India’s finance ministry has finally taken a long-pending decision with regards to making it easier for companies to get 75 per cent of the arbitration award in case of construction projects that were facing disputes.
Although a policy had been put in place three years ago, the awards are reportedly still not being made. This is because government agencies insist on bank guarantees equal to the 75 per cent payout. The Finance Ministry has now moved a Cabinet note to do away with this contentious issue, which as reported, is resulting in payments being held back for companies. Besides, companies also have an additional issue of banks levying interest on the amount under dispute.
The finance ministry has reportedly suggested the interest burden to be borne by the agency that holds back payments. This will then put the burden on NHAI, railways and the power sector PSUs.
Payment to these companies will help a few companies repay bank loans along with increase the liquidity in the system.