India’s Retreat from Arbitration: Why Government Contracts Need a Stronger Dispute Resolution Framework
Government concerns over delay, cost, arbitrator quality and limited finality have renewed the debate over whether India’s arbitration system needs structural reform.
India’s Retreat from Arbitration: Why Government Contracts Need a Stronger Dispute Resolution Framework
Arbitration has long been promoted as an alternative to traditional court litigation, particularly for commercial and infrastructure disputes. The expectation is that arbitration should provide parties with a process that is faster, specialised, flexible and more efficient than ordinary civil litigation.
However, concerns about the functioning of India's domestic arbitration system have increasingly challenged that assumption.
In June 2024, the Government of India issued an Office Memorandum (OM) raising concerns about the cost, delays, quality of arbitrators and lack of finality associated with arbitration. The Delhi Public Works Department (PWD) subsequently went further by removing arbitration clauses from its future contracts.
These developments raise an important question: Is the problem with arbitration itself, or with the way arbitration clauses and proceedings are currently designed and conducted?
Why the Government Is Reconsidering Arbitration
The Government is one of the largest users of India's dispute-resolution system.
Its concerns therefore carry particular significance for the arbitration community.
The issues identified include:
- Procedural delays
- Increasing litigation-style procedures
- High arbitration costs
- Concerns regarding arbitrator expertise
- Poorly reasoned awards
- Challenges to awards before courts
- Lack of sufficient finality
Taken together, these concerns suggest that some government users no longer view arbitration as automatically providing the advantages for which it was originally preferred.
Procedural Delays and Litigation-Like Arbitration
One of the principal criticisms is that domestic arbitration can sometimes become very similar to civil litigation.
Instead of a streamlined process, proceedings may involve:
- Lengthy pleadings
- Extensive cross-examination
- Large volumes of evidence
- Repeated adjournments
- Prolonged procedural applications
This is particularly significant because Section 19 of the Arbitration and Conciliation Act, 1996 gives arbitral tribunals considerable flexibility in determining their procedure.
The concern is therefore not necessarily the absence of procedural powers, but whether tribunals are using those powers effectively to keep proceedings focused and efficient.
Concerns About the Quality of Arbitral Awards
Another issue relates to the reasoning contained in arbitral awards.
According to the analysis underlying the Government's concerns, some awards devote considerable space to reproducing pleadings and evidence while providing comparatively less attention to the reasoning that actually determines the dispute.
There is also a concern regarding the appointment of arbitrators who may have extensive judicial experience but limited technical or sector-specific expertise.
This can become particularly relevant in disputes involving:
- Construction
- Infrastructure
- Engineering
- Public procurement
- Energy
- Technology
Technical disputes often require an adjudicator who can understand the commercial and industry context rather than relying excessively on expert evidence.
The Problem of Finality
One of arbitration's central attractions is that parties expect the arbitral award to bring the dispute substantially to an end.
However, challenges under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996 can create additional layers of litigation.
The source highlights concerns that courts sometimes examine challenges involving concepts such as:
- Public policy
- Patent illegality
and, in doing so, may come close to reconsidering the merits of the dispute.
This can weaken the perception of arbitration as a final dispute-resolution mechanism.
Arbitration Can Become Expensive
Cost is another major concern.
An arbitration can involve several categories of expenditure, including:
- Tribunal fees
- Legal fees
- Expert fees
- Administrative expenses
- Documentation and evidence costs
For high-value disputes, these expenses may be proportionate to the amount involved.
For smaller claims, however, the costs can become disproportionately high.
This creates a particular problem where arbitration is intended to be an efficient alternative to litigation but becomes financially burdensome for the parties involved.
Is Institutional Arbitration the Answer?
A common response to concerns about arbitration is to promote institutional arbitration over ad hoc proceedings.
Institutional arbitration can provide structured mechanisms for:
- Appointment of arbitrators
- Fee administration
- Case management
- Procedural rules
However, the source argues that institutional arbitration should not be treated as a complete solution.
An institution may administer the proceedings, but that does not automatically guarantee:
- Better procedural discipline
- Technically qualified arbitrators
- High-quality reasoning
- Proportionate costs
- Minimal court intervention
Therefore, simply changing from ad hoc to institutional arbitration may not resolve every structural problem.
The Importance of Better Arbitration Clauses
One of the most practical solutions identified is clause-level reform.
Instead of relying entirely on institutional rules or statutory provisions, parties can design arbitration clauses that specifically address the problems likely to arise during the proceedings.
A carefully drafted clause can establish expectations regarding:
- Timelines
- Arbitrator qualifications
- Evidence
- Fees
- Cost allocation
- Case management
- Procedural rules
This approach allows parties to create a dispute-resolution mechanism suited to the nature and value of their contract.
Fast-Track Arbitration for Smaller Claims
For disputes below a specified monetary threshold, arbitration clauses could provide for fast-track procedures.
Possible features include:
- Strict procedural deadlines
- Documentary evidence as the default
- Limited oral hearings
- Restricted cross-examination
- Expedited appointment of arbitrators
The source specifically identifies fast-track procedures for claims below ₹10 crore as one possible contractual reform.
