Withdrawing from Arbitration: Why Delhi Government’s Move Risks Undermining India’s ADR Vision
Summary: The Delhi Government has instructed its departments to cease including arbitration clauses in new contracts, a decision prompted by concerns over unfavorable arbitral awards in the past. This policy change, which mandates a review of old arbitration cases and excludes arbitration from future Public Works Department (PWD) contracts, contradicts India’s broader push towards alternative dispute resolution (ADR). The government’s rationale seems to be a belief that arbitration is expensive and consistently favors private parties. However, critics suggest this view overlooks internal issues within government departments, such as weak legal representation and poor contract management. Instead of reforming these internal processes, the government has chosen to abandon arbitration, a move that risks undermining national efforts to position India as a global arbitration hub and could lead to a resurgence of slow, costly litigation in the courts, ultimately harming both public projects and investor confidence.
On 29th July 2025, the Delhi Government issued a sweeping mandate: the Public Works Department (PWD), water department, irrigation, and flood control department must submit records of arbitration cases from the last twenty years involving awards exceeding INR 1 crore. More significantly, all future contracts issued by PWD will not include any arbitration clause. This marks a significant departure from India’s broader policy push towards promoting alternative dispute resolution (ADR), particularly arbitration, as a means to reduce judiciary’s burden and facilitate timely contract enforcements. Delhi’s stance sends a conflicting message that risks undermining years of progress in institutionalizing arbitration, especially within public-sector projects. What prompted this policy reversal, and why might it set a dangerous precedent?
Understanding the Decision: Concerns and Contradictions
To understand the roots of this policy reversal, it is necessary to consider the government’s underlying rationale. Arbitration has often been viewed by public departments as expensive and unpredictable. There is a growing perception that arbitration disproportionately benefits private parties, particularly in high-stakes infrastructure or construction contracts where the state is a frequent respondent. The directive for data collection seems to stem from concerns over the sheer volume and quantum of adverse arbitral awards, many of which may have strained departmental budgets. However, this perception fails to adequately consider that the recurring losses in arbitral proceedings are more reflective of weak contract drafting, under-resourced legal representation, and procedural mishandling by state authorities than an inherent flaw in the arbitration process itself.
Furthermore, the B.N. Srikrishna report on arbitration, officially titled “Report of the High-Level Committee to Review the Institutionalization of Arbitration Mechanism in India,” highlights administrative inefficiencies in how public authorities manage arbitration. Instances of missed departments, and a lack of trained personnel have often contributed to adverse outcomes. In this context, the PWD’s move appears to be a reactionary fix rather than a thoughtful reform. Rather than addressing internal shortcomings, the solution offered is to discard arbitration altogether, arguably a case of throwing the baby out with the bathwater.
The Wider Cost of Rejecting Arbitration
The exclusion of arbitration from future PWD contracts introduces more problems than it solves. For one, litigation in Indian courts in infamously slow. According to National Judicial Data Grid statistics, civil cases in infrastructure disputes can take upwards of five to seven years to reach final disposal. Delays of this nature are detrimental to public interest and disincentivizes private participation in state projects. Arbitration, in contrast, allows for time-bound resolution and the flexibility to appoint domain experts as adjudicators. It also reduces overall legal expenditure by minimizing procedural complexity.
The move also undermines the significant institutional and legislative reforms that the central government has introduced over the last decade to build a robust arbitration ecosystem. The 2015 and 2019 amendments to the Arbitration and Conciliation Act were aimed enhancing procedural efficiency, reducing judicial interference, and encouraging institutional arbitration. The establishment of the New Delhi International Arbitration Center and the Arbitration Council of India further signals the Center’s commitment to positioning India as a global hub for arbitration.
The policy contradiction between Delhi’s local approach and the national arbitration vision is particularly striking in light of recent global outreach efforts. In July 2025, Supreme Court Justice Surya Kant, while speaking at an international conference in Gothenburg, emphasized India’s growing comparative advantage in arbitration. He noted that Indian arbitration institutions could offer quicker timelines and lower costs than legacy hubs like the London Court of International Arbitration (LCIA) or International Chamber of Commerce (ICC). In this context, Delhi’s policy reversal not only dilutes investor confidence but also casts doubt on the consistency of India’s legal regime.
The Better Path Forward
It is crucial to recognize that arbitration, like any mechanism, is only as effective as the framework in which it is implemented. What Delhi requires is not abandonment of arbitration, but a structural revamp of how public arbitration is managed. This means using established arbitral centers (e.g., MCIA, IIAC) with clear rules and timelines. Arbitration clauses should specify neutral, fair appointment processes, not narrow panels of ex-officials. Mandatory institutional arbitration through a public arbitration body could also be considered for large contracts. Further, before paying out any large award, the state could have a dedicated review board. For example, a time-bound board of independent experts could examine a contested award’s merits and advise on appeal strategy. Similar committees could evaluate settlement proposals or mediate disputes with private parties. These checks would ensure arbitration is used judiciously, rather than being an escape hatch for bureaucrats.
Additionally, training legal officers and technical personnel on arbitration procedure and strategy would help improve the quality of representation in arbitral proceedings. These targeted solutions would not only preserve the advantages of arbitration but also ensure accountability within public systems.
The consequences of this decision extend beyond Delhi. If other departments and state governments emulate this model, India may witness a gradual regression to overburdened courts and adversarial contract enforcement. Such a precedent would erode the credibility India has built over years of arbitration reform, making the country less attractive to both domestic and foreign investors. Public procurement and infrastructure development, which depend heavily on timely and efficient dispute resolution, would suffer the most.
Conclusion
Delhi Government’s move to discourage arbitration, and PWD’s stance to remove arbitration clauses from public contracts reflects a misdiagnosis of a problem and a policy approach that prioritizes short-term cost-saving over long-term efficiency. The right path forward lies in the reform, not retreat. Discarding arbitration entirely risks not only legal inefficiency but also reputational damage to India’s image as a reliable jurisdiction. It is imperative that the state revisits this decision and aligns itself with the national vision of strengthening alternative dispute resolution.
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