Arbitration in India | 30 Apr 2025

Source:TH 

Why in News?  

India’s growing stature in the global economy and the rising volume of domestic and international commercial transactions have highlighted arbitration as a faster alternative to its overloaded courts. Yet, gaps in the role and quality of arbitrators raise doubts about India’s readiness to lead globally in arbitration. 

What is Arbitration? 

• About: Arbitration is a quasi-judicial method of resolving disputes outside the court system (Alternate Dispute Resolution), where an impartial third party, called an arbitrator, is appointed to make a binding decision.  
  • It is often used in commercial, civil, and international disputes. Unlike court proceedings, it is a private mechanism voluntarily chosen by the contracting parties, with the powers and functions of arbitrators being statutorily regulated under the Arbitration and Conciliation Act, 1996 (amended in 2015,2019 and 2021).  
    • The Government has presented a draft Arbitration and Conciliation (Amendment) Bill, 2024 to boost institutional arbitration and ensure faster dispute resolution. 
• Historical Evolution of Arbitration in India: The Indian Arbitration Act, 1899 was the first formal statute on arbitration, applicable only to the Presidency towns of Madras, Bombay, and Calcutta. 
  • Later, the Code of Civil Procedure, 1908 included arbitration provisions in its Second Schedule. 
  • The Arbitration Act of 1940 replaced the earlier law and governed domestic arbitration, while foreign award enforcement was handled separately under the Arbitration (Protocol and Convention) Act, 1937 for Geneva Convention awards and the Foreign Awards (Recognition and Enforcement) Act, 1961 for New York Convention awards. 
  • Following post-1991 liberalisation, India needed a modern dispute resolution mechanism to attract foreign investors.  
    • India enacted the Arbitration and Conciliation Act, 1996, based on the United Nations Commission On International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration 1985 and the UNCITRAL Conciliation Rules, 1980, ensuring global alignment and legal uniformity. 
    • The Dr. T.K. Viswanathan Committee (2024) recommended strengthening institutional arbitration, reducing court intervention, and introducing a cost-effective, time-bound arbitration framework. 
  • The India International Arbitration Centre Act, 2019 established the India International Arbitration Centre (IIAC) as an autonomous body to provide cost-effective, high-quality arbitration services and enhance India’s global arbitration profile. 

What are the Key Factors Driving India’s Shift Towards Arbitration in Dispute Resolution? 

• Judicial Overload and Delayed Justice: India’s courts face a significant backlog of cases, with nearly 50 lakh cases pending for over 10 years. 
  • With only 21 judges per million people, one of the lowest ratios globally, the judiciary is overwhelmed, leading to delays.  
  • This slow and overburdened system makes arbitration an attractive alternative for resolving time-sensitive, high-value commercial disputes efficiently. 
• Surge in FDI and Business Disputes: India's economic growth and rising Foreign Direct Investment (FDI), which reached USD 1 trillion in 2024, have increased the likelihood of disputes in both domestic and cross-border transactions.  
  • Arbitration has emerged as an efficient mechanism to resolve these conflicts, particularly in managing international business disputes. 
  • Arbitration, especially institutional arbitration, offers speed, confidentiality, and technical expertise. 
• Legislative Support:  India’s arbitration push gained momentum through the 2015 and 2019 amendments to Arbitration and Conciliation Act, 1996, with  mandated award delivery within a period of 12 months, with an extension of up to six months, if required. 
  • The Civil Procedure Code, 1908 empowers courts to refer disputes to ADR methods such as arbitration, conciliation, mediation, and judicial settlement, including Lok Adalats.  
  • Similarly, India’s National Litigation Policy, launched in 2010, aims to reduce litigation by encouraging the use of ADR mechanisms like arbitration, thus alleviating the burden on courts and promoting more efficient dispute resolution. 
• Global Recognition and Enforceability of Awards: Arbitration, recognized for its neutrality and enforceability, is strengthened by frameworks like the New York Convention, to which India is a signatory.  
  • Indian arbitration awards, especially from bodies like the IIAC, are gaining global recognition, boosting India's appeal as an arbitration hub. 
• Arbitration as a Business-Friendly Alternative: Arbitration offers flexibility in dispute resolution and ensures confidentiality, protecting sensitive business information, including intellectual property, financial data, and trade secrets. This is especially crucial for multinational corporations and industries like technology and pharmaceuticals. 
  • While it may seem costly initially, arbitration proves cost-effective in the long run by resolving disputes faster and avoiding the expenses associated with prolonged litigation, such as court fees and legal costs. 

