A GUIDE TO CONSTRUCTION ARBITRATION IN INDIA

Introduction

The construction sector is complex, involving multiple stakeholders, large capital investment, intricate technical specifications, and long project timelines. With this complexity comes a high risk of dispute’s- over delays, cost overruns defective works, contractual breaches and more. As a result, arbitration has become a preferred mode of dispute resolution in construction projects, both domestically and internationally.

Construction arbitration is a form of alternative dispute resolution (ADR) used to resolve disputes arising from construction projects. It involved a neutral third party. The arbitrator, who hears arguments and evidence from the involved parties and renders a binding decision. This guide outlines the key aspects of construction arbitration, its benefits, process and considerations.

What is Construction Arbitration

Construction arbitration is a process where disputes related to construction contracts such as delays, cost overruns, defective work, or contract interpretation are resolved outside of court. It is commonly used in the construction industry due to the complexity of projects, the involvement of multiple stakeholders like contractors, subcontractors, owners, architects and the need for specialized expertise.  Unlike mediation, which is non-binding. Arbitration results in an enforceable outcome, subject to limited grounds for appeal. It is widely used in the construction sector due to technical nature of disputes.

Arbitration is typically governed by an arbitration agreement, often embedded in the construction contract, which outlines the scope of disputes, procedural rules, and governing law. Internationally, arbitration is supported by frameworks like the United Nations Commission on International Trade Law (UNCITRAL) Model Law and the New York Convention (1958), which ensures the enforceability of arbitral awards in over 160 countries.

Key Features of Construction Arbitration

• Binding Outcome: Arbitral awards are enforceable as court decrees, with limited appeal grounds, providing certainty.
• Neutrality: Arbitrators must be impartial, often with expertise in construction or law.
• Confidentiality: Proceedings are private, protecting sensitive project details.
• Flexibility: Parties can customize rules, venue, and arbitrator selection.
• Expertise: Arbitrators with technical knowledge address complex issues like delay claims or defective work.

Why Construction Arbitration?

Arbitration is preferred over litigation for several reasons:

1. Technical Expertise– Arbitrators with construction experience excel at interpreting technical evidence like scheduling data and engineering reports, offering an advantage over generalist judges.
2. Speed– Arbitration generally offers a swifter resolution to disputes, often concluding within months, a stark contrast to the years litigation can take.
3. Cost Efficiency– Arbitration can potentially lower dispute resolution expenses through streamlined procedures and the avoidance of lengthy court battles, though this isn’t always the case.
4. Confidentiality– Arbitration proceedings maintain the privacy of sensitive information, unlike the public nature of court trials.
5. Global Enforceability– The New York Convention enhances the enforceability of arbitration awards across international borders, a significant benefit for global construction projects.

Construction projects are prone to disputes due to their scale, duration and multi-party nature. Few of the common issues include:

• Delay Claims: Disputes over project timelines, liquidated damages, or extensions of time.
• Payment Disputes: Non-payment, underpayment, or disagreements over change orders.
• Defective Work: Claims of substandard construction or non-compliance with specifications.
• Design Disputes: Conflicts over architectural or engineering designs.
• Termination Disputes: Disagreements over contract termination or abandonment.
• Scope of Work: Disputes over what work was included in the contract.

Common Types of Construction Disputes

Construction disputes typically arise out of issues such as:

• Delay in completion of the project sue to various factors including site obstruction, delayed approvals, or contractor inefficiencies.
• Claims for extension of time (EOT) and liquidated damages for delays.
• Disputes over variations or change in scope of work and the valuation of extra items.
• Non-payment of running bills or final settlement amounts.
• Quality defects or deviations from the approved design and specifications.
• Termination of contracts, either wrongfully or based on alleged breach.

These disputes often involve complex contractual terms, overlapping responsibilities among various stakeholders (owner, contractors, consultant etc.) and require deep technical evidence, including engineering assessments, construction schedules and cost valuations.

Indian Construction Contracts

Most Indian construction contracts especially in government projects adhere to standard form contracts such as those issued by the Central Public Works Department (CPWD), National Highways Authority of India (NHAI), and Military Engineer Services (MES). These contracts typically contain multi-tiered dispute resolution clauses, where disputes are first referred to the project engineer or a designated authority, then to a conciliation committee or Dispute Review Board (DRB) and finally to arbitration.

For international or donor funded projects, contracts are often based on FIDIC (International Federation of Consulting Engineers) standard forms. These also adopt a tiered approach to dispute resolution, starting with the engineer’s decision, then to a Dispute Adjudication Board (DAB) and eventually to arbitration. Parties are required to comply with these procedural steps before invoking arbitration. Failure to do so may render the arbitration reference premature or inadmissible.

