Infrastructure development constitutes the foundation of India’s economic growth strategy; however, the infrastructure sector is facing delays wherein 43 per cent of projects are running behind schedule, leading to cost overruns exceeding INR 5 lakh crore.
Infrastructure and engineering projects generate highly technical disputes involving delay analysis, disruption claims, design liability, quantum calculations, subcontractor performance issues, regulatory approval delays, force majeure events, coordination failures among multiple contractors, etc.
Construction and Infrastructure are among the largest sectors in institutional arbitration worldwide, evidencing confidence in arbitration for high-value and complex matters, and this is one of the reasons that foreign investors are inclined towards arbitration as their preferred method of dispute resolution. Arbitration has been proven to be the most preferred mechanism for resolving disputes owing to its flexibility in the procedure and technical expertise. Further, specialist arbitrators in infrastructure disputes bring practical knowledge and procedural efficiency, which is ideal for disputes that are highly technical in nature. In fact, arbitration offers confidentiality and privacy, a major benefit when reputations and business relationships matter.
In addition, arbitration offers greater party autonomy, allowing disputants to tailor procedures to their specific needs. The Supreme Court of India, in Hindustan Construction Company Limited versus NHAI, held that when an award was given by the arbitrators who were technical experts in a construction dispute who were well versed in the type of contractual interpretation of the type of works involved, and the view adopted by the majority was plausible, the Court found no reason to hold otherwise.
The Supreme Court of India has recently addressed a pressing issue regarding the modification of the arbitral award by the Courts. The Court in Gayatri Balasamy v. ISG Novasoft Technologies Limited held that in certain situations for instance where the invalid part is severable or there is a clerical or computational error or where post-award interest requires adjustment for equity, the arbitral award can be modified by the Courts instead of setting aside the award.
Policy shift
Even though arbitration has remained a preferred mode of settlement of disputes and Indian Courts have paved the way towards minimal judicial intervention, India has witnessed a policy shift. The Ministry of Road Transport and Highways (MoRTH) and other Public Sector Undertakings have issued circulars formally excluding arbitration for disputes above ₹10 crore (approximately US$1 million) and opting for adjudication of disputes through courts after the parties have failed to resolve the dispute amicably through mediation. The aforesaid circulars have been issued in furtherance of the Office Memorandum issued by the Government of India in 2024. Presently, the civil cases pending in the district courts of India are 1,11,51,669. Further, the pendency of civil cases at the High Court level stands at 44,69,397. Therefore, adding an additional burden of adjudication of disputes arising out of government contracts is bound to further increase the pendency of cases.
On the other hand, draft Arbitration and Conciliation (Amendment) Bill, 2024 has been proposed to streamline the arbitration process to include statutory recognition of emergency arbitrators for urgent interim relief, Appellate Arbitral Tribunal to channel award challenges away from overburdened courts, preserving finality; a narrowed 60-day timeline for Section 8 referral applications and 30 days for jurisdictional pleas; a refined “Court” definition limited to principal civil courts for domestic matters; and synchronized pre-arbitral mediation with the Mediation Act, 2023. If enacted, these reforms would address key infrastructure arbitration challenges, including delays and post-arbitration judicial proceedings/ judicial interference.
Conclusion
The government’s recent policy framework to restrict arbitration for high-value disputes, risks creating delays and uncertainty by pushing parties into an already overburdened court system. Indian Courts have acknowledged from time to time that arbitration is intended to streamline resolution in complex public contracts to support India’s ambitious goals for roads, airports, and public works. Thus, restricting that avenue for the large claims would work as a regression in dispute risk management.
(Views are personal)
