The resolution of disputes over public procurement: Let’s strengthen reforms

Public procurement disputes are a drag on India’s economic growth, often leading to stalled infrastructure projects, cost overruns and diminished public trust, but 2024 has had two signals of a decisive shift in resolving such disputes. 

The Supreme Court’s (SC) judgement in Central Organisation for Railway Electrification (CORE) vs ECI SPIC SMO MCML (JV) and the finance ministry’s guidelines on public procurement dispute resolution issued in June have laid the groundwork for an overhaul of India’s arbitration framework. Together, they mark the beginning of the end for the inefficiencies of ad hoc arbitration.

While these are a step forward, they also raise critical questions: How can arbitration become an effective, trusted and equitable system? Can India avoid overburdening the judiciary while ensuring fair outcomes?

The SC’s CORE vs JV ruling struck down clauses in public contracts that allowed one party—typically a government entity—to unilaterally appoint arbitrators. These often led to perceptions of bias and arbitration panels that lacked independence.

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Chief Justice D.Y. Chandrachud emphasized that this practice violated the principle of equality between parties and undermined the confidence of stakeholders in the process’s impartiality. It’s a major step toward ensuring fairness, but it also raises questions about how far courts should intervene in arbitration without undermining the principle of minimal judicial interference.

Five months earlier, the finance ministry had proposed a hybrid dispute resolution framework. Disputes valued below ₹10 crore would be resolved through institutional arbitration, while larger ones would undergo mediation, followed by court litigation if that fails. This is reformist.

However, the cautious approach of limiting institutional arbitration to low-value disputes exposes a deeper challenge: India’s arbitration ecosystem is not yet mature enough to handle high-value and complex cases. This risks perpetuating reliance on court litigation for larger disputes, which could again mean delays.

The framework for such disputes now appears fragmented, with resolution mechanisms segmented by value. Institutional arbitration must include high-value disputes if we are to create a cohesive and efficient system.

Mediation faces significant hurdles. Historically, it has struggled to gain traction in India due to systemic issues such as missing incentives for public officials to negotiate settlements. Fears of scrutiny or allegations of impropriety often prevent officials from actively pursuing mediation, even when it is a viable alternative.

While the ministry’s guidelines attempt to address this by introducing high-level oversight panels for mediation decisions, the success of this approach will depend on how well it is implemented and whether it can generate trust among stakeholders.

The transition to a new dispute resolution framework also raises practical concerns. Existing contracts with unilateral appointment clauses may now face legal challenges, potentially disrupting ongoing projects. Government entities must revise standard contract templates to align them with new legal standards and ensure compliance.

Further, India needs mechanisms to monitor the performance of new dispute resolution processes. Tracking the outcomes of mediation, institutional arbitration and court litigation through a robust data system could provide valuable insights and enable policymakers to refine these mechanisms based on empirical evidence.

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The stakes are high. Public procurement disputes involve billions of rupees in stalled projects, with cascading effects on infrastructure development and economic growth. Inefficiencies in dispute resolution also affect India’s global competitiveness, particularly its ability to attract foreign investment and improve its ease of doing business ranking.

As a country aspiring to developed country status, India must ensure the success of these reforms. For this, India must address gaps in its institutional arbitration framework and invest in the capacity-building needed to make mediation a reliable option.

Expanding institutional arbitration to include high-value public procurement disputes will not only reduce dependency on courts, but also inspire confidence among stakeholders. Trust generation requires engaging all parties—businesses, public sector undertakings and legal experts—to create a transparent and efficient arbitration ecosystem.

Finally, leveraging technology to measure outcomes and identify bottlenecks will let policymakers make data-driven adjustments to dispute resolution mechanisms, ensuring they remain effective and equitable over time.

The SC’s judgement and ministry’s guidelines form a pivotal moment in India’s approach to public procurement disputes. We can move beyond past inefficiencies to establish a system that ensures fairness, efficiency and stakeholder confidence.

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The transition away from ad hoc arbitration must be carefully managed to prevent fragmentation and delays. If we get it right, India could position itself not just as an arbitration-friendly country, but as a global leader in dispute resolution.

These are the author’s personal views.

The author is a researcher at TrustBridge Rule of Law Foundation.