In a bid to revive the stuck construction and real estate projects, the Cabinet on Wednesday approved an array of measures to help quickly resolve disputes, pump in liquidity and deal with stressed assets.
The Cabinet, chaired by Prime Minister Narendra Modi, allowed contractors to move to the speedier arbitration process. In addition, he approved release of 75 percent of the amount in dispute against bank guarantee.
The Prime Minister also provided for a conciliation board comprising of independent domain experts in new contracts.
Finance Minister Arun Jaitley said the construction sector contributes 8 percent of the GDP and provides employment to some 40 million people in the country.
There are various challenges before the construction sector and the government has been trying to improve upon the functioning of the construction sector. We have simplified arbitration law so that the process of dispute redressal could be made easier. We have also allowed establishment of commercial court.Arun Jaitley
Arun Jaitley also said that the Cabinet has decided to give the option for shifting of disputes between public bodies and contractors to the new arbitration act from old arbitration act.
Also, during the pendency of an arbitral award being challenged by the public body, 75 percent of the amount will be released to the contractor against a bank guarantee. The amount so released will have to be spent on discharging liabilities towards bank and financial institutions and any money left shall be used in the projects. This move will infuse the much needed liquidity in the sector added Jaitley.
In new contracts, there will be a provision for a conciliation board consisting of an independent domain expert who will enter into contractual negotiations if there are changes in commercial circumstances around the project.
Besides, the item rate contract will be replaced by turnkey contract and a model draft turnkey contract will be circulated.
The Department of Financial Services under Jaitley’s Ministry and the Reserve Bank of India will prepare a policy to “deal with those companies which have lot of stressed assets in the construction sector,” Jaitley said.
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