India’s Arbitration Conundrum: Push towards Institutional Arbitration for filling systemic gaps of Ad Hoc Arbitration

India’s strides to emerge as a global arbitration hub seem to be poised alongside a lingering regime of ad hoc arbitrations; on one hand, the government of India is seen to be a vociferous promoter of India as an arbitration hub, while on the other hand, it is discouraging arbitration itself for Public Sector Undertakings, amongst others.

This critical crossroad existence makes us doubt our present position - whether we are confused or in fact proceeding towards a purposeful and synchronised direction with the objective of removing drawbacks persisting in India’s arbitration framework

The Office Memorandum dated June 4, 2024 issued by Ministry of Finance, which is a fall out from several high-stake arbitral awards passed in case of Delhi Metro Rail Corporation Limited v. Delhi Airport Metro Express Private Limited 2024 SCC OnLine SC 522; Damodar Valley Corporation v. Reliance Infrastructure Limited 2024 SCC OnLine Cal 8834; National Highways Authority of India v. Ashoka Buildcon Ltd., 2023 SCC OnLine Del 5658; National Highways Authority of India v. Manta Kumar Saha and Others, 2024 SCC OnLine Cal 7587, amongst others, exemplifies such tension. 

Since Independence, India’s economic structure was characterised by a monopolistic presence of the State in commercial activities, where ad hoc arbitration, either sole or three-member, emerged as the predominant mode of arbitral procedure. As a result, Institutional arbitration, though globally accepted, remained largely underutilised in India.

Ad hoc Tribunals, including those constituted under Section 11 Arbitration Act, 1996 (‘Arbitration Act’), does raise legitimate concerns about conflict of interest, accountability, transparency and impartiality. On the contrary, arbitral institutions offer greater fairness and reduce potential bias through their established framework for administering arbitrations, including provisions for arbitrator appointments, fee schedules, procedural rules, and administrative support etc.

The persistent inefficiencies and judicial over-dependence associated with ad hoc arbitration have made a compelling case for a systemic shift toward institutional arbitration, particularly in commercial and high-value contractual contracts. The institutions are governed by procedural rules and administer arbitrations in a time-bound and cost-effective manner. Most institutional rules prescribe timelines for submission of pleadings, appointment of Arbitrators and conclusion of hearings with emphasis on the neutrality of the Arbitrator.

Burdened by these and the demands of changing times, the government of India has taken initiatives to address infirmities in the arbitration legal framework. India is currently home to several institutional arbitration centres which offer viable alternative to ad hoc system, notably, India International Arbitration Centre (‘IIAC’) in New Delhi, Mumbai Centre for International Arbitration in Mumbai, Nani Palkivala Arbitration Centre in Chennai, Delhi International Arbitration Centre, International Arbitration and Mediation Centre in Hyderabad, and the like.

Enactment of the New Delhi International Arbitration Centre Act 2019  was a critical step. IIAC has also been given the status of ‘National Importance’. Recently, IICA also held a ‘National Conference on Institutional Arbitration’ at Bharat Mandapam, New Delhi, to promote a transparent and structured arbitration framework.

The Mediation Act, 2023, has further introduced sweeping reforms, making mediation mandatory for PSUs, thereby signalling a broader preference for structured dispute resolution mechanisms.

However, the clearest statement of intent is the Office Memorandum dated June 3, 2024, issued by the Department of Expenditure, which emphasizes that all Ministries and Departments must avoid ad hoc arbitration in government contracts and instead adopt institutional arbitration through recognized arbitral institutions. It reiterates that ad hoc arbitration should be phased out from existing ones wherever feasible. Ministries are directed to review current contracts and ensure that future contracts mandatorily incorporate institutional arbitration clauses. As a rule, arbitration is to be confined to disputes valued below ₹10 crores, with institutional arbitration being the default for larger disputes.

The government of India vide Office Memorandum bearing no. F.No J-18/5/2016-Judicial dated April 4, 2025, has issued a Directive for Efficient and Effective Management of Litigation. The Directive emphasizes that institutional arbitration should be preferred instead of ad hoc arbitration. It states that the Department of Legal Affairs (DoLA) will develop an online Arbitration Portal, like the National Judicial Data Grid, where all arbitration matters involving the government will be registered, tracked, and updated regularly. Every case will have a unique ID, and details like the dispute amount and status must be entered by the concerned Ministry or Department for a periodic review.

