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Is India Truly Arbitration-Friendly? A Reality Check Amid Recent Setbacks

  • Writer: Gautam Mohanty
    Gautam Mohanty
  • 17 minutes ago
  • 6 min read

Vaishnavi Agrawal[1]

 

Introduction


As India attracts greater investment and aspires to establish itself as a leading global economy, a surge in cross-border transactions is inevitable. This mandates the existence of an efficacious cross-border dispute resolution mechanism. A direct result of this was the emergence of International Commercial Arbitration as the most commonly opted machinery. In such a scenario, the need for an economy to be pro-arbitration or arbitration-friendly becomes indispensable.

 

Against this backdrop, India has certainly evolved into a pro-arbitration jurisdiction with numerous judicial decisions and legislative actions. However, in light of the recent events, such as the ‘copy-paste’ judgement, Public Works Department (‘PWD’) of Delhi’s removal of the arbitration clause from all future contracts, the Gayatri Balasamy judgement wherein interference with arbitral awards was allowed though with caution and care eventually casting uncertainty over the finality of an arbitral award, and others, the perception of India as an arbitration-friendly jurisdiction stands tarnished. These developments necessitate a closer examination of whether the label of a ‘pro-arbitration’ jurisdiction is merely a strategic narrative to attract investors and global influence, or whether it genuinely withstands the test of time and practice. In light of these recent trends, this article aims to examine the trajectory of arbitration in the Indian judicial landscape. It suggests that these events not only deviate from global norms but also occur at a time when India is trying to establish itself as a global arbitration hub. This article provides an overview of the events that transpired, analyses their impacts on India’s ambitions and highlights the persistent concerns.

 

The events in question and their implications


With the onset of 2025, not one but several such incidents that question India’s sanctity as a pro-arbitration jurisdiction have come into light, most of these being in and around April 2025. In this section, the author aims to delve into the implications of these events on the Indian arbitration landscape.

 

The first in question is the annulment while deciding the case of DJO v DJP by the Singapore Court of Appeal on 8thApril, 2025, of an international arbitral award made by a former CJI, Deepak Misra, on discovering that almost half the decision was copied verbatim from earlier awards he had authored in separate but related disputes. The dispute arose from a contract involving a special-purpose vehicle tasked with managing freight corridors in India and a consortium of three infrastructure companies. The core issue was the interpretation of a 2017 notification issued by the Indian government regarding revised minimum wages, which the consortium argued entitled them to higher payments. After negotiations failed, the matter proceeded to arbitration in Singapore under the International Chamber of Commerce (ICC) Rules. In November 2023, the Arbitral Tribunal, led by Justice Misra and including co-arbitrators Justices Krishn Kumar Lahoti and Gita Mittal, ruled in favour of the consortium. However, this ruling was subsequently contested before the Singapore International Commercial Court, which found that significant sections of the award were closely derived from two earlier arbitration decisions authored by Justice Misra in similar cases. The Court of Appeal has since affirmed this finding. Such incidents cast doubt on the credibility and competence of Indian arbitrators, particularly given that many are retired judges. Their authority and impartiality as arbitrators come under scrutiny, raising broader concerns about the standards of arbitration practice in India. Such an award was seen as a compromise of fairness and integrity and therefore a violation of the ‘principles of natural justice’. This is not only a question of individual reputation, but also raises apprehensions about the procedural fairness and quality of Indian-seated arbitrations, effectively deterring parties from choosing India for the resolution of their conflicts or from opting for Indian arbitrators.

 

The second event in line is the notification issued on 21st April, 2025, by the PWD of Delhi, eliminating arbitration as a dispute resolution method for all future contracts. This decision aligned with a 2024 guidance from the Ministry of Finance, which outlines the drawbacks of arbitration, though the latter only restricted arbitration for disputes valued up to INR 10 crores. In contrast, the PWD’s notification imposes a comprehensive ban on arbitration, amending clause 25 of the General Conditions of Contract to require that all disputes be resolved through the courts. This move portrays a lack of trust in arbitral institutions and the arbitration framework in India. Further, such a decision dissuades parties from engaging in contractual relations with the public sector enterprises or state instrumentalities, where the sanctity of the contract is not preserved and creates tensions in the pre-existing contractual relations, while also undermining trust, which is the very foundation of any investment. In light of this notification, it appears that the pro-arbitration narrative is merely a catchy phrase, whilst the reality portrays a completely contrary picture.

