Finance Ministry instructs states and departments to utilize arbitration only for disputes involving amounts less than Rs 10 crore | India News

The Union Finance Ministry has recommended restricting arbitration clauses in government contracts to disputes of less than Rs 10 crore, citing the expensive and time-consuming nature of arbitration processes. The Department of Expenditure’s Procurement Policy Division issued an office memorandum on June 3, stating that arbitration should not be routinely included in procurement contracts, especially in large contracts.

The memorandum has been circulated to all ministries in the government of India, as well as to all states. This recommendation comes at a time when there is a push from the judiciary to make India a top international destination for commercial arbitration. Chief Justice of India DY Chandrachud recently stated that arbitration is the preferred method of seeking commercial justice.

The Department of Expenditure highlighted the drawbacks of arbitration, including the lengthy process and high costs. The memorandum also mentioned the potential for wrong decisions and collusion in high-value arbitration cases. Top government lawyers have supported arbitration, emphasizing the checks and balances in place to prevent deviations from the rule of law.

However, recent setbacks in government arbitrations, such as the Antrix Corporation case and the Delhi Metro case, have raised concerns within the bureaucracy. Despite these challenges, experts believe that improving the arbitration regime is key to resolving disputes effectively. The government’s focus on mediation as an alternative to arbitration has received mixed reactions, with some expressing concerns about the effectiveness of mediation in resolving high-stakes commercial matters.