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Centre takes stock of piling arbitration dues

Looks at early resolutions to salvage infrastructure projects

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The government wants to free up funds stuck in long-drawn arbitration proceedings which would help ease up liquidity crunch faced by the private sector engaged in executing infrastructure projects.

Disputes between the various departments of government and private sector executors of infrastructure projects have landed in arbitration proceedings, which the government wants to be settled at the earliest.

"The government has undertaken a survey of the overdue amount to the construction, manufacturing and service sectors due to ongoing arbitration, award amount not being paid or challenged in courts and other delayed payments which is impacting the cash flows in these sectors," said a communication from the Railway Board earlier this month. The letter also asked zonal offices of the department to review all arbitration cases for an early solution.

However, Railways form just a fraction of such disputes. Roads, power and ports together account for most of the arbitration proceedings between the private and the public sector, holding back thousands of crores of rupees that would otherwise have been pumped into infrastructure projects across the country.

“It is now government's stated stance of not getting into long-tenure disputes and settle claims as per award of arbitration so that further investments can come into the road sector," an executive at a road portfolio company said.

Perhaps the biggest arbitration case which recently got settled in the favour of private sector is the dispute involving power producer NTPC. The state-owned firm has been ordered to pay up Rs 2,015 crore plus interest and applicable taxes to JITF Ltd.

The dispute involved a unique project for transportation of coal through inland waterways to NTPC's thermal power plant at Farakka in West Bengal. “The arbitration was relating to the dispute arising out of transhipment of coal in high-seas from ocean-going vessels to transhipper or barges and transportation of such unloaded coal via National Waterway 1,” said Nilava Bandyopadhyay, senior partner at Singh & Associates, the law firm that handled the private party.

Another arbitration award in the power sector that went in the favour of the private sector was that of SPML Infra, which has won Rs 47.50 crore against Jharkhand Urja Utpadan Nigam.

“The need for the arbitration arose due to cost overrun during construction, delayed payment and additional expenses incurred due to delay, and claims of the company were upheld by the arbitrator. The proceedings of the arbitration were held for five years starting 2013 and all pleadings and arguments by both the parties were completed in 36 sittings,” an official of SPML said.

Road sector accounts for quite a large number of disputes. A look at National Highways Authority of India's (NHAI) books reveals that the highways developer has contingent liabilities in the form of 1,014 arbitration cases and 730 court cases involving Rs 55,345 crore.

One such case was the dispute between Gwalior Bypass Project Ltd and NHAI, pertaining to the construction of a four-lane bypass on NH-75 in Madhya Pradesh on the build-operate-transfer-annuity basis.

The tribunal in its final award held that NHAI has majorly contributed towards the delay in handing over the land and right of the way and had, therefore, breached the terms of the concession agreement and awarded Rs 500 crore in favour of Gwalior Bypass Project.

“While the number of parties resorting to arbitration for dispute resolution is slowly increasing, multiple hurdles are being faced including difficulties in the constitution of independent and impartial arbitral tribunal due to lack of professional arbitrators, lack of effective infrastructure for conducting arbitration and lack of uniformity arising from varied perspectives of the High Courts in India regarding the objections filed under Section 34 of the Arbitration and Conciliation Act as per local conditions prevalent in each state,” said Bandyopadhyay.

Also, due to the lack of awareness about alternative dispute resolution mechanisms, arbitration proceedings often tend to devolve into court proceedings where adjournments are regularly granted.

But there have been some developments.

The Lok Sabha in January passed the New Delhi International Arbitration Centre Bill 2018 which proposes to establish an international arbitration centre at New Delhi, replacing the International Centre for Alternative Dispute Resolution set-up in 1995.

“The Supreme Court has been taking steps for quicker resolution of cases arising under the purview of Section 34 of the Arbitration & Conciliation Act. In addition to that, the current practice of the apex court has been to mostly dismiss the petition arising out of arbitration proceedings and not to interfere with award pronounced by the arbitral tribunal unless there is patent illegality or conflict with the public policy of India,” Bandyopadhyay said.

BIG AWARDS

  • Rs 2,015 cr – Plus interest and applicable taxes NTPC has been ordered to pay to JITF 
     
  • Rs 47.50 cr – SPML Infra has won against Jharkhand Urja Utpadan Nigam
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