Jan, 12 2024

Indian Public Sector Undertakings (PSUs) play a major role in the country's economy, contributing significantly to India's Gross Domestic Product (GDP). PSUs are parties to many disputes, These disputes can take place either in courtrooms or through arbitration.

It is the endeavour of the Government that judiciary and legislature work together for making reforms in the judicial system to reduce burden of cases and deliver speedy justice. The Government is promoting ADR mechanisms including arbitration and mediation as these mechanisms are less adversarial and are capable of providing a better substitute to the conventional methods of resolving disputes in PSUs too.

Public Sector Undertakings (PSUs) in India increasingly prefer arbitration for resolving disputes. This trend is driven by the efficiency, reduced costs, and specialized expertise that arbitration offers. There had been growing number of litigations with the Courts/ Tribunals relating to commercial transactions between the Central Public Sector Enterprises (CPSEs) inter se, or CPSEs and Government Departments.

The practice of disposal of these cases was not only expensive due to high fees charged by the advocates/lawyers for pleading the cases and other expenses incurred in this regard, but also time consuming. The other prevailing practice of conciliation, arbitration etc. were also ad hoc arrangement and not delivering the goods up to the expectations.

With a view to expedite settlement of disputes and reduce avoidable expenditure in this regard, a need was felt to institutionalize the prevailing system of arbitration. Commissions/Committees like Law Commission, Central Vigilance Commission, Committee of Secretaries etc. had also examined this aspect and made certain recommendations/suggestions which were carefully examined in consultation with the Ministry of Law. The Government after due consideration of all aspects, decided to set up the PMA in the Department of Public Enterprises.

In Union Budget Speech 2023, Finance Minister Smt. Nirmala Sitharaman had announced that:

To settle contractual disputes of government and government undertakings, wherein arbitral award is under challenge in a court, a voluntary settlement scheme with standardized terms will be introduced. This will be done by offering graded settlement terms depending on pendency level of the dispute.

The Government has appreciated that special efforts are required to clear the backlog of old disputes and litigation. Such cases are not only holding back fresh investment but are also reducing the ease of doing business with the Government. Therefore, after due study of the past cases, the government intends to bring one time settlement scheme called “Vivad se Vishwas II (Contractual Disputes)” to effectively settle pending disputes. It is proposed to cover only for cases involving domestic arbitration and cases under international arbitration are not eligible to be settled under this scheme.

To enhance the effectiveness of arbitration in the public sector, recommendations include ensuring neutrality and fairness in the appointment of arbitrators, streamlining procedures for faster dispute resolution, and adhering to the legal framework to avoid potential biases and delays. In conclusion, arbitration in India's public sector is evolving, with courts playing a crucial role in shaping its future. These developments are pivotal in ensuring that arbitration remains an effective, fair, and efficient mode of dispute resolution.