Lok Sabha Question No. 23 (UNSTARRED), answered on 2024-07-22
Subject: Arbitration and Mediation in Contracts of Domestic Public Procurement
Ministry: FINANCE
Asked by: Shri Manish Tewari

## GOVERNMENT OF INDIA MINISTRY OF FINANCE DEPARTMENT OF EXPENDITURE LOK SABHA

## UNSTARRED LOK SABHA QUESTION NO. 23 TO BE ANSWERED ON MONDAY, JULY 22, 2024 /

## 31 Ashadha, 1946 (Saka)

## 'Arbitration and Mediation in Contracts of Domestic Public Procurement'

## 23 Shri Manish Tewari:

## Will the Minister of Finance be pleased to state:

- (a) the rationale behind the Ministry's 'Guidelines for Arbitration and Mediation in Contracts of Domestic Public Procurement,' which only allows arbitration as a method of dispute resolution for contracts not exceeding Rs. 10 crore;
- (b) the mode of dispute resolution shall be used for contracts exceeding Rs. 10 crore;
- (c) the  details  of  the  money  that  the  Government  spend  in  matters  where  the mode of dispute resolution is through arbitration through courts and litigation;
- (d) whether  the  Government  spend  more  on  arbitration  or  litigation,  if  so,  the details thereof along with a comparative analysis; and
- (e) the  details  on  how  the  Ministry  respond  to  the  arguments  made  by organizations  such  as  the  Arbitration  Bar  of  India,  which  claim  that  the notification  will  harm  the  arbitration  infrastructure  and  further  increase  the burden of pending cases on the courts?

## ANSWER THE MINISTER OF STATE FOR FINANCE (SHRI PANKAJ CHAUDHARY)

- (a)&(b) The  Ministry's  'Guidelines  for  Arbitration  and  Mediation  in  Contracts  of Domestic  Public  Procurement'  are  based  on  unsatisfactory  experience  of arbitration  in  respect  of  high  value  contracts  where  the  Government  (or  a Government entity or agency, such as a public sector enterprise) is a party. However, the guidelines are flexible and continue to permit arbitration for high value  disputes  after  application  of  mind  by  the  Ministry  or  the  undertaking concerned.  Moreover,  Government  departments/  entities/  agencies are encouraged  to  adopt  mediation  under  the  Mediation  Act,  2023  and/  or negotiated  amicable  settlements  for  resolution  of  disputes.  Where  these methods  are  not  successful,  the  matter  should  be  adjudicated  by  the competent courts.
- (c)&(d) The requisite data is not maintained by the Government in form and manner sought. However, the information regarding expenditure on litigation in courts has been compiled and is at Annexure. A sample study of National Highway Authority of India and NTPC has informed that more than 60% of the arbitration awards  are  challenged  in  the  courts.  In  all  these  cases,  Government  is compelled to spend both on arbitration as well as on litigation.
- (e) Government cases with disputes of value less than Rs 10 crore, those high value  disputes  where  Ministries/  undertakings  choose  to  have  arbitration beyond the norm and the disputes not involving Government will continue to be  resolved  through  arbitration.  Hence  these  Guidelines  will  not  adversely impact the arbitration infrastructure. Moreover, since a large number of high value  disputes  used  to  go  to  court  after  the  arbitration,  even  before  these guidelines were issued, the pending court cases are not likely to significantly increase.

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## Annexure

|   S. No. | Financial Year   | Expenditure incurred (Rs.)   |
|----------|------------------|------------------------------|
|        1 | 2018-19          | 50,85,65,984/-               |
|        2 | 2019-20          | 60,40,71,128/-               |
|        3 | 2020-21          | 58,01,97,187/-               |
|        4 | 2021-22          | 48,37,38,253/-               |
|        5 | 2022-23          | 54,35,49,015/-               |