Law ministry seeks arbitration data of last 24 years from all ministries

In a communication reviewed by Mint, the ministry sought details like legal costs, number of advocates engaged for the government, arbitration results, and subsequent appeals starting from 2000.

The government—the country's biggest litigant—has been working on amendments to the Arbitration and Conciliation Act, one of the key out-of-court dispute resolution laws, to reduce the pendency of cases and legal costs.

“The department of legal affairs is in the process of considering further amendments in the (Arbitration) Act to inter alia ensure further strengthening of the arbitration ecosystem," read the 2 September letter. 

The government is collecting the data to undertake a holistic overview of arbitration cases and related court litigation before considering policy amendments, the letter added.

Also Read: India aims to be global arbitration hub. And cut costs for its biggest litigant.

An email query seeking comments from the law and justice ministry and its secretary, who heads the department of legal affairs, didn't elicit any response till press time.

The litigation burden

Arjun Ram Meghwal told Mint in an interview—published on 18 September—that the law ministry was drafting changes to the Arbitration Act.

The request follows the Union finance ministry's June advisory asking all government arms, including state governments and public sector undertakings (PSUs), to opt out of arbitrations if the disputed value is over ₹10 crore. 

The advisory urged all government stakeholders to consider mediation instead of arbitration as the latter was too expensive and time-consuming. It even asked government parties to litigate matters in courts instead of choosing arbitration. To be specific, the advisory is concerned only with public procurement contracts.

"A timely and periodic legislative review of arbitration law and process, which is a dynamic space and continuously the subject matter of judge-made law, is a welcome initiative. The recent government notification, published in June, to move away from arbitration in contracts pertaining to domestic public procurement would also benefit from a data-driven assessment," said Amita Gupta Katragadda, partner (deputy head-disputes), Cyril Amarchand Mangaldas.

Also Read: Arbitration pros resist govt.'s advisory favouring mediation over arbitration

But, there is a risk in collecting government data for amendments. “Collecting data on government-related arbitration can help identify inefficiencies, streamline processes and reduce delays," said Shruti Khanijow, partner, Shardul Amarchand Mangaldas. “(But) there's a risk that amendments could disproportionately favour the government, especially if data highlights frequent unfavourable outcomes for public entities," she added.

The finance ministry informed the Lok Sabha in July that the advisory was issued because more than 60% of all arbitration matters involving PSUs, such as the National Highways Authority of India (NHAI) and NTPC Ltd, were challenged in courts. 

“In all these cases, the government is compelled to spend both on arbitration and litigation," it said in a written reply.

Series of amendments

The Arbitration Act was passed in 1996 and amended in 2015, 2019 and 2021,  which led to major changes in the ecosystem. 

For instance, after the 2015 amendment, all tribunals had to award arbitration within 12 months from the conclusion of hearings, with a six-month extension option if agreed by the parties. The amendment gave financial incentives to arbitrators in the form of extra fees if they declared the award within six months and had provisions to cut fees for delays.

The 2019 amendment created the Arbitration Council of India. However, it has not been constituted yet. The amendment also relaxed the time limits set for arbitral awards in the 2015 amendment, but only for international commercial arbitrations. International commercial arbitrations are those where at least one party is not domiciled in India but where the arbitration takes place according to Indian laws.

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The law ministry will also take into consideration the recommendations of an expert panel led by former law secretary T.K. Viswanathan, which submitted its suggestions in February 2024,  according to two officials aware of the matter.

The T.K. Viswanathan committee suggestions include amendments to the provisions that allow parties to appoint arbitrators and enforce arbitral awards in courts.  

A 2022 office report by the Supreme Court showed that most Indian high courts were burdened with the task of appointing arbitrators, with the Karnataka High Court handling 922 matters of arbitrator appointments, the most among high courts. The Punjab and Haryana High Court handled 813 matters, the Delhi High Court 689 matters, and the Bombay High Court 649 matters.

According to practitioners, a key issue in the existing arbitration ecosystem is the lack of direction in formulating arbitral awards. “The standard of reasoning required for arbitral awards is unclear, leading to inconsistent judicial decisions and unnecessary litigation," said Khanijow of Shardul Amarchand Mangaldas. 

“The Act does not provide a clear standard, leading to divergent judicial interpretations. While some awards with minimal reasoning have been upheld, others have been struck down for insufficient explanation, leading to inconsistent outcomes and unnecessary litigation. A potential solution is to establish a more defined standard in Section 31(3) of the A&C Act for the reasoning required in arbitral awards. A clearer framework could prevent inconsistent decisions and uphold the integrity of the arbitration process," she added.

Also Read: It is time to follow Sebi’s lead on online dispute resolution

Mint reported on 15 August that the law ministry had commissioned a study of the legal frameworks in top international commercial centres.