‘Don’t appeal against arbitration/court awards involving projects in a routine manner’

The Centre has instructed public authorities to refrain from “routinely” appealing against arbitration/court awards relating to disputes involving publicly funded projects, unless there is a compelling case to do so, including realistic probability of success in the court/higher court.

“In cases where there is a decision against Government/Public Sector Enterprise (PSE), the decision to appeal should not be taken in a routine manner, but only when the case genuinely merits going for the appeal and there are high chances of winning in the court/ higher court,” said the new ‘General Instructions on Procurement and Project Management’, issued by the government on October 29.

“There is a perception that such appeals are sometimes resorted to postpone the problem and defer personal accountability. Casual appealing in arbitration/court cases has resulted in payment of heavy damages/compensation/ additional interest cost, thereby causing more harm to the exchequer, in addition to tarnishing the image of the government,” it said.

Due consideration

The procuring entity should monitor the success rate of appealing against arbitration awards.

There should be a clear delegation to empower officials to accept arbitration/court orders. A special board/committee may be set up to review the case before an appeal is filed against an order.

The board/committee or other authority deciding on the matter shall clarify that it has considered both legal merits and the practical chances of success and after considering the cost of, and arising through, litigation/appeal/further litigation, as the case may be, it is satisfied that such litigation/appeal/further litigation cost is likely to be financially beneficial compared to accepting the arbitration/court award, the General Instructions said.

According to the government, statistics have shown that in cases where the arbitration award is challenged, a large majority of cases are decided in favour of the contractor.

“In such cases, the amount becomes payable with interest, at a rate which is often far higher than the government's cost of funds. This results in huge financial losses to the government. Hence, in aggregate, it is in public interest to take the risk of paying a substantial part of the award amount subject to the result of the litigation, even if in some rare cases of insolvency etc. recovery of the amount in case of success may become difficult,” it said.

During operation of contracts, issues and disputes arising due to lack of clarity in the contract become the root cause for litigation.

“Litigation has adverse implications on the timelines and overall cost of the project. Before resorting to arbitration/ litigation, the parties may opt for mutual discussion, mediation, and conciliation for the resolution of disputes,” it added.