Construction may see degrowth of -6.5% in FY2021
Forecast for GDP growth now -6.4 per cent for FY2021: CARE Ratings. July 2020
As stringent international norms slowly take a grip on India's infrastructure operations, litigations, arbitration and court decrees have steadily increased. Practitioners observe a startling trend: bilateral, across-the-table negotiations between partners in projects have decreased. Rather, parties increasingly depend on arbitration, leaving one wondering whether there has been a change in intent to resolve disputes.
Thanks to the Indian Arbitration and Reconciliation Act, 1996, the law provides a robust framework, and yet there is much to be desired as to the practicality of the arbitrator's qualifications, definition of the arbitration clause and other forms of alternative dispute resolution (ADR). The crux of the problem, though, lies in the inordinate delays disputes cause, and the Government has recently asked the Planning Commission to draft a new Dispute Resolution Bill.
Objectives of the new Bill
While the Planning Commission researches and develops the actual draft, the objectives of the proposed Dispute Resolution Bill will be to provide relief to PPP projects covering all infrastructure sectors:
It will aim to create a transparent system for resolving disputes.
Against the background of the proposed Bill, CW's sister publication INFRASTRUCTURE TODAY, called 15 practitioners - including project owners (government agencies), developers, contractors, bankers, equity firms, lawyers and consultants - to debate what, if anything, should go into the Bill, or whether enough mechanisms are in place firmly enough for dispute resolution to be fast-tracked.
The forum, comprised top practising officials from a state power distribution company, an international bank, two developers, a construction contracting company, a private bank with a large infrastructure lending portfolio, two private equity/investment firms, as well as a lawyer in infrastructure dispute practice, an analyst in the forensics and disputes practice, a former arbitrator and consultant in power and other infrastructure domains, and a media person and infrastructure expert.
Amongst those who participated were (Top left to right) JP Rao, Director Corporate Marketing Strategy, (India-Construction), Shapoorji Pallonji; Ajay Saxena, PPP Expert, Asian Development Bank; Vishal Narula, Associate Director, KPMG; Abhishek Jhawar, Director-Corporate Finance, Yes Bank; Krishna Kumar, Senior Managing Partner, IL&FS Investment Managers; MK Deore, Director (Operations), MSEDCL; Puran Kumar, Head Contracts Manager, L&T ECC; Ramesh Vaidyanathan, Partner, Advaya Legal; Sanjay Chaudhary, Associate General Manager-Contract Monitoring, Gammon Infra; SB Kulkarni, Ex Member, MERC; SG Shyam Sundar, Partner, IDFC Alternatives-Private Equity and Atulesh Chandra Sharma, General Manager-Technical Roads, Gammon Infra.
The questions raised in the discussion included:
Almost as one would expect, some of the discussion focused not around dispute resolution but about dispute avoidance. That is, how can contracts be made dispute-proof?
Preventive and resolution-driven: Participants argued that if a Bill is imperative, it must take care of aspects of how to prevent disputes, along with how to resolve them.
Project definition: The project owner often does not define the project well, not providing specifics - leading to lopsided contracts. When private partners or contractors discuss the contract at pre-bid meetings, adequate discussion does not ensue to address those ambiguities. Participants said pre-bid meetings often go without adequate representation from bidders. Bidding criteria need special attention. Although the lowest bidder (L1) formula is no longer the binding criterion (with a precedence in GMR's airport contract, which was awarded on superior technical qualifiers), owners tend to adhere to the L1 track. Pre-bid meetings could result in debating the qualification criteria.
The arbitration clause: Arbitration is ill-defined. Participants urged the government to define the qualifications of an arbitrator better, ensuring that they are truly independent subject experts who understand both legal and commercial aspects of a contract. Including a former judge was a major head-shaker, as judges who may not understand the intricacies of infrastructure contracts often take inordinate amounts of time. The panel also recommended a single arbitrator method to resolve disputes (as opposed to the three-member panel that is in practice), and this, the panel unanimously agreed, would save much time.
Agreeing on reasonable timelines: A contract must set a timeline that both sides of stakeholders - owner and implementer - agree upon, as it is practised in many developed countries with mature contracting documents. Sometimes, when project owners set timelines, they may be unrealistic, but often go undisputed in the anxiety of bagging the project. Participants pointed out instances when bidders such as L&T and Shapoorji Pallonji walked out of projects owing to unreasonable timelines. Knowing from experience how long clearances and land acquisition take should be a flag for both project owners and contractors.
Lack of inter-ministerial coordination: Although the Central Government has appointed ad-hoc committees to fast-track disputes, coordination between the various ministries is still lacking on a regular basis, often leading to the private player playing the coordinator's role. Transparency, sector-specific project structuring, and adopting global best practices also emerged as the broader set of recommendations. Technology adoption: In the ever-changing world of technology, participants urged that policymakers must take note of the time-saving devices that have come into industry practice in recent times - including document management systems.
Lack of intent: Participants said that new trends to disputes made them suspect that there is sometimes no intent amongst the government agencies to resolve; rather, the intent seems to be to indulge in inaction. An example offered is that of the NHAI amassing contract dues in excess of Rs 20,000 crore.
Contract reinforcement: While participants agreed that the model concession agreements have helped evolve contracts in a more streamlined way, they questioned the specificity of documents that emerge out of the models in various sectors.
They brought forth lack of regard to the contract itself as a reason for dispute. Indeed, contract enforcement remains one of the biggest stumbling blocks in the way of projects.