The Committee headed by Sh.  B.K. Chaturvedi Committee, looking into the issues pertaining to the development of National Highways has submitted its second report to the Government

The summarized recommendations made by Sh. B.K. Chaturvedi Committee are as follows:

DISPUTE RESOLUTION MECHANISM

A. On-going Cases

  1. One time settlement of pending disputes may be offered to contractors adopting a bucket –based approach to drop all category A cases (amount claimed is less than Rs. 10 crores or 5% of contract price whichever is lower) after a review on case to case basis by an Independent Expert Group (IEG) with eminent representation comprising of say a retired Dy.C&AG, a former Vigilance Commissioner and a retired Senior Officer of the Law Ministry, besides a Technical Expert. The IEG’s opinion may be sought by the Variations Committee in all cases where the Tribunal Awards have already been published and appeals are pending in various Courts, and on selective basis in respect of cases pending decision by Arbitral Tribunals. The net likely benefit from withdrawal of pending NHAI references to Arbitral Tribunals in all category-A cases is estimated at Rs. 6.5 crore.
  2. In particular, where the decisions have been similar and unanimous both in the DRB and AT stages, the appeals pending in the various Courts may invariably be withdrawn.  In 86 disputes (27 packages) of category-A both the DRB and the AT recommendations have been unanimous.
  3. Once a decision is taken by NHAI, in consultation with the contractor, to drop further proceedings, the reference to Arbitral Tribunal may be withdrawn in terms of section 30 of the Arbitration Act. 196 cases pending before Arbitration Tribunals could potentially be dropped on this basis.
  4. One-time settlement shall not imply that the ratios forming the basis of the DRB recommendations or the Arbitral Awards, as the case may be, are also being accepted as binding.
  5. Notwithstanding this settlement, it will entirely be open to NHAI to contest the underlying issues of principle, in all other pending or future cases not covered by this settlement.  The binding decisions of the Courts, if any, shall govern all such other cases.
  1. NHAI may carefully review the references/appeals to determine and pay off the part of the award, which is acceptable to NHAI. NHAI may also review the references/appeals to determine and pay-off the part of the Award which is acceptable to NHAI. The references/ appeals may, in such cases, be restricted only to issues and amounts where NHAI has a strong case for non-acceptance on merits. In general, award of Arbitral Tribunal may be accepted in category “B” cases (where, amount involved is between Rs. 10 Crores to Rs. 100 Crores), particularly in cases where the unanimous decision at DRB level is upheld by the Tribunal.
  1. As regards Category-“C”  cases (where, amount involved is beyond Rs. 100 Crores), considering substantial amount involved, NHAI may carefully consider the award of Tribunal before challenging in the Court.  NHAI may take up with the Arbitral Tribunal/Court for early hearing and disposal of all pending cases. These measures would enable significant savings in interest payment.
  1. In view of the long time taken by the Tribunals to decide issues (on an average of 2-3 year time span, after 70-80 sittings), fast tracking and early disposal of decisions by Arbitral Tribunals may be incentivized by way of a flat fee to the Tribunal Members.

B. Future cases

(i)  The DRB recommendations should invariably be accepted, at least in the smaller categories [Category-A] cases, except where the reviewing authority has strong justification to appeal against such recommendations. However, accountability and credibility of the DRB recommendations may be ensured by way of a test check in say 5% of cases by a technical team led by a Member who has not been part of this decision making process.

(ii) The time limit for the DRB to issue its recommendations may be raised from 56 days to 84 days in line with time-limit prescribed under the corresponding provisions in the FIDIC conditions1. The time limit for referring the DRB recommendation to Arbitration may also be raised from 28 days to say 60 days, to enable NHAI to take a considered decision on acceptance/challenge of the DRB recommendations;

  1. The appeals filed on the basis of the decisions by the Variations Committee may be periodically monitored and reviewed by MoRT&H inter alia regarding whether the strong reasons recorded for non-acceptance of DRB recommendations have been upheld by the Arbitral Tribunal;
  2. Review of DPR may be made more intensive. Where the DPR is deficient in providing the correct estimate of inputs, and deviate by more than say 10%, PLI may be mandatorily invoked;
  3. Cost associated with time extensions may be duly quantified. Where extension is granted on the grounds of non-availability of any stretch of land, it is imperative that the compensation should be limited only to such stretch and not across the entire project.

