A recent circular dated April 21 issued by the Public Works Department of the Government of NCT of Delhi has mandated deletion of the arbitration clause from the General Clauses of Contract (GCC). As a result, the preferred mode of dispute resolution would be litigation before the courts in Delhi.

This move has once again posed questions regarding arbitration as the most favoured mode of dispute resolution and invites our attention to the growing uncertainty to submitting oneself before an arbitral tribunal.

The Indian government has always been a strong proponent of arbitration. India was amongst the 10 original signatories to the New York Convention and the fourth country to ratify it (in July 1960). To put India’s historic role in perspective, the USA ratified the Convention 10 years later in 1970, the UK in 1975 and Singapore in the mid-1990s. At a legislative level, arbitration has been a priority and forms a part of India’s growing public policy.

However, this is not the first time a government entity has openly admitted to rejecting arbitration, or has shown signs of struggle in employing it as a method to resolve disputes. The National Highways Authority of India (NHAI), as of March 2025, is struggling with a massive debt pile-up of ₹2.76 trillion, which resulted in pending arbitration claims at the end of FY23 amounting to over ₹1.16 trillion, with very less success in defending them before arbitral tribunals or in courts.

Over the last year, the arbitration community in India has been witness to the government’s shaky stance on arbitration, one event at a time. In June 2024, the Ministry of Finance issued an Office Memorandum (OM) in which the government has necessitated a re-examination of approach towards arbitration vis-à-vis other methods of dispute resolution. The OM said that arbitration was time-consuming, draining the exchequer’s money, and also cited the long-drawn litigation after the passing of awards. The OM restricted disputes under ₹10 crore to be amenable to arbitration. The larger focus shifted to exploring mediation and negotiation as alternatives.

The hopes for a pro-arbitration regime were heightened again when the government introduced the Arbitration and Conciliation Draft Amendment Bill, 2024 where ambitions for time-bound disposal of appeals, limiting the intervention of courts in applications for interim measures and bringing into existence an Appellate Arbitral Tribunal were conceptualised. Even though the ideas are welcome, we are yet to see when they will actually materialise.

In such a situation, the Supreme Court’s frequent obiters across its orders and judgments exhibits the judiciary’s grave concerns regarding the Arbitration Act, 1996. In January 2025, the Supreme Court asked the Central government to bring uniformity in law by harmoniously reading the Limitation Act and the Arbitration Act.

In fact, very recently, the Court lamented the 2024 Bill's failure to address the continued absence of statutory clarity on the power of arbitral tribunals to implead non-signatories.

“What is expressly missing in the Act, 1996 is still missing in the Arbitration and Conciliation Bill, 2024...despite a catena of decisions...highlighting the need for statutory recognition of such power in order to obviate all possibilities of confusion,” the Court noted.

The legislature should endeavour to protect good commercial matters on merit, which suffers immensely due to technical and overly strict timelines. The lawmakers should rather look forward to liberally incorporating condonation of delay applications in commercial courts across India. 

The government, being the biggest litigant before the courts and forums across the country, will have to think about plausible ways to ensure that arbitration as a policy is re-written for the betterment of the commercial interests of India, especially where the exchequer’s money is heavily involved.

So far as formulation of effective policies and laws, the Central government is working on the Arbitration Amendment Bill 2024. It has many important groundbreaking proposals, which can lead to an overall overhaul of the arbitration scene in India. However, the proposed changes have to be quick and needs to be harmonised with existing laws, as suggested by the Supreme Court in My Preferred Transformation & Hospitality.

Secondly, the government should effectively revisit the manner in which it is represented before various arbitral tribunals and courts of law. A huge amount of money is spent on legal representation; sometimes effective, sometimes a wasteful expenditure in seeking adjournments and engaging into dubious filings. The government should look forward to developing a culture of trained law officers and professionals exclusively dedicated towards the legal work of its departments. These law officers should not simply become a link between law firms/lawyers and the departments; rather, they should be the ones who argue and represent the interest of their respective government agencies.

Instead of spending a substantial portion of the annual budget on outsourcing litigation and associated ancillary costs, efforts should be made to improve the quality of professionals already on board and training them in advocacy skills to make them adept in arbitration and its mechanisms. Not to forget, the money saved by not outsourcing litigation and legal representation can be utilised in remunerating the law officers handsomely.

Even though the government as of date is finding issues and faults with the arbitration mechanism, it should introspect more deeply as to why it could not maintain the enthusiasm and put its reliance on this ADR mechanism. The correct way forward is to not resist arbitration, but to delve deeper into it and rectify the faults, bit-by-bit.

Pritthish Roy is a Judicial Law Clerk at the Supreme Court of India.