Last In Line, First To Bleed: How Arbitration Fails Sub Contractors

Arbitration was marketed as faster, cheaper, more flexible than courts, and tailor‑made for commercial players. But, for sub‑contractors, the reality is brutally different. Escalating fees, narrow judicial review and structural barriers to even getting a fair hearing often turn arbitration into a high‑risk gamble rather than an effective remedy, leaving them in a worse position than if they had pursued a focused civil suit or statutory forum. The article exfoliates the promise and focuses upon reality. Arbitration's Promise vs RealityArbitration in India has expanded rapidly where Indian parties are among the top users of leading international institutions like SIAC and ICC. Yet in practice, delay, inconsistent procedures, high fees and tightly restricted grounds for judicial interference have eroded its image as a speedy, cost‑effective, party‑friendly alternative to court litigation.A Constitution Bench in Gayatri Balasamy v. ISG Novasoft Technologies Ltd. (2025) reconfirmed that Section 34 of the Arbitration and Conciliation Act, 1996 (“Act”) permits setting aside or even modifying an award only on narrow grounds like patent illegality, procedural violations or conflict with public policy, and even then, only in very limited, exceptional situations. For a sub‑contractor that has already sunk time and money into arbitration, this means that even a plainly unjust or commercially unworkable award is very hard to correct, unlike a civil decree which can be appealed on merits.Cost, Delay, and Structural Bias: For a sub‑contractor, the cost architecture of arbitration is often structurally hostile:1. Schedule IV fee slabs under the Act frequently make arbitral fees disproportionate when compared with modest court fees, effectively pricing out MSMEs and small sub‑contractors from meaningful participation. 2. In ONGC Ltd. v. Afcons Gunanusa JV (2024) the Supreme Court itself acknowledged that the statutory fee structure has made arbitration “beyond reach for a common litigant” and that high fees deny access to arbitration. 3. Respondents must often pay separate fees even for counterclaims, a burden unknown to ordinary civil courts where a counterclaim is typically permitted on payment of proportionate but moderate court fee in the same proceeding.Delay compounds the problem. Statutorily, awards should be pronounced within 12 months from completion of pleadings, extendable by 6 months by consent, but in practice arbitrations regularly drag on for years due to repeated adjournments and liberal extensions under Section 29A. For sub‑contractors, whose cash flow often depends on timely recovery of narrow margins, such delay converts arbitration from a “fast-track” remedy into a slow and high‑burn process not very different from regular litigation, but with much less scope for appellate correction.Unilateral appointment and “in‑house” panels, particularly in public works contracts, make matters worse. Even after Perkins Eastman Architects DPC v. HSCC (India) Ltd. held that a party interested in the outcome cannot unilaterally appoint the sole arbitrator, parties still frequently have to move Section 11 courts to invalidate one‑sided clauses, adding further upfront cost and time before the dispute even begins. For a sub‑contractor, this can mean months of preliminary fight, merely to secure a neutral forum.Sub‑contractor's Struggle: Recovery and Recognition:Sub‑contractors typically stand at the end of the payment chain yet bear the blow of performance: site execution, labour payments, materials, and statutory compliances. Their core problems in arbitration are:1. Lack of privity with the owner/principal employer: Often the arbitration clause exists only in the principal contract between owner and main contractor, while the sub‑contractor agreement either has no arbitration clause or has a separate clause not mirrored in the “upstream” contract. 2. Cash‑flow vulnerability: Sub‑contractors operate on thinner margins, so high arbitral fees and repeated hearings consume working capital that should be spent on execution of project. 3. Limited remedial bandwidth: With Section 34 review being so narrow, a sub‑contractor cannot realistically hope to correct an award that under‑values its claims or mechanically enforces harsh liquidated damages.Situationally, this plays out in a recurring pattern:1. The owner withholds payment from the main contractor, citing defects or delays. 2. The main contractor passes the burden downwards, withholding or delaying the sub‑contractor's legitimate dues and sometimes raising exaggerated back‑charges. 3. The sub‑contractor, not being privy to the principal arbitration agreement, finds itself with no direct seat at the owner – contractor arbitration table, even though the dispute is factually centred on its work.Even when the sub‑contractor has its “own” arbitration against the main contractor, that proceeding may be practically toothless if the main contractor's ability to...

Last In Line, First To Bleed: How Arbitration Fails Sub Contractors

Sakshi Raizada, Vaibhav Chauhan & ⁠⁠Shubham Sharma

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Sakshi Raizada, Vaibhav Chauhan & ⁠⁠Shubham Sharma

Last In Line, First To Bleed: How Arbitration Fails Sub Contractors

Sakshi Raizada, Vaibhav Chauhan & ⁠⁠Shubham Sharma

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Sakshi Raizada, Vaibhav Chauhan & ⁠⁠Shubham Sharma

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