Arbitration was once held up as the antidote to India’s clogged courts. Disputes could be settled outside with the help of a neutral third party. That promise is now wearing thin. Critics claim that it has become punishingly expensive, and the arbitration awards—the verdicts of dispute settlements—routinely end up before the courts. So, the process often feels less like an alternative to litigation than a costly prelude to it.
The government increasingly appears to be backing out of it altogether, striking arbitration clauses from contracts in favour of a return to the very courts it once sought to avoid. While these concerns may be valid, to abandon arbitration on their strength without considering alternatives such as institutional arbitration would be premature.
The problem of costs and delays
Arbitration in India is slow and expensive. Take the case of Jaipur Vidyut Vitran Nigam Ltd v HCL Infosystems Ltd. A three-member tribunal — one retired Supreme Court judge and two retired High Court judges — was paid about Rs 13 crore in seven years. The cause of such “luxury litigation”—as it has come to be called— rests in court-appointed, court-style, ad hoc tribunals, where retired judges can dominate both who gets appointed and what they are paid, with little institutional discipline over either.
Prashant Narang and Vishnu Suresh have argued that the problems of arbitration arise from “the near-monopolistic environment created by a small group of retired judges who often command premium fees and face minimal accountability.” The policy response has been fee schedules, but that ignores the incentive effects of a system which places a heavy reliance on a narrow circle of retired judges.
The second issue is that of delays. Section 29A in the Arbitration and Conciliation Act 1996 was meant to build time discipline into the system. Under this new clause, an award was to be decided within 12 months, which was extendable by party consent for six more months. Beyond that, the parties had to go to court for more time, and the provision armed the court with teeth to enforce discipline: it could extend the mandate only on sufficient cause, reduce the arbitrators’ fees for delay attributable to the tribunal, impose terms and costs, and even substitute arbitrators while proceedings continued.
Our research based on 202 extension orders from the Delhi High Court between 2015 and 2024 showed the following: Extensions were granted in 98 per cent of cases. Adverse costs were imposed in just 2.5 per cent. Around 15 per cent were repeat extension applications — the same matters coming back. We find that courts rarely apply sanctions. The court-supervised cure for delay has itself become a routine source of one. The problems of costs and delays seem to emanate from the ad-hoc model that still dominates Indian arbitration with no external standard to answer to. Given this, it is worth examining alternatives.
Institutional arbitration
In this alternative model, an established institution supplies the rules and the fee schedule, manages the timeline and stakes its reputation on doing so efficiently. It is supposed to watch the file and ask why pleadings are delayed, why hearings are being adjourned, why the tribunal has not moved the matter forward, and whether the award timeline is still realistic. Court-run or government-backed centres may struggle to exercise that kind of pressure over retired judges and senior arbitrators. Private institutions, if well governed, are better placed to do so because their credibility depends on neutrality, speed, and procedural discipline. To be hired again, they must keep arbitrations moving.
India does have a nascent market of institutions—some, such as the Indian Council of Arbitration (ICA) in Delhi, date back to 1965. Mumbai Centre for International Arbitration (MCIA) got set up in 2016. The statistics are encouraging—the MCIA, for example, reports completing 91 per cent of its cases within an 18-month deadline. Yet, the caseload in the institutions remains small.
The reasons for the limited use of institutions may be manifold. First is just precedent—arbitration clauses are copied from one contract to another, so when a new dispute arises, parties either appoint arbitrators themselves or ask a court to do it. This route invariably produces a custom-made ad-hoc tribunal. Second may be resistance to change, exacerbated by limited awareness among in-house lawyers, and the thin track record of newer arbitration centres.
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The jury is still out
While institutional arbitration does hold promise, it can have its own pitfalls. It can reproduce every vice of ad hoc arbitration if it is governed badly. For example, it could have a closed panel dominated by the same retired judges, its fee-setting could be opaque, and it could give up its neutrality, losing credibility in its processes. The verdict, in short, is still out, and whether institutions build a serious model of governance. That said, there is a real opportunity for it to offer private dispute resolution that is transparent, fast and credible.
The task ahead for the institutions is clear. They must earn trust the way any credible forum does — by publishing their numbers, holding their tribunals to fixed timelines and value-based fees. They should draw arbitrators from a wider and more transparent pool than the retired bench. For the government, it is worth remembering that arbitration, which was introduced to avoid court delays in the first place, hasn’t moved cases any faster. It may be time to give the more promising version of arbitration a real chance.
Renuka Sane is managing director at TrustBridge, which works on improving the rule of law for better economic outcomes for India. She tweets @resanering. Prashant Narang is Deputy Director-Research and Programs at TrustBridge Rule of Law Foundation. Views are personal.
(Edited by Ratan Priya)