[Anvita Sharma is a penultimate year student at Jindal Global Law School]
As the cornerstone of resolving complex infrastructure disputes globally, arbitration is valued for its efficiency, confidentiality and enforceability. Against this backdrop, on 21 April 2025, the Public Works Department (‘PWD’) of Delhi issued a notification removing arbitration as a dispute resolution mechanism from all future contracts, thereby marking a sharp and controversial policy shift. While the notification fails to provide any rationale towards adopting such a drastic measure, it is in consonance with a 2024 guidance issued by the Ministry of Finance outlining the disadvantages of arbitration. The noteworthy difference between the two is that the Ministry of Finance’s guidance limits arbitration to disputes valued up to INR 10 crores, while the PWD’s notification takes a far more sweeping approach by imposing a blanket ban on arbitration. Furthermore, this notification fails to propose other alternative dispute resolution mechanisms. Instead, it directly amends clause 25 of the General Conditions of Contract to mandate all disputes be solved through the courts.
This move warrants closer scrutiny, especially given the central role arbitration has come to play in resolving public infrastructure disputes. PWD, a key governmental agency, is actively involved in construction, maintenance and design – sectors that are historically rife with disputes over project delays, cost overruns and force majeure events. In this context, arbitration has evolved into a preferred mechanism for timely and expert resolution of disputes. Furthermore, in the international arena, FIDIC, which develops construction contract templates, advocates for the inclusion of multi-tier dispute resolution clauses, with arbitration serving as the final step.
The author suggests that this notification by PWD not only deviates from global norms but comes at a time when India is striving to position itself as a global hub for arbitration and strengthen its alternative dispute resolution system. Given the importance of efficient contract enforcement, investor trust and streamlined infrastructure development, the PWD’s notification may have far reaching implications, potentially worsening litigation and uncertainty in public contracts, instead of easing them. This post provides an overview of the recent notification, explores potential alternatives, analyses its possible impact and highlights persistent concerns.
Current State of Arbitration and Potential Alternatives to a Blanket Ban
Evidence suggests that arbitration offers significant advantages, especially in large scale projects, particularly due to the confidentiality provision under section 42A of the Arbitration and Conciliation Act, 1996, protecting reputational interests and enabling a candid dispute resolution process. Although the Ministry of Finance guidance critiques arbitration as costly and time-consuming, such concerns overlook its long-term benefits in minimising delays and uncertainty. The Queen Mary International Arbitration Survey (2025) underscores this by highlighting that 87% of respondents globally favoured arbitration for resolving disputes.
Consequently, the author contends that policymakers should adopt balanced reforms rather than abandoning arbitration altogether. A key recommendation is the promotion of expedited and streamlined procedures. In India, ad hocarbitration currently dominates over institutional arbitration. In contrast, international arbitral institutions such as SIAC have demonstrated the success of “fast-track” arbitration models that resolve disputes under expedited timelines. Thus, adopting similar procedural frameworks could enhance the efficiency of arbitration without undermining its core advantages.
Instead of restrictive intervention, the author suggests that the focus should be on capacity building. Former Chief Justice of India, Dr. D.Y Chandrachud has emphasised that arbitration is now central to commercial justice, rather than a mere alternative. Excessive state control and rigid policies risk obstructing India’s ambition to position itself as a global arbitration hub. Consequently, discouraging arbitration – particularly ad-hoc processes – could drive more disputes into an already burdened court system, leading to higher litigation costs, prolonged project delays and reduced private sector interest, especially in critical sectors such as construction and infrastructure.
A further alternative to a blanket ban is the introduction of public sector specific rules, in terms of appointment of arbitrators. Following the model of SIAC, where arbitrators undergo a rigorous pre vetting process by the secretariat, could ensure greater transparency, neutrality and quality assurance in arbitration, particularly where public interest is involved. Therefore, the author argues that an outright ban on arbitration is a regressive move – and subtly reaffirms the traditional position of how litigation can be the only form of dispute resolution.
The Road Ahead
Delhi’s evolution into a prominent arbitration hub illustrates the cumulative effects of institutional innovation and judicial support. The establishment of the Delhi International Arbitration Centre (DIAC) by the Delhi High Court constituted a significant institutional breakthrough, embedding arbitration within the judicial structure while maintaining procedural independence. Equally important, the Delhi High Court’s jurisprudence has consistently demonstrated a pro-arbitration bias, consciously limiting judicial intervention and reinforcing the finality and autonomy of arbitral awards. These developments collectively contributed to Delhi’s credibility as a reliable and efficient centre for dispute resolution. This notification however, signals a potential regression from this trajectory, raising broader concerns about India’s institutional coherence and policy consistency.
Although the notification applies specifically to the PWD, the author critically questions whether this signals a broader effort to marginalise arbitration in public contracts. The Ministry of Finance’s guidance issued last June, followed by this recent notification, suggests a consistent trend that might be signalling a shift away from arbitration as a preferred dispute resolution mechanism.
Firstly, the release of the recent notification raises critical concerns about its potential to undermine investor confidence in India. In a March 2025 press release, the Union Minister for Commerce, Piyush Goyal, emphasised the need for a robust arbitration framework to foster a transparent business environment. However, the notification appears misaligned with these policy objectives. The Minister’s recognition of challenges – such as the undue influence of large corporations and international biases – reflects a broader tension. While India aspires to become an arbitration hub, PWDs domestic policy may erode the very foundations of trust necessary for this ambition.
Judicial pronouncements further highlight the government’s role in maintaining investor confidence. In Central Organisation for Railway Electrification v. ECI SPIC SMO MCML (JV) A Joint Venture Company, the Supreme Court underscored the state’s obligation to support arbitration framework. India’s recent amendment to its bilateral investment treaty with the UAE, notably reducing the period for exhausting local remedies, signals an intention to expedite access to international arbitration. However, this progressive stances stands in sharp contrast to this recent notification, exposing an internal inconsistency within India’s policy approach.
Secondly, the notification appears to run contrary to India’s longstanding efforts to enhance ease of doing business. Legislative reforms in 2015, 2018 and 2021 had systematically narrowed judicial interference in arbitral awards and strengthened procedural clarity, making India a more predictable forum for dispute resolution. Simultaneously, infrastructure initiatives – such as establishment of GIFT City’s arbitration centre and the modernization of judicial processes through digital platforms – were aimed at reducing transaction costs and investor uncertainty. The contradiction between these reforms and the recent notification could deter investors by reintroducing unpredictability into the dispute resolution landscape.
Thirdly, this notification raises serious concerns regarding the enforcement of contracts. Arbitration provides a structured, enforceable mechanism that balances efficiency with legal certainty This would introduce greater unpredictability into commercial relationships, undermining trust and slowing economic transactions. Crucially, the New York Convention’s harmonization of arbitral enforcement provides companies with confidence in cross border transactions. Weakening arbitration in India would not merely affect domestic commercial certainty but could also signal to foreign investors a retreat from international best practices. Such a development would be fundamentally at odds with India’s aspirations to emerge as a preferred global investment destination.
Conclusion
The author contends that this policy shift contradicts India’s recent efforts to enhance ease of doing business and strengthen its reputation as an arbitration-friendly jurisdiction. The move threatens to reverse progress made in judicial reforms and contract enforcement, particularly at a time when India is striving to establish itself as a global arbitration hub.
Rather than a blanket ban, a more nuanced approach is needed, focusing on refining arbitration processes and addressing specific concerns such as cost and time. The author indicates that by doing so, PWD could preserve the benefits of arbitration while fostering a more predictable, investor-friendly environment in the long term.
– Anvita Sharma
