In a bid to revive the stuck construction and real estate projects, the Union 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 new, speedier arbitration process, approved the release of 75 per cent of the amount in dispute against bank guarantees and provided for a conciliation board comprising independent domain experts in new contracts.
Finance Minister Arun Jaitley said the construction sector contributes 8 per cent 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 its functioning," he said.
"We have simplified arbitration law so that the process of dispute redressal could be made easier. We have also allowed the establishment of commercial court," Jaitley added.
The Cabinet, he said, decided to give an option for shifting of disputes between public bodies and contractors to the new arbitration act from the old one.
Also, during the pendency of an arbitral award being challenged by the public body, 75 per cent 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 into the sector, he said.
Jaitley said in new contracts, there will be a provision for a conciliation board consisting of independent domain expert who will enter into contractual negotiations if there are changes in the commercial circumstances around the project.
Besides, item rate contract would 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 a lot of stressed assets in the construction sector," he said.
These measures will pump in liquidity as well as activate the stranded projects, he said.
