Voluntary settlement scheme for contractual dispute to conclude with haircut for payment receiver

The voluntary settlement scheme for contractual dispute will come with a haircut for the payment receiver, Finance Secretary T V Somnathan has said.

The budget has proposed a scheme for settling contractual dispute named Vivad se Vishwas II. To settle contractual disputes of government and government undertakings, wherein arbitral award is under challenge in a court, a voluntary settlement scheme with standardized terms will be introduced. This will be done by offering graded settlement terms depending on pendency level of the dispute,” Finance Minister Nirmala Sitharaman had said in her budget speech.

Explaining the scheme to businessLine, Somnathan said the aim in this scheme is to provide a standardized framework, which is voluntary, that let us say there is an arbitral award given in favour of a contractor which has been challenged by a government agency in the High Court, the scheme will come out with a framework where a certain percentage is fixed in advance and in the scheme, non discretionary. So there’s no discretion for the officer in the agency nor for the company to ask for more or less, it is a fixed amount.

“We will fix that amount based on some statistics of actually how these disputes evolved such that it is fair to both sides. On that basis, if you opt for the scheme, regardless of the legal status, whether it is the there is some issue involved, the litigation will stop this amount will be paid to whoever is due,” he explained.

He clarified that there will definitely be a haircut. “If the arbitral award is X, the settlement terms will be a fraction of X whoever is a net beneficiary and automatic end of the matter out of court,” he explained

Somnathan also made it clear that the contractor has a choice if he wishes to continue the litigation, it can continue. There’s no compulsion. It is an voluntary option given to the private sector to come into the scheme or not. And the option is entirely with the private sector with certain percentage, which will be transparent disclosed in advance and not a matter of negotiation.

“You can choose who can come in or you can come out but you’ll get your cash immediately if you can, let me know further litigation is no further rational, most important, it gives you certainty and at a specified amount. Alternative you can continue to litigate that expenditure,” he said. Once accepted the government also will drop its appeal in the courts.

The Finance Secretary also said that a draft scheme will be notified very soon, within probably the next couple of weeks, then the government will invite comments on that draft scheme. Thereafter, the scheme will be notified in a couple of within a few weeks or maybe in a couple of months maximum.  “It (the scheme) gives you certainty and at a specified amount. Alternative you can continue to litigate that expenditure. When you get it you will get it and if there’s an if and when when you go for the litigation,” Somnathan concluded.