Source: Indian Express

Introduction

In recent years, the landscape of dispute resolution in India has witnessed significant shifts, spurred by legislative reforms, judicial pronouncements, and policy interventions. Among these changes, the Finance Ministry's recent decision to steer away from arbitration in government contracts stands out as a noteworthy departure from established practices. After years of endeavoring to establish India as a leading center for arbitration, the Government of India has concluded that arbitration is not conducive to its objectives. Consequently, they advocate for removing arbitration clauses from all forthcoming contracts involving government or government-controlled entities, except minor disputes valued at Rs 10 crore or less.

How is the new policy detailed and implemented within government entities?

• Policy Directive: Government departments, entities, and agencies are directed to prioritize amicable settlement of disputes as outlined in an Office Memorandum.
• Committee Formation: High-level committees consisting of former judges and retired senior officials will be established to facilitate these settlements.
• Settlement Efforts: The emphasis will be on attempting to resolve disputes through negotiation and mutual agreement, considering legal and practical realities.
• Court Adjudication: Should settlement efforts prove unsuccessful, disputes will be referred to the courts for adjudication, ensuring a legal resolution process.

What are the Reasons for Change in Policy?

• Integrity Concerns: The government's decision to shift policy stems from a perceived lack of integrity among arbitrators, coupled with allegations of collusion with private parties.
• Distrust in Arbitration: This perception has led the government to question the efficacy of arbitration as a viable method for resolving disputes.
• Challenges in Challenging Awards: A key factor contributing to this perception is the belief that arbitral awards are inherently difficult to challenge on substantive grounds, limiting the government's ability to contest unfavorable outcomes.
• Impediment to Effective Resolution: Overall, these concerns regarding arbitrator integrity and award challenges have led the government to conclude that arbitration may not serve as an effective means of dispute resolution for its purposes.

What are the Drawbacks of a New Policy?

• Flawed Decision and Unrealistic Expectations: The choice to discard arbitration is flawed and grounded in unrealistic anticipations.
  • This decision risks impeding infrastructure projects and undermines the ambition of achieving a five-trillion-dollar economy.
• Government's Distrust in Arbitrators: The government's distrust in arbitrators overlooks their mandate to be impartial and independent.
  • Adverse rulings do not necessarily indicate corruption but may reflect the government's failure to fulfill its legal obligations.
• Faulty Trust in Dispute Settlement: The government's reliance on settling disputes without shirking responsibility is fundamentally flawed.
  • This approach may not adequately address the complexities of legal obligations and could result in suboptimal outcomes.
• Impact on Infrastructure and Economic Goals: The policy's potential hindrance to infrastructure projects and economic aspirations is evident.
  • By dismissing arbitration, the government risks impeding the timely resolution of disputes critical to large-scale development initiatives.

What are Concern Arbitrators?

• Arbitrators' Independence and Impartiality: The role of arbitrators is to uphold independence and impartiality, free from government bias or influence.
• Interpreting Adverse Orders: Adverse rulings should not be equated with compromised tribunals; rather, they often signal shortcomings on the part of the government.
• Abandoning Arbitration's Validity: Dismissing arbitration due to perceived lack of trusted arbitrators undermines a legitimate and widely accepted method of dispute resolution.
• Preserving Confidence in Arbitration: Upholding the integrity of arbitration is essential for maintaining trust in the legal system and ensuring fair and equitable resolution of disputes.

What are Trust Issues and Decision-Making?

• Despite appointing former Supreme Court or High Court judges as arbitrators, the government's distrust in this system casts doubts on its faith in officials' negotiation capabilities.
• Even with oversight from high-level committees, the voluntary and administrative nature of the settlement process lacks the transparency and accountability found in judicial awards.
• This approach overlooks the intricate challenges inherent in resolving disputes on a large scale, potentially compromising the effectiveness of the arbitration process.
• The government's lack of confidence in arbitrators prompts concerns regarding its reliance on officials for negotiation tasks, highlighting broader issues of trust within the system.
• Approval by high-level committees, though present, remains voluntary and administrative, failing to instill the same level of accountability and transparency as judicial rulings.
• Settlements, under the current system, are disadvantaged by their comparative lack of transparency and accountability when contrasted with the judicial process, potentially undermining public trust in the arbitration framework.

What are Practical Challenges and Legal Realities?

• The government might be overly confident in its ability to effectively resolve disputes, overlooking the complexities of its bureaucratic structure.
• Government officials, accountable to various authorities and courts, often hesitate to accept significant liabilities, potentially hindering the settlement process.
• This cautious approach, driven by bureaucratic and legal considerations, could impede timely dispute resolution, leading to a backlog of unresolved cases.
• Traditional courts are ill-equipped to handle heavy commercial disputes, burdened by slow processes and overcapacity.
• Challenges to arbitral awards, despite the 2015 Amendment's mandate for expeditious resolution within one year, frequently linger in courts for around five years, even at the initial stage alone.
• Given the impracticality for courts to efficiently manage original suits involving substantial stakes and complexity, reliance on traditional litigation methods risks exacerbating delays and inefficiencies in dispute resolution.
• The stark contrast between the prescribed expeditious disposal of arbitration award challenges and the protracted reality underscores the pressing need for systemic reforms to streamline the resolution process and alleviate the burden on the courts.

What are the Challenges of Government Dispute Settlement Policy?

• The multitude of accountability layers and legal scrutiny confronting government officials suggests an overestimation of their capacity to effectively settle disputes.
• Decision-makers are often deterred from settling disputes due to apprehensions about assuming substantial liabilities, reflecting a cautious approach that may impede the resolution process.
• The preference demonstrated by the government for discounted settlements, as exemplified by the Vivad se Vishwas – II scheme, rather than honoring arbitral awards, raises questions about its commitment to fair and equitable resolution mechanisms.
• The government's inclination towards discounted settlements under schemes like Vivad se Vishwas – II suggests a prioritization of expedience over upholding the integrity of arbitral decisions.
• The reliance on discounted settlement schemes over honoring arbitral awards implies a lack of confidence in the arbitration process and undermines the credibility of the dispute resolution framework.
• By favoring discounted settlements, the government risks eroding trust in its ability to impartially adjudicate disputes and may discourage parties from engaging in arbitration in the future.

• Arbitration, despite its flaws, proves more effective than court litigation in settling commercial disputes due to its practicality and efficiency.
• Court systems are often sluggish and overwhelmed, with appeals against arbitral decisions dragging on for years, hindering timely resolution.
• Encouraging parties to resort to court proceedings disregards these practical challenges and disrupts the streamlined resolution process crucial for fostering economic advancement.
• By embracing arbitration over court litigation, businesses can bypass the delays and complexities inherent in traditional legal channels, thereby promoting smoother conflict resolution.
• The persistence of lengthy court battles poses a significant barrier to economic growth, emphasizing the urgency of prioritizing alternative dispute resolution mechanisms.
• Recognizing the limitations of court systems and embracing arbitration facilitates quicker resolution, allowing businesses to focus on innovation and productivity, essential drivers of economic development.

Conclusion

In conclusion, while the government's decision to shift away from arbitration in resolving disputes signifies a significant departure, it raises concerns about the efficacy and fairness of alternative mechanisms. The complex interplay between legal realities, trust issues, and economic imperatives underscores the need for a balanced approach that preserves the integrity of dispute resolution while addressing the challenges faced. Moving forward, it is imperative to foster transparency, accountability, and trust in all avenues of dispute resolution to ensure equitable outcomes and support sustainable economic growth.