2024-10-11 05:30:06 :
The oil explorer aims to reduce the number of such disputes by tightening monetary limits in procurement contracts. Indian Oil Corporation will roll out changes in procurement contracts signed with domestic suppliers within a month.
Indian Oil Corporation is trying to reduce its financial burden after the amount of contingent liabilities set aside by the company for arbitration and litigation cases nearly doubled in fiscal 2024. While this would be the first legal restriction on arbitration imposed by a government entity following India’s Finance Ministry push, experts say it could lead to more cases ending up in already overburdened courts.
The first step in plans to reduce Indian Oil Corp’s lengthy arbitration cases, which have placed a financial burden on Indian Oil Corp, is to reduce the number of such cases by reducing monetary limits in commonly used contract conditions, people familiar with the matter said. .
“We are considering following the Treasury Office memorandum in spirit to narrow down the possibility of going to arbitration in procurement cases. There have been internal discussions on this and in a month or so we will be ready to proceed with our GCC Revision of (general conditions of domestic public procurement contracts),” said a person who spoke on condition of anonymity.
The person said Indian Oil may even set a lower $The amount to opt out of arbitration is Rs 10 crore, narrowing the limit recommended by the finance ministry.
Indian Oil Corporation has pending litigation and arbitration regarding the value of the claim $11,291 crore in FY24, which is almost $According to the company’s annual report, the compensation amount in the case filed by the contractor was Rs 59.7 crore in FY23.
These amounts are classified as contingent liabilities and may be required to be paid if a court or arbitrator rules against Indian Oil. The company did not disclose the number of its litigation or arbitration cases.
The role of arbitration
Email queries sent to Indian Oil Corporation and the Ministry of Law, Justice and Finance on October 9 were not responded to at the time of publication.
Arbitration is a common element in dispute resolution clauses in public procurement contracts and is used to determine how parties resolve disputes. Setting a cap means that government entities will not participate in arbitration when the dispute value exceeds $100 million as per the Finance Ministry’s June 3 recommendation.
General conditions in contracts have long been subject to arbitration. A party may resort to arbitration only if the value of the dispute exceeds a certain amount. However, Indian Oil’s decision to lower the arbitration cap will reduce the government’s involvement in arbitration.
However, experts say that as arbitration declines, procurement-related disputes are likely to be brought to the courts, which are already dealing with an increasing number of pending cases. According to the National Judicial Data Grid, as of October 10, there were 5.68 million civil suits pending in district courts in India.
Experts say there are no statutory barriers to resolving disputes through mediation, even if there is an arbitration clause in the contract.
Arush Khanna, partner at Numen Law Firm in New Delhi, said: “Mediation and arbitration should be more harmoniously viewed as means of encouraging alternative dispute resolution rather than resorting to litigation, which currently has over 51 million of us. The case awaits adjudication.”
Shaneen Parikh, partner and head of international arbitration at Cyril Amarchand Mangaldas, said the Treasury advisory opinion did not acknowledge that while obtaining an arbitration award could take two to three years, the time required to obtain a judgment from a court could be anywhere from five to five years. 20 years.
“Even after that, there is the first appeal, the second appeal and then to the honorable Supreme Court. So, by any calculation, arbitration will be faster,” Parikh said.
Cascading effects
Arbitration lawyers said that while the Treasury Department’s advice was limited to domestic contracts, the government’s avoidance of arbitration would also send a signal to foreign parties.
“This will have knock-on effects across the board (and across borders). By encouraging international arbitration to attract foreign investment while showing a lack of confidence in the Indian arbitration environment, you are promoting something you do not practice,” Khanna said. As stakeholders, we can only hope to revisit these guidelines and pave the way for solutions. “India’s pursuit of becoming a center for international arbitration is achievable.”
Mint It was reported on June 24 that arbitration professionals were dissatisfied with the Treasury Department’s advice and demanded that it be withdrawn.
The government’s efforts to reduce arbitration come against the backdrop of an ongoing effort by the Ministry of Law and Justice to amend the United States’ main arbitration law, the Arbitration and Conciliation Act. To be sure, a few months after the Mediation Law was passed in 2023, the Ministry of Finance also recommended that disputes be resolved through mediation rather than arbitration.
Mediation allows the parties to reach an amicable consensus in a dispute, whereas arbitration ends with one party winning and the other party losing.
To facilitate mediation, the finance ministry memorandum empowers public sector companies to resolve issues instead of forcing them to go to arbitration or litigation, Parikh added.
“If this part of the memorandum is passed in the true spirit of its intention, it can facilitate settlement and reduce litigation, and the settlement will be in line with the government’s overall drive to reduce litigation, which led to the Vivad se Vishwas II (Contract Disputes) scheme Allow the government to resolve certain disputes with contractors,” Parikh said.
Previous Supreme Court decisions have reflected the high costs of arbitration borne by the government. exist Hindustan Construction Corporation vs Union of Indiaprivate contractors claim certain state-owned enterprises owe them money $The arbitration award amounted to Rs 6,000 crore.
While the government refuted the claims, it acknowledged that some public sector companies had paid more than $The amount of arbitration awards in 2008-19 amounted to Rs 3,000 crore.
The finance ministry told the Lok Sabha in July that a study showed that more than 60 per cent of all arbitral awards involving NTPC Ltd and the National Highways Authority of India were challenged in courts.
“In all these cases, the government is forced to spend on arbitration and litigation,” Finance Minister Pankaj Chaudhary told the Lok Sabha.
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