The Arbitration Bar of India (ABI) and Indian Arbitration Forum have expressed concerns regarding an office memorandum issued by the Ministry of Finance, Department of Expenditure, titled “Guidelines for Arbitration and Mediation in Contracts for Domestic Public Procurement”.
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NEW DELHI: The Arbitration Bar of India (ABI) and the Indian Arbitration Forum have raised serious concerns about a recent office memorandum issued by the Ministry of Finance, Department of Expenditure.
Titled “Guidelines for Arbitration and Mediation in Contracts for Domestic Public Procurement,” the memorandum suggests limiting the use of arbitration clauses in public procurement contracts to disputes with a value less than Rs 10 crores. For disputes exceeding this amount, the memorandum discourages arbitration as a method of dispute resolution.
The newly established ABI, through its President, Senior Advocate Gourab Banerji, has formally addressed these grievances to Finance Minister Nirmala Sitharaman. The ABI argues that the memorandum’s guidelines contradict the government’s declared intent to promote India as a global hub for arbitration.
According to ABI, the memorandum’s restrictive stance on arbitration undermines the government’s efforts to create a robust arbitration ecosystem in India.
The ABI has referenced statements from the Prime Minister, the Minister of Law and Justice, and the Minister for External Affairs, all of whom have emphasized the critical role of arbitration in facilitating international trade and investment.
“The Memorandum’s suggestion to limit arbitration to disputes below Rs 10 crores has been termed by ABI as a step backward,”
-said the representation.
ABI argues that this limitation would result in most disputes being directed to an already overburdened judiciary, contradicting the government’s objectives of easing business operations and improving India’s ranking on the World Bank’s Ease of Doing Business index.
While supporting the promotion of mediation, ABI pointed out practical challenges such as the reluctance of government officials to sign off on mediated settlements due to the fear of vigilance inquiries. Additionally, the ABI criticized the suggested mediation committees for lacking binding authority, thus reducing their effectiveness.
ABI further expressed concerns that the memorandum’s preference for court adjudication over arbitration would overwhelm the judiciary. The organization highlighted that the current judicial system is not equipped to handle the complex and voluminous cases typical in sectors like infrastructure, leading to prolonged litigation.
To address these issues, ABI has proposed several measures to align the memorandum with the government’s pro-arbitration stance.
One key suggestion is the inclusion of Med-Arb clauses in government contracts, which would combine mediation followed by arbitration. This approach aims to resolve disputes efficiently and amicably.
ABI also recommended appointing unbiased and accredited mediators to ensure fair and effective mediation. Additionally, the organization advocated for empowering government officials to propose settlements without the fear of repercussions or vigilance inquiries, thereby facilitating more efficient dispute resolutions.
Moreover, ABI suggested adopting institutional model arbitration clauses in government contracts to standardize and streamline the arbitration process. The establishment of independent committees to scrutinize arbitral awards and provide guidance on settlements was another key recommendation. These committees, comprised of non-government experts, would offer fair and independent assessments, enhancing the credibility of the arbitration process.
ABI has urged Finance Minister Nirmala Sitharaman to review and withdraw the current memorandum, emphasizing the importance of maintaining a consistent approach towards promoting arbitration. ABI stated that sustaining investor confidence and ensuring economic growth necessitates a pro-arbitration policy.
In conclusion, the ABI and the Indian Arbitration Forum have highlighted the critical need for a supportive arbitration framework in public procurement contracts. Their recommendations aim to align government policies with international best practices, ensuring that India remains a favorable destination for global trade and investment.
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