Road developers take conciliation route for claims amid liquidity crunch

The combined value of settlement pay-outs by the National Highways Authority of India (NHAI) is increasing, indicating that road companies might increasingly be choosing the conciliation route for claims.

Debt resolution, Covid-related liquidity concerns, and a long legal process acting as deterrent are some reasons pushing firms to pursue conciliation. At present, HCC, Sadbhav Engineering, Ashoka Buildcon, and IL&FS are pursuing this process.

Besides, conciliation is an easier and fairer process for companies that already face liquidity issues and cannot offer a bank guarantee to avail of 75 per cent of arbitration award at a later stage. “One can resolve claims within six months without going through legal hassles and unlock capital stuck for growth,” said Ratnam Raju, associate director, group head, infrastructure and project finance, CARE Ratings.

Companies like HCC see conciliation as one of the many ways to improve liquidity after the Covid-19 outbreak. “Our focus has remained on normalising our operations while working on solutions with our clients, including raising liquidity through conciliations of claims,” said Arjun Dhawan, director and group executive officer, in a company results statement.

According to HCC, the Baharampore-Farakka Highways, has initiated conciliation with NHAI for its arbitration award and other claims.

IL&FS group has approved claims worth Rs 2,900 crore with NHAI, of which Rs 2,500 crore is to be received this financial year — Rs 400 crore has already been received.

Executives of Sadbhav Engineering said in the company’s June quarter results call with analysts that the company had agreed to take Rs 45 crore as against the outstanding of Rs 62 crore arbitration award including a waiver of the interest portion, as part of the conciliation process for its Dhule-Palesner project.

Ashoka Buildcon similarly told investors that it had approached NHAI for conciliation of claims worth Rs 550 crore related to four projects. Gayatri Projects in its first quarter results notes said it has referred Rs 2,834 crore of termination payment and other claims related to one of its SPVs to NHAI’s conciliation committee.

According to NHAI’s 2018 annual report, as a result of its alternate dispute resolution mechanism, claims worth Rs 381.15 crore were settled for Rs 29.72 crore in FY18.

 

The Conciliation Committees of Independent Experts (CCIE) was set up in June 2017, and the number of conciliations has been on a steady rise since.  In June, the road ministry said, 108 cases had been referred to CCIE so far and claims worth Rs 13,349 crore have been successfully settled for an amount of Rs 3,743 crore. This number will rise significantly if IL&FS’s approved claims of Rs 2,000 crore are added.

HCC’s Dhawan had said in an interview with Business Standard in September, “It is absolutely imperative for the government to spur investments, but also important to clear dues. NHAI is taking a lead in conciliating matters.” He added that there would be certain haircuts, but there was a definite reduction in the otherwise lengthy claims process.

Not everyone sees conciliation as an easy way to improve liquidity. “Companies will definitely take the conciliation process before legally challenging it, but it will be accepted only if fair,” said Virendra Mhaiskar, chairman and managing director for IRB Infrastructure and Developers.