Ad Hoc vs Institutional Arbitration: Which Is Better for You?

Every arbitration clause makes a basic choice, often without the parties realising it: will the arbitration be ad hoc, run by the parties and the arbitrator themselves, or institutional, administered by an arbitral institution under its rules? In India, ad hoc arbitration has long been the norm, especially in government and smaller commercial contracts. Institutional arbitration has grown steadily, encouraged by courts and policy, and is standard in larger and cross-border contracts.

This guide is for businesses drafting contracts or facing a dispute and wondering which is better. In short: in ad hoc arbitration, the parties agree on the arbitrator and procedure, and go to court under Section 11 if they cannot agree, with fees by agreement or under the Fourth Schedule; in institutional arbitration, an institution such as DIAC, IIAC, MCIA, SIAC or ICC administers the case under its rules, appoints arbitrators if the parties do not agree, fixes fees by its schedule, and provides support and supervision; institutional arbitration usually avoids court applications for appointment and fee disputes, and gives more predictable timelines; and ad hoc can be cheaper for small, simple disputes between cooperative parties.

For most business contracts of moderate or high value, institutional arbitration with an Indian institution is a sound default.

The short answer

Ad hoc arbitration is a do-it-yourself arbitration: the parties appoint the arbitrator, agree the procedure and fees, and manage the process, with the courts stepping in under the Arbitration Act if something breaks down. Institutional arbitration is a managed arbitration: an institution receives the claim, helps constitute the tribunal, fixes and collects fees, monitors timelines and provides administrative support, under published rules. Both produce awards with the same legal force, and both are supervised by the courts of the seat.

Ad hoc and institutional compared

Why ad hoc arbitration became common

Ad hoc arbitration became common in India partly because government contracts and standard forms named departmental officers or other individuals as arbitrators, and partly because institutions were not well known. It can work well: two cooperative parties agree on a respected arbitrator, fix a sensible fee and timetable, and the case moves smoothly.

But many ad hoc arbitrations have run into problems: delays in appointing arbitrators, leading to Section 11 applications that take months; disputes over fees, which the Supreme Court addressed in ONGC v Afcons Gunanusa (2022); arbitrators with too many cases and too little time; and frequent adjournments. Unilateral appointment clauses, now open to challenge after Perkins Eastman (2019) and CORE (2024), add another layer of dispute. These problems are a major reason why courts and policymakers have encouraged institutional arbitration.

What an institution adds

The main Indian and foreign institutions

Indian institutions include the Delhi International Arbitration Centre (DIAC) at the Delhi High Court, the India International Arbitration Centre (IIAC) set up by statute in New Delhi, the Mumbai Centre for International Arbitration (MCIA), the Indian Council of Arbitration (ICA), and court-annexed centres in other cities, such as the Madras High Court Arbitration Centre and the Bengaluru centre. Foreign institutions commonly used by Indian parties include the Singapore International Arbitration Centre (SIAC), the International Chamber of Commerce (ICC) and the London Court of International Arbitration (LCIA).

For domestic disputes, an Indian institution is usually the practical choice: fees in rupees, familiar procedure, and hearings in India. For cross-border contracts, SIAC and ICC are widely used, though Indian institutions increasingly handle international cases too. See DIAC arbitration, IIAC arbitration and SIAC arbitration.

How to choose for your contract

Cost: is institutional arbitration more expensive?

It depends on the amount in dispute and the institution. Institutional fees include an administrative fee and arbitrators' fees on the institution's schedule. For some claim values, Indian institutions' total fees are similar to, or only modestly above, the Fourth Schedule fees for an ad hoc arbitration; for others, they may be higher. Foreign institutions, with fees in foreign currency, are generally more expensive.

But the comparison should include the cost of things that go wrong in ad hoc arbitration: a Section 11 application that takes months and costs legal fees, a fee dispute with an arbitrator, delays that increase legal costs, and challenges to a unilaterally appointed arbitrator. For most moderate and larger disputes, institutional arbitration's predictability saves more than it costs. See arbitration fee calculator.

When ad hoc arbitration still makes sense

Ad hoc arbitration remains a sensible choice in some situations: small disputes where institutional administrative fees would be disproportionate; disputes between parties who trust each other and can agree quickly on a respected arbitrator; and disputes where the parties want complete control of the procedure. With a good arbitrator, a clear fee agreement and a short timetable, an ad hoc arbitration can be quick and economical.

The key is to make the ad hoc process robust: agree a mechanism for appointment if the parties cannot agree, such as appointment by a named institution acting only as appointing authority; fix fees by reference to the Fourth Schedule; and agree a fast-track or documents-only procedure where suitable. These steps capture much of the benefit of institutional arbitration at lower cost.