What are the Challenges Regarding India’s Arbitration Ecosystem? 

• Judicial Influence Hampering Arbitration Efficiency: Arbitration in India is largely dominated by retired judges from the Supreme Court and High Courts. 
  • Their reliance on court-like procedures leads to lengthy, rigid, and costly proceedings, defeating the objective of arbitration as a flexible and efficient dispute resolution mechanism. 
  • The Ministry of Finance's 2024 guidelines highlight that arbitration proceedings conducted by retired judges often resemble traditional court procedures. 
  • Despite the Bharat Aluminium Co. v. Kaiser Aluminium (2012) Supreme Court ruling, which limited Indian court intervention in international arbitration, excessive judicial involvement remains a challenge.  
• Limited Diversity in Arbitrator Pool: The arbitrator pool is largely composed of legal professionals and ex-judges. 
  • There is a lack of subject-matter experts (e.g., engineers, economists, technologists), which is critical for resolving technical disputes.  
    • This restricts the ecosystem’s ability to handle specialized or industry-specific matters. 
• Lack of Specialised Arbitrator Training: There is no mandatory capacity-building or accreditation framework for arbitrators. 
  • Arbitration demands a blend of legal, managerial, procedural, and soft skills, especially for international disputes involving cross-cultural dynamics. 
  • Many arbitrators are unprepared for tasks like evidence-heavy deliberations and complex financial calculations. 
• Low Global Visibility of Indian Arbitrators: Indian arbitrators are significantly underrepresented in international arbitration, especially in cases without an Indian party.  
  • As noted by former Chief Justice of India D.Y. Chandrachud, this highlights deeper structural issues, including lack of global credibility, recognition, and networking within India’s arbitration ecosystem. 

What Steps can India take to Strengthen its Arbitration Ecosystem?

• Create a Robust Arbitrator Accreditation Framework: Set up a National Accreditation Board for Arbitrators under the Ministry of Law and Justice. 
  • Mandate training through certification programs by institutions like IIAC, or Bar Councils. Include diverse professionals (engineers, chartered accountants, industry experts) in the eligible pool. 
• Launch a National Arbitration Awareness Mission: Similar to campaigns like Digital India or Legal Literacy Mission, launch awareness drives about arbitration in Tier 2/3 cities and among MSMEs. 
  • Use platforms like Startup India, MSME Sambandh, and Skill India to train businesses on arbitration mechanisms. 
• Judicial Reforms to Limit Interference: Enforce strict adherence to the “minimum judicial intervention” principle under the Arbitration and Conciliation Act. 
  • Designate commercial courts with arbitration-specialist judges to handle related litigation efficiently. 
• Leveraging Diplomatic Resources: Enter into partnerships with global arbitral bodies like Singapore International Arbitration Centre, International Court of Arbitration, for training and best practices. 
  • Host International Arbitration Summits to improve India’s visibility in the global arbitration circuit 
  • This can be achieved through active participation in international forums like the UN, the International Bar Association (IBA), and G20, where arbitration discussions occur. 

Conclusion 

India’s arbitration ecosystem must address its overdependence on ex-judges, build a diverse and well-trained arbitrator pool, reduce judicial overreach, and improve institutional support to become a credible global arbitration destination. Focused reforms on human capital development, capacity-building, and international integration are essential to realise this vision.