Effective resolution

India is currently experiencing a historic infrastructure boom, characterized by an unprecedented surge in government spending and ambitious mega-projects. Capital investment in infrastructure reached a record Rs. 10 lakh crores in 2023-24, marking a substantial 33 per cent increase over the previous year. This monumental outlay aims to transform the nation’s highways, railways, and logistics networks, with the construction sector projected to contribute as much as 15 per cent to India’s GDP and create over 70 million jobs by the end of the decade.

The Government’s investment in India’s infrastructural development has surged nearly 800 per cent in the past decade, from Rs. 1.12 lakh crore in 2014 to Rs. 10 lakh crores in 2024. A significant contributor to this surge has been the steady rise in Public-Private Partnerships (PPPs), which have opened new avenues for investment and accelerated project execution.

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Complementing this momentum, Government has redefined the infrastructure landscape by a multitude of ambitious initiatives including the PM Gati Shakti National Master Plan launches with Rs. 100 lakh crore investment to enhance connectivity across over 100 cities; the National Infrastructure Pipeline, targeting Rs. 111 lakh crore in investments between 2020 and 2025 across over 9,000 projects in 34 sub-sectors, primarily energy, roads, railways, and urban projects and Bharatmala Pariyojana with over Rs. 5.35 lakh crore investment aiming to develop 266,000 km economic corridors, to name a few.

The inherent nature of these high value, complex infrastructure projects which involves technical intricacies, multi-party relationships, significant public interest and regulatory frameworks makes disputes an inevitable consequence. Such disputes can severely derail the project timelines, impact financial viability, and strain stakeholder relationships.

With myriad disputes that may seep into the way of completion of an infrastructure project of any nature, ranging from issues arising from contractual interpretation and technical failures to regulatory delays and payment issues, arbitration has been the preferred mode of dispute resolution leaning favourably towards business efficacy by also providing a way for redressal of intermittent disputes which may arise even during the project lifecycle, all while the construction of the project may not necessarily be halted, unless the dispute itself is of such nature.

Arbitration does not only stand at the forefront in dispute resolution concerning infrastructure for the advantages it offers, including speed, specialised expertise, confidentiality, enforceability, and flexibility, but also for its global approach in this ever-growing industry which is not constrained to any geographical boundary. In F.Y. 2024–2025 alone, India received over USD 50 billion in FDI inflows which marks a 13 per cent increase from the previous fiscal year and India remains the leading destination for FDI in South Asia as of 2024.

Being a signatory to the New York Convention, the arbitral awards passed in India can be enforced in more than 160 signatory nations, which only cements the multi-faceted preference for arbitration as the to-go mode of dispute resolution.

The advantages that arbitration has to offer to the sphere of dispute resolution in infra sectors, and its reciprocal global recognition has evidently accelerated the growth potential of infrastructure projects in India. The Indian government has even resolved to make the nation ‘a domestic and international arbitration hub’. Yet, the tides from the governments’ end are sailing against the arbitration mechanism in recent times for several reasons, which might not put us in the best waters for effective utilisation of arbitration as ‘the’ dispute resolution mechanism.

The efficiency of arbitration as a means of dispute resolution stands questioned by the recent Office Memorandum of the Ministry of Finance dated 03.06.2024. While noting that the existing arbitral process was often deemed unsatisfactory due to its lengthy and costly nature, it restricts the scope of arbitration to a pecuniary limit stating that arbitration “should not be the norm or preferred mode of dispute resolution in public procurement contract”. While multi-tier dispute resolution clauses are a commercial reality today and must be encouraged, doing it in isolation from arbitration may not be the best recourse.

Further amplifying the shift observed in the Ministry of Finance’s directive, the PWD of Delhi issued an Office Order on 21.04.2025, introducing a drastic policy change regarding dispute resolution in its standard contracts, stating that the arbitration clause therein shall be deleted and all disputes shall be subject to exclusive jurisdiction of Courts in Delhi only. This paradigm shift is likely to hamper India’s ambitious vision to establish itself as a prominent global hub for international and domestic arbitration. Such deviation is likely to undermine investor confidence in India, specifically private sector participation in government sponsored infrastructure projects.

The need of the hour is to not retrace our steps into the red-tapism of judicial mechanisms in infrastructure disputes, particularly in light of the unprecedented advantages that arbitration has brought to the sector and in view of the significant contribution it has offered to its growth over the past decade. Therefore, if the “public” sector in India’s PPP model begins to abandon the arbitration framework and drift toward conventional litigation, it risks burning the very bridge it helped build. Instead, it must burn boats that lead back to slow and rigid court procedures and commit to refining arbitration by making it an expeditious and commercially sound dispute resolution mechanism which furthers the seamless execution of infrastructure development in the nation.

What is needed is not a complete overhaul of the existing mechanism, but a targeted uplift that enhances its commercial utility. This may include a gradual shift towards institutional arbitration, constitution of arbitral panels with sectoral experts, and discouraging the routine challenge of arbitral awards. The party aggrieved by an award often prefers to initiate a challenge; at times such a challenge may be legitimate, yet in other instances it is mere forcing the square peg of an arbitrator’s reasoning into the round hole of appeal grounds under the Act, thereby delaying the attainment of finality in the dispute.

These instances pull the commercial prudence of the arbitrator into the folds of traditional litigation, ultimately leading to the loss of time and money viz. two of the most valuable assets in the infrastructure sector. Even with its imperfections, arbitration continues to offer a more pragmatic, commercially aligned, and time-efficient forum for resolving infrastructure disputes. It is better suited to the pace and practical requirements of infrastructure projects than traditional litigation, positioning it as a crucial mechanism for supporting the continued growth and long-term development of India’s infrastructure.

(The writers are, respectively, Senior Partner and Associate at S&A Law Offices.)