Settling Disputes: Measures to ease arbitration for infrastructure projects

Measures to ease arbitration for infrastructure projects

The construction of infrastructure projects is a complex procedure riddled with challenges. Construction projects across the globe are faced with disputes. India is no ex­ce­ption to this complexity. With multiple stake­holders involved and the ambiguity of contracts on their role and responsibilities, these projects are prone to disputes and litigation.

Disputes may arise due to a number of factors such as delays in project implementation and failure to comply with preset project standards. In India, arbitration has long been a method of dispute resolution. Dispute resolution in India took decades to reach finality, discouraging global investors from working on infrastructure development in the country.

Story so far

The 2016 and 2019 amendments to the Ar­bitration and Conciliation Act, 1996, have ins­tilled a sense of confidence among foreign and domestic investors in the Indian judicial system. Arbitration is becoming increasingly essential in infrastructure firms. In the past three to four years, the construction sector has witnessed faster resolution of disputes through arbitrations. It is expected that despite the outbreak of the pandemic, project execution and timeline compliance will improve in the coming years.

Another important legislation that has expedited the dispute resolution procedure is the Commercial Courts Act, 2015, wherein matters can be resolved on the basis of applications and documents filed by the parties. For instance, Delhi, with the most progressive high court in the country, has resolved conflicts on the basis of documents and pleadings even for issues such as specific performance of contracts and improvement in projects. Prior to the passing of this legislation, resolution was granted in five to six years, as compared to 1.5 years at present. Further, with the outbreak of the pandemic, virtual hearings are being undertaken to negotiate cases. The government is focused on easing dispute resolution and arbitration.

Post 2015, a series of positive developments have taken place such as the introducti­on of Section 36, enforcement of a timeline, and clarity on the administration process, which have increased investors’ faith in the system. Prior to 2015, some companies had decided in principle not to provide arbitration in their agreements. However, after 2015, arbitration clauses have been incorporated into contracts, instilling confidence in companies. Further, after 2015, improvement in arbitration has been seen in disputes between private players which now get resolved in close to two years.

Pain points

Despite improvement in arbitration and dispute resolution in the past three to four years, the segment still faces a lot of issues. One of the biggest issues faced in arbitration cases is the cross-examination that unnecessarily delays the proceedings. Even though Section 19 was inserted in the act to address this, disputing parties still have a tendency to resort to cross-examination in arbitral proceedings even when the matter can be resolved by careful study of documentation. In infrastructure disputes like overheads, termination, idling claims, price adjustment and variation, a proper and managed interpretation of contracts can solve the issues. However, the proceedings are stretched due to insistence on cross-examination, which renders no results.

Another time-taking process in arbitration proceedings is the appointment of the arbitrator, which takes up to a year, thereby de­laying the overall procedure. The 2016 amendment to the act introduced a provision for the imposition of costs in arbitral procedures. How­ever, arbitral tribunals are reluctant to im­pose cost on any disputing party. This leads to a situation where the disputing parties start taking undue benefit of the leniency, which further delays the filing of pleadings as well as the completion of proceedings. It must be noted that the pro­cess of arbitration proves to be efficient only when the number of arbitration proceedings is limited. It is essential that this specific provision in the statutory is implemented strictly for expediting the arbitration process. Dilatory tactics are penalised in courts, but not in arbitration cases.

Further, in infrastructure projects, the biggest problem is the government’s approach to dispute resolution. Even though contract conflicts can be resolved through alternative me­chanisms such as mediation, conciliation and the dispute adjudication board, most disputing parties in India opt for arbitration. If the dispute adjudication boards and mediation were effective and efficient in the country, more than half of the disputes would not go for arbitration.

Recommendations and the road ahead

As per industry experts, it is essential to devise strategies to avoid disputes in the first place. It is nearly impossible to reverse-engineer a construction project and determine the root cause for delays and factors that lead to disputes. Therefore, it is essential that projects are closely monitored so that problems can be identified and rectified in time. There is a need to frame contracts in a way that monitoring and evaluation form an important part of project execution so that disputes do not arise. Further, in case of disputes, mediation sh­ould be made mandatory. It should be so im­posed that the disputing party refusing mediation will have to bear the entire cost of arbitration as well mediation if the dispute is up for arbitration and it loses. Conci­liation is another very widely used alternative dispute re­so­lution mechanism, in which the disputing parties employ a conciliator who separately me­ets the parties to resolve their differences by improving communication and exploring potential solutions.

In order to expedite the proceedings, a clause that specifies when or whether cross-examination is required for dispute resolution should be inserted. This can be done with the help of the arbitral tribunal. The country is also in need of an effective and efficient pool of ar­bitrators. These include retired judges and te­chnical experts who have subject knowledge.

International practices of proper case management systems can be adopted to expedite arbitral proceedings. There should be a mechanism or blueprint for determining the manner in which the arbitration should be conducted. Any violation of this blueprint should be penalised with cost impositions. This is a practice that is adopted internationally and helps ensure that disputes are resolved well in time.

Based on a panel discussion among Ankit Khushu, Partner, Kachwaha and Partners; Abhishek Kumar, Partner, Singhania and Partners; Dinesh Pardasani, Partner, DSK Legal; and Ashish Prasad, Partner, Economics Law Practice, at the India Infrastructure Forum