More Stories

Informist, Friday, Sep 13, 2024

 

NEW DELHI – The Delhi High Court has issued a notice to the Centre on a public interest litigation against the Ministry of Finance's office memorandum, whereby arbitration in contracts of domestic procurement by the government, its entities and agencies has been restricted to disputes with a value less than 100 mln rupees. The high court will hear the petitioner Infrastructure Watchdog's case next on Dec 9.

 

The petitioner said that the office memorandum was "ex facie arbitrary" and violated Article 14 of the Indian Constitution of India as it was issued without any application of mind, by taking into account irrelevant considerations. There was no intelligible differentia in prescribing the 100 mln rupees cap on arbitration and there was no rational nexus between it with the object sought to be achieved by the impugned office memorandum, said the petitioner.

 

Infrastructure Watchdog said that doing away with the process of arbitration, and adopting the mode of mediation for settling high stake commercial contracts, where government entities are parties, may become a breeding ground for corruption which may cause loss to public exchequer, in addition to creating uncertainty for both domestic and foreign investors, thereby, harming public interest. 

 

The officer memorandum imposes arbitrary and unreasonable restrictions on the use of arbitration in public procurement contracts, directly impacting the rights of contractors and public sector enterprises, and ultimately the broader public interest, said the petitioner. The guidelines, by capping arbitration for disputes exceeding 100 mln rupees and promoting inefficient bureaucratic processes, undermine the principles of fairness, efficiency, and access to justice, the petitioner added.

 

In the office memorandum, it is stated, "Disputes not covered in an arbitration clause and where the methods outlined above are not successful, should be adjudicated by the courts". Pushing litigants to regular courts for adjudication of disputes exceeding 100 mln rupees would lead to injunctions leading to delay in infrastructure projects, said the petitioner. 

 

Infrastructure Watchdog said that even though an expert committee, which was constituted by the government last year to make recommendations for reforming arbitration law in India, gave its report in February, the government, instead of deliberating on the suggestions, came up with the memorandum. For issuing such an important office memorandum having large scale ramifications, the government ought to have constituted another expert committee if the recommendations given in the previous panel's report were unacceptable, said Infrastructure Watchdog.

 

Further, the petitioner said that the idea of referring disputes worth above 100 mln rupees for mediation is inherently dangerous as in that event even a dispute worth rupees 5 bln rupees or above may be referred to mediation, and because one of the parties will be a government entity, it may lead to huge loss to public exchequer if the government officers, for any reason, agree to settle for lower amounts. Arbitration process, on the other hand, ensures that legitimate and legally tenable interests of the government entities are secured, said the petitioner. Mediation processes for high-stake infrastructure projects of the government entities may lead to many huge infrastructure projects getting stuck, which may have a likelihood of severely and prejudicially impacting public interest, said the petitioner.

 

On Jul 22, Pankaj Chaudhary, Minister of State for Finance, had said that the latest arbitration guidelines were flexible and continue to permit arbitration for high-value disputes after "application of mind" by concerned ministries or undertakings. Chaudhary was replying to a question in the Lok Sabha regarding the government's guidelines for arbitration and mediation in contracts of domestic public procurement. 

 

To a question on the mode of dispute resolution for contracts exceeding 100 mln rupees in value, Chaudhary had said that government departments are encouraged to adopt mediation under the Mediation Act, 2023, or negotiate amicable settlements for resolution of disputes. Where these methods are not successful, the matter should be adjudicated by the competent courts, Chaudhary added.  End

 

Reported by Surya Tripathi

Edited by Deepshikha Bhardwaj

 

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

 

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.

 

Informist Media Tel +91 (11) 4220-1000

Send comments to feedback@informistmedia.com

 

© Informist Media Pvt. Ltd. 2024. All rights reserved.