Legal and Institutional Framework

Construction arbitration operates under a combination of contractual agreements, national laws and institutional rules. Key frameworks include:

1. Arbitration Agreements– the foundation of arbitration is the arbitration clause in the construction contract. A well drafted clause specifies the Arbitration rules, number of arbitrators, seat & venue of arbitration, governing law, language of proceedings and provisions for multi-party disputes or interim relief. Without a pre-existing agreement, parties can enter a submission agreement post dispute through this is less common.
2. National Laws– arbitration is governed by the laws of the seat of arbitration. Many nations use the UNCITRAL Model Law, which offers a common framework for:

• Enforcing arbitration agreements.
• Appointing arbitrator(s).
• Conducting proceedings.
• Enforcing or challenging awards.

In India, domestic and international commercial arbitration is governed by the Arbitration and Conciliation Act of 1996, which is based on the UNCITRAL Model Law. Further the act addresses enforcement of foreign arbitral award under the New York and Geneva Conventions. The act was amended in 2015, 2019 and 2020 to promote institutional arbitration, reduced judicial interference and timelines for efficiency.

Key provisions include:

• Section 7: Required a written arbitration agreement.
• Section 11: Allows courts to appoint arbitrator(s)s if parties fail to agree.
• Section 17: Empowers arbitrator(s) to grant interim measures like injunctions.
• Section 29A: Mandates awards withing 12 months, extendable by 6 months with consent.
• Section 34: Limits challenges to awards to grounds like public policy violations or procedural unfairness.

3. Institutional Rules– parties often adopt rules from arbitral institutions, which provide structured procedures to the parties entering their arbitration process like the Singapore International Arbitration Centre (SIAC), London Court of International Arbitration (LCIA), JAMS, Mumbai Centre for International Arbitration (MCIA) , International Arbitration and Mediation Center etc. Ad Hoc arbitration, where parties create their own rules is also common but requires careful coordination.
4. International Treaties– The New York Convention (1958) ensures that arbitral awards are recognized and enforces globally. Provided the arbitration agreement is valid and the dispute falls within the agreed scope. followed by the UNCITRAL Model Law helping states modify and modernize their arbitration legislation.

The Construction Arbitration Process

1. Initiation of Arbitration– The claimant submits a concise Notice or Demand outlining the dispute, claims, and desired outcome to the respondent and arbitration institution. The respondent then provides a focused Answer, potentially including counterclaims. This process begins due to a contract breach or disagreement within the arbitration agreement.
2. Arbitrator(s) Appointment– The involved parties select one or three neutral arbitrators, often with assistance from the arbitration institution. For construction disputes, it’s common to look for arbitrators with knowledge in areas like engineering or construction law. If the parties can’t agree, the institution or a court will step in to make the appointment.
3. Preliminary Procedural Conference– The arbitrator(s) and parties establish clear procedural rules, including timelines, the scope of information exchange (discovery), the use of experts or site visits, and any interim measures. This ensures a shared understanding of the process.
4. Focused Information Exchange– Discovery is targeted, primarily involving the exchange of relevant documents like contracts and project plans. Technical evidence is key in construction disputes. For more complex situations, the arbitrator(s) might allow things like questioning witnesses under oath or site visits.
5. Evidentiary Hearings– Parties present evidence, witness testimony (fact and expert), and legal arguments. Hearings are less formal than trials but follow agreed procedures. While less formal than a trial, there are common procedures for presenting material. Sometimes, if the facts are clear from the documents, there might not even be an in-person hearing.
6. Rendering the Arbitral Award– The arbitrator(s) will issue a written decision that explains their findings, the reasoning behind their decision, and the remedies ordered. This usually happens within a month or two after the final hearing or submission. This decision is binding and can be enforced in court, although there are limited reasons why it might be challenged. The award in a domestic arbitration must be rendered within 12 months of the completion of pleadings, extendable by 6 months with party consent and further by court order.
7. Enforcement and Limited Challenge– The award is enforced like a court judgment. Challenges are rare and limited to issues like an invalid arbitration agreement, arbitrator bias, procedural unfairness, exceeding authority, or violating public policy. Courts generally don’t review the substance of the arbitrators decision.

Indian Scenario

India’s construction and infrastructure sector is a hotspot for disputes due to project complexity and multi-party involvement. Arbitration, conciliation, mediation, and litigation form the dispute resolution ecosystem, with arbitration being the preferred method.

Arbitrations involving only Indian parties are typically seated in India, governed by the Arbitration and Conciliation Act, 1996, with cities like Delhi and Mumbai as common venues due to their robust arbitration infrastructure. In contrast, arbitrations involving foreign parties often have foreign seats, such as Singapore, London, or Dubai, to leverage neutral jurisdictions and ensure enforceability under the New York Convention (1958). This preference is driven by foreign investors’ desire for established arbitration ecosystems and concerns about navigating India’s legal system.

Foreign investors prefer institutional arbitration via ICC, LCIA, or SIAC rules, with SIAC handling significant Indian cases. Indian parties traditionally favor ad hoc arbitration with retired judges, but the MCIA, established in 2016, and New Delhi International Arbitration Centre (NDIAC) are driving a shift toward institutional arbitration.

