The Covid-19 pandemic had a devastating impact on every sector in India. While the large industries/enterprises were able to cope up with the impact owing to their strong financial position, the worst hit sectors were the small enterprises who could not perform their contracts with the government department/undertakings which resulted in their performance guarantees being forfeited and payment of liquidated damages etc., being recovered from them. To provide relief to such enterprises, the Hon’ble Finance Minister in the Union Budget of 2023-24 announced a scheme for such enterprises and promised that a substantial portion of the forfeited amounts would be refunded by the respective government department/undertakings.
In this context, the Department of Expenditure, Ministry of Finance (“DOE”) launched the scheme Vivad se Vishwas Scheme I – Relief for MSMEs (“VSV Scheme”) vide an Office Memorandum dated 06.02.2023. This office memorandum laid down the broad contours of the scheme. The DOE subsequently issued another Office Memorandum dated 10.04.2023 giving further details of the scheme and the manner in which the scheme will be implemented. Finally, the DOE issued Office Memorandum dated 11.04.2023 which supersedes the earlier office memorandums. The salient features of the VSV Scheme are summarized below:
Eligibility
Nature of contracts: Procurement of any goods or services by specified Central Government procurement entities.
Contractor: The claimant must be registered as a Medium, Small or Micro Enterprise (“MSME”) as on the date of claim.
Type of contracts (in case of forfeiture of performance security/liquidated damages etc): All contracts where the delivery period/completion period falls between 19.02.2020 and 31.03.2022. In the case of risk purchase contracts, the original delivery period of the main contract should be falling within these dates.
Type of tenders (in case of earnest money deposit): The tender closing date must fall between 19.02.2020 and 31.03.2022.
The window for claiming the benefit of the scheme: The eligible contractors can submit their claims from 17.04.2023 till 30.06.2023.
Reliefs available to the contractors under the VSV Scheme:
Refund of 95% of the:
performance security forfeited.
liquidated damages recovered.
risk purchase amount recovered.
Earnest money deposited forfeited.
Revocation of the debarment order imposed by the procuring entity. However, the VSV Scheme provides that no claim would be maintainable in respect of any contract which was not awarded to the contractor owing to such debarment during the period of debarment and its revocation.
Manner of availing the benefit of the VSV Scheme:
The benefit of the scheme can be availed through a dedicated link on the online Government e- Market (GeM) portal by the contractors. For non-GeM procurements, the contractors will be required to register on the IRePS (www.ireos.gov.in) portal of the Ministry of Railways.
The applicable contracts will be listed on the portal and can be selected by the contractors. The contracts are required to submit certain details like contract number, contracting authority, paying authority, forfeited/deducted amount etc., on the portal.
The claim shall be verified by the appropriate authority within 30 days either accepting or rejecting the claim. Once the claim is accepted, the payment/refund to the contractor would be made within a period of 30 days.
Other noteworthy points:
No interest shall be payable to the contractors on the amounts refunded under the scheme.
In case of liquidated damages, performance security, and damages under risk purchase have been deducted under the same contract, the total relief shall be 95% of the aggregate of the above amounts.
Further, in case any of the aforesaid amounts have not been materialized/deducted yet, the same shall be dealt with as per the scheme only. In other words, in the case of eligible contracts, if Rs. 100 is yet to be deducted as liquidated damages, the quantum of liquidated damages payable by the contractor would be only Rs. 5.
Conclusion:
The scheme is a welcome move by the DOE and would give substantial relief to the MSME sector both in monetary terms as well as enable such enterprises to continue their business which had been adversely impacted due to Covid-19.
However, the VSV Scheme (through the office memorandums) does not provide any resolution mechanism for the contractors in case any claim is arbitrarily rejected by the procuring entity. While on paper, the VSV Scheme is beneficial, it remains to be seen how the same will be implemented.
Authored by Purvi Garg, Advocate at Metalegal Advocates. The views are personal and do not constitute legal opinion.