Arbitration Bar of India urges Government to withdraw Arbitration Guidelines

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”..The Memorandum recommends that arbitration clauses should not be routinely used and If used, they may be restricted to disputes with a value less than ₹10 crores with a specific stipulation that in all other cases, arbitration will not be a method of dispute resolution..Addressing grievances to Finance Minister Nirmala Sitharaman, the newly set up ABI has argued that the Memorandum’s guidelines on arbitration in domestic public procurement contracts contradict the government's stated intent of promoting India as a global arbitration hub..ABI, through a representation by its President Senior Advocate Gourab Banerji, has pointed out that the Memorandum's stance on arbitration undermines the efforts by the government to foster a robust arbitration ecosystem in India. .“Arbitration is great. Just not for us,” says the Government.It 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.The Memorandum’s suggestion to limit arbitration to disputes below ₹10 crores has seen termed by ABI as a step backward. This, they argue, 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 has pointed out the practical challenges, such as the reluctance of government officials to sign off on mediated settlements due to fear of vigilance inquiries. The body has argued that the suggested committees to assist in mediation lack binding authority, making mediation less effective.Further, it has stated the memorandum's inclination to revert disputes to Courts instead of arbitration is expected to overwhelm the judiciary. ABI has 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..The Memorandum’s suggestion to limit arbitration to disputes below ₹10 crores has seen termed by ABI as a step backward.ABI.ABI Proposal.ABI has proposed several measures to align the Memorandum with the government's pro-arbitration stance. One of the key suggestions is to encourage the inclusion of Med-Arb clauses in government contracts, which would introduce a process of mediation followed by arbitration. Additionally, ABI has recommended the appointment of unbiased and accredited mediators to ensure the effectiveness and fairness of mediation.To further support dispute resolution, ABI has advocated for empowering government officials to propose settlements without fear of repercussions or vigilance inquiries to facilitate more efficient and amicable resolutions. ABI has also emphasized the adoption of institutional model arbitration clauses in government contracts to standardize and streamline the arbitration process.Moreover, ABI has proposed the establishment of 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..ABI has accordingly urged the Finance Minister to review and withdraw the current Memorandum. It has emphasized the importance of maintaining a consistent approach towards promoting arbitration, stating that it is crucial for sustaining investor confidence and ensuring economic growth.