Last Updated on June 24, 2024 by News Desk
The Arbitration Bar of India (ABI) and the Indian Arbitration Forum (IAF) have expressed significant concerns regarding a recent office memorandum issued by the Ministry of Finance, titled “Guidelines for Arbitration and Mediation in Contracts for Domestic Public Procurement.” This memorandum, released by the Department of Expenditure, advises against the routine inclusion of arbitration clauses in large-scale government procurement contracts. It suggests that arbitration should be reserved for disputes valued below ₹10 crores, recommending that higher-value disputes should not involve arbitration.
In a detailed representation to Finance Minister Nirmala Sitharaman, the ABI and IAF highlighted the memorandum’s contradictions with the government’s previous initiatives to promote arbitration as a preferred dispute resolution mechanism. They referenced statements by the Prime Minister and senior officials advocating for a robust arbitration ecosystem in India, which the memorandum appears to undermine.
The ABI and IAF emphasized that the memorandum’s preference for litigation over arbitration could exacerbate the heavy caseload of Indian courts, leading to prolonged litigation, especially in complex sectors like infrastructure. This delay could deter investment and commercial activity.
While the memorandum suggests mediation as an alternative, the ABI and IAF pointed out its non-binding nature and the reluctance of government officials to sign mediated settlements due to fears of scrutiny and potential vigilance inquiries. This hesitancy could render mediation ineffective and ultimately push disputes back to overburdened courts.
The representation stated, “The Memorandum does not adequately assess the non-binding nature of mediation. Despite recognizing that government decision-making involves accountability and scrutiny, it fails to consider that no government official is willing to sign a mediated settlement if it results in large payouts to private parties, fearing a vigilance enquiry.”
To address these concerns, the ABI and IAF proposed several measures, including introducing clauses that allow for both mediation and arbitration (Med-Arb) in government contracts, permitting officials to present settlement proposals without fear of backlash, and establishing independent committees to review these proposals. They also recommended incorporating standardized arbitration clauses from reputable institutions to ensure consistency and fairness and promoting institutional arbitration for its oversight and accountability.
The representation was signed by Gourab Banerji, Senior Advocate and President of the Arbitration Bar of India.
Written by — Athi Venkatesh AVD
