India: Modes Of Dispute Resolution In The Construction Sector


Disputes are a common feature of the construction sector and can potentially have far-reaching impact on the project in the form of costs, delayed completion and opportunity costs.

Construction disputes are primarily technical in nature. They may arise during the execution of the project or post the project's completion. More often than not, if the dispute is not resolved quickly and efficiently it has a cascading effect on the project and leads to inefficiencies like cost overrun and time overrun for the owner and cash flow issues for the contractor. The most common causes of disputes in construction projects are 2

  • Omission and errors in the contract documents; Differing and unexpected site conditions;
  • Failure of the owner, contractor and/or sub-contractor to understand or comply with the contractual obligations;
  • Failure to properly administer the contract; Poorly drafted, incomplete, delayed and/or unsubstantiated claims;
  • A biased Engineer or Project Manager; and
  • Insufficiency of FEED (Front End Engineering Design) in case the contractor is doing detailed engineering and execution only. 3

The construction sector has made significant progress in the past few decades in developing cost-effective and expedient modes of dispute resolution. We intend to discuss here the various methods available for settling disputes between the parties.

Construction contracts typically have a structured dispute resolution clause to account for various kinds of disputes that may arise in the lifecycle of a project, differing in size, nature and complexity. There are three primary techniques to resolve disputes – negotiations, non-adjudicatory third party intervention and adjudicatory dispute resolution which are discussed below in more detail:

  1. Negotiation is a widely used mode of dispute resolution which features in most standard arbitration clauses, for example:

    "Any disputes arising out of this Agreement shall be endeavored to be settled amicably by the Parties. However, if the Parties are unable to amicably settle the disputes within 30 (Thirty) days, the disputes shall be resolved by way arbitration. Thus, in most dispute resolution clauses, negotiation is a pre-requisite for the parties to commence arbitration or litigation. This ensures that insignificant as well as some significant matters get settled without being escalated unnecessarily to a formal dispute resolution process.
  2. Non-adjudicatory third party intervention is a form of dispute resolution where a neutral third party assists the parties in resolving their disputes. The process may be facilitative (for example, mediation, where the mediator only supports the negotiation process, but does not make any recommendations to the parties) or evaluative (for example, conciliation, where the conciliator makes recommendations and actively advises the parties in the negotiations). In the event the parties reach an agreement in conciliation, such agreement may be captured in a signed settlement agreement which under the Arbitration and Conciliation Act 1996 Arbitration Act is a final and binding agreement having the same effect as an arbitral award. However, as a practice, mediation and conciliation are still in their nascency in India and need to be further advocated.
  3. Adjudicatory dispute resolution is in fact the most popular form of dispute resolution in the construction sector and has developed significantly the world over. Disputes in a construction contract have two very specific characteristics – (1) they are technical in nature; (2) unless resolved quickly and efficiently, they may have a cascading impact on the project. To address these issues, parties have the option to choose from a broad range of dispute resolution mechanisms which include, primarily: Dispute Boards, Expert Determination, Litigation or Arbitration. Dispute Boards and Expert Determination are in most cases used as an interim mechanism for resolving disputes which may arise during the execution of the project. In addition to the same, the contract will ideally provide for either, litigation and arbitration, to resolve disputes finally.


Arbitration is a form of dispute resolution which is used as an efficient, confidential and generally cheaper alternative to litigation, especially in India, where the perception is that the judicial system has become an unattractive forum for dispute resolution due to inordinate delays 4It allows parties a large degree of flexibility and control on the process of dispute resolution and the freedom to choose a tribunal with the skill-set and specialised knowledge required to give a just and fair award. This is an important factor for construction contracts where technical knowledge is, more often than not, essential for dispute resolution. There are divergent views about arbitration necessarily being more cost effective than litigation but the speed of the process often overrides the scepticism regarding costs. It may be noteworthy to point out that in most jurisdiction the court fees are paid on an ad-valorem basis which may turn out to be equally costly.

