New Delhi, Jun 25 (KNN) The Indian government has implemented a policy change regarding arbitration in procurement contracts, sparking discussion among legal experts.

The Department of Expenditure has issued a memorandum advising against the routine inclusion of arbitration clauses in large-scale government procurement deals, limiting arbitration to disputes valued under Rs 10 crores.

This move has prompted immediate pushback from the Arbitration Bar of India (ABI) and the Indian Arbitration Forum (IAF). In a detailed representation to Finance Minister Nirmala Sitharaman, these organisations have voiced serious concerns about the potential ramifications of this policy change.

Gourab Banerji, Senior Advocate and President of the ABI, who signed the representation, argues that the new guidelines contradict the government's previous stance on promoting arbitration.

The representation cites statements from Prime Minister Narendra Modi and other high-ranking officials who have consistently advocated for arbitration as a preferred method of dispute resolution.

"The memorandum appears to undermine various measures taken by the government to create a robust arbitration ecosystem in India," the representation states.

It further emphasises that this guideline seems to reverse the government's intent to enhance the ease of doing business through arbitration.

The legal bodies warn that favouring litigation over arbitration could further burden the already overloaded court system.

They predict that complex disputes, particularly in sectors like infrastructure, could lead to prolonged litigation processes lasting several years, potentially deterring investment and commercial activity.

To address these concerns, the ABI and IAF have proposed several measures. These include encouraging the use of Med-Arb clauses in government contracts, allowing officials to present settlement proposals without fear of repercussions, and establishing independent committees to review these proposals.

They also advocate for incorporating standardised arbitration clauses from reputable institutions and promoting the use of institutional arbitration to ensure fairness and accountability.

As the controversy unfolds, stakeholders across the legal and business communities are closely monitoring the government's response to these concerns and whether it will reconsider its stance on arbitration in large-scale procurement contracts.

(KNN Bureau)