by Nilava Bandyopadhyay, Senior Partner, Singh & Associates; and Adhip Kumar Ray, Principal Associate, Singh & Associates
The infrastructure and construction sector is characterised by complex construction contracts. Whether the contract is simply an Engineering, Procurement and Construction Contract or a Concession Agreement which is valid for an extended period, there are numerous logistical that contractors have to deal with, including questions of design, financing, procurement of raw materials, construction, defect liability, etc. As the infrastructure contracts have become more complicated, there has been a manifold increase in the complexity of the disputes. The Courts of the country might not provide the most conducive platform for the resolution of these complex disputes, and therefore, Alternative Dispute Resolution (ADR) has become commonplace in construction contracts as a way to get the disagreements resolved.
Alternative Dispute Resolution (ADR), as the name suggests, provides alternative methods to parties to resolve their legal disputes instead of going to Courts. These methods provide fast and effective resolution of the disputes. The doctrine of party autonomy is the underlying principle of Alternative Dispute Resolution. Closely related is the doctrine of minimal judicial intervention. Driven by these core principles, ADR functions outside the strict and rigid confines of the Courts. ADR’s focus on party autonomy and minimal judicial intervention to some extent has made the process of dispute resolution flexible, yet effective. Further, the same has also made the process of dispute resolution fast and cost effective and has had the added benefit of reducing the pressure on the already overworked judicial system.
These benefits have made ADR extremely popular in the infrastructure and construction industry. The most prevalent ADR mechanisms in use are Mediation, Conciliation and Arbitration. However, equally popular is hybrid ADR, which provides for a mix of the abovementioned systems. Infrastructure and construction contracts generally contain Dispute Resolution clauses that provide for a requirement to notify the “dispute” by the aggrieved party. This step clearly establishes the confines of the disputes that have arisen between the parties and that require a resolution. This is followed by the stage of amicable settlement where the parties meet and attempt to settle their disputes through conciliation or mediation. Both mediation and conciliation are voluntary, non-adjudicatory processes, where the parties negotiate under the aegis of a neutral third party Mediator/Conciliator as the case may be. Ultimately after the process is over, an agreement is signed between the parties, which resolves the dispute between the parties. There are two distinct differences between the process of mediation and conciliation, first, the agreement signed after the process of mediation is an agreement enforceable under law and the agreement signed after the process of conciliation is an agreement that is enforceable as a decree of the Court (as per Section 31 of the Arbitration and Conciliation Act, 1996); second, in mediation the role of the mediator is to facilitate communication between the parties, whereas in conciliation, the role of the conciliator is much more active and includes providing prospective solutions to the dispute. It is interesting to note that during the stage of mediation/conciliation, the parties have complete autonomy and there is no interference by the Courts. Further, a successful mediation/conciliation also has the added benefit of preserving the relationship between the parties to the dispute as the parties come an amicable and mutual settlement.
In case there is a failure on the part of the parties to amicably resolve the dispute as elaborated above, the parties then escalate the dispute by referring the same to Arbitration. In India, arbitration is governed by the Arbitration and Conciliation Act, 1996 which is based on the UNCITRAL Model Law on International Commercial Arbitration. The most important mandates of the UNCITRAL Model are party autonomy and flexibility. Accordingly, parties can only be referred to arbitration under a valid arbitration agreement. Further, the aspect of party autonomy is especially helpful in infrastructure arbitration as the parties are allowed to choose arbitrators, decide their qualifications. Therefore, it is not uncommon to frequently have Engineers as members of the Arbitral Tribunal and this gives a better understanding of the disputes as Infrastructure Arbitrations often involve disputes complicated and technical questions related to facts and financial claims. This flexibility is further enabled by the presence of Section 28(3) as amended states “While deciding and making an award, the arbitral tribunal shall, in all cases, take into account the terms of the contract and trade usages applicable to the transaction.” Therefore enabling the Arbitral Tribunal to equally look into the contract as well as the trade usages.
In addition, Section 19 of the Arbitration and Conciliation Act, 1996 also gives the parties the right to determine the procedure to be followed for hearings and also states that the Parties are not bound by the Code of Civil Procedure, 1908 or the Indian Evidence Act, 1872. The lack of rigid procedures greatly facilitates the speed with which arbitral hearings can be conducted helps in resolving the dispute within the time period as provided in Section 29A or as further extended by the Court. Finally, the Arbitral Tribunal passes an award in terms of Section 31, which is final and binding on the parties as per section 35 of the Act.
For any system of ADR to be successful, the intervention by the Courts have to be minimized. Accordingly, the principle of minimal judicial intervention is deeply ingrained in arbitration jurisprudence in India. The statement of object and reasons of the Arbitration and Conciliation Amendment Act, 2015 states “The Act was enacted to provide for speedy disposal of cases relating to arbitration with least court intervention.”The Doctrine of Minimal Judicial Intervention has been crystalized through section 5 of the Arbitration and Conciliation Act, 1996, which states - Notwithstanding anything contained in any other law for the time being in force, in matters governed by this Part, no judicial authority shall intervene except where so provided in this Part. With respect to minimal judicial intervention, the landmark judgment of A. Ayyasamy v. Parmasivam and Ors. MANU/SC/1179/2016 : (2016) 10 SCC 386, it was observed –
53. The Arbitration and Conciliation Act, 1996, should in my view be interpreted so as to bring in line the principles underlying its interpretation in a manner that is consistent with prevailing approaches in the common law world. Jurisprudence in India must evolve towards strengthening the institutional efficacy of arbitration. Deference to a forum chosen by parties as a complete remedy for resolving all their claims is but part of that evolution. Minimising the intervention of courts is again a recognition of the same principle.
The recent judgment of N.N. Global Mercantile Pvt. Ltd. vs Indo Unique Flame Ltd. and Ors. (11.01.2021 - SC) : MANU/SC/0014/2021 has also clarified that judicial intervention under Section 5 of the Act, is barred unless for the specified instances under Part I of the Act.
“4.1. The legislative policy of minimal interference is enshrined in Section 5, which by a non-obstante Clause prohibits judicial intervention except as specified in Part I of the Arbitration Act.”
In this regard, an interesting development which will also have a significant impact on the infrastructure and construction sector, has taken with respect to the Specific Relief Act, 1963 through the Specific Relief (Amendment) Act, 2018.Section 20A was substituted, a schedule pursuant to Section 20A was inserted and Section 41 (ha) was inserted. The sections state that no injunctions shall be granted by a Court relating to an infrastructure project constrained in the Schedule where granting injunction would cause an impediment or a delay in completion of the project. The Schedule mentions the category of projects and Infrastructure Sub-Sectors, which includes transport, energy, water and sanitation, communication, social and commercial infrastructure. This will also go a long way in curtailing the intervention by Courts, especially with respect to the Infrastructure and Construction Sector.
It is encouraging to note that in numerous recent judgments, the Courts have relied on the principle of minimal judicial intervention and have refused to interfere where there was no ground to do so. By following this approach, and allowing the Arbitral Tribunals to effectively deal with the disputes before, them the courts have ensured the efficacy of arbitration as an effective means of ADR and the same has also helped in swift resolution of the disputes. This approach has also benefited the infrastructure and construction industry, and instead of taking years and even decades, disputes now get resolved swiftly and effectively.
