Reforming India’s Arbitration Landscape

UPSC Syllabus Topic: GS Paper 2 –Dispute Redressal Mechanisms

Introduction

India is trying to become a trusted seat for high-value commercial arbitration while moving carefully to protect its legal ecosystem. Courts, government, and institutions are taking steps, yet gaps persist. Momentum is visible in the growing global interest in India, the rapid scaling of domestic law firms, and clearer entry rules for foreign lawyers. At the same time, persistent frictions—such as judicial delays, inconsistent policy signals across government, and difficulties in enforcing and executing arbitral awards—continue to constrain confidence and slow India’s progress toward arbitration hub status. Reforming India’s Arbitration Landscape.

Evolution of Arbitration in India

Origins:

1. Arbitration ideas trace back to the Brihadaranyaka Upanishad, which refers to community dispute bodies like puga, sreni, and kula.
2. The formal trajectory runs through the Arbitration Act, 1899 to the Arbitration and Conciliation Act, 1996, with 2015, 2019, 2021 amendments aimed at speed and global alignment

Foreign law firms and court line

• 2009 (Lawyers Collective, Bombay HC): It barred foreign firms from practising in India.
• 2012 (A.K. Balaji, Madras HC): It reaffirmed the bar and allowed temporary foreign-law advice.
• 2018 (SC): It permitted “fly-in, fly-out” advice but no permanent offices without enrolment.

Issues with Arbitration in India:

1. Over-reliance on retired judges: There is a tendency to appoint retired judges, assuming their judicial training is sufficient for arbitration, but this can lead to court-like delays and practices.
2. Neglected arbitrator development: There is a lack of focus on developing a pool of skilled arbitrators, which weakens the overall arbitration ecosystem.
3. Growing judicial interference: Courts frequently intervene in arbitral awards, undermining the purpose of arbitration as an alternative to the judiciary.
4. Bias concerns: There are concerns that government expectations for arbitrators to favor its stance can compromise impartiality, and the government sometimes prefers settlements over awards.
5. Capacity-building challenge: India aims to be a trusted seat for high-value disputes, which needs strong institutions, trained professionals, and efficient processes. Building and maintaining this capacity is a continuing task as volumes and complexity grow.
6. Appeal-driven litigation: The availability of numerous grounds for appeal encourages challenges to awards, which can lead to long and drawn-out legal battles.
7. Limited global presence: Indian arbitrators are often absent in international disputes without an Indian element, showing a disconnect from global arbitration networks.

India initiative for the development of arbitration

1. Bar Council of India Rules, 2025:

• Under this, foreign lawyers and foreign law firms may register to operate in India.
• Once registered, they may advise on their home-country law and on international law in India, and they may appear in international arbitrations seated in India.
• They are not permitted to practise Indian law or appear in Indian courts unless they are formally enrolled in India.
• The framework is reciprocal, so entry is allowed only if Indian lawyers receive comparable rights in the foreign jurisdiction.
• It also requires registrations, periodic filings, and ministry certifications, and it places a 60-day cap on unregistered “fly-in” work.
• The overall purpose is to open India to foreign expertise while complementing—not eclipsing—the domestic legal profession.

2. Commercial Courts Act, 2015: This act, with amendments in 2018, mandates a pre-institution mediation and settlement (PIMS) mechanism for certain commercial disputes before parties can approach the courts.
3. Mediation Act, 2023: This standalone law for institutional mediation further strengthens the overall alternative dispute resolution (ADR) framework by encouraging out-of-court settlements.
4. India International Arbitration Centre (IIAC): Established under the India International Arbitration Centre Act, 2019, as a world-class, autonomous body to promote institutional arbitration and make India an arbitration hub. The IIAC conducts training, workshops, and has its own Conduct of Arbitration Regulations, 2023.
5. Arbitration Council of India (ACI): An autonomous body created by the 2019 amendments to oversee the grading of arbitral institutions and recognize accreditation of arbitrators.
6. Indian Council of Arbitration (ICA): One of India’s oldest arbitral institutions, established in 1965, the ICA actively promotes arbitration through its own rules, panel of arbitrators, and training programs.
7. Indian Arbitration Forum: An association of practitioners focused on improving legislative standards, promoting best practices, and broadening the base of experienced arbitrators from various fields.

Role of institutions

• MCIA’s India ADR Week catalysed best-practice exchange with global counsel.
• Indian law firms have scaled dramatically (from 15–20 lawyers to 1,000+), gained global exposure, opened offices abroad, and now possess the capacity to benefit from calibrated openings.

Way Forward

1. Calibrated liberalisation (the “Golden Mean”)

• India should open its legal market step by step. Welcome foreign expertise, but use clear safeguards so Indian firms are not pushed aside.
• Keep reciprocity as the guiding rule—foreign firms get in only if Indian lawyers get similar access abroad.
• Retain basic compliance checks (registration, filings, time limits) so the system grows in an organized way while India steadily builds its own capacity.

2. Practical scope of participation

• Define a clean boundary for roles. Let foreign firms advise on their home-country law and on international law, and let them appear in international arbitrations seated in India.
• At the same time, keep Indian law practice and appearances in Indian courts limited to lawyers who are properly enrolled in India.
• This preserves opportunities for learning and collaboration without diluting control over core Indian

3. Strengthening Arbitration: Enhancing the arbitration process, including timely appointment of arbitrators and enforcement of awards, can make arbitration a more robust dispute resolution method.

Question for practice:

1. Examine the main concerns in India’s arbitration system and propose actionable steps to make India a credible seat for high-value commercial arbitration.

Source: The Hindu