Ravi Singhania, Managing Partner, Singhania & Partners

Most Infrastructure and Construction projects include Arbitration as a dispute resolution process in their contracts owing to various factors such as speedy disposal, availability of expert panels etc. The Infrastructure sector has gained importance owing to its key role in Economic Growth. However, today the government is facing the challenge of lack of confidence in Foreign Investors to infuse funds in the Infrastructure Sector. Since 2006, 50% of the total inbound private-equity has been made to the infrastructure sector but these projects have seen a lot of delays due to various factors including slow dispute resolution processes. In such a scenario the importance of Arbitration increases manifold and it is important to select the right mode and method of Dispute Resolution while drafting and negotiating these Agreements. A step forward in this direction has been shown by the legislature by recently introducing appropriate Amendment to the Arbitration and Conciliation Act, 1996 in January 2016. It includes various important changes including an endeavor to complete the arbitration within a year of the commencement. Such modifications are sure to make Arbitration in India as a favorable mode of dispute resolution in this sector.

There are normally two modes for the conduct of Arbitration, Institutional and Ad-hoc. In Institutional arbitration, the entire arbitration process is administered by a specialized institution like Delhi International Arbitration Centre, Indian Council of Arbitration, Construction Industry Arbitration Council, Singapore International Arbitration Centre, International Chamber of Commerce, etc. Amongst the several advantages of Institutional Arbitration, the most important ones are, having a predetermined procedure in place and also the choice of the parties to select an arbitrator possessing the necessary skills, experience and expertise to provide a quick and effective resolution of disputes. Such expertise is useful to the parties in sectors such as Infrastructure, Construction and Energy owing to the technicalities and nuances involved. The major disadvantage of Institutional Arbitration is the heavy costs involved. An Ad-hoc arbitration in comparison is usually less expensive, but the parties are left to determine all aspects of the arbitration themselves, from the number of arbitrators, to the procedure for conduct of arbitration etc. Therefore, where claims are smaller, ad-hoc arbitrations are the preferred form of dispute resolution. The choice of the mode thus would really vary depending on the intention of the parties and the desired results.

Identification of the seat of arbitration (which is different from the location where the hearings take place ie the venue), is one of the most important features of an arbitration clause. This is because the selection of the seat determines the law governing the arbitration procedure and often, more importantly, the process and rights relating to seeking of interim relief and enforcement of arbitration award. In view of the same, it is best to specifically mention the seat in the arbitration clause itself and avoid ambiguity. In India, the law of arbitration provides for a simple procedure of enforcement if the seat is located in a country which has signed the New York Convention and with which India has a reciprocal arrangement. However, foreign awards are difficult to enforce in India if the country where the award has been passed has not signed the New York Convention and does not have a reciprocal arrangement with India. These factors always need to be kept in mind while drafting the Agreement between the parties.

Today Foreign Investors enjoy international legal protection through various investment treaties. The trend of having various Bilateral Investment Treaties (BITs) had begun in India since the 1990’s and has gained greater momentum now. The most important advantage that a foreign Investor enjoys under Investment Treaties is the option to initiate arbitration against the State, with which it has entered into an agreement without approaching their own government. As far as India’s BITs are concerned, most of them have an option of approaching the World Bank’s International Centre for Settlement of Investor Disputes (ICSID) ICSID or initiating arbitration under the United Nations Commission on International Trade Law (UNCITRAL) rules. A growing number of countries are getting engaged in this mode of dispute resolution and treaty based arbitration is likely to gain more importance in the time to come.

As a firm we are dealing with innumerable disputes arising out of PPP projects. The most common form of dispute resolution clauses in Highway projects that we have come across are, that initially the disputes are endeavored to be amicably resolved between the parties, failing which, the Engineer/Independent Consultant has to give its finding on the disputes. The next step is that the disputes are referred to a Dispute Review Board which places its recommendation within a specified period. If the recommendations are not acceptable to either party, the dispute is referred to arbitration. PPPs in infrastructure are a valuable instrument to speed up infrastructure development in India. For the PPP model to be most effective, the dispute resolution process under these contracts needs to be improved. One method of doing this could be to make the dispute resolution process institutionalized, which could lead to enhanced efficiency. Inspiration can be taken from the National Highways Authority of India which has formulated the Society for Affordable Redressal of Disputes (SAROD) with its own rules for all cases of domestic arbitrations which has lead to evidently faster disposal rates.