The Directive also sets clear rules for challenging arbitration awards. Appeals should only be filed if there is a strong merit in the case, not just because the government disagrees with the decision.

Parallelly, the Arbitration and Conciliation (Amendment) Bill, 2024. also encourages the use of professional arbitral institutions, amongst others, further consolidating this shift.

The role of the judiciary in re-defining the arbitral landscape is pivotal. Initially, courts allowed parties to adopt ad hoc procedures and unilateral appointment mechanisms. However, this position began to change with TRF Ltd. v. Energo Engineering Projects Ltd., (2017) 8 SCC 377 (Para12), where the Supreme Court held that a person who is himself ineligible to be appointed as an arbitrator cannot nominate another arbitrator. This was followed in Perkins Eastman Architects DPC v. HSCC (India) Ltd., (2020) 20 SCC 760 (Para 21), which invalidated unilateral appointments by interested parties, even if the nominee was independent. Similarly, in Voestalpine Schienen GmbH v. DMRC, (2017) 4 SCC 665 (Para 24), the apex court set aside the appointment from a panel curated by a government entity as it requires that the panel be broad-based and impartial. The case became a pivotal moment in reining in ad hoc appointments.

These jurisprudential milestones culminated in Central Organisation for Railway Electrification v. ECI SPIC SMO MCML (JV) 2024 SCC OnLine SC 3219 (CORE-II) (Para 24-32; 44-47), wherein the Court reiterated that any appointment procedure whether internal or through a curated panel controlled by one party is impermissible under Section 12(5) and violates the principle of impartiality under Section 18. Collectively, this line of judicial verdicts, for all practical purposes, has made the constitution of ad hoc tribunals in the exclusive domain of the Courts under Section 11 of the Arbitration Act. The phenomenon of arbitrators fixing their own fees without any regulatory oversight has also raised serious concerns. Judicial interpretations have held that Schedule IV to the Arbitration Act is not mandatory, and with no statutory fee schedule applicable in ad hoc settings, arbitration is increasingly perceived as a lucrative avenue, rather than a professional and time-bound adjudicatory process.

Despite robust policy initiatives and appreciable strides, until and unless, drawbacks of adhoc arbitration are nipped in the bud, concerns would continue to linger in India’s path of being an international arbitration hub. Restriction/ limitation on adhoc arbitration and/ or restriction on the power to refer to ad hoc arbitration, is of utmost necessity in the interim period, till institutional arbitration is recognized and put in place. The need is to establish institutional arbitration by drawing a line which is bigger than adhoc arbitration and thereby make ad hoc irrelevant.

While India is steering firmly toward institutional arbitration, several crucial aspects merit deeper exploration. Several structural and operational reforms are essential to bridge the existing gap between India’s institutional structure and global best practices. The present Institutions have limited infrastructure. For example, IIAC, despite being designated as an institution of ‘National Importance’, remains underutilized, with its procedural rules and tribunal infrastructure still evolving. In contrast, global centres like Singapore International Arbitration Centre (‘SIAC’) offer dedicated facilities, seamless digital systems, and a strong case management system that make the arbitration process faster and much more reliable – a stark example being that the final award in SIAC must be rendered within three months from the date of the Tribunal’s constitution.

Thus, some focused steps are required, which include improving physical infrastructure, setting up online filing and hearing systems, encouraging awareness about the institutions, and encouraging regular training of Arbitrators and Counsel, amongst others, to chisel the existing centres. Importantly, the government must take the lead in referring all its disputes to institutional centres only, making institutional arbitration not just available, but the preferred choice.

About the authors: Amit Meharia is the Managing Partner of MCO Legals (Meharia & Company). Vidushi Tripathi is an Associate at the Firm.

Disclaimer: The opinions expressed in this article are those of the author(s). The opinions presented do not necessarily reflect the views of Bar & Bench.

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