The Illusion Of Progress: Why India Is Not Ready To Be An Arbitration Hub

The desire of India to place itself near the global arbitration hubs has continued to falter under the pressure of inconsistency in policies, lack of efficiency in the administration and general unwillingness to adopt the rapid method of solving disputes. Although Indian arbitration system has been remodeled and promises and commitments are repeatedly given, the system has remained entrenched in a framework that suffers to destroy commercial certainty, trivialize costs and water down the finality that arbitration is expected to deliver. One thing is clear, India in its current form, is not in a position to make an arbitration hub. This article explores the fundamental flaws that make the Indian arbitration lack global credibility.

One recent and notable instance of such retrogressive development is the Office Memorandum of the Public Works Department (“PWD”) that, as per a circular of the Ministry of Finance, eliminated the arbitration clause in any further contract. The inclusion of this amendment in the Clause 25 of the General Conditions of Contract, that all disputes should be settled by courts alone is a highly retrogressive policy change. With major international jurisdictions like Singapore and London in the process of enhancing their institutional arbitration regimes, the Indian action of imposing a blanket ban on arbitration in government contracts in project works is a stark indication that arbitration in India is not gaining ground here, it is becoming systematically restricted. In areas such as, infrastructure, energy and construction, where disputes about delays, force majeure, performance failures, and damages are frequent and perplexing, the removal of arbitration gets rid of one of the very limited tools which can help to resolve such an issue effectively and in a cost-effective manner.

The situation is made worse by the parent notification, which is the 2024 Finance Ministry directive on which the PWD has unquestioningly relied. In addition to stifling legitimate dispute resolution, the government's arbitrarily capped arbitration in public contracts at disputes under Rs. 10 crore reveals its increasingly backward and counterproductive approach to arbitration policy. Effectively, this crams costly and high-stakes disputes, the disputes that ought most significantly to be settled by arbitration, into an overstressed court system that cannot absorb yet another layer of avoidable litigation. This is a very strong message to the local and foreign investors; complicated business cases in India will not be heard as swift and objective as in global trade.

The dilution of arbitral finality, achieved methodically by far over-intervention by the judiciary, is the core of the failure of India to develop into a credible arbitral hub especially under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996. Although the legislative purpose of the amendments, particularly that of 2015 and 2019, was to limit the court intervention and make Indian arbitration consistent with the international best practices, the judicial analysis has thwarted this goal on numerous occasions.

Section 34 was conceived as a restrictive supervisory procedure with only very few grounds as incapity, procedural irregularity, violation of public policy, etc. Indian courts have however over time broadened this provision to a de facto review of appeal, in many cases revisiting evidence, interpretation of contract terms and finding of fact of the tribunal of arbitral bodies. Courts have reconsidered the merits of a case by the introduction of notions like 'patent illegality' and their subsequent judicial expansion, on the pretext of overturning errors that can be spotted at a glance on the award. Consequently, arbitration cases, which are supposed to be final and binding in nature, more than not, tend to be just the start of a long process of litigation.

Section 37 increases this interventionist trend since it permits an appeal against orders made under Section 34. Rather than acting as an extraordinary remedy, Section 37 has become a second round of substantive review and has pushed enforcement further out of time and increased its costs. Practically, arbitration awards are often perceived by parties as tentative, with years of post-award litigation to come before High Courts and (ultimately) the Supreme Court. This is in sharp contrast to the major arbitration jurisdictions, where judicial oversee is strictly procedural and courts are conscious not to replace their opinion with that of the tribunal.

It is not a delay issue but rather a question of institutional credibility. Arbitration flourishes on certainty, predictability and confidence of the enforceability of awards. Courts that regularly overrule the decision of the arbitrators in their efforts to do so in the most common sense, kill party autonomy and destroy trust in the arbitral process as such. Institutions that are internationally respected like Singapore International Arbitration Centre and London Court of International Arbitration can be found in judicial ecosystems where the status of arbitral awards are presumed final. The Indian courts, however, still hold on to the traditional civil adjudication mindset and treat arbitral tribunal in a subordinate position to decision making as opposed to an independent adjudicatory institution.

