The Rational Retreat: How the Supreme Court Taught the Indian State to Quit Arbitration

Introduction

The verdict on the Indian government’s withdrawal from arbitration is nearly unanimous. Commentators have called it a panicked retreat,[i] a wake-up call,[ii] and bureaucracy derailing the ‘Arbitrate in India’ initiative.[iii] The shared premise is that the executive has miscalculated: that a state committed to becoming a global arbitration hub has, through timidity or confusion, sabotaged its own project. This essay takes the opposite view. The retreat is the most rational act in Indian arbitration policy since 2015, and until its cause is addressed no amendment bill or coordination committee will reverse it.

The argument borrows Albert Hirschman’s framework of exit, voice and loyalty: when the quality of a product declines, customers either leave (exit) or complain through channels the producer provides (voice), and loyalty determines how long they complain before leaving.[iv] Applied here, the framework requires one unfamiliar move. The Indian State is usually analysed as arbitration’s regulator. It is more accurately arbitration’s largest customer, a party to the bulk of high-value domestic arbitrations, from highways to metro concessions, and the respondent in most of the awards its own guidelines describe as ‘routinely challenged’.[v] What happened between April 2024 and April 2025 is what happens in any market when the largest customer discovers that the product’s defining feature no longer works. The feature is finality. The discovery was Delhi Metro Rail Corporation v Delhi Airport Metro Express.[vi]

Voice: How the Court Made Persistence Pay

The facts of DMRC bear retelling, because their omission flatters every account of India’s ‘pro-arbitration’ judiciary. In 2017, an arbitral tribunal awarded DAMEPL Rs 2,782.33 crore against the state-owned metro operator. With interest, the liability reached Rs 8,009.38 crore by early 2022.[vii] The award survived a Section 34 challenge. A Division Bench trimmed it on appeal, but in September 2021 the Supreme Court restored it in full,[viii] then dismissed review. Under every doctrine of finality the Arbitration and Conciliation Act 1996 contains, the dispute was over. Then, on 10 April 2024, a three-judge bench headed by the Chief Justice allowed DMRC’s curative petition, a remedy Rupa Ashok Hurra had reserved for gross miscarriages of justice such as bias or a breach of natural justice,[ix] and annulled the award for ‘perversity and patent illegality’, ordering every rupee DMRC had deposited to be refunded.[x]

One year later, the Court institutionalised what DMRC had improvised. In Gayatri Balasamy v ISG Novasoft Technologies, a Constitution Bench held 4:1 that courts under Section 34 possess a limited power to modify awards: severing invalid portions, correcting manifest errors, adjusting post-award interest, and, with ‘great care and caution’, doing complete justice under Article 142.[xi] Justice Viswanathan dissented. The Act deliberately withholds modification, he warned, and reading it in is judicial legislation.[xii] The International Bar Association asked whether finality in Indian arbitration is now a fading principle.[xiii] Columbia’s American Review of International Arbitration went further: the categories will blur in the hands of hundreds of Section 34 courts, where the line between correcting a computation and redoing the quantification is thin.[xiv]

Together the two decisions transformed the post-award stage from a narrow annulment channel into a genuine second innings. In Hirschman’s terms, the judiciary widened voice. It multiplied the channels through which a losing party can keep talking after the award, and in doing so it taught a specific lesson to a specific litigant. DMRC lost at every level for seven years, kept litigating, and recovered eight thousand crore rupees. For the largest repeat player in the system, the lesson was not that Indian courts are hostile to arbitration. It was better than that: an award against the State is never final while the State keeps fighting.

Exit: The Customer Draws the Obvious Conclusion

Eight weeks after DMRC, the Ministry of Finance issued its Guidelines for Arbitration and Mediation in Contracts of Domestic Public Procurement, directing that arbitration clauses no longer be routinely included in procurement contracts and confining routine arbitration to disputes below Rs 10 crore.[xv] The Guidelines do not cite DMRC (office memoranda rarely footnote their traumas), but commentary has treated the sequence as cause and effect,[xvi] and the internal logic confirms it. The memorandum’s stated reasons for retreat, namely long proceedings, routine challenges, and awards overturned late and expensively, describe precisely the pathology DMRC exemplified. Implementation followed the administrative chain. NHAI, holding pending arbitration claims above Rs 1.16 trillion, revised its model concession agreements.[xvii] The Delhi Public Works Department went further and deleted arbitration clauses from future contracts altogether in April 2025.[xviii]

