The Delhi government has ordered an audit of arbitration cases involving claims of over Rs 1 crore filed against it in the last two decades in a move to tighten financial oversight and plug legal loopholes.
The directive, issued to the Public Works Department (PWD), Water Department, and Irrigation and Flood Control Department, is aimed at bringing transparency and accountability in the handling of public money.
"This audit is about learning from the past," a senior government official said. "It will help us understand the extent of financial loss and ensure there's no repeat of such lapses in the future."
The departments have been asked to submit detailed, year-wise data on arbitration cases above Rs 1 crore. This includes how many cases were decided against the government, the reasons cited in the awards, how much was paid out or lost, and whether appeals were filed before disbursing the money.
The move comes in response to what officials describe as "mounting concerns" over how departments have frequently chosen to settle disputes rather than pursue legal remedies, especially in civil and infrastructure contracts. In many such cases, large sums were reportedly paid out without fully exploring legal recourse.
In a decisive step, the government has now barred any payments in arbitration cases where the ruling goes against the state, unless all legal options have been exhausted and formal clearance is obtained from the Law Department.
Officials say that the audit is more of a course correction.
As part of a broader policy shift, the PWD has removed the arbitration clause from all its new contracts. This reform, officials said, is meant to curb opportunistic claims and enforce more rigorous legal discipline in dispute resolution.
The change comes in the direction of Delhi's PWD Minister Parvesh Sahib Singh Verma, who said it was time to draw a line on unchecked settlements.
"Public funds must be treated as sacred," Mr Verma said. "For years, departments settled claims through arbitration without exhausting legal options; this won't continue. We are auditing two decades of arbitration history to identify who was responsible and why legal battles were surrendered. Importantly, I have now removed the arbitration clause from PWD contracts. If there's a dispute, let it go to court. No easy money through arbitration anymore."
Officials familiar with the matter say the audit will likely uncover systemic issues in how departments have handled legal disputes, and could lead to long-term structural reforms in contract enforcement and financial management.
While some contractors have raised concerns that the removal of arbitration may slow down dispute resolution and increase costs, government sources maintain that the change was overdue.
"This reform forces everyone to come to the table with stronger documentation and legal backing," the official added.
The review is expected to conclude later this year and may feed into broader legal reforms across departments engaged in public works and infrastructure contracts.
