In post award stage, parties should avoid the tendency to challenge the award right till the Supreme Court (specially in case of the public sector undertakings) and rather try to once again negotiate to arrive at a settlement on mutually acceptable terms.

As a growing economy advocating itself to be seen as a preferred destination for doing business, we need to take a hard look at one of the major areas of concern for any business – Disputes and the avoidance/resolution of disputes.

While Arbitration may be one of the time bound dispute resolution processes, the endless challenge of the award till the Supreme Court or seeking enforcement thereof remain areas of concern; not to mention the expenses tied with it in the form of arbitral fees, which are making businesses re-evaluate their decision to have arbitration clauses in their contracts.In fact in 2024, the Ministry of Finance issued an Office Memorandum whereby it sought to explore other dispute resolution methods like mediation and litigation when compared to arbitration. The emphasis of the Government in enacting the Mediation Act, 2023 is also a case in point. This article will therefore attempt to briefly deal with the issue of dispute avoidance and how to avoid post dispute litigation.

As a business lawyer specializing in dispute resolution and having extensively worked with both public and private sector companies, I tend to look at the germination and possible avoidance of a dispute from three phases: (i) Drafting phase (ii) Execution phase (iii) Disputes phase.

The drafting phase is the most critical for any organization as the expectations of parties in the form of scope, objectives, term, payment mechanisms, penalty, default, performance schedules, defect liability, dispute resolution, representations and warranties, etc. are discussed and negotiated. To avoid potential future disputes, the contracts should adopt clear and simple language while incorporating detailed terms and conditions. The terms should not be riddled with complex legal jargon and interpretations, multiple cross referral clauses etc. making it confusing and leaving room for doubt or new interpretations. The management along with the technical and legal teams should all be in sync with the goals and expectations of the contract which are being sought by the party. The dispute resolution clause, itself should be multi-tiered with very clear terms and timelines. The more parties will engage with each other in their attempt to resolve disputes, the more chances that there would be minimal judicial intervention required. A dispute resolution clause should contain the scope of (i) inter party negotiation; (ii) mediation for neutral facilitation; (iii) arbitration or litigation. In case of arbitration, the seat, venue, governing law, procedure for appointment of arbitrator, etc. should be clearly defined.

In the cases of tenders where there is little negotiation, the pre-bid clarificatory meetings play an important role as they give the tenderer the opportunity to scrutinize the terms of the tender and raise potential queries or highlight inconsistencies for the tenderee to consider and respond. The tenderee may acknowledge the objections/queries of the tenderer and bring in suitable modifications in the tender prior to bidding, thereby reducing the scope of future disputes. It is observed that often bidders (tenderer) fail to involve their legal teams at this stage, only involving their management and/or technical representatives for purposes of scrutinizing the bid and raising objections. This approach needs to be changed. Legal teams are trained to review and interpret contracts in a way that the management / technical team may not and can thus add value to the scrutiny process if timely involved.

Where despite best efforts a dispute has arisen, the dispute phase needs to handled with care, precision and proper coordination of all teams

In the execution phase, it is very important to ensure that the legal team is involved from day one and is in sync with all teams executing the contract, i.e., technical, business, management, procurement, etc. All the teams should be well acquainted in their understanding of the terms and conditions of the contract, timelines, conditions of default, payment process, etc. Communications and record of communications during execution phase play a crucial role in potential dispute avoidance in the future. Often it is seen that the party that fails to maintain a proper record of all the communications or where communications are not vetted through the legal department result in having a weaker case / negotiation power at the time of dispute.

Where despite best efforts a dispute has arisen, the dispute phase needs to handled with care, precision and proper coordination of all teams. Proper communication once again plays a key role where legal teams should be involved from day one. The time value of money for business serves a far greater purpose in finding a solution to a dispute, building trust amongst parties and forging long term relations rather than fighting in courts. To achieve this, every effort needs to be made to find a solution if possible. For purposes of negotiation and mediation, senior party representatives who are empowered to take key business and financial decisions should be appointed. This will ensure that decisions are taken promptly and efficiently without having to go back and forth for approval of higher management, thereby reducing potential areas of dispute that may ultimately be referred to arbitration/court. In case the dispute does go to arbitration/court, it is key for counsels to understand the technical details of the business of the client to enable them to explain the same in clear and simple language to the arbitrator/court. In case of arbitration, the parties should to the extent possible choose arbitrator(s) who have expertise in the area where the dispute has arisen.

In post award stage, parties should avoid the tendency to challenge the award right till the Supreme Court (specially in case of the public sector undertakings) and rather try to once again negotiate to arrive at a settlement on mutually acceptable terms. Even a post award settlement will add far greater value in terms of time and financial resources saved as compared to challenging the award for years and then facing another round of litigation for purposes of enforcement. These unnecessary litigations are not only against the larger business interest but render the whole objective of the arbitration dispute resolution process a failure while adding to the list of long pendency of cases in courts. Parties can also use the option of Section 34(4) of the Arbitration Act whereby which the court could be requested to remit the award to the tribunal for curing defects rather than complete setting aside, thereby expediting resolution.

Disclaimer – The views expressed in this article are the personal views of the author and are purely informative in nature.