Challenges in Construction Arbitration

• Heavy documentation and technical complexity which requires coordination between legal teams, engineers and commercial professionals.
• Limited availability of trained and neutral arbitrators with technical expertise in contraction engineering and project finance.
• Resistance to early settlement in public sector projects due to fear of audit scrutiny or anti-corruption investigations causing further delay.
• Frequent challenges and judicial intervention to awards under Section 34 on grounds like “public policy” or “patent illegality” often delaying enforcement of arbitral award.

The Indian judiciary attempted to reduce frivolous challenges through landmark judgements like Ssangyong Engineering v. NHAI [1]and Delhi Airport Metro v. DMRC [2], which reinforced the notion of minimum court intrusion and the finality of arbitral awards.

Conclusion

Construction arbitration is a vital alternative to litigation, offering timely, cost-efficient, and expert-driven resolutions for the complex disputes inherent in construction projects. By mastering the process—from drafting robust arbitration agreements to enforcing awards—stakeholders worldwide can ensure smoother project execution and successful outcomes. In India, this global mechanism is shaped by a blend of traditional practices and modern reforms. While ad hoc arbitration remains common among Indian parties, the rise of institutional arbitration through the MCIA, NDIAC, and SIAC reflects a shift, particularly for international projects.

Emerging use of conciliation and mediation, supported by the Arbitration and Conciliation Act, 1996, and the Singapore Mediation Convention, 2019, provides cost-effective alternatives. However, litigation’s limitations, including the absence of specialized construction courts and foreign investors’ concerns about judicial efficiency, reinforce arbitration’s dominance. Strategic planning, careful selection of arbitrators, and leveraging institutional and ADR mechanisms are essential for navigating India’s evolving dispute resolution landscape and achieving just, enforceable outcomes.

Bibliography

• Agreements to Arbitrate Disputes in Construction Contracts, https://globalarbitrationreview.com/guide/the-guide-construction-arbitration/fifth-edition/article/agreements-arbitrate-disputes-in-construction-contracts.
• AMS Construction Arbitration Rules & Procedures, https://www.jamsadr.com/rules-construction-arbitration/.
• Arbitration In Construction Disputes, https://www.mondaq.com/india/arbitration-dispute-resolution/1162128/arbitration-in-construction-disputes.
• Arbitration In Construction Disputes, https://www.mondaq.com/india/arbitration–dispute-resolution/1162128/arbitration-in-construction-disputes.
• Arbitration in Construction Industry: An Overview, https://www.academia.edu/13921514/Arbitration_in_Construction_Industry_An_Overview.
• Construction Arbitration in India, https://www.rics.org/content/dam/ricsglobal/documents/event-programmes/Construction%20Arbitration%20in%20India.pdf.
• Construction Arbitration, https://www.troutman.com/insights/construction-arbitration.html.
• Construction Arbitration: India, https://globalarbitrationreview.com/insight/know-how/construction-arbitration/report/india.
• Construction Disputes in India, https://www.nishithdesai.com/fileadmin/user_upload/pdfs/Research_Papers/Construction-disputes-in-india.pdf.
• Construction Industry Arbitration Council, http://www.ciac.in/.
• Diverse Facets of Construction Arbitration in India, https://www.maheshwariandco.com/blog/construction-arbitration-in-india.
• Global Arbitration in India, https://www.cyrilshroff.com/wp-content/uploads/2025/03/Guide-to-Arbitration-in-India.pdf.
• Navigating through construction disputes in India, https://www.whitecase.com/insight-our-thinking/navigating-through-construction-disputes-india.
• The Evolving Landscape Of Construction Arbitration In India- Key Judicial Pronouncements, https://www.mondaq.com/india/arbitration-dispute-resolution/1481038/the-evolving-landscape-of-construction-arbitration-in-india-key-judicial-pronouncements.
• The Guide to Construction Arbitration – Fifth Edition, Global Arbitration review, https://globalarbitrationreview.com/guide/the-guide-construction-arbitration/fifth-edition.
• The Guide to Construction Arbitration, Global Arbitration review, https://www.kslaw.com/attachments/000/005/444/original/Suitability_of_Arbitration_Rules_for_Construction_Disputes.pdf?1509633709.
• The Guide to Construction Arbitration, Global Arbitration review, https://www.debevoise.com/-/media/files/pdf/gar-guide-to-construction/pdf1.pdf?rev=79731f4a436e404b84570a63bafbc981&hash=C71BE3256291CD303C2B4C30F07D4731.
• The Guide to Construction Arbitration, Global Arbitration review, https://www.akingump.com/a/web/110874/Comparative-Approaches-to-Concurrent-Delay.pdf.
• What is the concept of Construction Arbitration?, https://theidrc.com/content/adr-faqs/what-is-construction-arbitration.

[1] Ssangyong Engineering v. NHAI (2019) 15 SCC 131.

[2] Delhi Airport Metro v. DMRC 2024 SCC Online SC 522.