New Delhi: Seeking to revive construction and real estate sectors, the Cabinet on Wednesday approved an array of measures including easing of rules for quicker settlement of disputes, pump in liquidity and reinvigorate stalled projects.
It allowed transfer of cases initiated under the old Arbitration Act to the new and expeditious dispute resolution law, approved release of 75 per cent of the amount in dispute against bank guarantee and provided for a conciliation board comprising of independent domain experts in new contracts.
Also, Department of Financial Services in the Finance Ministry and the Reserve Bank of India (RBI) will consider giving one-time scheme for stressed bank loans in the sector.
Briefing reporters after the meeting of the Cabinet, Finance Minister Arun Jaitley said the construction sector accounts for 8 per cent of the GDP and provides employment to some 40 million people in the country.
The banking sector’s exposure to the construction sector currently stand at over Rs 3 lakh crore, and 45 per cent or Rs Rs 1.35 lakh crore of the loans are under stress.
“We hope that a series of these decisions will pump in a lot of liquidity into the sector, activate real estate and infrastructure projects which have been stranded for sometime and support the entire process of dispute resolution in relation to construction and real estate,” Jaitley said.
An official statement said that a key factor behind the difficulties facing the construction sector is the pendency of claims from Government bodies.
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 of which 11 per cent is pending with the government agencies, 64 per cent with arbitrators and 8.5 per cent with courts.
The contractors have also been allowed to shift “with consent” their pending disputes with public bodies to the new arbitration procedures, from the old arbitration act.
This will ensure a “cheaper and a quicker fast track” arbitral process, Jaitley said.
An average settlement time for claims is estimated at more than seven years. Where arbitral awards have been made and public bodies are challenging them, in those cases against a margin-free bank guarantee being given by the contractor, 75 per cent of the arbitration amount will have to be released to the contractor.
This 75 per cent of the amount will have to be spent by the contractor in completing the project and in discharging the bank and financial institutions dues. The surplus can be spent on further expansion of his projects.
“There are various challenges before the construction sector and the government has been trying over the last year to improve upon the functioning of construction sector. We had simplified the arbitration law…so that the process of dispute redressal can be made easier,” Jaitley said as he outlined the five decisions taken by the Cabinet. (PTI)
