Govt. notifies Vivad se Vishwas II Scheme to settle Pending Contract Disputes

The Department of Expenditure under Ministry of Finance has issued Office Memorandum to implement a one-time settlement scheme called “Vivad se Vishwas II (Contractual Disputes)” to effectively settle pending disputes.

The undersigned is directed to refer to Rule 227 A of the General Financial Rules (GFRs), 2017 and Department of Expenditure’s (DoE’s) “General Instructions on Procurement and Project Management” containing instructions to deal with dispute cases. Para 16.4 of the “General Instructions” is reproduced below:

Statistics have shown that in cases where the arbitration award is challenged, a large majority of cases are decided in favour of the contractor. In such cases, the amount becomes payable with interest, at a rate which is often far higher than the Government’s cost of funds. This results in huge financial losses to the Government. Hence, in aggregate, it is in public interest to take the risk of paying a substantial part of the award amount subject to the result of the litigation, even if in some rare cases of insolvency etc. recovery of the amount in case of success may become difficult. Instructions have been issued in this matter in the past but have not been fully complied with.

NITI Aayog had also established a Task Force on Conciliation Mechanism, and had circulated the final report of the Task Force. Following excerpt from the final report is highlighted:

A consideration of even more importance with respect to contracts between Government and Private entities. The same being critical not only to facilitate an overall pro-business environment but also to attract private investment in the country, to encourage private investors to establish and continue short-term and long-term contractual association with the Government, and not be wary of it.

It is understood, however, that more efforts are required to clear the backlog of old litigation cases. Such cases are holding back fresh investment, reducing the ease of doing business with the Government, tying up scarce working capital and indirectly reducing competition for newly floated tenders. In this context, after due study of the experience in past cases, Government has decided to implement a one time settlement scheme called “Vivad se Vishwas II (Contractual Disputes)” to effectively settle pending disputes.

Applicability:

The scheme will apply to contractual disputes where one of the parties is either the Government of India and/ or an organisation detailed below. Apart from Ministries/Departments, attached and subordinate bodies, notwithstanding anything contained in Rule 1 of the GFRs 2017, the scheme shall also be applicable:-

a) to all Autonomous Bodies of the Government of India;

b) to public sector banks and public sector financial institutions;

c) to all Central Public Sector Enterprises;

d) to Union Territories without legislature and all agencies/ undertakings thereof; and

e) to all organisations, like Metro Rail Corporations, where Government of India has shareholding of 50%;however, these organisations can opt out of the scheme at their discretion, with approval of the Board of Directors.

The above mentioned organisations shall hereinafter be referred to as “procuring entities.” The other party in dispute with the procuring entity shall be referred to as contractor( s) hereinafter.

Disputes where the award by court/ Arbitral Tribunal (AT) is only for monetary value will be eligible for settlement under this scheme. In case the award stipulates specific performance of contract (either fully or partially); such awards will not be eligible for settlement through this scheme.

Cases shall satisfy following criteria to be eligible for settlement under this scheme:

The scheme will be applicable only to those contractors who wish to participate in the scheme. Central Public Sector Enterprises (CPSEs) etc., who are contractors to the procuring entities as listed above, are also eligible to submit their claims under this scheme.

The scheme shall apply only for cases involving domestic arbitration and cases under international arbitration are not eligible to be settled under this scheme.

The scheme shall be applicable to all kinds of procurement including procurement of goods, services and works. The scheme is also applicable to all “earning contracts” (i.e. contracts where government receives money in exchange for goods, services, rights, etc.) as well as contracts under Public Private Partnership (PPP) arrangements.

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