ability of construction companies to bid for new contracts. The resulting competition would help contain the cost of public works.

Mr. Jaitley said wherever there were disputes pending between public bodies and construction contractors under the old arbitration act, there would now be an option, with consent, to transfer to the amended Arbitration Act which has an expedited procedure.

Conciliation committees

The new norms also allow setting up of Conciliation Committees by all government bodies issuing public contracts, to ensure speedy disposal of pending or new cases.

Also, Department of Financial Services in the Finance Ministry and the Reserve Bank of India (RBI) will consider giving a one-time scheme for stressed bank loans in the sector.

An estimated Rs.70,000 crore is tied up in arbitration. Over 85 per cent of the claims raised against government bodies are still pending.