Why arbitration in India no longer feels ‘alternative’?

It comes to my mind, “Isn’t Arbitration in India Losing Its Way?” Having practised for over two and a half decades across constitutional litigation, commercial disputes and institutional arbitration, I have seen India’s arbitration framework from close quarters, both as counsel in high-value infrastructure, energy and regulatory matters and as an arbitrator associated with a national institution. Conceived as a swift, final and investor-friendly alternative to courts, arbitration promised efficiency, autonomy and commercial certainty. Yet increasing judicial intervention, procedural delays and court-like formalism now raise a pressing question: is arbitration in India evolving under stress, or slowly surrendering the very qualities that once defined it?

The erosion of finality

Finality is the cornerstone of arbitration. Parties opt for arbitration precisely to avoid prolonged litigation and uncertain outcomes. However, in India, this assurance has weakened. Judicial scrutiny of arbitral awards, sometimes stretching beyond the narrow confines envisaged under the Arbitration and Conciliation Act, has blurred the line between review and rehearing. Discussions around expanding grounds such as “patent illegality,” even in the context of international commercial arbitration, further unsettle confidence. When awards are routinely reopened, arbitration risks becoming merely another procedural stage before inevitable court battles. Another added disadvantage is the duration of proceedings under Section 34 and Section 37 of the Arbitration Act. What adds to the woe is – so many years after passing of award, such proceedings end.

Policy signals that undermine confidence

Equally disquieting are recent policy reversals. Last year Central Government had taken a highly disrupting policy decision regarding the incorporation of Arbitration clause in government contracts, which issue I had covered in detail in my article published in TOI in July-2024. Now, the decision of the Delhi Government to restrict arbitration clauses in certain public works contracts stands in sharp contrast to years of official endorsement of alternative dispute resolution. Further, internal governmental controls requiring prior approvals for extending arbitral timelines have inadvertently slowed proceedings, prompting some public sector entities to favour mediation over arbitration, not because it is superior, but because arbitration is increasingly perceived as unpredictable. When the State itself appears hesitant, private parties and foreign investors take note.

Courts still loom large

Indian courts have repeatedly affirmed their support for arbitration and the ambition to make India a global arbitration hub. Yet, in practice, arbitration remains deeply court-centric. Courts are frequently involved in appointing arbitrators, granting extensions and deciding challenges to awards. Provisions intended to streamline arbitration, such as strict timelines, have generated further litigation over their interpretation. The result is that arbitration proceedings often mirror civil trials, eroding the distinction between the two.

Judges appointing retired judges as arbitrators: A systemic irony

At the heart of arbitration’s identity crisis lies a striking paradox: judges appointing retired judges as arbitrators. Arbitration was designed as an alternative to courts, yet it increasingly resembles a courtroom without robes. Party autonomy, sectoral expertise and commercial pragmatism give way to court-style pleadings, adjournments and awards written like judicial decrees.

This is not a critique of judicial competence or integrity. Judges bring discipline, independence and authority. But arbitration demands a different mindset – procedural economy, decisiveness and commercial risk-based reasoning rather than exhaustive adjudication. When judicial habits dominate arbitration, the process inherits the delays and formalism of courts, without the constitutional safeguards that accompany judicial decision-making.

Perception, power and the closed loop

Beyond efficiency, perception matters. When judges appoint retired judges as arbitrators, whose awards are later scrutinised by courts, arbitration risks appearing as a closed loop. Even if fairness is unimpeachable, global arbitration users seek visible diversity, neutrality and institutional robustness. Justice must not only be done, it must be seen to be modern, plural and independent.

A stifled arbitration ecosystem

India does not lack talent. It has internationally trained arbitration lawyers, engineers, accountants and sector specialists capable of serving as world-class arbitrators. Yet habitual reliance on retired judges discourages institutional arbitration, domain-specific expertise and younger professionals. Global hubs like Singapore and London achieved credibility by investing in institutions, diversity and predictable processes, not by judicial familiarity alone.

Even the reputed Arbitration Institutions in India, envisaged as a cornerstone for institutional arbitration, remain least operational. Without strong institutions, parties, especially foreign investors, remain reluctant to choose India as a seat of arbitration.

Why courts do what they do

It is important to acknowledge the honest rationale behind judicial dominance. Courts appoint retired judges as arbitrators because parties trust them, judges trust their discipline and institutional mechanisms have yet to inspire universal confidence. This is not malice but a confidence deficit. Yet persisting with this approach risks treating symptoms while deepening the disease.

Why it matters

A faltering arbitration regime affects far more than dispute resolution preferences. It undermines foreign investment confidence, increases uncertainty in infrastructure and energy projects where delays magnify costs, and places additional strain on an already overburdened judiciary. Arbitration was meant to decongest courts and provide bespoke commercial justice; its decline does the opposite.

An apt analogy is that of a bridge built to shorten journeys. When riddled with potholes and weak supports, travellers inevitably choose longer but more reliable roads. Reliability, not rhetoric, determines trust. Here, the Indian government has shown complete distrust in Arbitration.

Rebalancing, not rejecting

Arbitration in India is not dead, but it is undeniably stressed. The way forward lies in recalibration rather than abandonment. Judges as arbitrators should remain, but not dominate. Courts should prioritise institutional appointments. Sector-specific expertise must be valued. Arbitrators must be trained as arbitrators, not function as substitute judges. Above all, arbitration must reclaim commercial confidence rather than judicial comfort.

Conclusion

If arbitration is to begin where courts end, it cannot thrive when courts never truly leave. Whether arbitration in India regains its promise or recedes into irrelevance will depend on the courage to let it be what it was always meant to be: independent, efficient and commercially credible.

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