Introduction:

The Government of India observed that it was suffering heavy financial losses due to prolonged litigations especially with respect to challenges to arbitral awards and the backlog of pending cases. It was also observed that such pendency of claims have a negative impact on fresh investment, ease of doing business and raising of working capital, especially in the infrastructure sector.

Hence, in order to address the issues caused on account of backlog of old litigation cases, the Ministry of Finance, Government of India, has introduced the Vivad se Vishwas – II (Contractual Disputes) (“Scheme”) ^[1] in public interest, with an aim to expedite dispute resolution, prevent significant financial loss for parties, encourage potential investors, boost contract enforcement and wholistically establish a business-friendly environment.

This Scheme, inter alia, provides for a voluntary settlement process for business entities to settle their disputes with Government of India and other qualifying agencies/instrumentalities. It has come into effect from July 15, 2023.

Applicability of the Scheme:

The scheme covers contractual disputes between ‘Procuring Entities’ and ‘Contractors’.

‘Procuring Entities’, under this Scheme, inter alia, include Government of India, all autonomous bodies of the Government of India, public sector banks and financial institutions, central public sector enterprises, Union Territories without legislature and all agencies/ undertakings, organizations where Government of India has shareholding of 50% or more.

‘Contractors’ inter alia, include private entities or any other party in dispute with the Procuring Entity.

The Scheme is for a limited time from July 15, 2023 to October 31, 2023, within which eligible claims must be filed and the implementation is also time bound.

The Scheme covers:

• Orders passed by Courts up to April 30, 2023 and Arbitral Awards made up to January 31, 2023;
• It is applicable only to Orders or Arbitral Awards that are final and for a monetary value, and Orders or Arbitral Awards that directs specific performance of a contract or for interim reliefs (including interim monetary reliefs) are not eligible under the Scheme.
• It is applicable to judgements and orders of Indian Courts and arbitral award made by arbitral tribunals seated in India and includes awards passed under the settlement scheme provided under the Micro, Small and Medium Enterprises Development Act, 2006. However, foreign awards are excluded from the scope of this Scheme.

The Scheme is binding on the Procuring Entities where the claim amount is Rs. 500 Crores or less, however where the claim amount exceeds Rs. 500 Crores, the Procuring Entities have an option to not accept and reject such settlements, recording reasons for such rejection. The Contractor may choose to limit its claim to below Rs. 500 Crores to derive benefits of the Scheme.

Amount payable towards Settlement and Interest under the Scheme:

In case of Orders passed by a Court, a net amount of 85% of the amount will be offered to the Contractor.

In case of Arbitral Awards, a net amount of 65% of the amount awarded by Arbitral Tribunal will be offered to the Contractor.

Simple interest is payable on such amounts at the rate of 9% (nine per cent) per annum, such simple interest is to be paid after full or partial payment of the net award, in accordance with the time specified in award or within 30 (thirty) days.

Overview of the procedure for submission of Claims:

The eligible Contractors have to submit their claims in a time bound manner, by getting registered through the Government e-Marketplace website (“GeM”).

As the first step post registration on the GeM website, the registered Contractor must list out all eligible disputes with the Procuring Entities and pertinent details and documents related to the dispute have to be provided. Upon the submission of details by the Contractor, the Procuring Entities will verify the dispute and claims at their end.

The Procuring Entity must then evaluate the settlement amount due, as per this scheme and offer it to the Contractor within 14 (fourteen) days or two weeks from the date of receipt of claims on the GeM portal.

Upon receipt of the settlement offer, the Contractor may accept or reject the offer within the 30 (thirty) days from the receipt of the offer.

If the Contractor accepts the offer, an acknowledgement email will be generated and sent to both the parties. The Contractor or Procuring Entity will be given 45 (forty-five) days (or longer period if permitted by the procuring entity), from the date of the acknowledgement email to withdraw/suspend all litigation/arbitration or conciliation proceedings. The proposed settlement agreement has to be executed by the parties within 30 (thirty) days and the payments must be made by the Procuring Entity. If the settlement agreement is executed, as a part of the settlement process the Parties will withdraw all pending litigation/ arbitrations /conciliations in relation to such dispute.

In case of rejection of the offer by the Contractor or failure to affect the settlement by the Contractor, the ongoing litigation/arbitration or conciliation process may continue, and the settlement attempt under this Scheme would not be considered as a success.

Conclusion:

The Scheme holds all good ingredients and intents, viz. promise and is an effective means to resolve contractual disputes, reducing litigation costs, and fostering a business-friendly environment for all involved entities. As with any policy, the success depends on its implementation. Therefore, the Scheme will have to be implemented as efficiently as proposed, in an expeditious and unprejudiced manner to ensure that the initiative reaches its potential.

Footnote:

[1] Notification by Ministry of Finance, Government of India bearing No.- F.1/7/2022-PPD, dated May 29, 2023, under the Scheme titled “Vivad se Vishwas II (Contractual Disputes)”.