Karnataka withdraws compulsory arbitration clause from State tenders, contracts

The Karnataka government has withdrawn its 2014 notification that included a compulsory arbitration clause for government contracts and tenders.

The State issued a new circular on November 16 this year stating that the compulsory arbitration clause is being withdrawn.

The State Law Minister HK Patil had earlier said in a press conference that the compulsory arbitration clause was being withdrawn since it was causing a huge financial burden on the State exchequer.

Patil had also said at the time that the State did not think it was feasible for the government to sit with private parties to discuss a compromise.

“In exercise of the power conferred under Section 21 of the General Clauses Act, 1897, the circular No. LAVW 273 LAC 2012(p), dated: 10.01.2014 regarding incorporation of ‘Arbitration Clause’ in the government contract/tenders etc. is hereby withdrawn with immediate effect,” the new circular reads.

A compulsory arbitration clause in a government tender is a provision that requires the parties to a contract to resolve disputes through arbitration as per the provisions of the Arbitration and Conciliation Act, 1996.

Now that the Karnataka government has withdrawn the notification that made arbitration proceedings compulsory in case of disputes between the State and private contractors or vendors, the parties will henceforth have to approach the courts for resolving such disputes through litigation.

[Read Circular]