CONTRACT LAWS

ALTERNATIVE DISPUTE RESOLUTION MECHANISMS

IN INFRASTRUCTURE SECTOR

UTSAV SHUKLA

MBA(INFRASTRUCTURE)

1800239MBI
1. INTRODUCTION

Infrastructure sector of India is certainly one of the most widespread and vital
sector of the nation. This sector is the life and soul of the country because it is
highly responsible for country's overall development and as well as for the
nation's economy. A proper infrastructure is nothing but basic organisational ,
well functioned and well managed structures and services always needed for the
operation of a society , or a county .

As the infrastructure and construction sector are growing with a speedy rate
which is further enhancing more demands and supply of services as well , it can
be clearly seen that various disputes and unwanted mishaps between the parties
are very common these days. And despite how much efforts parties do , the
disputes occur eventually in the infrastructure sector . These disputes generally
have far-reaching and never-ending negative impacts on the projects such as -
delay in completion of the projects , less profits , opportunity costs , irregular
operational & management works and the reputation of the parties as well.
Ultimately these impacts have a major impact on the economic development of
the country.

Disputes are very delicate and critical in the infrastructure field which may arise
during the completion of the project or after its completion . If these unwanted
disputes are not quickly solved or managed properly during their birth , they
may have a cascading effect on the projects and time & money of the
contractors and investers . The Infrastructure sector , itself being very delicate in
nature where the investment of capital is huge and gestation plus completion
period is long where multiple stakeholders are involved , the occurance of these
disputes are unavoidable. Infact sometimes the contracts are framed in very
complex manners and often do not clearly define the role of the parties that are
involved in the projects. Therefore these projects are prone to litigations and
disputes .

2. INFRASTRUCTURE PROJECTS

As India is becoming a very attractive destination for foreign investors and they
are entering in the Indian market and they prefer a very strong ADR mechanism
i.e. an international standard ADR Institution for to resolve the disputes. There
are many types of infrastructure projects which require huge capital investment
and where gestation period is very long. Some of them are -;
PPP

A public–private partnership (PPP) which can be defined as a cooperative

arrangement between two or more sectors which can be both public or private,
generally of a long-term in nature. Public private projects generally involve a
contract between a public sector authority and a private party, in which the
private party is hired by the government to provide service . Substantial,
financial , technical and operational risk is always considered initially in these
kind of projects.

PFI

The private finance initiative (PFI) is a way of creating PPPs , where private
firms are hired to complete and manage public projects. This initiative is taken
and developed initially by the governments of many countries like Australia and
the United Kingdom, and used extensively there. In Spain , PFI and its variants
have now been adopted as part of the wider programme
of privatisation and financialization, and presented as a means for increasing
accountability and efficiency for public spending.

There are a number of reasons that parties elect Alternate Dispute Resolution
mechanism to have their disputes resolved. These include the prime desire to
avoid the uncertainties and local practices associated with litigation in national
courts, the desire to obtain a quicker, efficient decision, the relative
enforceability of arbitration agreements and arbitral awards, the parties' freedom
to select and design the arbitral procedures, confidentiality and other prime
benefits.

3.BASIC CAUSES OF DISPUTES

Some of the basic and most common causes of these disputes include
unexpected and improper site conditions , omissions and errors in the contracts
or tender documents are unprofessionally done , failure of owner or contractor
to understand the contractual obligations , incompletely or poorly drafted of
claims and policies , biased engineers / project managers , insufficiency of
FRONT END ENGINEERING DESIGN (FEED). And because of these causes
disputes occur in the projects which often lead to delay in completion ,
liquidated damages , price escalation issues and sometimes termination of
projects.
4. ADR MECHANISM

The main problem is , that the India's judiciary system is already over-burdened
with many pending cases. Approximately 2.18 crore cases are still pending
across the country . Therefore ALTERNATIVE DISPUTE RESOLUTION
TECHNIQUES or ADR MECHANISMS or external dispute resolutions
broadens for resolving the conflicts and tackle the various disputes which also
minimises the costly litigations and court processes.

Alternative dispute resolution or ADR is a process or procedure other than

adjudication by a presiding judge in which a neutral third party participates and
provides it's assistance in resolving the conflicts and issues between the two
parties. ADR helps and facilitates parties to solve their issues in a cost effective
manner with increased efficacy. ADR provides parties with opportunity in such
a way that it reduces hostility , regain a sense to control , gain acceptance of the
outcome , resolve conflict in a peaceful manner , and always try to achieve
greater sense of justice in each individual case which is always beneficial for
both the parties in a certain way. Thus ADR mechanism has become an
effective way of setting disputes in construction sector , infrastructure sector
and as well as in real estate whether it is contractual issue, commercial or
personal conflict.

The process of ADR mechanism is becoming highly popular in private sector. It

is unfortunate that government sector is yet to opt for this process . Whereas
disputes between private parties and government usually end up in courts. Some
of the senior judiciary systems in abroad such as in England and wales ADR
mechanism is strongly favoured because it imposes fewer costs than litigation
and confidentiality is preferred , ADR always try to overcome the shortcomings
of litigation through its processes such as arbitration , negotiation , mediation
and conciliation.

4.1 Arbitration is a process in which dispute is submitted in front of arbitral

tribunal where there are two or more arbitrators who give their judgement. It is
typically done voluntarily where the third party is involved to impose a
resolution. Arbitrations often occur when both parties agree to contracts that any
other future dispute concerning the contract will be resolved by arbitration. In
this type of ADR the conclusion and the verdict is always faster , friendlier ,
more cost efficient and more private than the litigation.
4.2 Negotiation systems are bit different from arbitration . In negotiation , a
structure is created to encourage and facilitate direct negotiation between the
parties without any kind of involvement and intervention of third party. So there
is no third party involved for the resolution of the dispute. Negotiation is simply
based on a very simple principle of " Helping people help themselves ". But
sometimes it may happen that a third party or a social worker or a friend is
indirectly involved to guide one or both the parties for resolution.