The consensus reads this as bureaucratic timidity. Hirschman suggests a colder reading: exit. A customer that has just demonstrated, in its own case, that the product’s warranty is void will stop buying the product. Arbitration’s single marketable feature over litigation is a fast, final, binding award. Once the State’s own litigation experience established that finality is negotiable for a party with the resources to persist, the rational procurement officer’s calculus inverted. Why pay for private adjudication whose result binds you when you lose but not your opponent when it loses?[xix] And there is an asymmetry here that no commentator has named. The State exited arbitration as a buyer while retaining, as an award-debtor, every enlarged channel of voice the judiciary created. It quit the game and kept the appeal rights.

Loyalty: Legislating for a Market the Customer Is Leaving

The third institution has been trying to rebuild loyalty. The draft Arbitration and Conciliation (Amendment) Bill 2024 (statutory emergency arbitrators, a thirty-day clock on jurisdictional rulings, an opt-in appellate arbitral tribunal, tighter limits on interim relief from courts)[xx] implements the Viswanathan Expert Committee’s report[xxi] and reads, in Hirschman’s vocabulary, as a producer’s attempt to make the product worth staying for. It has not been introduced in Parliament twenty months after consultation closed.[xxii] The drift is usually attributed to legislative congestion. The feedback-loop account suggests it is over determined. The Ministry of Law is improving a product whose principal customer, the Ministry of Finance, has announced it is no longer buying. And the Bill cannot fix the actual defect anyway. Parliament can rewrite Section 34 however it pleases, and in doing so reverse Balasamy. It cannot repeal curative jurisdiction. That power rests on the Constitution.

Nor can the judiciary’s genuinely pro-arbitration line reach the problem, because it polices the wrong door. In re Interplay made unstamped agreements curable rather than void.[xxiii] OPG Power directed courts to explain thinly reasoned awards rather than set them aside.[xxiv] Tarini Prasad Mohanty, in May 2026, barred writ challenges to tribunals’ Section 16 rulings.[xxv] Each decision guards the front door of arbitration: getting disputes in, keeping courts out mid-stream. The back door, post-award review, has meanwhile widened through modification under Balasamy, curative annulment after DMRC, and the blurred boundary between correcting and re-deciding that lower courts must now administer.[xxvi] A front door bolted while the back door hangs ajar is not minimal intervention. It is deferred intervention, and for a repeat litigant an invitation.[xxvii]

Objections

Three objections deserve answers. First: DMRC declared itself exceptional, and curative annulments remain vanishingly rare. True, but markets price tail risk, not frequency. A warranty voided once, publicly, in the largest case available, is a voided warranty. No counterparty can be assured it will not happen to its award. Second: Balasamy‘s categories are narrow. On paper, yes. In practice they are administered by hundreds of Section 34 courts, and the majority’s own recourse to Article 142 concedes that the boundary is discretionary at the top. Third: perhaps the State’s exit is harmless, since courts exist. This underestimates what procurement loses. Contractors price dispute-resolution risk into bids. NHAI’s trillion-rupee claims pile did not arise because arbitration existed but because disputes did, and pushing those disputes into courts that take a decade, or into mediation with no credible adjudicative backstop, does not reduce the exchequer’s exposure. It hides it in bid premia and delay.

Re-entry, Not Coordination

If the diagnosis is a feedback loop rather than a communications gap, the standard prescription (a Law Commission-style deliberative exercise to align the three institutions) is secondary. The institutions are not failing to communicate. They are communicating perfectly and reacting rationally. The binding constraint is credible finality, and each actor holds one piece of it. Parliament, in the pending Bill, can codify the finality rule Balasamy loosened: either restore the no-modification position or enact the majority’s categories as an exhaustive, strictly construed list. The Supreme Court can adopt a self-denying protocol confining curative review of arbitral awards to the Rupa Ashok Hurra grounds it originally announced. The Ministry of Finance, for its part, can make the Rs 10 crore ceiling expressly provisional, reviewable once the finality reforms take effect, which would convert exit into a bargaining position. Singapore is instructive here for content rather than ceremony. When SIDRA reviewed the International Arbitration Act and the Ministry of Law consulted in 2025, the questions concerned strengthening awards, not softening them.[xxviii]

There are signs the judiciary knows. In April 2026 the Chief Justice observed that arbitration ‘now resembles the disease it was meant to cure’.[xxix] In London two months later he was blunter: ‘the remedy has come to resemble the disease it was designed to kill.’ He also warned that party autonomy was never a right to engineer favourable decision-makers.[xxx] Those are the words of a producer who has noticed the customers leaving. Hirschman’s framework ends where this essay does. Loyalty cannot be demanded, legislated or convened into existence. It is earned by a product that works. The Indian State will return to arbitration on the day an award against it is final. Until then, its absence is not a failure to communicate. It is the message.

