Mint Explainer | How proposed amendments to India's arbitration regime can resolve disputes faster
Faster dispute resolution and clearer timelines are positive indicators for investments because it means contracts will be enforced quicker and more decisively.
More than a year after a draft bill to amend the Arbitration & Conciliation Act was circulated for stakeholder comments, the law and justice ministry is set to introduce changes to the law in the upcoming winter session of parliament starting on 1 December. This would be the fourth major amendment of the 1996 law, after changes introduced in 2015, 2019 and 2021.
Arbitration, a key pillar of out-of-court dispute resolution, has been taken up by more practitioners and arbitrators over the years. But hurdles such as high costs and high levels of court intervention remain. Faster dispute resolution is crucial to attract investments in India, which seeks to become a global hub for arbitration.
Mint looks at the earlier reforms, those pitched by experts, those that worked, and those yet to be implemented.
What is arbitration?
In any dispute, whether one over who threw the first punch in a brawl or a disagreement between two companies over a multimillion-dollar trademark infringement, the affected parties would ask a judge to decide who is right.
Arbitration replaces the judge with an arbitrator mutually chosen by the disputing parties. A key principle of arbitration is party autonomy —the parties to a dispute determine everything about how the dispute will be resolved by the arbitrator. The dispute resolution system stays the same in arbitration but with an arbitrator instead of a judge.
Why does India want to become a global arbitration hub?
One reason that India has to adopt arbitration, along with other out-of-court resolution methods such as mediation and conciliation, is the sheer volume of cases pending in the courts of the world's most populous nation. According to the national judicial data grid, more than 5.9 million civil and over 29 million criminal cases are pending in district courts.
Another reason is that arbitration, in many cases, is faster than courts because of its clear timelines for arguments and for arbitrators to decide awards. According to the current law, pleadings must be completed in six months, and the arbitrator must decide in another 12 months. These timeframes can be extended if both parties agree, but only by six months.
An award is the arbitrator's decision in a matter, akin to a judgement. It has binding value and has to be enforced in a court of law.
Faster dispute resolution and clearer timelines are positive indicators for investment to come in because it means contracts will be enforced quicker and more decisively.
How has arbitration evolved in India?
The Arbitration & Conciliation Act, passed in 1996, has been amended three times. The first time was in 2015, when it made arbitration swifter, reduced court involvement and aligned the country with global best practices. It introduced section 29A, which stated that arbitrators must deliver awards within 12 months of completion of pleadings.
It ensured that courts could not dive into the merits of the award or reexamine evidence when parties challenged an award, citing violations of public policy. The amendment limited the scope of the public policy challenge to explanations in the Act itself.
The 2019 amendment marked the beginning of a clear shift – from ad-hoc arbitration, where parties determined everything, to institutional arbitration where parties took to specialized institutions with panels of arbitrators to choose from as well as all the infrastructure for arbitration.
The amendment created the Arbitration Council of India (ACI), a body to regulate arbitrators, arbitration institutions, set standards in the domain and follow best practices. However, the ACI has not been created till date.
The 2021 amendment allowed courts to unconditionally stay an arbitral award if the underlying agreement or award was fraudulent or attained through prima facie corrupt practices.
What are the challenges to the process of arbitration?
The key hurdle is the mandate to shift to mediation. Unlike arbitration, where one party wins and the other loses, mediation is an out-of-court resolution process where consensus on an issue is reached with the help of a mutually appointed mediator.
The finance ministry issued a memo in June 2024 asking all central and state government agencies and public sector undertakings to opt for mediation over arbitration in procurement disputes valued at over ₹10 crore. According to the government, the biggest disputant in the country, arbitration was more expensive and time-consuming than mediation.
Oil India Ltd and Oil and Natural Gas Corp complied with this memo, Mint reported earlier.
What are the 2025 amendments likely to do?
A draft bill circulated in October 2024 proposed to create an appellate arbitral tribunal only for institutional arbitration. Parties that followed institutional arbitration would be able to challenge an award without going to court. This is aimed at strengthening the country's push towards institutional arbitration.
The delay in creating the ACI means India has very few trusted arbitration institutions. Most high courts have arbitration centres that function smoothly—the Delhi High Court has the Delhi International Arbitration Centre. The government of Maharashtra and the central government set up the Mumbai Centre for International Arbitration. The central government operates the India International Arbitration Centre in New Delhi.
The proposed amendments in the 2024 draft bill include the addition of emergency arbitration for interim relief and strengthening the ACI with additional powers.
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