Arbitration is all set to be replaced by mediation in most government and quasigovernment contracts as the standard mechanism for resolution of disputes. The Procurement Policy Division of the Department of Expenditure, Ministry of Finance, issued a notification to that effect on June 3, 2024, which also contains a broad outline of the process of mediation.
The notification is applicable to 'domestic' contracts of the central ministries and departments, their attached and subordinate offices, autonomous bodies, central public sector enterprises, public sector banks, government companies, and financial institutions. By implication, it does not apply to contracts involving foreign companies which are not based in India. It is not immediately clear whether foreign companies operating from India are also exempted from its application.
The Ministry of Defence (MoD), which is one of the biggest spenders, needs to watch out. During the current financial year it will spend approximately 3 lakh crore on procurement of goods and services and civil works via thousands of contracts and supply orders place by a vast multitude of functionaries down the line from New Delhi to the farthest corners of the country and beyond.
Coming, as it does, five years after the enactment of the New Delhi International Arbitration Act, 2019, which aimed at making India a hub for international arbitration, the latest move, though limited to domestic contracts, has shaken the very foundation of arbitration as an efficacious 'alternative dispute resolution' mechanism, free from the rigours of judicial adjudication of disputes.
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