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[i]‘The Disputed Resolution Mechanism: India’s Panicked Retreat from Arbitration’ (CADR, NLU Delhi) <https://www.cadrnlud.in/post/the-disputed-resolution-mechanism-india-s-panicked-retreat-from-arbitration> accessed 8 July 2026.

[ii]‘India’s Retreat from Arbitration: A Wake-Up Call for the Arbitration Community’ (IndiaCorpLaw, 4 July 2026) <https://indiacorplaw.in/2026/07/04/indias-retreat-from-arbitration-a-wake-up-call-for-the-arbitration-community/> accessed 8 July 2026.

[iii]AZB & Partners, ‘Arbitration Retrograde – Is Bureaucracy Derailing the Arbitrate in India Initiative?’ (2024) <https://www.azbpartners.com/bank/arbitration-retrograde-is-bureaucracy-derailing-the-arbitrate-in-india-initiative/> accessed 8 July 2026.

[iv]Albert O Hirschman, Exit, Voice, and Loyalty: Responses to Decline in Firms, Organizations, and States (Harvard University Press 1970).

[v]Ministry of Finance, Department of Expenditure, ‘Guidelines for Arbitration and Mediation in Contracts of Domestic Public Procurement’, OM No F.1/2/2024-PPD (3 June 2024), noting inter alia that a large number of arbitral awards involving government entities are routinely challenged <https://doe.gov.in/files/circulars_document/Guidelines_for_Arbitration_and_Mediation_in_Contracts_of_Domestic_Public_Procurement.pdf> accessed 8 July 2026.

[vi]Delhi Metro Rail Corporation Ltd v Delhi Airport Metro Express Pvt Ltd 2024 INSC 292 (10 April 2024).

[vii]The tribunal awarded DAMEPL Rs 2,782.33 crore in 2017; with interest the sum stood at Rs 8,009.38 crore by 14 February 2022. See ‘Rs 8K Crore Relief to Delhi Metro’ (LiveLaw, 10 April 2024) <https://www.livelaw.in/top-stories/rs-8k-crore-relief-to-delhi-metro-supreme-court-allows-dmrcs-curative-petition-against-arbitral-award-in-favour-of-damepl-254770> accessed 8 July 2026.

[viii]Delhi Airport Metro Express Pvt Ltd v Delhi Metro Rail Corporation Ltd (2022) 1 SCC 131 (Supreme Court restoring the award, 9 September 2021).

[ix]Rupa Ashok Hurra v Ashok Hurra (2002) 4 SCC 388 (curative jurisdiction confined to gross miscarriage of justice, such as violation of natural justice or bias).

[x]‘DMRC Arbitration: The Court Upheld Principles of Natural Justice in the Curative Petition’ (Supreme Court Observer, 2024) <https://www.scobserver.in/journal/dmrc-arbitration-the-court-upheld-principles-of-natural-justice-in-the-curative-petition/> accessed 8 July 2026.

[xi]Gayatri Balasamy v ISG Novasoft Technologies Ltd 2025 INSC 605 (Constitution Bench, 30 April 2025).

[xii]ibid, per Viswanathan J (dissenting): reading a modification power into s 34 amounts to adding words the legislature deliberately withheld.

[xiii]IBA, ‘The Balasamy Judgment: The Fading Principle of Finality in Arbitration?’ (2025) <https://www.ibanet.org/balasamy-judgment-fading-principle-of-finality-in-arbitration> accessed 8 July 2026.

[xiv]‘A Supreme Blow to Finality of Arbitral Awards and India’s Arbitration Aspirations’ (American Review of International Arbitration, Columbia Law School, 2025) <https://aria.law.columbia.edu/a-supreme-blow-to-finality-of-arbitral-awards-and-indias-arbitration-aspirations/> accessed 8 July 2026.

[xv] MoF Guidelines (n 5): arbitration not to be routinely included in procurement contracts; where included, restricted to disputes below Rs 10 crore; higher-value clauses require approval of the Secretary or empowered authority.

[xvi]‘2024 Year in Review: Arbitration in India – Reset or Rewind?’ (Kluwer Arbitration Blog, January 2025), describing the Guidelines as issued in the backlash of DMRC <https://legalblogs.wolterskluwer.com/arbitration-blog/2024-year-in-review-arbitration-in-india-reset-or-rewind/> accessed 8 July 2026.

[xvii]‘Indian Infrastructure Arbitration at a Crossroads: NHAI’s Withdrawal and the Impending Fallout’ (Legal Era, 2025), noting pending claims exceeding Rs 1.16 trillion as of FY23 <https://www.legaleraonline.com/zoom-in/indian-infrastructure-arbitration-at-a-crossroads-nhais-withdrawal-the-impeding-fallout-986352> accessed 8 July 2026.

[xviii]‘Delhi Govt Removes Arbitration Clause from Future Public Works Contracts’ (KNN India, April 2025) <https://knnindia.co.in/news/newsdetails/state/delhi-ncr/delhi-govt-removes-arbitration-clause-from-future-public-works-contracts> accessed 8 July 2026.

[xix]‘The Way Forward: An Analysis of India’s New Guidelines for Arbitration and Mediation in Contracts of Domestic Public Procurement’ (American Review of International Arbitration, 2024) <https://aria.law.columbia.edu/the-way-forward-an-analysis-of-indias-new-guidelines-for-arbitration-and-mediation-in-contracts-of-domestic-public-procurement/> accessed 8 July 2026.

[xx]Department of Legal Affairs, draft Arbitration and Conciliation (Amendment) Bill 2024, released for public consultation on 18 October 2024 <https://www.pib.gov.in/pressreleaseiframepage.aspx?PRID=206081> accessed 8 July 2026.

[xxi]Report of the Expert Committee to Examine the Working of the Arbitration Law (T K Viswanathan, chair; Department of Legal Affairs, February 2024).

[xxii]As of July 2026 the Bill has not been introduced in Parliament; the operative statute remains the Arbitration and Conciliation Act 1996 as amended in 2015, 2019 and 2021.

[xxiii]In Re: Interplay Between Arbitration Agreements Under the Arbitration and Conciliation Act 1996 and the Indian Stamp Act 1899 (2023) 17 SCC 1 (seven-judge bench, 13 December 2023).

[xxiv]OPG Power Generation Pvt Ltd v Enexio Power Cooling Solutions India Pvt Ltd 2024 INSC 711 (20 September 2024): awards with inadequate but existing reasons should be explained, not set aside.

[xxv]Tarini Prasad Mohanty v Sunflag Iron and Steel Co Ltd 2026 INSC 566 (27 May 2026).

[xxvi]‘India’s Tryst with Modifying Awards – Pragmatic Recognition or a Catastrophe’ (Global Arbitration Review, Asia-Pacific Arbitration Review 2026) <https://globalarbitrationreview.com/review/the-asia-pacific-arbitration-review/2026/article/indias-tryst-modifying-awards-pragmatic-recognition-or-catastrophe> accessed 8 July 2026.

[xxvii]‘Supreme Court Review 2025: Arbitration and the Limits of Judicial Repair’ (Supreme Court Observer, 2025) <https://www.scobserver.in/journal/supreme-court-review-2025-arbitration-and-the-limits-of-judicial-repair/> accessed 8 July 2026.

[xxviii]SIDRA’s review of the International Arbitration Act was published in November 2024; the Ministry of Law opened public consultation in March 2025. See ‘Singapore International Arbitration Act Under Review’ (Linklaters ArbitrationLinks, May 2025) <https://www.linklaters.com/en/insights/blogs/arbitrationlinks/2025/may/singapore-international-arbitration-act-under-review> accessed 8 July 2026.

[xxix]‘Arbitration Now Resembles Disease It Was Meant to Cure: CJI Surya Kant’ (Bar & Bench, April 2026) <https://www.barandbench.com/news/law-policy/arbitration-now-resembles-disease-it-was-meant-to-cure-cji-surya-kant> accessed 8 July 2026.

[xxx]CJI Surya Kant, address at the 4th ICA Conference on Arbitrating Indo-UK Commercial Disputes, London International Disputes Week (6 June 2026) <https://www.scconline.com/blog/post/2026/06/06/cji-surya-kant-4th-ica-conference-arbitrating-indo-uk-commercial-disputes/> accessed 8 July 2026.

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