 

Lastly, on 30th April, 2025 in the landmark decision in the case of Gayatri Balasamy v ISG Novasoft Technologies Limited, the Hon’ble Supreme Court in a 4:1 majority held that courts have a limited power to modify an arbitral award under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996 and listed instances wherein such power of modification could be exercised in certain circumstances the most relevant here being ‘by exercising great care and caution while utilising the powers under Article 142 of the Constitution, within its constitutional limits.’ The judgment essentially allowed interference with arbitral awards if the same is deemed fit under Art. 142, thereby undermining the sanctity and finality of the arbitral award. The same stands contrary to legislative reforms in 2015, 2018 and 2021, which had systematically narrowed the judicial interference with arbitral awards, providing procedural clarity and creating a predictable dispute resolution landscape, restoring investor confidence. The decision highlights the need for immediate legislative intervention to fill the statutory void.

 

Deviation from global norms


India with its aspirations of emerging as a global arbitration hub by virtue of Draft Arbitration And Conciliation (Amendment) Bill, 2024, several other judicial and legislative reforms seek to harmonise its domestic arbitration practices with international best practices in line with frameworks like the New York Convention and the Geneva Convention, both of which facilitate the enforcement of arbitral awards, thereby creating investor confidence and boosting its commercial relationships. The development of strong institutional arbitration, such as the Delhi International Arbitration Centre(DIAC) and the Mumbai Centre for International Arbitration (MCIA), similar to Singapore and London, has further enhanced India’s credibility as an arbitration-friendly jurisdiction. However, these recent events reveal a more uncertain future in terms of the Indian arbitration landscape. These events not only deviate from the established global norms but also trigger the need for a more synchronised pro-arbitration framework.

 

Firstly, for instance,  the New York Convention’s harmonization of arbitral enforcement reinforces investor confidence in cross-border transactions. Weakening the arbitration framework by either introducing a lack of finality of the arbitral award or ‘copy-pasting’ arbitral awards from parallel awards without due regard to the difference in the factual scenarios or by removing arbitration as a means of dispute resolution by the state machinery not only affects the domestic commercial transactions, but also repulses the investors from viewing India as a prospective jurisdiction to invest and trusting it with the resolution of their dispute. Such development, therefore, is at divergence with India’s aspirations of emerging as the global arbitration hub.

 

Secondly, the legislative reforms of  2015, 2018, 2021 and even the latest Draft Arbitration And Conciliation (Amendment) Bill, 2024, aim to confine judicial interference in arbitral awards and introduce procedural clarity, introducing predictability in India’s arbitration landscape. However, the Gayatri Balasamy judgement allows for cautious yet undefined interference with the arbitral awards, thereby introducing an element of unpredictability, which might act as a repellent for investors and is contrary to international practices in jurisdictions like Singapore and the United Kingdom, wherein stringent provisions exist for timely and effective enforcement of arbitral awards.

 

In contrast to the above-mentioned events, India’s recent amendment to its bilateral investment treaty with the UAE reveals a notable reduction in the time period for exhausting local remedies, indicating an intention to expedite access to international arbitration. However, it is hard to shield investor confidence in a scenario where arbitration as a means to resolve disputes is banned despite a contractual agreement, or where, despite obtaining an award, the same may be subjected to litigation. An incident such as this stands in deep contrast with the progressive Indian practices, exposing inconsistency with its international practices.

 

Conclusion


The author contends that India’s aspiration to emerge as a pro-arbitration jurisdiction is undermined by its recent actions that reveal a disconnect between policy intentions and actual practices, and is ultimately likely to deter foreign investment and foster uncertainty in its dispute resolution mechanisms. To align with international standards, India must establish consistency between its legislative framework and judicial behaviour, which can primarily be achieved by way of legislative intervention in reinforcing the finality of arbitral awards and implementing capacity-building initiatives for arbitrators, particularly ones with judicial backgrounds. Furthermore, ensuring that public sector entities adhere to arbitral commitments is vital for rebuilding confidence. A credible and principled commitment to arbitration is essential for India to reshape its image into a genuinely arbitration-friendly jurisdiction in the global legal landscape.

[1] Final year law student at the Institute of Law, Nirma University.

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