Delhi Govt Removes Arbitration Clause From Future Public Works Contracts

New Delhi, Apr 24 (KNN) The Public Works Department (PWD) of the Delhi government has officially removed the arbitration clause from all future contracts, marking a significant shift in its dispute resolution approach.

According to an office order issued on Monday, Clause 25—pertaining to the ‘Settlement of Disputes & Arbitration’ under the General Conditions of Contract (GCC)—will no longer apply to new agreements.

“The Competent Authority has decided that the Arbitration Clause (Clause 25: Settlement of Disputes & Arbitration) shall be deleted from the GCC of all future contracts of PWD with effect from the date of issuance of this order,” stated the directive signed by Ruchika Katyal, Special Secretary (PWD).

In place of arbitration, the PWD has mandated that all disputes under future contracts be subject exclusively to the jurisdiction of courts in Delhi.

The revised clause reads, “Any disputes arising between the parties to this agreement/contract shall be subject to the exclusive jurisdiction of Courts in Delhi only.”

The notification by the Delhi government comes in the wake of the Union Government’s Office Memorandum (OM) issued in June 2024 by the Ministry of Finance.

The OM offered comprehensive guidelines on arbitration and mediation in domestic public procurement contracts.

Dated June 3, 2024, the memorandum acknowledged that while arbitration was intended to offer speed, convenience, expertise, and finality, the actual outcomes often fell short—resulting in delays, high costs, and additional litigation.

As a result, the guidelines recommend that arbitration no longer be included by default in public procurement contracts, particularly those involving high-value projects.

The OM specifies that arbitration should be limited to disputes valued under Rs 10 crore, and any inclusion of arbitration clauses in larger contracts must be approved by senior-level officials.

Where arbitration is necessary, institutional arbitration is preferred, and government entities are advised against routinely challenging arbitral awards.

The guidelines also promote mediation under the Mediation Act, 2023, encouraging amicable settlements where possible.

For high-value disputes, the formation of High-Level Committees (HLCs), comprising retired judges and technical experts, is recommended to ensure independent scrutiny of proposed settlements.

Despite its intent to streamline dispute resolution in public contracts, the OM has faced criticism from legal practitioners and the judiciary.

Supreme Court Judge Justice N. Kotiswar Singh recently voiced concerns over the memorandum, stating that it undermines the broader arbitration framework in the country.

(KNN Bureau)