BHEL is vacating all sites to recover arbitration award worth Rs 1,500 crore

According to two people close to the matter, BHEL is accelerating its efforts to ensure that these awards in favor of the company are collected as soon as possible.

Most arbitration awards accumulated between 2018 and 2022 have been delayed due to appeals and legal challenges. Some awards have been delayed due to the closure of parties who were required to pay, and some of them are stuck in enforcement proceedings in the courts.

In 2018, BHEL obtained an arbitration award worth more than ₹According to the report of the aforementioned parliamentary committee, the payer has been liquidated; BHEL was declared a secured creditor of the payor, but legal submissions between BHEL and the liquidator resulted in the issue being challenged until the Apex Court, which currently encounters the matter. Another worthy case from 2019 ₹2.23 crore is still pending before the Karnataka High Court as the arbitral award is challenged by the payee.

“There is constant surveillance on this issue and all developments related to these issues are being monitored. All possible methods are being used to recover these dues,” an official said on condition of anonymity.

Recovery is crucial and BHEL is important, marking a near-term turnaround behind demand for boilers and railway equipment, which play a key role in the country’s strategic sectors such as aerospace and defence.

Bhel received orders for almost ₹78,000 crore in 2023-24, which is the highest in a financial year. Orders from 2022-23 worth noting triple ₹23,548 crore, nearly 7 times as much as in 2020-21 ₹11.47 Crore.

In the September quarter (Q2, 2024-25), BHEL reported a net profit of over ₹96 crore, compared to ₹200 million in the same period last year.

The government owns approximately 63.17% of BHEL, while the public holds the remaining 36.83%.

Strategic PSU

Mint Reports on January 19 said that BHEL may be taken out of the government’s investment list and may be given “strategic PSU” status following a push by a parliamentary committee.

The Public Utilities Commission in its December report noted that BHEL had significant receivables arising from arbitration disputes and urged the company to resolve them quickly.

“The delayed arbitration award is a key issue for the company and the government and efforts are on to fast-track the restoration process. There are also some review meetings on the matter… Hopefully the restoration of these dues will pick up pace,” officials said.

The parliamentary committee also noted that BHEL has around 118 unresolved commercial contract disputes ₹100 million in arbitration by the end of 2021-22.

The commission, which is aware of claims and counterclaims related to BHEL, said that at the end of 2022-23, BHEL filed more than ₹120 crore in the arbitration case but received counterclaims worth twice as much.

The panel recommended that BHEL should “resolve these cases expeditiously, cooperate with the administrative ministry where necessary and explore alternative dispute resolution methods”.

BHEL’s revival is also integral as India looks to strengthen local production of industrial equipment across sectors, including renewable energy and defence. The company has ventures in electric mobility, nuclear and renewable energy, and its fortunes have recovered with large orders for thermal and rail equipment.

Arbitration fees

Alternative dispute resolution methods include arbitration and mediation, where the parties argue before a mutually agreed arbitrator or mediator.

While arbitration is more adversarial and ends with one party winning and the other losing, mediation involves the parties reaching a consensus on the dispute.

Arbitration between public sector undertakings (PSUs) and private parties has been a cause of concern over the years as these disputes are expensive affairs for the largest disputant in the country: the government.

The union finance ministry also issued a consultation in June 2024 asking all government entities to reduce their exposure to arbitration and engage in mediation or litigation instead of arbitration leaving a dent in the public purse.

In the 2019 case of Hindustan Construction Ltd. vs. Union of India, private contractor claimed ₹6,000 crore from the government as PSUs failed to pay the arbitration award, leading to the end of many businesses.

The coalition government later said the figure was exaggerated. However, the government also admitted that PSUs had paid private contractors ₹From 2008 to 2019, arbitration fees were 30 million.

The finance ministry also disclosed to the Lok Sabha in July 2024 that as many as 60 per cent of arbitrations conducted by PSUs such as National Highways Ltd were eventually challenged or appealed, resulting in additional costs.

BHEL shares closed ₹206.15, up 0.44% on January 23.