Para 9.9.11 - Challenging Awards | KartavyaDesk
Original Rule Text
9.9.11 Challenging Arbitration/ Judicial Awards 1. ln matters covered by arbitration/ court decisions123, the guidance contained in ‘General Instructions on Procurement and Project Management’ dated 29.10.2021124 should be kept in mind. In cases where there is a decision against the government/ public sector enterprise, the decision to challenge/ appeal should not be taken routinely, but only when the case genuinely merits going for challenge/ appeal and there are high chances of winning in the court/ higher court. 2. In cases where the Ministry/ Department has challenged an arbitral award and, as a result, the amount of the arbitral award has not been paid, 75% of the arbitral award (which may include interest up to date of the award) shall be paid by the Ministry/ Department to the contractor/ concessionaire against a Bank Guarantee (BG). The BG shall only be for the said 75% of the arbitral award as above and not for the interest, which may become payable to the Ministry/ Department should the subsequent court order require a refund of the said amount. 3. The payment may be made into a designated Escrow Account with the stipulation that the proceeds will be used first for payment of lenders’ dues, second for completion of the project and then for completion of other projects of the same Ministry/ Department as mutually agreed/ decided. Any balance remaining in the escrow account after settlement of lenders’ dues and completion of projects of the Ministry/ Department may be allowed to be used by the contractor/ concessionaire with the prior approval of the lead banker and the Ministry/ Department. If otherwise eligible and subject to contractual provisions, and other amounts withheld may also be released against BG.125 4. Arbitration /court awards should be critically reviewed. In cases where there is a decision against government / public sector enterprise (PSE), the decision to appeal should not be taken routinely, but only when the case genuinely merits going for the appeal and there are high chances of winning in the court/ higher court. There is a perception that such appeals, etc., sometimes resorted to postpone the problem and defer personal accountability. Casual appeals in arbitration / court cases have resulted in the payment of heavy damages / compensation / additional interest cost, thereby causing more harm to the exchequer, in addition to tarnishing the image of the Government.
What This Means
Para 9.9.11 of the Manual for Procurement of Goods, 2017, focuses on how government departments should handle challenges to arbitration or court decisions that go against them. It emphasizes that appealing these decisions shouldn't be automatic. Instead, a careful review is required to determine if there's a strong chance of winning the appeal. The rule aims to prevent frivolous appeals that waste public money and damage the government's reputation. It affects all government departments and public sector enterprises involved in procurement and project management where disputes arise and lead to arbitration or court cases.
Furthermore, if a department does challenge an arbitration award, it needs to pay 75% of the award amount (including interest up to the award date) to the contractor or concessionaire. This payment is secured by a Bank Guarantee (BG). The money is deposited into a special Escrow Account and used primarily to pay lenders' dues and complete the project or other projects of the same department. This ensures that projects aren't stalled indefinitely due to legal challenges and that contractors receive a portion of what they are owed while the appeal process unfolds.
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.
Key Points
- •Appeals against arbitration/court decisions should not be routine; a strong chance of winning is essential.
- •If an appeal is filed, 75% of the arbitration award (including interest up to the award date) must be paid against a Bank Guarantee (BG).
- •The 75% payment is made into an Escrow Account, prioritizing lenders' dues and project completion.
- •Arbitration/court awards must be critically reviewed before deciding to appeal.
- •Casual appeals can result in heavy damages and tarnish the government's image.
Practical Example
The Ministry of Infrastructure awarded a road construction contract to ABC Constructions. A dispute arose, leading to arbitration where ABC Constructions won an award of ₹10 crore. The Ministry, believing the award was flawed, decided to challenge it in court. As per Para 9.9.11, the Ministry must pay ABC Constructions ₹7.5 crore (75% of ₹10 crore) against a Bank Guarantee. This ₹7.5 crore is deposited into an Escrow Account. The funds are then used to first pay off any outstanding loans ABC Constructions took for the project and then to complete the road project or other infrastructure projects under the Ministry. If the Ministry wins the appeal, ABC Constructions must refund the ₹7.5 crore (plus any interest earned).
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.
Frequently Asked Questions
What happens if the contractor doesn't have any lenders to pay?▼
Is the Bank Guarantee required for the entire arbitration award amount?▼
Who decides whether there is a 'high chance of winning' the appeal?▼
What happens to the remaining 25% of the arbitral award if the appeal is ongoing?▼
Does this rule apply to all types of government contracts?▼
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.
Test Your Knowledge
Question 1 of 3
According to Para 9.9.11 of the Manual for Procurement of Goods, 2017, what is the primary consideration when deciding whether to challenge an arbitration award against the government?
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