Guest Post - PWD’s Retreat from Arbitration: A Government Signal, Not a Market Verdict

This is a guest post by Prashant Narang - Friendly reflections on Abiha's “wake-up call”

Abiha's thoughtful analysis of the PWD’s retreat from arbitration raises precisely the right questions about India’s dispute resolution landscape. It’s a conversation the arbitration community needs, but it’s also one that requires a sharper look at motives, incentives, and the difference between public and private sector logic.

This piece pushes the debate forward by challenging a few assumptions, asking for evidence where it’s missing, and reframing what the PWD’s move signals. This will help ground this important discussion in both institutional reality and empirical scepticism.

1 | Is the PWD Really a “Market Signal”

Abiha, you claim that “markets remain the ultimate arbiters of asset value” and treat the PWD’s retreat from arbitration as a meaningful market verdict. This is a category error.

PWD's procurement decisions reflect evolving Union policy -- specifically, the Ministry of Finance’s June 2024 guidelines advising departments to reconsider the routine use of arbitration -- not some emergent wisdom from market competition.

But if we insist on seeing this as a signal, then what does it reveal? A truly rational market actor chooses the forum that best advances its interests. Private claimants prefer swifter resolution when they expect to recover money. By contrast, a rational party that is usually the debtor (as the government is, in most procurement disputes) benefits from slow, drawn-out proceedings--every year a payment is delayed is a quiet fiscal “win.”

This highlights the government’s unique conflict: it writes the rules and is simultaneously the country’s largest litigant and award debtor. Its incentives, unlike those of private parties, often run opposite to speedy settlement. That’s the real “signal” here: procedure is being shaped less by efficiency and more by a calculus of delay.

Until speed is made valuable for award debtors as well as claimants, no procedural reform-arbitration, litigation, or mediation-will deliver the efficiency India’s business environment needs. Any conversation about dispute resolution must begin by reckoning with this elephant in the room.

2 | Timelines and Fee Caps: Assertion vs. Evidence

You argue that the 12-month timetable and Schedule IV fee caps “can resolve the cost and delay issues.” That promise was included into the 2015 Amendment; nearly a decade later, we still have only anecdotes. Until someone publishes side-by-side data—arbitration vs. litigation on cost, duration, and enforcement—the debate remains stuck in “he-said-she-said”. The onus lies on anyone invoking speed or thrift to show it, not simply state it.

The much-heralded “Fourth Schedule” (2015) was intended to cap fees and bring transparency. In reality, it is non-mandatory, inconsistently applied, and often circumvented (see ONGC v Afcons Gunanusa JV, 2022, where the tribunal-retired judges-ignored the fee cap altogether, escalating charges under various pretexts). The same small cadre of judges who interpret and enforce the rules are also its primary beneficiaries upon retirement (Narang & Suresh 2025). Even when not profiting directly, judges usually defer to one’s peers. The result: judicialisation and cartelisation of Indian arbitration, not market discipline or client-centred pricing.

Imposing one-size-fits-all fee schedules not only risks regulatory capture and inertia, but regularly ignores local innovation and market solutions. For example, the Karnataka Arbitration Centre keeps fees below Rs. 12 lakhs for claims above Rs. 20 crores (far less than the Fourth Schedule ceiling of Rs. 30 lakhs based on Delhi centre benchmarks). But instead of learning from such successes, reforms default to top-down control, stifling cost competition.

New policy reports, like the TKV Committee Report (2024), now acknowledge the failure of flat claim-based fee schedules and propose “alternative fee arrangements”. However, the core incentive problem — closed networks, lack of accountability, and the absence of rigorous, public data — need to be confronted.

3 | Accountability: Certification ≠ Independence

You propose “certified professionals” as a remedy for addressing bias and accountability. While credentials may signal a baseline competence, they are not a panacea for the deeper, structural issue: the repeat-appointment problem.

Certification measures who qualifies, not who delivers impartial decisions. An arbitrator who is routinely chosen by a handful of major PSUs or prominent law firms will inevitably internalise the incentives at play.

Institutional arbitration is not immune either. Much depends on the governance and real autonomy of these institutions. Some “institutions” in India are little more than extension arms of their parent PSUs, housing panels that offer an illusion of independence without meaningful oversight or diversity of thought. Without rigorous rules and firewalls, institutional forums can become echo chambers rather than neutral venues.

