Context: The Indian government’s recent decision to move away from arbitration for dispute settlement in government contracts has raised concerns.

• The policy shift, aimed at amicably settling disputes through “high-level” committees, may prove to be a costly mistake and a significant hindrance to infrastructural development and economic growth.
• Despite the 2015 Amendment to the Arbitration Act, which mandates expeditious disposal of award challenges within one year, cases often linger for around five years in the court of first instance.

Why Arbitration is Preferable?

• The government’s perceived lack of trust in arbitrators is fundamentally flawed. Arbitrators are meant to be independent and impartial, deciding disputes on merits rather than toeing the government line.
• Adverse rulings don’t necessarily indicate bias; they could reflect shortcomings in the government’s case.
• The proposed settlement system, based on internal committees, lacks the transparency and accountability
 • The bureaucracy and accountability structure may impede efficient dispute resolution, causing delays and unfair outcomes. E.g. the 2023 Vivad se Vishwas scheme, which offered discounts to settle disputes instead of honouring arbitration awards, illustrates this issue.
• If settlements fail, disputes will burden already overloaded courts, which are ill-suited for complex commercial cases. Arbitration provides a faster, more specialised alternative.
• While arbitrations may not be perfect, they are more workable than court litigation in the current context.

Arbitration in India

• Arbitration is a private dispute resolution process similar to litigation, with an arbitrator acting as a judge. Parties set the rules and appoint their own arbitrator.
• The process is flexible, allowing parties to simplify technical court procedures.
• The arbitrator’s decision, known as an “Award,” holds the same authority as a court order.
• Arbitration in India is governed by the Arbitration and Conciliation Act of 1996.
• Arbitration is a part of the Alternative Dispute Resolution (ADR) mechanism. Other types of ADR are mediation, negotiation, and conciliation.

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