In order to streamline arbitration process to resolve commercial dispute having government or PSE is one party, Finance Ministry has set an upper limit of ₹10 crore for cases to be brought in. It has also said that arbitration clause should not be automatically included in large contracts.

Arbitration as a remedy is based on an explicit provision in a contract and is not a judicial process. Arbitration can cover a whole range of contractual matters, including disputes between private sector parties where the Government or a public sector undertaking is not involved.

ln recent decades, there has been an increasing resort to arbitration as a means of alternative dispute resolution with a view to reducing litigation and achieving quick and efficient settlement of contractual disputes.

However, keeping in mind various practical difficulties, the Ministry has come out with detailed guidelines for contracts of domestic procurement by the Government and by its entities and agencies (including Central Public Sector Enterprises, Public Sector Banks etc. and Government companies).

One such guideline says: “As a norm, arbitration (if included in contracts) may be restricted to disputes with a value less than ₹10 crore. This figure is with reference to the value of the dispute (not the value of the contract, which may be much higher).”. Further, a specific mention is required in contracts that in cases having value of more than ₹10 crore, arbitration will not be a method of dispute resolution in the contract.

All the government entities have been advised to avoid amicably settle as many disputes as possible using mechanisms available in the contract. Decisions should be taken in a pragmatic manner in overall long-term public interest, keeping legal and practical realities in view, without shirking or avoiding responsibility or denying genuine claims of the other party. It has been said that government entities should be encouraged to adopt mediation under the Mediation Act, 2023 and/ or negotiated amicable settlements for resolution of disputes.

The guidelines also call for setting up a High Level Committee to resolve high value cases. The committee should have a retired judge and a retired top official or technical expert. ln cases where a HLC is constituted, effort should be negotiate directly with the other party and place a tentative proposed solution before the HLC. Alternatively the committee can also be used as mediator.

“This will enable decisions taken for resolving disputes in appropriate matters to be scrutinized by a high-ranking body at arms-length from the regular decision-making structure, thereby promoting fair and sound decisions in public interest, with probity,” guidelines said.

Giving arguments for new guidelines, the Expenditure Department said that beside a time taking exercise, the arbitration process is an expensive one. The reduced formality, combined with the binding nature of decisions, has often led to wrong decisions on facts and improper application of the law.

It is also said that arbitrators are not necessarily subject to the high standards of selection which are applied to the judiciary and to judicial conduct. Further, proceedings are conducted behind closed doors and not in open court.

There have been judicial decisions regarding impropriety on the part of arbitrators and there is little accountability for such wrong decisions, if taken by arbitrators, the department said..

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