News
Finance for states and departments: Use arbitration only in disputes below Rs 10 crore | India News
Highlighting that arbitration processes are expensive and time-consuming, and that there are “perceptions of irregularities, including collusion” about arbitrators, the Union Finance Ministry has recommended restricting arbitration clauses in government contracts to disputes under Rs 10 crore.
“Arbitration as a method of dispute resolution should not be routinely or automatically included in procurement contracts/bids, especially large contracts,” states a June 3 office memo from the Department’s Division of Acquisition Policy of Expenses.
The memorandum was distributed to all ministries of the government of India, including the departments of public enterprises and financial services, and also to all states.
The new set of recommendations comes at a time when there is a growing push from the judiciary in favor of arbitration and to make India a top international destination for commercial arbitration. Arbitration is no longer an “alternative”, said Chief Justice of India DY Chandrachud, addressing the UK Supreme Court on June 6. “It is indeed the preferred method of seeking commercial justice,” he said.
Elaborating on how the process grew, CJI Chandrachud had said that “imposing courtrooms designed to bear the insignia of the state’s sovereign power are being replaced by ostentatious meeting rooms where parties discuss complex commercial issues”. He said it was time for countries like India to create and promote a culture of commercial arbitration.
In its memo, the Department of Expenditure states: “The arbitration process itself is time-consuming and not as quick as imagined, in addition to being very expensive. The reduced formality, combined with the binding nature of decisions, has often led to erroneous decisions on the facts and improper application of the law.”
The directive also states that the arbitration process, which “is intended to be final with very limited additional resources, is also exposed, especially in matters of high financial value, to perceptions of irregularities, including collusion.”
Top government lawyers have also defended arbitration. Attorney General Tushar Mehta said on Saturday at London International Disputes Week that the architecture of the Arbitration Act has checks and balances to prevent deviations from the rule of law.
Anirudh Krishnan, partner at AK Law Chambers, a law firm specializing in arbitration, told The Sunday Express that ruling out arbitration based on a perceived concern about the quality of the regime would amount to losing the wood for the trees. “The solution would be to further improve an arbitration regime that has already seen considerable improvements after 2015,” he said.
However, two major setbacks for the government in arbitrations – the Antrix Corporation case and the Delhi Metro case – have raised concerns within the bureaucracy. In a protracted litigation involving ISROcommercial arm of Antrix, an arbitration case awarded $562 million in damages along with interest in favor of Bengaluru-based company Devas Multimedia. To enforce the judgment, Devas attempted to liquidate assets of Air India, then the national carrier in foreign jurisdictions.
In April this year, an extraordinary ruling by the Supreme Court ensured that the Delhi Metro Rail Corporation did not have to pay nearly Rs 8,000 crore in arbitration award in 2017 to Delhi Airport Metro Express Private Limited (DAEML), a Reliance Infrastructure company owned by Anil-Ambani. .
Arbitrations are governed by the Arbitration and Conciliation Act 1996, which was enacted as a solution to move commercial disputes away from overburdened courts.
“The court decision is a remedy that always exists where there is no arbitration clause. However, another alternative to arbitration is mediation, which is a process by which parties attempt to reach an amicable resolution of their dispute with the assistance of a third person (mediator) who does not have the authority to impose a solution on the parties to a dispute. . ,” the Department of Expenditure memo said. Under mediation, both parties will have to reach a mutual agreement or the case will go to trial.
“While it is very encouraging to see the government prioritize mediation, this cannot be at the expense of arbitration. The mediation process does not guarantee a resolution and disputes will then have to go to court. Handling high-stakes commercial matters in overburdened courts is why arbitration was developed in the first place. The move now represents one step forward and two steps back in India’s efforts to promote an enabling environment for resolving commercial disputes,” said Raghav Seth, legal advisor at AZB & Partners.
© The Indian Express Pvt Ltd
First uploaded on: 06/09/2024 at 04:14 IST