Contracts with central and state government departments, public-sector undertakings and statutory bodies — for construction, supply, services and infrastructure — commonly contain arbitration clauses. But these clauses often have features that private contractors do not expect.
First, appointment. Older government contracts often allowed a senior officer of the department to act as arbitrator or to appoint the arbitrator. The Supreme Court has since held that a person with a relationship to a party is ineligible under Section 12(5) of the Arbitration and Conciliation Act, 1996, and in 2024 a Constitution Bench held that clauses allowing one party to unilaterally appoint the arbitrator, or to curate a panel from which the other must choose, offend the principles of equality and impartiality.
Second, restrictions. Government contracts often bar interest on delayed payments, limit claims to certain categories, or impose pre-conditions such as referring claims first to a departmental officer. The Supreme Court held in 2026 that where parties agree there will be no pre-award interest, the arbitrator cannot award it. Contractors should price these risks at the bidding stage.
Third, time limits. Many clauses require claims to be raised within a fixed period after completion or final bill. Missing these can bar the claim contractually, separate from limitation law.
For contractors, the practical lesson is to read the general conditions of contract carefully before bidding, maintain meticulous records of delays, variations and correspondence, and raise claims in writing promptly.