Arbitration cases involving the National Highways Authority of India (NHAI) have been on a steady rise in recent years, according to the data provided in its annual reports. With many companies facing liquidity issues, the past one year has seen road firms filing more claims, monetising some of those, and seeking quick awards.
The NHAI’s latest available annual report, for FY18, shows the authority had 1,014 cases of arbitration —significantly higher from 125 in FY17 and 119 in FY16. The value of claims for FY18 was pegged at Rs 55,344 crore, as against Rs 42,074 crore in FY17 and Rs 30,071 crore in FY16. Data for FY19 was not available.
Companies such as Infrastructure Leasing & Financial Services (IL&FS) and Larsen & Toubro (L&T) have seen significant or quick awards and disbursal. Others like IRB Infrastructure have not received a single arbitration award in cases involving the NHAI.
“L&T IDPL has received 75 per cent advance against three arbitration awards that the NHAI has appealed against,” said a spokesperson for L&T.
The NHAI has also settled claims outside arbitration or courts. Such settlements help companies in repaying dues. “In April 2019, the NHAI and L&T IDPL concluded a settlement payment for a project that has been completed and handed back to the NHAI. Thereafter, bank loans have been repaid in full in May 2019," the spokesperson added.
Debt-ridden IL&FS also saw some relief in the form of arbitration awards. “We were paid Rs 550 crore in arbitration awards. Another Rs 550 crore we won in arbitration award is yet to be paid. Besides, claims to the tune of Rs 800 crore are still pending,” an official from the group said, requesting anonymity.
The Union government had asked its departments to speed up payments to IL&FS after the group landed in financial trouble last year.
In September 2018, a Rs 425-crore claim was cleared by a conciliation committee meeting of independent experts appointed by the NHAI in IL&FS’s Moradabad Bareilly Expressway project. Pune Sholapur Road Development Company and Jorabat-Shillong Expressway are two other projects where IL&FS and the NHAI are involved in arbitration. In the June 2019 quarter, IL&FS also filed a writ petition against the authority for a road project in Rajasthan.
Not all road developers have seen fast redressal. Bank guarantees remain a concern. “Some banks are asking for 100 per cent margins before issuing a BG (bank guarantee),” said an official. In 2016, the government passed a new policy to allow 75 per cent disbursal of the award money for arbitration, even if it is legally contested further. The disbursal requires the company to give a bank guarantee to the NHAI.
IRB Infrastructure was one of the early beneficiaries of this new policy in 2016. According to an Indian Ratings research note, Rs 980 crore worth of funds were released in the first six months of the policy’s introduction. “We have not won any arbitration award in recent times,” said an official with IRB Infrastructure.
MEP Infrastructure is another company which has initiated claims worth Rs 200 crore against the NHAI in the current financial year for its MEP Chennai Bypass project. “Issues like green clearances, delay in toll notifications, land acquisition are some of the reasons leading to arbitration,” said Jayant Mhaiskar, chairman and managing director, MEP Infrastructure Developers.
In addition to the unavailability of bank guarantees, industry officials say, the timeline for arbitration and its resolution is longer, which in most cases is a year on more.
As most of the times resolution takes long, companies are going for monetisation of these claims. In March, HCC entered into one of India’s early litigation funding deals with BlackRock for Rs 1,750 crore. Litigation funding involves monetising claim rights to a third party for a claim before the award has happened.
In July, Anil Ambani, chairman for Reliance Group, pegged claims pending with various authorities at Rs 30,000 crore, of which Rs 8,000 crore was either awarded or was at an advanced stage.