This approach could help ensure that the cost and duration of arbitration remain proportionate to the amount in dispute.
Choosing the Right Arbitrator
Arbitrator selection is another area where arbitration agreements can be more specific.
Contracts could prescribe:
- Minimum professional experience
- Relevant sector expertise
- Technical qualifications
- Independence requirements
- Experience in comparable disputes
This may be particularly useful in government and infrastructure contracts, where disputes can involve complex technical and commercial questions.
Controlling Arbitration Costs
The Fourth Schedule of the Arbitration and Conciliation Act, 1996 provides a framework for tribunal fees.
Parties can incorporate such a fee structure into their arbitration agreement to create greater predictability.
Clear contractual provisions can help parties understand the potential cost of arbitration before a dispute actually arises.
Better Rules for Evidence
Another possible reform is to establish the evidentiary framework at the contractual stage.
The source identifies frameworks such as:
- IBA Rules on the Taking of Evidence
- Prague Rules
as possible tools for managing evidence and reducing unnecessary procedural complexity.
Such frameworks can help tribunals maintain focus on the issues that actually matter to the dispute.
Costs Should Follow the Outcome
Cost allocation is another area where greater consistency could improve confidence in arbitration.
A contractual rule that costs follow the event would generally mean that the successful party should receive its reasonable costs, subject to the tribunal's assessment.
Where a tribunal departs from that approach, a reasoned explanation could help make the process more predictable.
This may discourage unnecessary litigation conduct and encourage parties to assess the strength of their claims more carefully.
A Lesson From International Arbitration
The source also refers to the Singapore International Commercial Court's decision in DJO v DJP and others [2024] SGHC(I) 24.
The Court set aside an ICC award after finding that substantial portions of its reasoning had been reproduced from another arbitration.
The case illustrates an important point: institutional administration alone cannot guarantee the quality or independence of adjudication.
The quality of the tribunal and the integrity of the decision-making process remain critical regardless of whether an arbitration is institutional or ad hoc.
What Should the Arbitration Community Do?
The Government's decision to reconsider arbitration should not simply be treated as an attack on the arbitration system.
Instead, it can be viewed as an opportunity to examine whether existing practices actually deliver the benefits that arbitration promises.
If arbitration practitioners want government bodies to continue using arbitration, they need to demonstrate that concerns regarding:
- Efficiency
- Cost
- Expertise
- Procedure
- Finality
can be addressed through practical reforms.
Simply defending the existing system may not be enough.
What This Means for Government Contracts
Government contracts often involve substantial public resources and complex commercial relationships.
A poorly designed arbitration clause can result in disputes that take years to resolve and consume significant public funds.
Future government contracts could therefore benefit from more carefully structured clauses addressing:
1. Time Limits
Clear deadlines for pleadings, evidence and hearings.
2. Arbitrator Qualifications
Industry-specific experience wherever necessary.
3. Fee Structure
Predictable and proportionate tribunal fees.
4. Evidence
Defined rules to prevent unnecessary documentary and oral evidence.
5. Costs
A transparent framework for allocating legal and arbitration costs.
6. Finality
Procedural mechanisms designed to reduce unnecessary challenges.
The Real Debate: Reform or Abandonment?
The central issue is not simply whether arbitration should be institutional or ad hoc.
Nor is the choice necessarily between arbitration and litigation.
The larger question is whether India can redesign arbitration to address the concerns of its users.
If arbitration becomes faster, more specialised, cost-conscious and procedurally disciplined, it can continue to provide a valuable alternative to conventional litigation.
If these problems remain unresolved, users—particularly large institutional users such as the Government—may continue to reconsider whether arbitration provides sufficient value.
Key Takeaways
- The Government has raised concerns regarding the functioning of domestic arbitration.
- Procedural delays and litigation-style practices can reduce arbitration's efficiency.
- Questions have also been raised about arbitrator expertise and the quality of awards.
- Challenges under Sections 34 and 37 can affect the perceived finality of arbitration.
- Arbitration costs may become disproportionate in lower-value disputes.
- Institutional arbitration can help with administration but is not a complete solution.
- Carefully drafted arbitration clauses can address procedure, expertise, evidence and costs.
- Fast-track mechanisms may make arbitration more suitable for smaller claims.
- The arbitration community may need to respond to user concerns through practical reforms rather than simply defending the existing system.
Conclusion
India's changing approach to arbitration is an important warning for the country's dispute-resolution community.
The concerns raised by the Government—delay, cost, procedural inefficiency, arbitrator expertise and lack of finality—cannot simply be dismissed. They highlight genuine questions about whether domestic arbitration is consistently delivering the speed and efficiency expected from it.
At the same time, abandoning arbitration altogether may not be the only answer.
A better approach could involve smarter arbitration clauses, stronger procedural discipline, appropriate arbitrator selection, predictable costs and effective evidence management.
The future of arbitration in India may therefore depend less on choosing between institutional and ad hoc arbitration and more on designing a system that responds directly to what its users actually need.
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