Power ministry’s ADR alternative needs a rethink

With the admirable objective of achieving the early and amicable resolution of disputes, the Ministry of Power (MoP) has set up Conciliation Committees of Independent Experts (CCIE) in its office memorandum of 29 December 2021 (OM). Appointments to the three CCIEs of three members each were made on 22 March 2022. The CCIEs have been set up to settle disputes arising from contracts involving public sector undertakings or statutory bodies in power projects. They cover entities such as NTPC Limited, India’s largest power utility, and NHPC Limited, the country’s largest hydropower development body.

While the CCIE mechanism may be a first in the power sector, a similar initiative was taken by the Ministry of Road Transport and Highways (MoRTH) in 2019 for the fast-track resolution of disputes in the roads and highways sector. Ignoring this existing model, the MoP has chosen a way that is antithetical to the government’s push for alternative dispute resolution and the speedy resolution of disputes.

The conciliation mechanism through the CCIEs is available to all parties, and includes disputes that are pending before an arbitral tribunal or the courts. On receiving the reference from the contractor requesting conciliation, the developer must communicate within seven working days, inviting the contractor to send representatives to meet it. Thereafter, the developer examines the correspondence in the dispute within 30 days or makes an attempt to resolve the dispute internally. If this fails, and a conciliation request is made by the contractor, the dispute is referred to a CCIE, with the contractor selecting which one.

The conciliation proceedings shall be completed within five sittings and three months from reference to the CCIE. This may have been done to save time and costs. In exceptional circumstances, the CCIE can extend the time for conciliation by three months. The conciliation process is governed by part III of the Arbitration and Conciliation Act, 1996. Thus, where a case is settled and the agreement reduced into writing, the settlement can be enforced as an arbitral award.

So far, so good. Where the mechanism as set out in its OM and implemented by the MoP goes woefully wrong relates to the consequences when settlement is not reached. In those cases where there is no pending arbitration, the OM states that the option of arbitration is not available once the conciliation mechanism has been invoked. Similarly, if the reference is in respect of pending disputes, the resort to CCIE is possible only if the parties withdraw from the arbitration and undertake to forgo their rights to proceed for further arbitration in the particular dispute.

The rationale for discarding arbitration and forcing parties to resort to litigation is unclear when the policy was the expeditious and effective resolution of disputes. In contrast, the MoRTH CCIE mechanism provides that for fresh matters, in the event of failure of conciliation, the remedy of arbitration is available. For pending disputes, arbitration is only held in abeyance.

Today, arbitration is seen as the preferred mode of dispute resolution. The government has tried to make arbitration robust, cost-effective and time-friendly for commercial parties. There is even a growing demand for hybrid proceedings, such as arb-med-arb. The spirit of settlement is also encapsulated in section 30 of the act.

There is little doubt that a robust CCIE mechanism can reduce the number of disputes in arbitration and result in systemic and cost efficiencies. For example, the National Highways Agency of India reportedly settled 60 cases for INR41 billion (USD528 million) against claimed amounts of INR146 billion in the fiscal year 2021-2022. According to another media report, of 251 cases that have been referred to the CCIE set up by MoRTH, 155 cases of claims by contractors and concessionaires worth INR387 billion have been settled for IND131 billion. However, the Ministry of Power’s CCIE mechanism is a non-starter, especially if the private party in the contract has to forgo its right to arbitrate in the event of failure to reach a settlement.

Perhaps, the MoP should take a leaf out of its counterpart ministry’s book and revisit the CCIE mechanism to make it properly effective and less time-consuming.

Mani Gupta is the senior partner and Saumya Upadhyay is an associate at Sarthak Advocates & Solicitors.