Introduction
The Indian Government is known to be party to bulk of litigation in Courts[1] of the country and has over the past 10 years spent more than Rs. 400 crores[2] to contest litigation. Upon being aware of the ground reality, the Government had made attempts to formulate a ‘National Litigation Policy’ however the Committee responsible for the same eventually decided that reduction of litigation can be effectively tackled through guidelines and a policy would not be required.[3] However, in light of the constant increase in rise of litigation/ pendency of cases across the country courts, the Ministry of Law and Justice has recently released the ‘Directive for the Efficient and Effective Management of Litigation by Government of India’, a document which aims to reinforce the goal of good governance and ensuring public welfare.[4]
The Directive (applicable to all Central Government Ministries and Departments) is a welcome document for practitioners across the country and is a measure taken in line with the Government’s objective to achieve the goal of Viksit Bharat by 2047, a vision to transform the country into a developed nation (by its 100th independence anniversary).[5]
In order to have a holistic understanding of the Directive, it would have to be seen in context of some contentious changes recently made by the Government limiting the usage of arbitration as a dispute resolution mechanism. The authors aim to discuss the suggestions outlined in the Directive regarding dispute resolution mechanisms like arbitration and mediation in light of the said changes as well as the impact of such suggestions in making India an arbitration hub.[6]
Background
India’s goal to create itself into an arbitration hub is echoed in the Government’s press releases,[7] recent Expert Committee report on Arbitration lead by Dr. T. K. Viswanathan,[8] and a string of reform efforts over the years. On the surface, the commitment seems clear, but scratch a little deeper, and the real picture seems contrasting. In June 2024, the Ministry of Finance issued an Office Memorandum (OM) advising that arbitration should not be routinely or automatically included in government procurement contracts, particularly those involving high-value tenders. It further recommended restricting arbitration clauses to disputes quantified below Rs. 10 crore. While the OM did encourage departments and public bodies to consider mediation or negotiated settlements, it added a caveat that even mediation “need not be routinely or automatically included” in contracts.[9]
Shortly after, the Karnataka Government withdrew its earlier circular which made arbitration a mandatory clause in all state government contracts and tenders. In a circular dated November 16, 2024, the state formally revoked the earlier circular “with immediate effect.”[10] Explaining the move, State Law Minister H.K. Patil pointed out that “the clause was heaping financial strain on the state. The government will now resort to arbitration only when necessary and not for every dispute.”[11] A similar but arguably more extreme policy shift was made by the Public Works Department (PWD) of the Delhi Government which issued a notification removing arbitration as a dispute resolution option from all future contracts, without offering any replacement. Unlike the Ministry of Finance’s approach, which restricts arbitration to disputes under Rs. 10 crore, the Delhi PWD has imposed a blanket ban. The PWD notification amended the General Conditions of Contract, mandating that all disputes be resolved through the courts. No reasoning was provided for such a sweeping change, nor was any alternative like mediation or conciliation introduced in its place.[12]
Overview of the Directive
A deep dive into Directive would reveal that it has proposed few thoughtful suggestions inter alia include conducting litigation risk assessment and litigation mitigation plan (as has been suggested by the Government earlier[13]), preparation of updated and compiled master circulars, setting up a grievance redressal mechanism which can address service matters at its level and save them from government litigation (similar to the one which Department of Post has introduced ‘Dak Adalat’ which is held at the regional level every six months to address grievances of postal staff members[14]), periodic review of government litigation and discouraging unnecessary filing of SLPs in a routine manner.
At the same time, it is important to mention that the litigation system overhaul it proposes to carry out might be unrealistic. It mandates setting up an operational framework by hiring fresh human resources to strengthen the overburdened Government departments and therefore creating a pool of specialised and dedicated staff to oversee and monitor litigation. Furthermore, it oversimplifies classification of cases (under three broad heads i.e. highly sensitive, sensitive, and regular), continuously keep track of litigation which could likely impact the government (even though it is not a party to the litigation), among a few other initiatives which would not be feasible for the departments to follow.
Impact of Directive on Arbitration
Encouragingly, not all initiatives of the Government are turning away from arbitration. The recently issued Directive takes a more balanced and thoughtful approach. It does not discard arbitration, instead, it recognises its shortcomings and sets out detailed Guidelines to address them, aiming to make dispute resolution more structured, accountable, and effective.
One of the key changes brought about by the Directive is the emphasis it lays on early-stage dispute prevention. It urges ministries to respond promptly to concerns raised by contractors during project execution, before they escalate into full-fledged arbitration or litigation. It also suggested a careful review of standard contracts and concession agreements to remove conflicting provisions that often lead to recurring disputes. The Directive takes a clear position in favour of ADR mechanisms, recommending that it be actively promoted wherever feasible. For mediation, it suggests that ministries identify the types of disputes that are suitable and roll out specific schemes or guidelines in line with the Mediation Act, 2023.[15] When it comes to arbitration, the approach is more cautious. The inclusion of arbitration clauses in government contracts is to be considered on a case-by-case basis, with an emphasis on ensuring public accountability. It also affirms the existing government guidelines, including the OM issued on 3 June 2024.
The Directive strongly favours institutional over ad hoc arbitration, echoing the Government’s broader push to strengthen institutional mechanisms, as also reflected in the draft Arbitration and Conciliation (Amendment) Bill, 2024[16] and in establishing of IIAC (India International Arbitration Centre)[17] an institute of national importance to handle arbitration cases. The Directive calls for regular reviews of all arbitration cases involving the Union of India, to be conducted by senior officials, with key outcomes shared with the Department of Legal Affairs for record and reference. The Directive proposes the creation of a Government Arbitration Portal, modelled on the National Judicial Data Grid,[18] to centralise data on all arbitration matters involving the government to improve monitoring and coordination across ministries and agencies which will help increase transparency and reaffirm the faith of people in the process.
