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Dhirubhai Ambani University School of Law

From Reform to Regression? Examining India’s Policy Shift on Arbitration in Public Contracts

By Alisha Mehta, Assistant Professor of Law & Vertical Head of Construction Law, Contracts & Arbitration, Dhirubhai Ambani University – School of Law.

Over the past decade, India has taken ambitious strides toward establishing itself as a global hub for arbitration and alternate dispute resolution. The Arbitration and Conciliation (Amendment) Acts of 2015, 2019, and 2021 were landmark reforms designed to ensure time-bound arbitration, limit judicial interference, and promote institutional arbitration.1 The establishment of the India International Arbitration Centre in New Delhi in 2019 further reflected the government’s policy commitment to strengthening alternate dispute resolution frameworks.2

However, certain recent policy decisions have prompted concern over whether the objective of positioning India as an arbitration hub continues to remain a sound and sustainable policy pursuit. The Ministry of Finance vide Office Memorandum dated 3rd June 20243 released ‘Guidelines for Arbitration and Mediation in Contracts of Domestic Public Procurement’ where it was stated that “Arbitration as a method of dispute resolution should not be routinely or automatically included in procurement contracts / tenders, especially in large contracts” 4. The guideline has been issued for contracts of domestic procurement by the Government and by its entities and agencies (including Central Public Sector Enterprises, Public Sector Banks, etc. and Government companies). The Guidelines inter alia also states that:

  • As a norm, arbitration (if included in contracts) may be restricted to disputes with a value less than INR 10 crore.
  • ln matters where arbitration is to be resorted to, institutional arbitration may be given preference.
  • In cases where there is a decision against the government / public sector enterprise, the decision to challenge / appeal should not be taken in a routine manner, but only when the case genuinely merits going for challenge / appeal and there are high chances of winning in the court / higher court.
  • Government departments / entities / agencies should avoid and / or amicably settle as many disputes as possible using mechanisms available in the contract.
  • Government departments / entities / agencies are encouraged to adopt mediation under the Mediation Act, 2023 and / or negotiate amicable settlements for resolution of disputes.
Following the Ministry of Finance’s policy directive, both central and state authorities have initiated measures to either limit the scope of arbitration to disputes valued at INR 10 crore or exclude arbitration clauses from contractual frameworks entirely. This trend was first observed in October 2024, when Oil India Limited and Oil and Natural Gas Corporation Limited announced that they would not engage in arbitration for public procurement contracts involving disputed amounts exceeding INR 10 crore.5 Thereafter, the Government of Karnataka issued a Circular dated 16th November 20246 whereby a previous Circular dated 10th January 2014  regarding incorporation of ‘Arbitration Clause in the Government contract / tenders etc.’ was withdrawn with immediate effect. Subsequently, in April 2025, the Public Works Department, Delhi issued an Office Order to delete arbitration clause from the General Conditions of Contract for all future contracts.7 This development effectively signifies a complete abandonment of arbitration as a dispute resolution mechanism by the Government of Karnataka and the Public Works Department, Delhi. These decisions, while framed as a cost-control and efficiency measure, risks undermining the hard-earned progress India has made in fostering a pro-arbitration ecosystem.
Judicial Overload and the Feasibility of Court-Based Construction Dispute Resolution

The recent shift by government departments toward limiting or excluding arbitration in public procurement contracts raises several practical and institutional concerns. At the core of this debate lies a fundamental question: can traditional courts effectively handle the complexity and technicality of construction disputes? Moreover, are the courts adequately equipped in terms of time and capacity to adjudicate complex construction cases, especially given the existing backlog of matters before them?

As per data from the National Judicial Data Grid (NJDG), as of October 2025, approximately 4.7 crore cases are pending before the District Courts8, over 63 lakh cases are pending before the High Courts9, and around 90,000 cases are pending before the Supreme Court10, bringing the total backlog to nearly 5.3 crore cases across the Indian judiciary. In this scenario, it is pertinent to consider whether traditional courts then have the bandwidth to invest time and resources in complex construction disputes that may require effective and urgent resolution along with requisite technical expertise.

When Law Meets Engineering: The Technical Blind Spot in Courtroom Adjudication

Another critical aspect to consider is the inherent technical complexity of construction disputes. Such matters often involve questions of engineering design, project scheduling, cost escalation, and performance management issues that demand a deep understanding of both contractual and technical dimensions. Unlike routine commercial disputes, construction cases require adjudicators who can interpret delay analysis, assess disruption claims, and evaluate expert engineering related technical evidence.

However, the traditional courtroom setting in India is not structurally equipped for this. Judges, though legally proficient, generally lack formal training in engineering or project management disciplines that are integral to such cases. As a result, courts often struggle to meaningfully engage with highly technical evidence, prolonging resolution and increasing the risk of inconsistent, inaccurate, and suboptimal adjudicatory outcomes. In essence, the judiciary’s limited technical exposure, combined with an already overburdened docket, underscores the institutional inadequacy of courts in efficiently adjudicating construction disputes.

Strengthening the System: The need for Specialized Construction Arbitral Tribunals

What India urgently needs is not the abandonment of arbitration, but rather its reformation through specialization. Establishing statutory arbitral tribunals comprising experts with backgrounds in construction law, civil engineering, and contract management could provide a balanced and pragmatic solution. Such tribunals would combine procedural efficiency with subject-matter expertise, ensuring that adjudicators are equipped to appreciate the evidentiary subtleties and technical dimensions of construction projects. This approach mirrors global best practices, where specialized panels have proven instrumental in resolving infrastructure-related disputes swiftly and cost-effectively.

Interdisciplinary Expertise: The Way Forward

Infrastructure disputes demand an interdisciplinary adjudicatory framework, one that integrates technical knowledge, legal reasoning, and commercial understanding. An adjudicator with experience in construction law, contract management, and engineering can not only grasp the finer details of the dispute but also facilitate informed and equitable outcomes.

In this context, arbitration remains the most suitable platform for construction-related disputes, provided that arbitral tribunals are designed to reflect this interdisciplinary expertise. Rather than withdrawing from arbitration, government entities should invest in capacity building by empaneling arbitrators who possess the necessary blend of legal and technical competence.

Conclusion: Reform, Not Retreat

Arbitration has long shown its strength in resolving contractual disputes, owing in large part to the expertise and discernment of seasoned arbitrators. However, construction disputes present an additional layer of complexity that requires more than legal acumen alone. Effective adjudication in this domain demands a nuanced appreciation of engineering principles, project management, and contractual dynamics. Therefore, the growing need is not to move away from arbitration as a mechanism, but rather to strengthen it by cultivating a pool of specialized arbitrators professionals who possess interdisciplinary expertise in construction law, technical processes, and dispute resolution. Such specialization would not only enhance the quality and efficiency of arbitral decisions but also reinforce confidence in arbitration as the preferred mechanism for resolving construction-related disputes.

By replacing arbitration with court litigation, the government risks slowing down dispute resolution and burdening an already overstretched judiciary. The more constructive path forward lies in reforming the arbitral ecosystem by institutionalizing specialized tribunals that blend technical insight with legal rigor, ensuring that India’s aspiration to be a global arbitration hub remains both viable and visionary.