What truly disciplines bias is radical transparency. Imagine a regime where every arbitral award in PSU matters - even if released after a short embargo - is published as a matter of course. Pair this with a public dashboard tracking arbitrators’ caseloads, appointment sources, average case timelines, and fee metrics. Such sunlight does what credentials cannot: it allows for real scrutiny by parties, policymakers, and the broader market, making patterns and potential biases visible and actionable.

4 | Why Do Awards Keep Returning to Court?

I agree that “most awards end up back in court,” and reforms such as mandatory deposits and conditional stays may be useful.

I want to add that Courts already have the statutory authority to impose costs on losing parties under Section 31A, yet in practice, a culture of meaningful costs is almost absent (Chatur 2024). Without real financial consequences for unnecessary or frivolous challenges, measures like appeal deposits risk becoming just another line item in the litigation budget, rather than a genuine deterrent.

Instead, lasting reform requires a shift in decision-making incentives within the government itself. Departments should be compelled to weigh the actual prospects of success against the real costs of delay, and the recommending officers should be held accountable for initiating unmerited appeals. Decision-making could also be elevated to an independent high-level committee to ensure greater scrutiny and institutional responsibility. Rigorous documentation of rejected settlement offers and the eventual financial outcomes-including costs and legal expenses-should be mandated and subject to audit, creating an internal feedback loop for future decisions.

To further encourage early settlement and reduce unnecessary litigation, India could consider adopting an “Offer of Judgment” rule. Under this mechanism, a party can make a formal offer to settle before trial. If the opposing party declines and the final judgment is less favourable than the offer, the refusing party may face financial sanctions. Such a rule realigns incentives: it imposes a calculable cost for unreasonable refusal to settle, thus encouraging rational resolution of disputes at an earlier stage.

Ultimately, unless delay is made costly for government litigants and unless decisions to challenge arbitral awards are subject to genuine oversight and accountability, arbitration will remain just another stop along the well-worn path of protracted litigation.

5 | Mediation and the Public-Law Mind-set

Is a “robust mediation infrastructure” the answer to the shortcomings of arbitration? Can mediation deliver more efficient outcomes for public sector disputes?

The Office Memorandum dated June 2024 suggests that section 48 of the Mediation Act, 2023 empowers government entities to establish tailored schemes or guidelines for dispute resolution through mediation or conciliation. This legislative framework enables the creation of the necessary “soft infrastructure,” allowing government agencies to implement structured mediation processes that are sensitive to their unique institutional constraints and operational realities.

The core issue is: public officials operate under a cloud of audit anxiety. Signing a settlement in the shadow of possible allegations of favouritism or corruption can be career-limiting. In fact, the history of “settlement frameworks” within government and PSUs is littered with cautious uptake and muted results. If models within the Indian public sector have succeeded in fostering settlements without later recrimination (particularly in the Oil and Gas field as the Guidelines mention), the details are conspicuously absent from public discussion.

To address this incentive misalignment, the new guidelines propose routing settlement decisions through a “high-level committee.”

But is this a tested solution?

We have no empirical data (in public domain) – no pilot results, no published case studies – to show that such committees actually dispel fear or accelerate settlements.

Before promoting mediation as a scalable fix for government disputes, shouldn’t we insist on hard evidence that it works in practice? A limited pilot – tracking outcomes from, say, ten high-value PWD disputes resolved through this committee process – would provide a reality check.

Concluding

The PWD’s exit from arbitration reminds us again about the persistent, structural misalignment of incentives when the government is both rule-maker and the country’s largest award debtor. Rather than relying solely on command-and-control mandates or prescriptive models, genuine progress will come from reforms that reward early, efficient settlement and tie accountability to real outcomes. If incentives are structured so that speed, transparency, and effective resolution are valuable-for both claimants and the government, then mediation frameworks and innovations like online dispute resolution can evolve from policy aspirations into practical, trusted tools. The challenge is to pilot such reforms, rigorously measure their impact, and adapt frameworks based on evidence rather than assumption. Ultimately, credibility and efficiency in public sector dispute resolution will depend less on the infrastructure, and more on how they shape the underlying incentives for all parties involved.