Hybrid options

A middle path is to choose ad hoc arbitration but name an institution as the appointing authority if the parties cannot agree on an arbitrator within a set time. Section 11(2) allows parties to agree on a procedure for appointment, and Section 2(6) allows them to authorise an institution to determine issues. This avoids a Section 11 application while keeping the rest of the process ad hoc. Some institutions offer appointing authority services for a modest fee.

Court referrals to institutions

When a party applies to the High Court under Section 11 in an ad hoc arbitration, the court often appoints an arbitrator and directs that the arbitration be conducted under the aegis of a court-annexed institution, such as DIAC in Delhi. The case then proceeds under that institution's rules and fee schedule, even though the original clause was ad hoc. This has become common practice in several High Courts, reflecting the courts' preference for administered arbitration.

Government contracts and institutions

Government contracts traditionally used ad hoc arbitration with departmental officers as arbitrators. After Perkins Eastman (2019) and CORE (2024), that model is under strain, and the Ministry of Finance's 2024 guidelines encourage careful use of arbitration and greater use of mediation and negotiated settlement. Institutional arbitration, with neutral appointment and fee control, gives government bodies a defensible process. Contractors dealing with government should welcome institutional clauses where offered.

Online institutional arbitration

Most institutions now support online filing and hearings, reducing venue and travel costs and making institutional arbitration more accessible for smaller disputes. Some offer expedited or streamlined procedures for low-value claims, with sole arbitrators and short timelines. For small and medium businesses, an online institutional arbitration may combine the predictability of an institution with costs close to ad hoc. See online arbitration.

Changing from ad hoc to institutional mid-dispute

Parties to an ad hoc clause can agree, after a dispute arises, to refer it to an institution under its rules. This is often worth proposing when a Section 11 application seems likely, since it saves months. The agreement should be in writing, signed by both parties, and should state the institution, the rules, the seat and the number of arbitrators.

What an institutional arbitration looks like, start to finish

A typical institutional arbitration at an Indian centre follows a predictable path. The claimant files a request for arbitration with the institution, usually online, attaching the contract and a short statement of the claim, and pays a registration fee. The institution sends the request to the respondent, who has a fixed period to reply and nominate an arbitrator if the clause provides for a three-member tribunal. If the parties do not agree on a sole arbitrator, or a party does not nominate, the institution appoints from its panel within the time its rules set.

Once the tribunal is constituted, the institution collects deposits towards fees and costs from both sides, usually in equal shares. The tribunal holds a preliminary meeting to fix a timetable for pleadings, documents, witness statements and hearings, often in a procedural order. The institution's secretariat handles correspondence, hearing rooms or video links, and records. After the hearing, the tribunal makes its award within the time allowed by Section 29A, and the institution delivers signed copies to the parties. At each stage, there is a known person to call if something stalls.

What an ad hoc arbitration looks like, start to finish

In an ad hoc arbitration, the claimant sends a notice under Section 21 invoking arbitration and proposing an arbitrator, or nominating one if the clause provides for three. If the respondent agrees, the arbitrator is appointed by consent. If the respondent does not respond within 30 days, the claimant applies to the High Court under Section 11. After appointment, the arbitrator fixes fees, often by reference to the Fourth Schedule or by agreement, and issues directions for pleadings and hearings.

The parties then arrange hearing venues, stenographers and records themselves, share costs as directed, and correspond directly with the arbitrator. If a party stops paying its share of fees, the other party may have to pay it to keep the arbitration going, with the amount recoverable in the award. When everything goes smoothly, this can be efficient. When something goes wrong, the only recourse is often a court application.

Mistakes to avoid when choosing

Several errors appear again and again in clauses. Naming an institution that does not exist, or by a wrong name, which leads to arguments about whether the parties chose institutional arbitration at all. Naming an institution but also saying the arbitrator will be appointed by one party, which mixes two systems and invites a challenge. Choosing a foreign institution for small domestic contracts, where its costs will outweigh the dispute. Forgetting to state the seat, so that the institution's location is argued to be the seat. And choosing institutional rules but then setting a fee cap or procedure inconsistent with them. Using the institution's own model clause, with the seat and number of arbitrators filled in, avoids most of these problems.

Questions to ask before you sign

How large are disputes under this contract likely to be? Is the other side likely to cooperate in appointing an arbitrator? Is it a government body or a party with a standard-form appointment clause? Are the parties in different countries? Will you need urgent relief before a tribunal can be formed? How much would the institutional fees be at the likely claim value, compared with the Fourth Schedule? The answers usually point clearly one way. For most contracts of moderate value or above, they point towards an Indian institution.