The Arbitration Bar of India (ABI) and the Indian Arbitration Forum have expressed concerns about an 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 recommends that arbitration clauses should not be routinely used and, if used, should be restricted to disputes with a value less than ₹10 crores, stipulating that arbitration will not be a method of dispute resolution for higher value cases.
Addressing their grievances to Finance Minister Nirmala Sitharaman, the newly established ABI argued that these guidelines contradict the government’s stated intent of promoting India as a global arbitration hub.
Through a representation by its President, Senior Advocate Gourab Banerji, ABI pointed out that the memorandum’s stance on arbitration undermines the government’s efforts to foster a robust arbitration ecosystem in India.
ABI has referred to statements from the Prime Minister, the Minister of Law and Justice, and the Minister for External Affairs emphasizing the importance of arbitration for international trade and investment.
ABI has termed the memorandum’s suggestion to limit arbitration to disputes below ₹10 crores as a step backward. They argue that this would shift the majority of disputes 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 mediation, ABI highlighted practical challenges, such as the reluctance of government officials to sign off on mediated settlements due to fear of vigilance inquiries. They argued that the suggested committees to assist in mediation lack binding authority, making mediation less effective.
Further, ABI stated that the memorandum’s inclination to revert disputes to courts instead of arbitration is expected to overwhelm the judiciary. They argued that the current judicial system is not equipped to handle the complex and voluminous cases typical in sectors like infrastructure, leading to protracted litigation.
ABI has proposed several measures to align the memorandum with the government’s pro-arbitration stance. One key suggestion is to encourage the inclusion of Med-Arb clauses in government contracts, introducing a process of mediation followed by arbitration. Additionally, ABI recommended appointing unbiased and accredited mediators to ensure the effectiveness and fairness of mediation.
To further support dispute resolution, ABI advocated for empowering government officials to propose settlements without fear of repercussions or vigilance inquiries, facilitating more efficient and amicable resolutions. They also emphasized adopting institutional model arbitration clauses in government contracts to standardize and streamline the arbitration process.
Moreover, ABI proposed establishing independent committees tasked with scrutinizing arbitral awards and providing guidance on settlements. These committees, comprised of experts not employed by the government, would offer fair and independent assessments, enhancing the credibility and reliability of the arbitration process.
Accordingly, ABI has urged the Finance Minister to review and withdraw the current memorandum. They emphasized the importance of maintaining a consistent approach towards promoting arbitration, stating that it is crucial for sustaining investor confidence and ensuring economic growth.
