The Public Works Department (PWD) of the Delhi government has announced the removal of the arbitration clause from all future contracts. .According to an office order issued on Monday, April 21, Clause 25, which provided for "Settlement of Disputes & Arbitration" under the General Conditions of Contract (GCC), will no longer be applicable to new agreements..“The Competent Authority has decided that the Arbitration Clause (Clause 25: Settlement of Disputes & Arbitration) shall be deleted from the GCC of all future contracts of PWD with effect from the date of issuance of this order,” stated the order signed by Ruchika Katyal, Special Secretary (PWD)..In place of the arbitration mechanism, the PWD has mandated that any disputes arising under future contracts will now be resolved exclusively through courts in Delhi. The new clause to be inserted reads:"Any disputes arising between the parties to this agreement/contract shall be subject to the exclusive jurisdiction of Courts in Delhi only.".Commenting on this development, Senior Advocate and President of the Arbitration Bar of India Gourab Banerji, said "This is a very disturbing development. We need to understand why there is this vote of no confidence against arbitration by the Delhi Government. Surely the solution is not to throw out the baby with the bath water.".Delhi government's notification comes close on the heels of Union of India's Office Memorandum (OM) from June 2024. On June 3, 2024, the Indian Ministry of Finance issued comprehensive guidelines regarding arbitration and mediation in domestic public procurement contracts. The memorandum acknowledges that despite arbitration's intended benefits of speed, convenience, technical expertise, and finality, the actual experience has often been unsatisfactory, with processes being time-consuming, expensive, and frequently leading to additional litigation rather than reducing it.The new guidelines mandate that arbitration should no longer be automatically included in procurement contracts, particularly large ones. As a standard practice, arbitration should be restricted to disputes valued under ₹10 crore, with higher-value disputes requiring approval from Secretary-level officers or Managing Directors. When arbitration is necessary, institutional arbitration is preferred, and government entities are discouraged from routinely challenging arbitration decisions..The OM encouraged government departments to adopt mediation under the Mediation Act, 2023, and pursue amicable settlements whenever possible. For high-value matters, departments may constitute High-Level Committees (HLCs) including retired judges and technical experts to review proposed settlements, ensuring arm's-length scrutiny from regular decision-making structures..The OM was met with strong criticism from arbitration practitioners. Recently, Supreme Court Judge Justice N. Kotiswar Singh also criticised the OM stating that it weakens the arbitration movement..[Read Delhi government's notification]