This tension is further exemplified by the latest Supreme Court Judgment in Gayatri Balasamy v. ISG Novasoft Technologies Ltd.^[1] The Court by relying on Article 142 of the Constitution to warrant some limited alteration of arbitral awards has created a disturbing pathway of extraordinary judicial intervention in the statutory context of Sections 34 and 37. This is branded as a step to administer full justice, but this dependency is prone to legitimize judicial discretion in arbitration cases and undermine the statutory protection aimed at upholding the arbitral independence. Although the intention may be to be sparingly used, just the fact that this power is availed is a source of uncertainty since parties are more likely to invoke constitutional remedies to threaten undesirable awards.

There are grave commercial consequences of this judicial pose. Arbitration is appreciated by the businesses especially the foreign investors due to its efficiency and finality. The belief that the Indian arbitral awards are subject to extensive judicial re-examination discourages the parties to use India as a seat of arbitration. They instead use foreign seats that are quick to enforce and the court hardly steps in. This means that the dream of India to emerge as an arbitration center is not undermined by the absence of legislations, but the failure to bridge the gap between the law and judicial practice.

Unless Indian courts are mindfully attentive to a philosophy of minimum intervention and observing finality of the arbitral award, Section 34 and 37 will remain the tools of procrastination, not the protection of justice. Without judicial restraint the arbitration in India will be relegated to a costly preliminary step to litigation- a result that is inherently inconsistent with the spirit of contemporary international arbitration. Additionally, instead of acting as facilitators of the arbitral process, courts have entangled themselves in a multi-layered review mechanism that now mirrors ordinary civil litigation. The statistics of High Courts, especially in Delhi and Bombay, show that most of the awards contested are overturned. This destroys the party autonomy and makes arbitration another round of lengthy litigation; a move that defeats the very interest of arbitration.

The next significant weakness of structure is that India relies extensively on the ad hoc arbitration. Although institutional arbitration offers consistent regulations, administrative assistance, and expert control, India still depends on ad-hoc systems that can be subject to inconsistencies, conflict of interest, and procedural ambiguity. The ad hoc tribunal constitution tends to revert into court jurisdictions, which make it costlier and time consuming. The precedents such as TRF ltd. v. Energo Engineering Projects Ltd.^[2] and Central Organisation for Railway Electrification v. ECI SPIC SMO MCML (JV)^[3], have repeatedly pointed at the issues of biased appointment procedures, invalid nomination practices, and biased panels, which cannot be avoided in institutional arbitration.

India also has a poor case management in ad hoc arbitration. Slow paces, getting in and out of meetings and unreasonable structure of fees make the total cost a lot. Arbitrator replacement or court intervention is necessitated in most instances just to get the process going. Having no codified code of conduct and professionalism of arbitrators, parties tend to experience unequal treatment and severe time delays, which undermine trust in the system.

In addition to procedural problems, there is a more general issue of the legal culture of India. The institutional bias towards court-based resolution still exists and particularly in cases involving government agencies. Arbitration has been shrouded in doubts, as though the private adjudication will always cause prejudices to the interests of the people. The lack of technological adaptation and exposure to the latest practices of resolving disputes among arbitrators and judicial officers also complicates this mindset.

The disorder is also caused by policy confusion. The constant idea that mediation could substitute arbitration is one that shows the gross misconception of a contrasting nature between consensual settlement and binding adjudication. Such suggestions weaken the general ecosystem of dispute resolution rather than empowering every mechanism in the context it belongs to.

Collectively, these deficiencies cultivate a climate of deep uncertainty for businesses. The Devas Multimedia dispute stands as a stark reminder of the systemic obstacles in enforcing awards against the State, raising uncomfortable questions about impartiality whenever sovereign interests are at stake. Time and again, government agencies invoke allegations of fraud or corruption to stall or overturn enforcement, weaponising these claims in a manner that erodes investor confidence and undermines the very credibility and consistency of India's arbitration framework.

In the end, India as an arbitration hub is rather a dream than a reality. India possesses the legal framework of a modern arbitration system, yet clings to a mindset rooted in old habits. Unless this culture changes, the aspiration of emerging as an arbitration hub will remain confined to policy documents, not reality

End Notes

1. 2025 LiveLaw (SC) 508 ↑

2. (2017) 8 SCC 377 ↑

3. 2024 LiveLaw (SC) 874 ↑

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