4.3 In Mediation processes of ADR there is a third party involved just to give
his proposal for the resolution to overcome the dispute. It facilitates the
resolution process or give its proposal but does not impose a resolution on both
the parties. This is always unbiased and fair so that the relationship between the
parties are not compromised. This method is preferred many times because of
its various benefits such as it always the mediation processes are always flexible
and informal where both parties can openly share their price , creative
resolutions are often indentified , final outcome is always in the hands of the
parties , no outsider can pronounce or declare a person if he is winner or loser
and ultimately the relationship between the parties can be preserved which is
always a requirement. But unfortunately there are some cases where mediation
processes can fail where parties are adamant , or the parties have high egos ,
where parties want judicial determination, or one party wants a delay on
purpose.

4.4 Conciliation is a process in which conciliators simply facilitate the

communication between the parties and sometimes may design the settlement
structure for the welfare of both the parties but they don't have the authority to
decide or impose that settlement. This method is slightly similar to the
mediation process. The main difference between conciliation and mediation is
that the degree of intervention or interference is slightly more in the
conciliation.

5. DISADVANTAGES OF ADR

All of the mechanisms are highly effective in their own way but still there are
some disadvantages of ADR system such as -

 It cannot correct systematic injustice & indiscrimination or any kind of

violation of human rights ;
 ADR do not work well where there is a huge power imbalance between
the parties ;
  ADR does not have any educational effect or punitive effect on the
population ;
 Non-compoundable offences cannot be resolved by ADR programmes ;
 Judicial reform rights may be undermined;
 ADR is not suitable for various cases such as disputes relating to election
to public offices ,
 Cases involving major frauds cannot be solved by ADR.

6.ADVANTAGES OF ADR

There are various advantages of alternative resolution mechanism as well such

as -

 They reduce the delay in completion of the project ;

 Increase satisfaction of disputants and the parties ;
 There is always a chance of win-win situation ;
 Sometimes there can be increase in access to justice for disadvantaged
and weak groups ;
 If the ADR preceding has failed it will never be counted as a failure ;
 Direct participation of the involved parties .

7. CASES

1. A very famous example of Bangalore mediation centre case can be given

of ADR mechanism where court annexed mediation by trained advocate
mediators and 3079 cases referred and 53 % of those were settled .
2. Secondly Delhi mediation centre judicial mediation which was a grand
success in which 1193 cases were decided in first year and most of them
were success in Tees Hazari court and Karkardooma court.
3. National Insurance Company vs. Mr. Moraje Srinivas Vital Rau on 7
November, 2018 .
VERDICT - The suit filed by the Plaintiff under Section 34 of the
Arbitration and Conciliation Act, 1996 to set aside the award dated
06.05.2013 is hereby allowed and the impugned award dated 06.05.2013
passed by the Hon'ble Arbitral Tribunal/Defendant No.2 is hereby set
aside.
 4. Sukumar Chand Jain VS Delhi Development authority - 19th March
2002.
VERDICT - The said objections/ petitions are not maintainable in view of
the aforesaid discussions. Accordingly, the same are dismissed. The suit
filed by the petitioner herein under Sections 14 & 17 of the old Act also
stands dismissed.

8.CONCLUSION

Apart from an effective legal system and judiciary control which provides
resolutions for the conflicts , its is highly important to extend and create more
facilities and services and infrastructure that enable to implement rules to
facilitate the adoption of alternative dispute resolution mechanisms an d
requirement of certain arbitrators , negotiators , mediators and reconciliators is
much needed for transparent and fair ADR practices. Undoubtedly specialized
firms and organisations are always more promising and reliable in this case
where people can choose to consult them for various resolutions.

Though there are already some important organizations in India that are making
significant contributions in promoting ADR services and mechanisms such as
the Indian Chamber of Commerce (ICC), the Indian Council for Arbitration
(ICA), which is also considered as one of the apex arbitral body in the country; ,
International Centre for Alternative Dispute Resolution (ICADR), and the
Federation of Indian Chambers of Commerce and Industry (FICCI) but as the
nation is growing in this sector at a speedy rate more contribution is needed.
Infact the construction industry development council (CIDC) in cooperation
with the Singapore International Arbitration Centre (SIAC) is another institution
that has set up an arbitration centre in India known as the Construction Industry
Arbitration Council (CIAC). The council resorts to conflict resolution
mechanisms with the timely appointment of trained arbitrators following a strict
code of ethics for the delivery of awards.

Though the benefits of ADR mechanisms have not been completely discovered
but there is still infinity scope in India for arbitral justice system , which results
in huge dependence on judicial system. The ADR mechanism is still lagging
behind because of the intervention and interference of Indian government and
Indian courts in international arbitration processes and various other PPP
projects in terms of eligibility and selection. According to word bank report an
approximate Rs 90 billion is still locked in various disputes and arbitration cases
in infrastructure sector which requires serious attention to frame some
construction laws to improve legal environment in the country.

Further it can be concluded that ADR mechanism is needed in the infrastructure

sector because Indian judiciary is already burdened with huge number of cases .
With providing proper services of ADR certain measures can be taken to
harmonize the relations between the parties . The identification of the growing
disagreement between the parties can be facilitated with quick dialogue for
resolution before the dispute matures.

“It is the spirit and not the form of law that keeps the justice alive.”

- LJ Earl Warren
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