1.Introduction:
a. Finance Minister on her budget speech for the year 2023-24 made a announcement 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“.
b. A draft scheme in relation to above was released by Ministry of Finance on February 08, 2023 for consultation with stakeholders who can submit their suggestion by 08.03.2023 with an aim to bring quick finality to certain contractual disputes in which Government of India or its agencies is a litigant.
2.Reasons for bringing the above scheme:
a. Government statistics shows that cases where arbitration award is challenged, such cases are decided in favour of contractor which results in paying the amount along with the interest which is often higher than government cost of funds, resulting in huge financial loss.
b. 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.
3.Applicability of the Scheme: The scheme will apply to disputes where one of the parties is either the Government of India or its following bodies: (a) All Autonomous Bodies of the Government of India; (b) Public sector banks and public sector financial institutions (c) All Central Public Sector Enterprises; (d) Union Territories, National Capital Territory of Delhi and all agencies/ undertakings thereof; and (e) All organisations, where Central Government like Metro Corporations, where Government of India has shareholding of 50%.
These entities will be called as the “Procuring entities” and other party lodging the claim against the procuring entity shall be referred to as the Contractor.
The Scheme will be applicable to all contractors/ suppliers who wish to participate. In case Central Public Sector Enterprises (CPSEs) etc. are the contractors/ suppliers in a particular contract, they are also eligible to submit their claims under the scheme.
4. Non-Applicability of the Scheme:
a. Disputes, where claims are raised against procuring entities as above along with some other party (State Government or private party), shall not be eligible under the scheme.
b. Only domestic arbitration cases shall be settled and no international arbitration cases shall be eligible to be settled through this scheme.
5. Period of Claim: Only disputes involving above entities where the claim for proceedings (either to Court or for Arbitration or Conciliation) were submitted by the contractor on or before September 30, 2022 and Arbitral Tribunal/ Committee for Conciliation etc. for the specific case has been already notified by the procuring entity shall be eligible for settlement through this scheme and any counter claims submitted by the procuring entity upto 31.12.2022 shall also be considered.
6. Kind of Claim which shall be settled through the scheme: Only Financial claims disputes against the procuring entities will be settled through the scheme and no dispute or claim seeking specific performance of the contract (either fully or partially) shall be settled through the scheme.
7.Amount of settlement: The amount of settlement that will be payable to the contractors will depend upon the pendency level/status of dispute.
8.Submission of Claim: Contractors shall submit their claim within 3 months from the date of the notification of the scheme through Government e-Marketplace (GeM), which shall provide an online functionality for the same.
9.Option Not to accept the claim: Procuring entities will have an option to not to accept the settlement request of the contractor if the amount of total claim (claim and counter claims amount added together) with the reasons to be recorder for not accepting the claim and approval of secretary concerned in case of Ministries/Departments or CEO in case of CPSEs shall be obtained. A special committee maybe set up to review the case before it is decided to not to accept the request for settlement.
Decision to not to accept the request should not be taken in a routine manner but only when the case genuinely merits going for the appeal and there are high chances of winning in the court/higher court.
Copy of draft scheme:
