In a decisive move, the Karnataka government has done away with the compulsory arbitration clause that had been a staple of state contracts and tenders since 2014. A circular issued on November 16 announced the withdrawal, citing financial strain and impracticality as key reasons for the decision.
The clause, introduced a decade ago, mandated that disputes between the government and private contractors be resolved through arbitration, as outlined in the Arbitration and Conciliation Act, 1996. However, the arrangement has now been deemed unsustainable.
State officials highlighted the clause’s toll on the exchequer and expressed concerns about the feasibility of negotiating settlements with private entities. Law Minister HK Patil emphasized that this change aligns with the government’s broader objective of streamlining processes and reducing financial burdens.
The revised framework means that future disputes between the state and contractors will bypass arbitration entirely. Instead, parties will need to navigate the traditional route of court litigation for resolution.
The shift marks a significant pivot in how Karnataka manages its legal and financial dealings with private vendors, reflecting a preference for judicial oversight over mediated settlements.