The Directive also addresses a private party counsel’s oft faced problem of adjournments. The practice of requesting for adjournments by the Government counsels on grounds of lack of instruction or difficulty in navigating the multi-level government structure or absence of files has been addressed by the Directive. The Courts have repeatedly reiterated that the “task of adjournments is used to kill Justice. Repeated adjournments break the back of the litigants… Therefore the courts shall not grant the adjournments in routine manner and mechanically and shall not be a party to cause for delay in dispensing the justice.”[19] The Directive instructs ministries to avoid repeated adjournments. If more than two consecutive adjournments are sought, the matter must be flagged to the Nodal Officer, pushing for greater accountability from both departments and their counsel.
In a remarkable move, while dealing with challenge to awards and appeals thereof, the Directive calls for strict adherence to Section 34 of the Arbitration and Conciliation Act, 1996. It states that challenge/ appeals should not be filed just because an order is unfavourable rather the decision must rest on a realistic assessment of the merits, likelihood of success, and the financial risks of failure. Ministries are expected to weigh interest liabilities and cost risks carefully, and not let routine appeals become financial burdens. This push would give ministries the much needed leeway to decide whether to file appeals or not without fearing the consequences. The use of technology, data analytics, and artificial intelligence is also encouraged to support more informed and rational decision-making.
This suggestion in the Directive is in line with steps taken by other departments to curb litigation. For example, the Union Budget of 2024 – 25 proposed an enhanced monetary limit for filing appeals related to Direct Taxes, Excise and Service Tax which led to disposal of more than 500 cases at the Supreme Court level alone (where the tax effect was less than revised monetary limits) and this significant milestone aligns with the government’s efforts to reduce tax litigation.[20]
Concluding Remarks
The measures discussed above will promote India to establish itself as an anchor in the global arbitration landscape. As recently mentioned by Hon’ble Justice Surya Kant (Supreme Court Judge) “India is no longer merely a user of arbitration; it is increasingly becoming a thought leader and an intellectual contributor within the global arbitration community”.[21] The Directive reflects a mature and pragmatic shift in the Government’s approach towards promoting arbitration. Instead of treating every dispute as a fight to be won, the Directive points toward a future where litigation is a last resort and where the government behaves not just as a litigant, but as a model party in how it resolves disputes. If implemented with sincerity, these reforms could help change both the culture and credibility of dispute resolution in India.
*Authors: Bhavana C. Dhoundiyal, Senior Associate, Kachwaha & Partners, New Delhi and Pratyush Khanna, Associate, Kachwaha & Partners, New Delhi.
[1] Parliamentary Debates Rajya Sabha Official Report dated 5 January 2018 [Vol. 244 No. 13], available here.
[2] Lok Sabha Unstarred Question No. 835 answered on 7 February 2025, available here.
[3] Rajya Sabha Unstarred Question No. 1076 answered on 15 December 2022, available here.
[4] Office Memorandum on ‘Directive for the Efficient and Effective Management of Litigation by Government of India’ dated 4 April 2025.
[5] PIB Press Release dated 11 December 2023, available here.
[6] ‘India will soon become the hub of arbitration, says Law Minister’, The Hindu, 15 June 2025, available here.
[7] ‘Government of India at forefront to promote Alternative Dispute Resolution Systems’, PIB Press Release dated 8 February 2024, available here.
[8] ‘Report of the Expert Committee to Examine the Working of the Arbitration Law and Recommend Reforms in the Arbitration and Conciliation Act 1996 to make it alternative in the letter and spirit’ dated 7 February 2024, available here.
[9] Office Memorandum, ‘Guidelines for Arbitration and Mediation in Contracts of Domestic Public Procurement’ dated 3 June 2024 available here.
[10] Circular, ‘Incorporation of ‘Arbitration Clause’ in the Government Contract/tenders etc.’ dated 16 November 2024, available here.
[11] ‘Govt scraps mandatory arbitration clause in tenders’, The Times of India, 19 November 2024, available here.
[12] Office Order, ‘Deletion of Arbitration Clause (Clause 25) from GCC of all future Contracts of PWD’ dated 21 April 2025, available here.
[13] ‘Government mulls amending procedures to check ‘unnecessary’ litigation’, The Times of India, 2 August 2016, available here.
[14] ‘Dak Adalat to solve problems relating to postal services’, PIB Press Release dated 15 May 2023, available here.
[15] Mediation Act, 2023, available here.
[16] Draft Arbitration & Conciliation (Amendment) Bill, 2024, available here.
[17] Preamble, The India International Arbitration Centre Act, 2019, available here.
[18] A one-stop repository of all case related information pertaining to District Courts, High Courts as well as Supreme Court of India, National Judicial Data Grid, available here.
[19] Ishwarlal Mali Rathod v. Gopal, (2021) 12 SCC 612.
[20] ‘Union Budget 2024-25 provided for an enhanced monetary limit for filing appeals related to Direct Taxes, Excise and Service Tax in various judicial fora’, PIB Press Release dated 24 September 2024, available here.
[21] ‘India to be global seat for arbitration: Justice Surya Kant’, Hindustan Times, 13 July 2025, available here.