Avoid arbitration, use mediation to settle contract disputes: FinMin

The finance ministry has asked various ministries, departments and public sector enterprises to avoid the arbitration process in their future contract and use the mediation to settle any disputes. It has also advised various ministries and departments to form a high level committee consisting of a retired judge, a retired high ranking officer and a technical expert for mediation in case of ongoing contract dispute and settle the matter amicably.

The move is another attempt by the government to reduce insignificant litigation and to de-clog the Judiciary.

“Government departments/ entities/ agencies should avoid and/ or amicably settle as many disputes as possible using mechanisms available in the contract,” said a recently released guidelines issued by the department of expenditure regarding arbitration and mediation in contracts of domestic public procurement.

The decisions should be taken in “a pragmatic manner in overall long-term public interest, keeping legal and practical realities in view, without shirking or avoiding responsibility or denying genuine claims of the other party”, the guideline said, a copy of which has been sent to all the ministries and PSUs.

It added that the Arbitration as a method of dispute resolution “should not be routinely or automatically included in procurement contracts or tenders”, especially in the large contracts and restricted to disputes with a value less than Rs 10 crore.

In case of larger contracts, any inclusion of arbitration must be done with approval of Secretary or or officers not lower rank than Joint Secretary, assigned by the secretary or by managing director in case of CPSEs.

The disputes not covered in an arbitration clause and where the mediation is not successful should be adjudicated by the courts.

“In cases where there is a decision against the government, public sector enterprise, the decision to challenge/ appeal should not be taken in a routine manner, but only when the case genuinely merits going for challenge/ appeal and there are high chances of winning in the court,” it said.

The Centre last year launched a settlement scheme for contractual disputes with vendors or suppliers to the government and has set October 31 as the deadline for submitting claims for consideration.

The centre has already settled Rs 2,302 crore so far under the vivaad se vishwas scheme in till December, 2023 to settle contractual disputes and claims of Micro Small and Medium Enterprises and (MSMEs) who failed to comply with central government contracts during Covid period.