The Karnataka government has revoked its 2014 requirement for compulsory arbitration in government contracts, effective immediately. This decision, explained by Law Minister HK Patil, aims to alleviate financial burdens on the state. The shift favors judicial resolution over private arbitration, potentially extending resolution timelines as parties must now litigate disputes in court instead of through arbitration.
Karnataka: The Karnataka government has officially withdrawn its 2014 notification mandating a compulsory arbitration clause for government contracts and tenders. A new circular, issued on November 16, announced that the clause was being removed with immediate effect.
State Law Minister HK Patil explained the reasoning behind this decision, stating that the clause had been causing a “huge financial burden on the State exchequer.” He further remarked, “The State did not think it was feasible for the government to sit with private parties to discuss a compromise.”
The withdrawal, enacted under Section 21 of the General Clauses Act, 1897, cancels the earlier circular dated January 10, 2014, which made arbitration mandatory in disputes arising from government contracts. The 2014 rule had aligned dispute resolution with the Arbitration and Conciliation Act, 1996, but now, affected parties must seek resolution through litigation in courts.
This decision marks a shift in Karnataka’s approach to dispute resolution in government contracts, signaling a preference for judicial oversight over private arbitration. The move aims to reduce financial strain and streamline the State’s handling of contractual disputes, though it may lead to longer resolution timelines through the courts.
Read the Circular here:
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