In June 2024, the Government of India (GoI) issued an Office Memorandum (OM) that marked a significant departure from its prior support for arbitration. The OM proposed removing arbitration clauses from contracts below INR 10 crore, citing concerns regarding costs, delay, arbitrator quality and lack of finality. The Delhi Public Works Department (PWD) went further in April 2025, omitting arbitration clauses from future contracts altogether. Given that sub-10-crore contracts constitute a substantial portion of government contracting activity, this policy is not a marginal adjustment. It represents a significant shift in the manner in which the State approaches dispute resolution.
Taken together, the criticisms that formed the basis of these measures amount to a broader indictment of India’s domestic arbitration ecosystem.
Nearly two years have passed since the OM was issued. Yet the debate surrounding it has largely remained unchanged. Much of the discussion has focused on whether the Government should abandon arbitration, while comparatively little attention has been paid to addressing the concerns that prompted the policy in the first place. The OM therefore remains relevant not because it is recent, but because its central criticisms of India’s domestic arbitration ecosystem remain substantially unanswered.
The GoI’s Grievances: A Systemic Indictment
The OM lays out a clear set of complaints, many of which resonate with arbitration users across sectors.
Procedural Inefficiency
Domestic arbitrations often mimic civil litigation, with sprawling pleadings, unrestricted cross-examination and frequent adjournments. Despite section 19 of the Arbitration and Conciliation Act, 1996 (the “Act”) permitting procedural flexibility, tribunals rarely exploit that flexibility to impose meaningful procedural discipline.
Weak Reasoning and Sectoral Mismatch
Awards frequently devote substantial space to reproducing pleadings and evidence while providing comparatively limited analysis of the issues that actually determine the outcome of the dispute. The continued dominance of retired judges in certain sectors, often without specialised technical expertise, can further contribute to procedural formalism and over-reliance on expert evidence.
Lack of Finality
The Indian judiciary’s permissive approach to challenges under sections 34 and 37 of the Act undermines confidence in arbitration. Courts frequently entertain award challenges on grounds of “public policy” or “patent illegality,” often slipping into merits. This stands in stark contrast to jurisdictions like the United Kingdom, where courts enforce awards with minimal interference under the Arbitration Act 1996.
Disproportionate Costs
Tribunal fees, legal fees and expert costs can, particularly in lower-value disputes, become disproportionate to the amount in controversy. Tribunals frequently avoid the “costs follow the event” principle, splitting costs even when one party clearly prevails. The absence of consistent approaches to cost allocation further erodes confidence in arbitration as a cost-effective alternative to litigation.
Institutional Arbitration Is Not a Cure-All
A common response to the OM has been that the Government’s concerns are principally a product of ad hoc arbitration and that greater reliance on institutional arbitration is the obvious solution. This diagnosis is incomplete. Institutional administration may improve certain aspects of case management, but it does not, by itself, guarantee efficient procedure, technically competent tribunals, well-reasoned awards, proportionate costs or meaningful finality. Many of the concerns identified by the Government can arise in both institutional and ad hoc proceedings.
Arbitral institutions perform largely administrative functions—appointing tribunals, collecting deposits and administering fee schedules—without materially influencing procedural discipline, evidentiary management or the quality of adjudication. Institutionalisation, in other words, becomes a matter of form rather than function.
This is particularly relevant to the Government’s concern regarding costs. One of the principal justifications offered for institutional arbitration is that it provides a predictable fee structure. The parties can achieve the same objective through careful clause drafting. An arbitration clause can, for example, expressly adopt the Fourth Schedule of the Act, ensuring a transparent and proportionate fee regime without incurring additional institutional administrative charges. Similarly, procedural safeguards concerning arbitrator qualifications, evidentiary rules, timelines and cost allocation may all be incorporated directly into the arbitration agreement.
The Singapore International Commercial Court’s decision in DJO v DJP and others [2024] SGHC(I) 24 illustrates the point. The Court set aside an ICC award after finding that substantial portions of the award’s reasoning had been reproduced from another arbitration, depriving the parties of an independent and impartial adjudication. The case demonstrates that institutional administration cannot, by itself, guarantee adjudicative quality.
The issue, therefore, is not whether parties choose institutional arbitration or ad hoc arbitration. The issue is whether the arbitration agreement is drafted in a manner that promotes procedural discipline, technical competence, cost-efficiency and effective case management. Institutional rules are one means of achieving those objectives; they are not the only means.
The Arbitration Community’s Failure to Engage with the Government’s Concerns
The Government is not merely the regulator of India’s arbitration framework; it is also one of its largest and most sophisticated users. When such a user expresses dissatisfaction with the process, the appropriate response is not simply to defend arbitration, but to examine whether the process can be improved.
Despite the significance of the GoI’s policy shift, much of the arbitration community’s response has focused on criticising the OM and calling for its withdrawal. Comparatively little attention has been paid to addressing the concerns that motivated the policy in the first place. The debate has largely centred on preserving arbitration’s place, rather than identifying procedural reforms capable of restoring the Government’s confidence in the process.
This is problematic. Arbitration practitioners who wish to see the GoI return to arbitration must first engage seriously with the concerns identified by one of arbitration’s most important users and offer credible, implementable solutions capable of addressing those concerns.
A Constructive Path Forward: Clause-Level Reform
The most effective—and most overlooked—solution lies in the careful drafting of arbitration clauses. A well-drafted clause can embed procedural discipline, sector-specific expertise and cost control without requiring institutional administration.
Key elements may include:
- Fast-track procedures for claims below INR 10 crore, with strict timelines and documentary-only evidence unless otherwise required;
- Prescribed arbitrator qualifications, including sector-specific expertise and minimum experience thresholds;
- Mandatory adoption of the Fourth Schedule fee structure to ensure transparent and proportionate tribunal remuneration;
- Adoption of procedural frameworks such as the IBA Rules or Prague Rules to guide evidentiary management and case administration; and
- Costs follow the event as the default rule, coupled with reasoned determinations on cost allocation and scrutiny of party conduct.
Such an approach allows the Government to retain control over process design while addressing many of the concerns that motivated the OM.
Conclusion: Time for Engagement, Not Evasion
The GoI’s retreat from arbitration reflects a response to perceived systemic dysfunction. Whether one agrees with that response or not, it cannot simply be dismissed. The concerns identified by the Government are concerns expressed by one of arbitration’s largest users and deserve serious engagement.
Clause-level reform offers a practical and scalable way to address many of those concerns without abandoning arbitration altogether. If arbitration practitioners believe that the Government’s retreat from arbitration is misguided, they must do more than defend the existing system. They must demonstrate how the already available tools can deliver the efficiency, expertise, cost-effectiveness and procedural discipline that arbitration users increasingly expect.
The choice is not between institutional arbitration and ad hoc arbitration. Nor is it between arbitration and litigation. The real choice is between preserving existing practices and designing dispute resolution processes that respond to the legitimate concerns of arbitration users. If the arbitration community wishes to persuade the Government to return to arbitration, it must first demonstrate that it has listened to why the Government left.
– Manan Shukla