In a bid to streamline India’s arbitration system and reduce the burden of litigation, the Union Law Ministry has embarked on a data-driven review. The ministry has requested detailed information from all ministries regarding arbitration proceedings involving the central government over the last 24 years, encompassing details such as legal costs, number of lawyers engaged, arbitration outcomes, and subsequent appeals. This ambitious initiative aims to provide a comprehensive overview of the country’s experience with arbitration and identify potential areas for improvement.
The Indian government, being the nation’s largest litigant, has been actively pursuing amendments to the Arbitration and Conciliation Act, a key piece of legislation that governs out-of-court dispute resolution. The primary objective is to address the growing issue of case backlog and minimize legal costs. In a letter dated September 2nd, the Department of Legal Affairs indicated its commitment to further strengthening the arbitration ecosystem through proposed amendments.
This data collection effort goes hand-in-hand with the Union Finance Ministry’s advisory issued in June, urging government bodies, including state governments and public sector undertakings (PSUs), to consider mediation over arbitration for disputes exceeding 10 crore rupees. The advisory underscored the financial and time-consuming nature of arbitration, advocating for litigation in courts instead. This recommendation specifically targeted public procurement contracts.
Experts, while acknowledging the need for a comprehensive review, also highlight potential risks associated with data collection. Amita Gupta Katragadda, a partner at Cyril Amarchand Mangaldas, emphasizes the importance of data-driven assessments to inform policy decisions in the dynamic field of arbitration law. However, Shruti Khanijow, a partner at Shardul Amarchand Mangaldas, cautions against potential biases in data analysis, emphasizing the need to ensure that amendments do not disproportionately favor the government.
The finance ministry’s rationale for the June advisory stemmed from the observation that over 60% of arbitration cases involving PSUs, such as the National Highways Authority of India (NHAI) and NTPC Ltd., ended up in court challenges. This led to the government incurring significant costs for both arbitration and litigation.
The Arbitration Act, enacted in 1996, has undergone several amendments in 2015, 2019, and 2021, resulting in significant changes to the arbitration landscape. The 2015 amendment introduced time limits for arbitration awards, financial incentives for arbitrators who met deadlines, and the establishment of the Arbitration Council of India. The 2019 amendment relaxed time limits for international commercial arbitrations.
The Law Ministry is also taking into consideration the recommendations of an expert panel led by former Law Secretary T.K. Viswanathan, which submitted its suggestions in February 2024. The panel proposed amendments to the provisions governing arbitrator appointments and the enforcement of arbitral awards in courts.
The Supreme Court’s 2022 office report revealed that most Indian High Courts were burdened with arbitrator appointment matters, with the Karnataka High Court handling the highest number of cases (922). The Punjab and Haryana High Court (813), the Delhi High Court (689), and the Bombay High Court (649) also faced significant workloads.
A key challenge in the existing arbitration framework, according to practitioners, is the lack of clarity in formulating arbitral awards. Shruti Khanijow of Shardul Amarchand Mangaldas highlights the need for a more defined standard for the reasoning required in arbitral awards, which would contribute to consistent judicial decisions and minimize unnecessary litigation. A clearer framework for arbitral awards could prevent inconsistent outcomes and enhance the integrity of the arbitration process.
