New arbitration guidelines for public procurement contracts unlikely to increase case pendency: Finance Ministry

The Union Finance Ministry has stated in Parliament that the 'Guidelines for Arbitration and Mediation in Contracts for Domestic Public Procurement' are unlikely to affect the arbitration infrastructure or increase pendency of cases..The guidelines, issued by the Ministry on June 3, recommend that arbitration clauses in public procurement contracts involving the government should not be routinely used, and may be restricted to disputes with a value less than ₹10 crore..The Ministry said that since disputes valued at less than ₹10 crore and those disputes not involving the government will continue to be resolved through arbitration, the arbitration structure will remain unaffected.It added, "Moreover, since a large number of high value disputes used to go to court after the arbitration, even before these guidelines were issued, the pending court cases are not likely to significantly increase.".The statement came in response to a question in the Lok Sabha by Chandigarh MP Manish Tewari, who sought the Ministry's response to arguments made by organizations such as the Arbitration Bar of India (ABI) that the guidelines will harm the arbitration infrastructure and further increase the number of pending cases in the courts..Arbitration Bar of India urges Government to withdraw Arbitration Guidelines .Tewari also sought to know the rationale behind the guidelines as well as details of government expenditure on litigation where the primary mode of dispute resolution is arbitration.The Ministry stated that the guidelines were based on 'unsatisfactory experience of arbitration' where the government was a party. It added that the guidelines are flexible and permit arbitration for high value disputes after application of mind by the Ministry or the undertaking concerned.Further, the Ministry stated that expenditure details as sought were not available. However, it cited a sample study of National Highways Authority of India (NHAI) and National Thermal Power Corporation (NTPC) showing that 60% of arbitration awards are challenged in courts..[Read Question and Response]