Maharashtra government makes institutional arbitration mandatory for contracts above Rs 5 crore

Under the new policy, those who want to set up arbitration councils will have to formulate arbitration rules that are of international standards. The arbitrator should also be headquartered in Mumbai.

Written by Khushboo Narayan | Mumbai | Updated: April 8, 2017 2:02 am

The Maharashtra government has made it mandatory for all commercial contracts of state government above Rs 5 crore to have institutional arbitration clause for dispute resolution. This according to legal experts will help the state government improve ease of doing business, boost investments and lower litigation.

Maharashtra, the first state to have an institutional arbitration policy, recognised Mumbai Centre for International Arbitration on February 28, as one of the authorised institutes for arbitration. The government has also issued a resolution facilitating this.

This will mean that government agencies such as MHADA, MMRDA and others will need to have an in-built institutional arbitration clause in contracts above Rs 5 crore drawn up by them. Earlier, in case of a dispute, the government agencies used to appoint its own officials or former officials to arbitrate, a practice that was criticised by both domestic and foreign investors. Such proceedings stretched for years and the final awards were eventually challenged in courts by investors.

“We now have an independent international arbitral institution and a government that is willing to adhere to it. We are now on par with London and Singapore where we say that if a dispute were to arise , the institution appoints a neutral arbitrator, there will be a fixed fee schedule and fixed timeline for resolution,” said Madhukeshwar Desai, CEO of MCIA.

At present, most global business disputes involving Indians land in Singapore or London arbitration centres. The total outflow of funds to resolve such cases works out to around $5 billion, sources said.

According to sources, Centre too has appointed Justice BN Srikrishna to head a panel for institutional arbitration and may adopt the same model.

Under the new policy, those who want to set up arbitration councils will have to formulate arbitration rules that are of international standards. The arbitrator should also be headquartered in Mumbai.

So far, India has hardly been a preferred seat for settling disputes through arbitration due to lack of credible arbitral institution, excessive judicial intervention, absence of a dedicated arbitration bar and lack of clarity on concept of public policy in the country.

According to a study conducted by the Singapore International Arbitration Centre, almost 30 per cent of the disputes it hears annually relate to matters involving Indian businesses.

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