The arbitration regime in India has recently been over-hauled by the Arbitration and Conciliation (Amendment) Act, 2015 which has come into force with effect from 23 October 2015. The changes in law that are expected to make arbitration proceedings in India more effective, especially for the construction sector, are discussed below:

  1. For most matters under the Arbitration Act with respect to international commercial arbitration taking place in India, the relevant Court is now the Commercial Division of the High Court. For example, applications for interim measures and applications for setting aside an award of the arbitral tribunal will now lie to the High Court exercising territorial jurisdiction in the matter. 5
  2. The powers of the arbitral tribunal have been increased especially with respect to grant of interim measures which shall now be deemed to be an order of the Court for all purposes. 6Thus, if the contractor wants to either prevent the owner from unlawfully enchasing the bank guarantees or compel him to make interim payments notwithstanding the existence of a dispute, such request for interim measure can be made to the tribunal if arbitration has commenced. However, enforcement of the interim order of the arbitral tribunal may still be a challenge. The powers of the courts with respect to grant of interim measures has not been taken away and even after constitution of the arbitral tribunal the court can pass interim orders where it is shown that an application to the tribunal would not be effective.7
  3. The arbitration should be completed within a period of 12 (Twelve) months from the appointment of the tribunal or a further extended period of 6 (Six) months with the consent of the parties. Any further extension can only be granted by the Court. This ensures that the dispute is not prolonged indefinitely and can resolved economically.8The construction sector should benefit from this provision because projects in dispute will not remain suspended/halted for very long.
  4. The amendment has introduced a comprehensive regime for costs based on the general rule that the unsuccessful party shall be ordered to pay the costs of the successful party.9This will prevent unnecessary and bogus claims from delaying the project.
  5. There are very limited grounds for challenging an award of the tribunal and such applications need to be decided by Courts within 1 (One) year. The scope of challenging an award on the grounds that it violates the public policy of India which had been left open to interpretation under the old act have now been clearly explained thereby limiting court intervention. Furthermore, the unsuccessful party, here too, will be subject to costs. This change is expected to have a very positive impact on the construction sector because it will prevent unnecessary and prolonged litigation to delay the enforcement of an arbitral award.
  6. The amendment to the Arbitration Act has introduced a new schedule which details the fee that an ad-hoc arbitral tribunal should charge for resolution of disputes. Since most arbitration clauses in construction contracts are ad-hoc in nature, this change promises to reduce the cost of arbitration significantly. Thus, ad-hoc arbitration in India has become potentially more economical that foreign institutional arbitration.

Once a domestic arbitral award attains finality (on expiry of the time period allowed for challenging an award or by virtue of an unsuccessful challenge), the award can be enforced in the same manner as if it were a decree of the Court and is final and binding on the parties.

The arbitration regime with respect to recognition and enforcement of foreign awards in India has also become more streamlined because the challenge of a foreign award on the basis that it violates the public policy of India has been limited to the following grounds: (1) the award was induced or affected by fraud or corruption; (2) the award contravenes the fundamental policy of Indian law (however, there shall be no review on merits to ascertain this); and (3) the award conflicts with the basic notions of morality or justice. The application for enforcement now lies with the appropriate High Court.

Thus the impetus given to arbitration in India (both with respect to domestic arbitration awards and foreign awards) with the new amendment ensures that it remains the preferred mode of dispute resolution in the construction sector.

Dispute Boards

The concept of dispute boards originated in the US and was popularized by the 1999 FIDIC standard form of contracts. It is an increasingly common mode of dispute resolution in construction contracts which are used in combination with arbitration clauses to resolve time-sensitive disputes which arise during the execution of the contract.

A Dispute Board may be set up on the commencement of the project or when a dispute arises. The appointment of the members of the Dispute Board is by the agreement of the Parties. The Dispute Board may sit periodically to acquaint itself with the site conditions and the progress of the work and performs two essential functions: (1) quick resolution of disputes; and (2) preventing disputes which can be resolved by simple discussions and negotiations. Subject to the terms of the agreement between the parties, the decision of the Dispute Boards is binding unless it is challenged in a subsequent dispute resolution process (either arbitration or litigation).

