Since the beginning of time, the rhetoric of law and policy in this country has suggested that arbitration is the cure for the growing backlog of cases in the civil courts and that it will cure the procedural problems associated with the civil courts. Arbitrations are treated as a form of medicine for the sickly adjudication system. However, based upon the most recent experiences from different institutions, including the highest court, support for this view has begun to fade. At the 4th International Conference of Indian Council of Arbitration recently held in London, Hon’ble Chief Justice Surya Kant expressed that “it appears that arbitration is now the same disease it was intended to cure.” This statement does not alone express the world view at this moment; rather it reflects the gathering skepticism that arbitration suffers from the same problems of delay, cost and complexity that led to its creation to provide an alternative to litigation.
This article offers a critique of modern commercial arbitration using a political economy and sociology of law perspective. The primary reason for respecting party autonomy is that the parties are presumed to have freely and voluntarily agreed to contract, which may not hold true in practice due to contracts of adhesion and imbalance in bargaining power.The frequently described benefits of efficiency and expertise in the arbitration process generally result in high fees, litigation style procedures, without the protections available in the courts, and a decision-making process dominated by an elite handful of decision makers.
Confidentiality and limited judicial scrutiny create a deficit of public interest; as a result, private tribunals can settle disputes with serious economic ramifications without being held accountable. Although, we are not going to suggest that “arbitration is a scam” in an overtly dishonest sense but rather illustrate that the rhetorical devices used to promote arbitration conceal underlying structural disadvantages for the weaker party (or parties) and violate the assertion of fair dispute resolution.
Party Autonomy as Ideology and Not Reality
The primary characteristic of contemporary arbitration statute is on the fundamental premise that each party honestly agrees to remove their dispute from a court of law; thus, the inclusion of arbitration clauses in contracts indicating a mutual understanding, without coercion, that sophisticated parties will select persons experienced with the resolution of their respective types of disputes (usually arbitrators) rather than judicial officers (judges) as the appropriate resolution tools. This primary premise has resulted in courts generally deferring to arbitration agreements and awards and laws provide only narrow grounds for judicial interference, and national courts play a limited role in reviewing or enforcing international arbitral awards. This also explains why arbitration is perceived to be a preferable method of resolving disputes than litigation. If the parties have mutually consented to utilise arbitration, there is little or no justification for the state to unduly restrict or interfere with the exercise of their chosen autonomy.
Unfortunately, it cannot be said that the actual way in which commercial contracts are executed bears any resemblance to this idealistic view. Typically, arbitration clauses are included as part of standard-form agreements developed by one party (“the drafter“) with the intention that they will be accepted by the other party (“the acceptor“) on a ‘take-or-leave basis’. This often prevents the acceptor from having a genuine or any opportunity to negotiate terms concerning the jurisdiction, seat, language or institutional (or procedural) rules applicable to arbitration. Therefore, the decision to arbitrate is not representative of true agreement; it is instead the result of structural necessity: the acceptor must accept the arbitration clause in order to obtain a contract at all. Thus, in this context, the acceptor’s consent is of a formal nature rather than substantive.
Even when parties involved in a contractual arrangement have some degree of sophistication (i.e. they understand how to conduct business), the incorporation of an arbitration clause into the agreement will often be mere boilerplate. Thus, when the contract is negotiated, discussions will frequently focus on the price, quantity, timing and risk allocation related to the contract, rather than on whether or not rely on arbitration as means for resolving disputes. This suggests that there is insufficient evidentiary support for the assertion that an agreement to arbitrate reflects the result of considered and informed negotiation.
Moreover, standard arbitration clauses tend to be drafted in a manner to advance the interests of the drafting or stronger party. For example, they will typically designate the drafter’s home jurisdiction as the seat of arbitration or, alternatively, require that arbitration occur in a neutral but prohibitively expensive location. Similarly, the procedural rules applicable to the arbitration are typically selected to align with the drafter’s familiarity and litigation practices. The associated costs of arbitration is likely to be structured in a manner that the drafter is better positioned to bear, placing the adhering party at a considerable procedural and financial disadvantage.
The autonomy represented in doctrinal rhetoric is for the drafter, not both parties.
The ideals of choice and freedom have been legitimised through an established arbitral framework that is largely structured to favour power holders (i.e. repeat players). This ideology is further entrenched by the legal assumption that all arbitration agreements are equally consensual and therefore, equally deserving of enforcement, without regard to the circumstances in which they were negotiated or the disparities in bargaining power between the parties. A critical approach must take into account the distinction between true party autonomy, founded on informed and voluntary consent, and the legal fiction of autonomy, where consent is presumed.
Cost-Efficiency Paradox
The next primary element of claim made about arbitration is that arbitration is more cost-efficient than litigation. At first glance, this may seem to be persuasive; however, this intuition is largely driven by the chronic lack of judicial resources in many jurisdictions with tremendous backlogs, which result in business-related trials taking several years to reach a final determination. In many jurisdictions, legislatures have undertaken steps to encourage the resolution of business/commercial disputes through arbitration, on the belief that it would alleviate the mounting judicial backlogs and enable courts to resolve the remaining cases in a timely manner. However, the objective evidence (empirical and by practising attorneys) demonstrates that arbitration may not be as cost-efficient as previously believed, especially with regard to medium value disputes and non-repeat participants[1].
Many costs are associated with arbitration. The parties have to pay a variety of institutional registration and administrative charges, the arbitrator’s fees (which can be charged at rates similar to that of senior lawyers), the venue (hearing) costs, and the associated costs for creating a record (transcript), translating the record and sometimes paying for the cost of a secretary who works for the tribunal. Both the parties’ lawyers and the parties’ expert fees must also be paid. The total of these cumulative costs for smaller disputes has the potential to make arbitration unviable from an economic standpoint. The cumulative costs for a domestic commercial dispute can be equal to or greater than those that would be incurred if the dispute was resolved in the civil courts, particularly when there exists a limit to the amount of court fees which can be recovered or are ad valorem. On the other hand, where the amounts in dispute are sufficiently large to justify the total amount of the arbitration costs, that same cost may operate to be significantly different for the parties. For example, for a large business, arbitration costs could represent a marginal expense; whereas for a small business, the total cost of the arbitration could represent financial survival.
The same issues arise in respect of time‑efficiency. Although the arbitral rules or legislative provisions often have aspirational time frames, it is common for parties to engage in numerous pleadings, attending multiple procedural hearings, going through the process of producing documents, making interim applications, and taking a long time to get through the evidence. Likewise in high-value disputes, there is a tendency for tribunals and lawyers to import court-like procedural practices into the arbitration forum. As a result, the types of submissions made by parties will be more in line with written submissions and cross-examinations than would occur in a truly informal or flexible forum. This creates a hybrid of the complexity of litigation with the cost of arbitration, within a private forum.
The delay is further compounded when a party seeks either to set aside or enforce an arbitral award. Such post-award proceedings frequently give rise to jurisdictional disputes, often requiring litigation before courts in different jurisdictions. While this creates significant logistical and financial burden rather than delay per se, it disproportionately disadvantages one-time or resource-constrained parties, who may lack means to pursue prolonged and multi-jurisdictional proceedings. Consequently, the post-award phase can become as time-consuming and costly as conventional court litigation, thereby undermining arbitration’s perceived advantages of speed and efficiency.
This inconsistency between the claim that arbitration is designed to save time and money and the opposite experience of its users creates a gap between the original design versus how it is implemented. Although arbitration continues to be promoted as a faster and cost-effective alternative to court litigation, a premise that also underpins judicial deference, however, the experiences of most users (particularly those disadvantaged) demonstrate an inefficient, costly, extremely taxing, and/or sometimes “unknown” process[2]. Therefore, the legitimacy of arbitration should be assessed not on its theoretical advantages alone, but on whether it consistently delivers those advantages in practice.
The make-up of the arbitral community, dominated by a relatively small group of former judges, senior lawyers, and practitioners based in major commercial centres also raises a question. Both national and international commercial arbitration associations is dominated by a relatively small number of arbitrators, comprising primarily former judges, senior lawyers and practitioners located in major commercial areas. Most appointments tend to be within this small, closed community of arbitrators through party nominations, institutional rosters and co-arbitrators. The effect of this phenomenon (elite capture) has both real and psychological implications.
Thus, from a symbolic perspective, it reinforces that Arbitration is a “club good” primarily available to those already part of elite legal practice. Those who dominate high-value litigation and advisory work also dominate the decision-making process in arbitration. This continuity blurs the distinction between public & private adjudication, while simultaneously raising legitimate concerns regarding the diversity of views expressed in arbitral reasoning. From a sociological perspective, the homogeneity of arbitral community may result in shared professional norms, commercial assumptions and attitudes concerning regulation. These similarities may skew results in ways that are difficult to measure but are cumulatively significant.
At a material level, elite capture is intertwined with the repeat-player dynamic. Large corporations and states frequently use arbitration and often go before the same institution(s) and/or arbitrator(s). The result is that, even if an arbitrator is acting in good faith, the prospect of future reappointment may create a subtle incentive for the arbitrator to take “balanced” or “commercially appropriate” positions acceptable to the repeat players of the arbitral system. In contrast, a one-time player will exert little, if any, influence on the arbitrator’s reputation or future opportunities. This structural asymmetry has arisen from the way the system has been designed rather than from acts of individual bad faith.
Finding patterns of favouritism towards arbitrators who work as repeat players is not easy, due to the significant amount of confidentiality that is present in arbitration. There isn’t much publicly available information regarding the history of the arbitrators’ appointment process, the results that were produced from their decisions, or the thought process that was used by the arbitrators in making those determinations. Because of this, it is virtually impossible to measure the extent to which particular patterns of behaviour within the arbitral community can create an insulated elite network that is not subject to outside scrutiny and therefore limits the ability to advocate for reform of the arbitration process. Consequently, academic scholarship has begun advocating for a shift in the traditional method of analysing arbitration from an examination of explicit biases towards an examination of the ways in which the structural and institutional characteristics of civil procedure and the legal profession can create an environment that may favour dominant interests[3]. The view of arbitration as a technique alone does not take into consideration that arbitration is part of a larger framework of private governance and jurisprudence that benefits certain actors over others.
Arbitrator Confidentiality, Limited Review, and the Never-ending loop
Confidentiality is often marketed as one of the primary benefits of arbitration. For commercial businesses, the ability to settle disputes without the public’s attention may be desirable due to the potential impact of public opinion on their business reputation, the use of confidential business information, and the continued existence of ongoing business relationships between companies that are in conflict; all of which can be undermined if disputes are resolved in public forums.
The confidentiality associated with arbitration and the lack of publication of the majority of arbitration awards create an extreme lack of transparency in arbitration proceedings, and in addition arbitrations awards do not automatically contribute to the development of a body of judicial precedent like court decisions do.
Unless there is an official record of how the law evolves through its consistent application over time, uncertainty in interpreting contracts, dealing with regulators, and construing statutes will continue to burden the legal system. Parties and attorneys involved in the use of arbitration will not have access to reliable reference points for similar past disputes, giving rise to questions about the predictability of arbitrator decisions. Systemic issues such as prejudicial biases regarding common forms of interpretation, and inconsistent treatment of public law will be less likely to be recognised and challenged.
The lack of an abundance of opportunity created by limiting judicial review will only serve to make these problems more difficult to recognise. Many arbitration statutes provide limited grounds for courts to either overturn or disallow enforcement of arbitration awards (e.g., improper procedure, excessive jurisdiction, and violation of public policy), and preserving the reputation of courts as arbitration-friendly will compel judges to interpret their statutory grounds of review relatively narrowly and non-interference with a party’s right to appeal to the court after the arbitration. There are valid reasons for restricting the function of arbitration to prevent the creation of a two-tiered court system; however, that intention often severely restricts the right of a party to be compensated for serious legal errors or in addressing the inherent unfairness of adhesive arbitration agreements.
The fundamental difference between a court appeal and an arbitration challenge comes down to how the law handles mistakes, exposing a major flaw where arbitration frequently devolves into a never-ending loop. In a conventional court appeal, the legal process continues along the traditional pathway, whereby a higher court examines the papers submitted by the parties and makes the necessary changes in law and fact. Therefore, the overall process does not stop, and the dispute is solved.
In contrast, the arbitration process is governed by an entirely different and quite frustrating logic. A court looking at an arbitral decision is not a conventional appeal body and does not have the ability to deal with the errors of the arbitrator in ruling. If a court finds a particular flaw, for example, violation of natural justice, its only power is to annul or vacate the decision or award. In this situation, the parties are forced to go through the whole re-arbitration process, which wastes time and resources.
To fix this inefficiency, we urgently need legal amendments. The law should be reformed to grant courts the limited power to remit specific errors back to the original arbitrator for quick correction, or allow parties to opt into an internal arbitral appellate mechanism. Without these amendments, the current “all-or-nothing” approach to setting aside awards undermines the very speed and commercial efficiency that arbitration promises in the first place.
Vectoring the Indian Context: Reform Rhetoric and Structural Realities
The development of the Indian Arbitration and Conciliation Act highlights the gap between the objective of promoting arbitration and the practical challenges faced by the legal system. Despite several legislative reforms, judicial decisions, and policy efforts to establish India as an “arbitration hub,” the focus has remained on reducing judicial intervention, facilitating the speedy enforcement of arbitral awards, protecting party autonomy, and promoting a transition from ad hoc to institutional arbitration.
At the same time, practitioners and commentators continue to document a wide range of residual issues. Costs are still incredibly high for many institutional and high-profile ad hoc arbitrations, especially where retired judges act as the arbitrators and the procedures used replicate those of a court. Additionally, delays can be expected due to wide-ranging timelines by both the counsel and the tribunal, and also because aggressive interim measures have been taken by the parties involved, leaving them with extensive post-award challenges against an arbitrator’s decision. Furthermore, appointment practices tend to replicate existing judicial hierarchies or have an inherent metropolitan bias to them, mirroring the elite capture of the legal profession overall. For smaller domestic businesses and individuals alike, the totality of the costs associated with arbitration, in particular, the complexity and uncertainty will often render the arbitration process inaccessible, as compared to the civil courts.
Additionally, various attempts to insulate arbitration from intervention by the judiciary sit uncomfortably with the constitutional requirements of fairness and public policy. There are times when the courts have taken a non-deferential approach when faced with very egregious conduct and have either set aside an award or scrutinized an arbitration agreement in a consumer or employment context. While it is indispensable that the judiciary be able to correct a wrong; this type of activity remains out of place in a policy discourse which presents any “interference” as being contrary to India’s appeal as a forum for the resolution of disputes. As a result, the resulting doctrinal landscape has been characterized by oscillating positions; there are times where pro-arbitration statements are made and there are times where a court has imposed a very negative judicial intervention upon an arbitration.
This illustrates that simply transferring International Arbitration Scripts into a Domestic Legal System will be limited when we don’t consider the local power structure and access to justice. Furthermore, there is the need for a more nuanced dialogue that values the strengths of Arbitration while being honest about the risks associated with it and how it is distributed.
Rethinking legitimacy & Proposals For Reforms
As long as arbitration relies solely on the Theory of Party Autonomy and the Theory of Efficiency to provide some degree of legitimacy in regard to Commercial Disputes, there will be no chance to maintain the legitimacy it has. From a Critical Perspective of Arbitration, there are three ways in which to rethink this Framework:
The initial distinction should be made between different types of Arbitration Agreements. Arbitration agreements entered into between parties with relatively equal bargaining power should continue to receive the highest degree of judicial deference, with minimal court intervention. However, where there is a significant imbalance in bargaining power, such as in consumer, employment, or standard-form commercial contracts, a limited judicial review may be warranted to ensure that consent to arbitration was informed and voluntary. Such review should be confined to a prima facie examination of the arbitration agreement and should not extend to a detailed inquiry into the merits or require extensive evidence, thereby preserving the efficiency of the arbitral process. Further, challenges to arbitration agreements should be permitted only on clearly defined statutory grounds to discourage frivolous objections and dilatory tactics. Such calibrated safeguards would not undermine arbitration; rather, they would strengthen the legitimacy of party consent while maintaining the efficiency and effectiveness of the arbitral process.
A second priority is to strengthen both transparency and accountability mechanisms. This includes publishing details of redacted award decisions in disputes with potential public‑interest significance; clarifying the disclosure requirements of arbitrators; and establishing institutional reporting processes on patterns of appointment, to reduce secrecy and mitigate elite capture of dispute resolution processes. These types of initiatives may also contribute to a more coherent body of commercial law, thereby filling the gap between the private resolution of disputes and the public doctrine.
The third issue that will need to be addressed is cost and accessibility; for example, creating fee schedules that reflect the value of claims, introducing simplified processes for low‑value disputes, and providing institutional experimentation with pre‑defined fee caps or accelerated processes to create a viable alternative for arbitrating a larger segment of the user population than is presently able to do so. Without these types of reforms, arbitration will continue to be primarily a venue for well‑resourced and large repeat customers.
Ultimately, the objective of assessing the role of arbitration within commercial law should be to determine whether or not the system produces equitable outcomes for all users of the system, as well as whether or not the system is consistent with the public values associated with the administration of law. Although a system that produces reliable outcomes for powerful and repeat users while discouraging or disadvantaging less powerful, infrequent users may be consistent with narrow economic rationality, it cannot be regarded as morally legitimate in terms of producing fair and equitable outcomes.
Conclusion
The growing popularity of arbitration in the area of business law has resulted in significant awareness of its benefits; however, there has been insufficient scrutiny of its faults. Many benefits claimed by the parties using arbitration (i.e., autonomy, cost efficiency, and use of specialists) obscure the often unacceptable elements of the contracting process (i.e., the presence of standard form contracts, costs associated with arbitration, the capture by the elite class of the arbitration process). Consequently, if each of these conditions is treated seriously, arbitration will begin to take on a character as a remnant of private procedure and will appear more like a legal technology that re-allocates parties’ disputes to a private forum, away from public scrutiny and where the influence of power can be felt.
There is a distinct gap between the idealized promises of arbitration and its practical reality. The sharp contrast between the way arbitration is portrayed by players in the field as a swift, harmonious, and accessible mechanism. However the gruelling, high-cost outcome of many complex hearings creates a genuine sense of disillusionment. Bridging this structural gap will require far more than superficial adjustments to arbitral rulebooks. Instead, it demands concrete legislative amendments and a fundamental shift in public policy. We need formal statutory reforms that redefine party “consent” in an era of boilerplate contracts, recalibrate how true “efficiency” is measured, and establish a clearer balance between private dispute resolution and the public interest. Until these policy changes are hardcoded into the law, arbitration will continue to fall short of its potential as an equitable and accessible framework for justice.
[1] SCC Arbitration Institute, Costs of Arbitration and Apportionment of Costs under the SCC Rules (2024).
[2] Catherine A Rogers, ‘The Arrival of the “Have-Nots” in International Arbitration’ (2007) 8(1) Nevada Law Journal 341, 343–45; Diana Rosert, The Stakes Are High: A Review of the Financial Costs of Investment Treaty Arbitration (IISD, 2014) 1, 8–9.
[3] Stavros Brekoulakis, Journal of International Dispute Settlement, Volume 4, Issue 3, November 2013, Pages 553–585.
Author(s)
Tanay Agarwal
Partner at Sandip Agarwal and Co.
Basundra Soni
Trainee Associate at Sandip Agarwal and Co.