ONGC reduces arbitration, uses IIAC services after finance ministry push

for the amount in dispute $The Rs 10-crore ONGC will use the services of the New Delhi-based Indian International Arbitration Center (IIAC), a commercial dispute resolution forum headed by a former Supreme Court judge.

This follows a recommendation issued by the Treasury Department in June urging all government entities to curb arbitration proceedings worth more than $10 billion. $100 million domestic procurement contracts to reduce such disputes and ease their financial burden.

ONGC “has implemented the guidelines issued by the MoF (Ministry of Finance) vide OM (Office Memorandum) dated June 3, 2024, applicable to domestic public procurement by government entities,” an ONGC spokesperson said in an email reply Mintquery.

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“Therefore, in ONGC’s future domestic procurement contracts, the upper limit on the amount of claims submitted to arbitration should be $100 million and the arbitration will be administered through Institutional Arbitration at the Indian International Arbitration Center in accordance with the above guidelines,” the spokesperson added.

Inquiries emailed to the Law and Justice Ministry and the Finance Ministry on Wednesday did not elicit a response.

However, responding to an email query regarding ONGC’s plans to use IIAC services, its registrar Vinay Kumar Sanduja said: “The information can be provided by ONGC. We do not have any information.”

ONGC must legally fight contractor’s claims $170.41 billion in FY24, slightly lower than that in FY23 $193.45 billion, according to its annual report. The company lists these values ​​as contingent liabilities, indicating that they will have to be paid if a court or arbitrator rules against ONGC.

The development is significant as it is the second instance of a public sector undertaking (PSU) following the Ministry of Finance’s advisory and codification changes to its domestic procurement contracts.

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Mint It was reported last week that oil companies planned to amend their general contract conditions in about a month to comply with Treasury recommendations.

“The memorandum is limited to domestic procurement contracts and is advisory rather than prescriptive in nature. Even so, given that India has been promoting itself as an arbitration Centre, but India itself does not encourage arbitration, so it does not set the right tone. Choosing litigation over arbitration is unlikely to lead to efficiency gains, she said. “However, hopefully, while following the memorandum, ONGC has opted for institutional arbitration instead of the usual ad hoc proceedings, which will incentivize efficiency.” “

The Treasury Department’s guidance aims to cut legal costs borne by public institutions and other government entities, which have a significant impact on public finances. For example, in the following case Hindustan Construction Corporation and Anr. vs indian leagueprivate contractors claimed that public institutions owed them more than $The arbitration award amounted to Rs 6,000 crore. The government denies the accusations but confirms it has paid $Arbitration awards of Rs 3,000 crore were provided to contractors during 2008-19.

ONGC said the move will strengthen institutional arbitration in the country as government guidelines favor institutional arbitration over ad hoc arbitration.

Ad hoc arbitration means that the parties unanimously decide on the arbitrator, arbitration rules and procedures to be followed. Institutional arbitration means that the parties engage the services of an institution to complete all of the above matters.

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While IIAC is the only arbitration center directly funded by the central government, there are several such institutions across the country, which are either run by courts (for example, the Delhi International Arbitration Center is run by the Delhi High Court) or privately run. They all provide essential services for arbitration proceedings, including the selection of panels of arbitrators. Mint It was reported on September 29 that the government was trying to use IIAC more effectively by increasing caseloads.

This is not the first time the government has tried to promote institutional arbitration rather than ad hoc practices. The Arbitration and Conciliation Act is the primary law on the subject in the United States, and its major reforms were designed to promote institutional arbitration.

An expert committee headed by Justice BN Srikrishna said in its 2017 report: “Despite the existence of multiple institutions governing arbitration, India has not fully accepted institutional arbitration as the preferred mode of arbitration.” In 2019, the Arbitration Act was enacted on the recommendations of the committee Revisions were made.

Further reforms in 2024 recommended by the expert committee headed by former legal secretary TK Viswanathan also mentioned that “the prevalence of ad hoc arbitration is overwhelming compared to institutional arbitration.” The Viswanathan Committee report later said that despite Reforms were introduced in 2019, but they are not enough to advance institutional arbitration.

ONGC tells Mint In its emailed response, the company said it has a robust internal mediation mechanism and is enhancing it with more transparency and clear timelines to make it faster and more cost-effective.

This push for mediation stems from Treasury Department recommendations urging government entities to engage in mediation rather than arbitration, which is more time-consuming and expensive. The Treasury Department’s proposal even requires government entities to file lawsuits in court rather than engage in arbitration. Of course, this advice only applies to domestic public procurement contracts where the disputed value exceeds $100 million rupees.