‘Amnesty scheme to resolve financial disputes only’
NEW DELHI: A one-time amnesty scheme announced in Budget 2023-24 to settle vexed litigation between government agencies and contractors is meant to resolve matters pertaining to financial disputes alone and not any performance-related issues, the finance ministry said on Monday.
“Disputes having only financial claims against the procuring entities will be settled through this scheme,” the finance ministry said in a draft note to stakeholders inviting their comments. “In case the dispute relates to or claim seeks specific performance of contract then such disputes will not be eligible for settlement through this scheme,” it said. Stakeholders can submit their comments by March 8.
The contractual dispute amnesty scheme – Vivad se Vishwas II – is expected to settle disputes worth over ₹1 lakh crore,
two officials aware of the development said, requesting anonymity. “It is a win-win for both the government and the vendor in terms of saving money and time,” one of them said.
“Statistics have shown that in cases where the arbitration award is challenged, a large majority of cases are decided in favour of the contractor. In such cases, the amount becomes payable with interest, at a rate
which is often far higher than the government’s cost of funds. This financial loss would be plugged,” a second official, citing details of the draft scheme, said. Contractors also benefit as their blocked money is released, which could be used to expand their business, he added.
Presenting the Budget in Parliament on February 1, finance minister Nirmala Sitharaman announced two amnesty schemes: Vivad se Vishwas I, which was to provide relief for micro, small and medium enterprises (MSMES) and Vivad se Vishwas II for settling contractual disputes.
The first scheme is to provide relief to MSMES. “In cases of failure by MSMES to execute contracts during the Covid period, 95% of the forfeited amount relating to bid or performance security, will be returned to them by government and government undertakings,” she said in her Budget speech.
The second scheme is to settle contractual disputes of government and government undertakings, wherein the arbitral award is under challenge in a court. “This will be done by offering graded settlement terms depending on the pendency level of the dispute,” she said.
The purpose is to push the ease of doing business agenda of the government and unlock the full investment potential as such cases hold back fresh investments, the officials mentioned above said. The scheme is also applicable to state-run financial institutions, autonomous bodies of the central government, central public sector undertakings, and all entities where the central government has shareholding of 50% and above, they said.
The draft scheme proposed a settlement amount up to 80% of the net amount (depending on types and stages of disputes) awarded to the contractor by the court.
“In case the court upheld arbitral award, fully or partially, as the case may be, interest as stipulated in the arbitral award will also be included till the date of the court order in amount awarded by court,” it said.
According to the draft proposal, the procuring entities will have an option not to accept the settlement request of the contractor in case the total claim amount exceeds ₹500 crore, but they have to cite the reasons for declining the request on the file.