However, certain large Indian corporates have developed a differing practice. Their standard contracts provide that resolution of disputes by a Dispute Board shall be an alternative to arbitration. The members of the Dispute Board shall be nominated by one Party and the decision by the Dispute Board shall be final and binding. The amendment to the Arbitration Act brings about a fresh and welcome change to the legality of such contractual provisions, particularly where one party can choose the arbitrator, more often than not, from amongst its own employees leading to considerable bias. While the parties can still choose a dispute resolution clause where the dispute shall be adjudicated by a Dispute Board instead of arbitration, the Arbitration Act now provides that employees/directors of parties shall be ineligible for appointment as arbitrators.

Expert Determination

Another mode of dispute resolution which can be used in combination with either arbitration or litigation is Expert Determination. This is a novel mode of dispute resolution ideally suited to variation claims or claims for extra work. It essentially allows a technical expert to decide disputes which arise during the execution of the contract and give a quick and binding decision. The parties can decide by agreement whether or not the decision of the expert can be challenged in a subsequent, final dispute resolution process (either arbitration or litigation). In any case, Expert Determination allows disputes to be readily adjudicated in the first instance thereby preventing delays in the project and avoiding cash-crunch.

Thus, parties have a suite of dispute resolution mechanisms available to them and the construction contract should be drafted to best address the needs of the projects.


It is pertinent to mention herein that litigation is no longer an unattractive option for dispute resolution in light of the recently enacted Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, 2015 (Commercial Courts Act) which came into force with effect from 23 October 2015.

The aim of the Commercial Courts Act is to simplify and speed-up the adjudication process with respect to commercial disputes where the value of the disputed subject matter is Rs. 1 crore (Rs. 10 million) or more. In line with this objective, the act provides for – (1) constitution of Commercial Courts in all states and Commercial Division and Commercial Appellate Division in the High Courts; and (2) amendments to the Civil Procedure Code of India to fix time-lines for conclusion of the case. For example, under the new act the court must hold a case management hearing to frame issues and establish time-lines and should further pronounce judgements within 90 (Ninety) days from the conclusion of arguments.

Thus, an attempt has been made to re-vamp the Indian judicial system and ensure disposal of cases fairly, expeditiously and at a reasonable cost to the parties. However, in light of the concurrent amendments to the arbitration regime, the latter still is a more effective mechanism for dispute resolution in the construction sector although it is certainly advisable that arbitration be used in combination with other mechanisms to make it more successful. For example, the FIDIC standard form of contract 1999 provide for the establishment of a Dispute Adjudication Board and negotiations as part of the process in combination with arbitration for resolution of disputes


Thus, the ideal approach to resolve disputes in the construction sector would be to have a dispute resolution system in place which is both preventive and adjudicatory in nature and use the following strategies to resolve dispute: avoidance, negotiation, collaboration and adjudication. The dispute resolution system incorporated in the contract should be tailored to suit the requirements of the project and meet the expectations of the parties. It should be sufficiently comprehensive in nature and cost effective, addressing the different kinds of disputes that may arise and should provide for early intervention and timely redressal.

A system designed in such a way would allow parties the flexibility to choose the most appropriate mechanism to resolve the dispute and will prevent one party from holding the other ransom. Hence, careful consideration should be given to the potential disputes and the method of resolving them.

Having analysed the preferred modes of dispute resolution available to the construction sector, it is emphasised that an exhaustive dispute resolution system for construction contracts will necessarily be multi-tiered and care should be taken to ensure that it is well drafted and not a source of further dispute.


1 Sudip Mullick is a Partner, Yigal Gabriel is an Associate Partner and Niharika Dhall is an Associate with the Construction Practice at Khaitan & Co.

2 Global Construction Disputes Report 2015, Published by Arcadis Construction Claims Consulting.

3 Author's view.

4 Law Commission Report No. 253, January 2015.

5 Amendment to Section 2(1)(e) of the Arbitration Act.

6 Amendment to Section 17 of the Arbitration Act.

7 Amendment to Section 9 of the Arbitration Act.

8 Insertion of new Section 29A in the Arbitration Act.

9 Insertion of new Section 31A in the Arbitration Act.

The content of this document do not necessarily reflect the views/position of Khaitan & Co but remain solely those of the author(s). For any further queries or follow up please contact Khaitan & Co at

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions