In a country where the wheels of justice turn slower than how ancient philosophers had imagined, private parties doing business found refuge in arbitration. The Supreme Court constitution bench's judgment in the 'Gayatri Balasamy vs ISG Novasoft Technologies' case last month, is the latest in a long list of recent moves by the apex court and GoI that raise concerns over whether arbitration is truly as effective as a refuge.

Commercial disputes in courts can take years to resolve. Arbitration between commercial parties has been used to sidestep judicial inefficiencies. It typically leads to faster resolutions, reducing prolonged legal costs and business disruptions. It also offers a single-tier process with limited avenues for appeal. These features provide finality and certainty.

In law, courts are supposed to uphold guard rails and prevent abuse. But they are not supposed to sit in judgment over an arbitration award that is supposed to be final. Awards can be set aside by supervisory courts only on limited and narrow grounds, such as public policy violations - unlike an appellate court, which can call into question the application of law by a lower court.

But in 'Gayatri Balasamy', the Supreme Court, led by then-CJI Sanjiv Khanna, held that a supervisory court has limited powers to modify arbitral awards, and the apex court can modify awards under its powers to do complete justice under Article 142. In Indian litigation, once a door is left ajar, it tends to soon open fully. Supervisory courts may start taking a cue from this judgment to modify awards liberally.

This judgment, however, is far from an isolated case. In April last year, then-CJI D Y Chandrachud invoked the curative jurisdiction of the Supreme Court to set aside the ₹7,600 cr award against Delhi Metro Rail Corporation (DMRC), after the Delhi High Court and two earlier rounds of Supreme Court litigation had found the award enforceable and payable to Reliance Infrastructure subsidiary DAMEPL (Delhi Airport Metro Express Private Limited) over the Delhi Metro Airport Express Line dispute.

Notwithstanding any supposed legal merit in these judgments, they inject uncertainty and invite further judicial intervention into arbitration outcomes meant to be conclusive. The judiciary isn't alone to blame. GoI, too, is playing a part in weakening arbitration and reducing stakeholders' confidence in the system.

In the draft Arbitration and Conciliation (Amendment) Bill 2024, GoI proposes to expand grounds for setting aside awards in international arbitrations to include 'patent illegality', a ground that, until now, applies only to domestic awards. Notably, this ground was deliberately excluded for international arbitrations during the 2015 reforms. It now makes an inexplicable return. This adds another layer of uncertainty for arbitration users, as any assessment of patent illegality invariably turns on judicial discretion.

In June 2024, Department of Expenditure issued an office memorandum restricting government bodies from selecting arbitration in public procurement contracts and tenders where the dispute amounts to more than ₹10 cr. This bizarre move signals a lack of confidence in arbitration even as GoI publicly signals that it wants India to become a hub for global arbitration.

GoI is already the biggest litigant in the country. This move will further flood an already overflooded court system. It will make commercial disputes with the government more inefficient, and disincentivise private parties from contracting with GoI. An unintended consequence might be that these contracts become more expensive for the exchequer, as bidders start pricing in the cost of not arbitrating.

These recent moves by GoI and judiciary are blurring the line between litigation and arbitration. As courts intervene more freely, and GoI shows reluctance to arbitrate, parties may begin to lose the incentive to choose arbitration at all. This trend is especially troubling given India's significant strides in arbitration reform since 2015.

Robustness of a country's justice delivery system plays a critical role in enhancing ease of doing business and attracting foreign investment. Jurisdictions like Singapore and Hong Kong exemplify how strong, pro-arbitration legal frameworks can be cornerstones for economic growth and investor confidence.

In India, where litigation often leads to increased uncertainty, slower redressal and higher transaction costs, it's all the more essential that legal frameworks uphold and respect arbitration. Yet, instead of reinforcing this mechanism, GoI and judiciary seem to be working in tandem to undermine it, delivering a 1-2 punch to what remains the most effective tool for enforcing rule of law in commercial disputes.