‘Govt departments do not allow arbitration to work’

S Shanker | Updated on June 10, 2014

Neerav Parmar   -  PAUL NORONHA

Builders’ Association leader Neerav Parmar talks about the perils of state-awarded contracts

The Builders’ Association of India is looking forward to an amendment in the Arbitration Act, which makes institutional arbitration mandatory for state-awarded contracts. (Institutional arbitration is by specialised institutions, which administer the arbitration process.)

The proposal for this had been initiated about three years ago when Veerappa Moily was the Law Minister, said Neerav Parmar, Chairman, Mumbai Centre, BAI.

Parmar, who leads a 750-member association, told BusinessLine in an interview that 20-30 per cent of his fraternity had moved to real estate development, as Government works were no more lucrative. Parmar is also a Senior Vice-President of the Indian Institution of Technical Arbitrators. Edited excerpts:

What is the amount stuck up in arbitration relating to both State and Central Government contracts?

Regarding the NHAI (National Highways Authority of India), as on March 31, 2013, there were 135 pending cases before the Arbitral Tribunal, involving ₹8,658 crore claimed by contractors and ₹1,065 crore by the NHAI.

There were 79 cases pertaining to the challenge of Arbitral Awards in various courts amounting to ₹2,305 crore claimed by the contractors and ₹99 crore by the NHAI.

Likewise, each department such as the Central Public Works Department, the Military Engineering Services and Railways should be having sizable amounts in arbitration alone.

In Maharashtra, for example, ₹4,000-6,000 crore is being locked up annually in litigation relating to State Government contracts.

What are the main reasons for disputes?

There are many reasons, sometimes payments are not made in time. Necessarily, the contractor should be compensated totally which rarely happens. The tender will say you should go two metres deep. However, when the work begins, you have to go four metres.

The reason is insufficient data provided at the time of tendering. The contractor gets payment for going four metres deep, but for the machinery and labour deployed, it would run into a dispute.

In every contract, there has to be a dispute. I have not seen one going on smoothly in my 28-year career.

Ultimately, it all depends on the contractor and the officials. Some genuine minor lapses could be accepted and contractors can be given a concession.

What are the issues relating to the arbitration process with Government departments?

Government departments are not allowing it to work.

Tenders have the arbitration clause for speedy redressal. It’s a tribunal set up. Tenders also have the provision that one can choose arbitrators.

However, what happens is that many Government departments do not allow you to appoint arbitrators. Instead, they will offer you a panel comprising serving officers of the department.

So, the bias is there at the first instance. The Railways arbitration is almost a farce.

More importantly, our major concern is that the very appointment of arbitrators does not happen quickly.

Government departments take their own time to appoint arbitrators. The remedy for the contractor is to go to court.

The Railways, the NHAI and the Military Engineering Services offer a panel of arbitrators from their side and ask the contractors to choose one. However, the process does not end here. Depending on the matter and the time they get, they take a year or two.

Finally, after two-and-a-half years, the award is given. And, if it is against the Government, it gets challenged. There is an unwritten rule (especially in the Railways) that if an abnormal award is given, then the official who gives the order is pulled up by the vigilance.

To be fair, there is a flipside to this. Earlier, many awards went against the Government due to connivance between the arbitrators and contractors.

However, the scene now is so bad that they will not clear the order.

Of late, some departments have started removing the arbitration clause altogether from the tenders.

Published on June 10, 2014

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