Both the General Conditions and COPA may be standardized at least for adoption in future awards. In particular, the following specific areas need greater clarity and attention:

  1. Scope of Independent Engineer: FIDIC places great reliance on the Engineer both in terms of supervision and first level adjudication of disputes. This role of the Engineer is being internationally accepted and there is no reason not to adopt a similar role for the Engineer in India. However COPA of NHAI deviates from the spirit of FIDIC conditions, introducing elements substantially diluting the role and authority of the Independent Engineer. This may be reviewed and the international practice of giving greater authority to the Engineer may be restored.
  2. In any case, NHAI also appoints a Project Director (PD) for each project and the PD is expected to take adequate care of NHAI interests even at the time of contract management. However, while recommending this enhanced role for the Engineer, the Committee noted that the matter is also under discussion separately with the Department of Expenditure. It was also acknowledged that care should also be taken to keep within the principles laid down in the General Financial Rules;
  3. In particular, it is necessary to clearly specify the scope of compensation for price escalation (particularly as several disputes have arisen in respect of whether price escalation includes changes in taxes/royalty, etc.);
  4. For BOQ items, a uniform rate may be prescribed irrespective of the amount of variation to bring about certainty in valuation method. The present ceiling of 25% beyond the specified quantity for applicability of the bid rate may be dispensed with;
  5. Broad guidelines for determination of non-BOQ rates may be specified. The major (say 5 or 6 nos.) inputs for the non-BOQ items could be identified based on experience so far and the source or method of pricing along with price escalation mechanism for such inputs could be indicated. For e.g. the price of bitumen could be determined based on the nearest refinery gate price (with suitable adjustments);

C. FISCAL AND TAXATION RELATED ISSUES

  1. Though DDT exemption is available to all companies for one layer, i.e. between a holding company and subsidiary company, the non-optional policy-mandated extra layer in the form of a separate SPV company, effectively nullifies this benefit for the developer. Hence there is a case for grant of further DDT exemption for such policy-mandated tier in the corporate structure, i.e. between an infrastructure SPV and the holding company, where creation of such SPV is mandated by a concession agreement;
  2. The scope of ‘new’ infrastructure facility may be clarified in order to remove the ambiguity on whether 10-year tax holiday will be applicable to road sector widening and strengthening projects.
  3. The LLP structure may be permitted in road SPVs only after gaining more experience on the operational aspects of LLPs; and
  4. A moderation/reduction may be considered in the retention period prescribed for the customs duty exemption in respect of specified road construction equipment.

D. FINANCING ISSUES

  1. Various suggestions may be pursued by the Ministry of Finance through its existing dispensations including the Standing Committee on Infrastructure Finance. In particular, the takeout financing scheme should be operationalised at the earliest; and the issue of treating escrow and substitution agreements as valid security may be taken up with RBI for consideration.
  1. As regards infrastructure investments by insurance companies, the Committee observes that the problems mentioned need recognition for finding an appropriate solution. The Ministry of Finance may pursue the issues of relaxation in the minimum rating and the dividend payment history with IRDA, so as to enable larger long-term resource availability for infrastructure projects.
  1. As regards classification of loans to highway projects, the Committee has observed that the mere fact of there being no tangible collateral as in other loans may not be justification enough to classify these loans as ‘unsecured’. However, the Committee took note of the mention that substantial progress has already been achieved in the matter, and decided to ask the Ministry of Finance to pursue the matter to its logical end.

This information was provided by Shri R.P.N.Singh,  Minister of  State for Road Transport and Highways  in the Lok Sabha