The Arbitration Bar of India (ABI) has called on the Ministry of Finance to retract a new memorandum that could stifle the use of arbitration in government procurement contracts. The ABI, alongside the Indian Arbitration Forum (AIF), conveyed their concerns in a letter to the Ministry’s Procurement Policy Division, critiquing the document’s recommendations as potentially detrimental to India’s business environment.
The memorandum suggests limiting arbitration in procurement contracts to disputes under Rs. 10 crores and advises caution when including arbitration clauses for higher-value disputes. It also proposes avoiding routine challenges to decisions unfavorable to the government unless they have a strong chance of success.
Senior Advocate Gourab Banerji, President of the ABI, argued that these suggestions contradict the government’s stated objective of promoting arbitration as an alternative dispute resolution method. Banerji highlighted past governmental commitments to fostering a robust arbitration ecosystem, including the Prime Minister’s advocacy for institutional arbitration and the Minister of Law and Justice’s support for efficient dispute resolution mechanisms.
The ABI’s letter warned that excluding arbitration from higher-value contracts would burden the judiciary and deter foreign investors, undermining India’s ease of doing business. They emphasized that forcing disputes into overburdened courts could stall commercial growth and discourage domestic and international investment.
The ABI also praised the memorandum’s support for mediation under the Mediation Act, 2023, and offered several enhancement suggestions:
- Incorporate Med-Arb clauses in government contracts.
- Appoint independent, expert mediators.
- Enable government officials to propose settlements without fear of repercussions.
- Establish committees of independent experts to review settlement proposals.
- Eliminate arbitration clauses with unilateral or biased arbitrator appointments.
- Prevent high-value disputes from being diverted to courts.
- Use model arbitration clauses from institutions.
- Implement a model code of conduct for arbitrations.
- Form committees to review arbitration awards and guide challenges.
The ABI concluded by urging the Ministry to reconsider and withdraw the memorandum, advocating for a more arbitration-friendly approach to maintain India’s appeal as an investment destination and uphold the vision of “Arbitrate in India” as part of the “Make in India” initiative.
