Indian Infrastructure A Review

Transcription

1 Indian Infrastructure A Review Leena Pinsler Amanda Davidson Prakash Pillai Nanda Kumar 17 July Contents A. Sectoral Overview B. FDI and Structuring Issues C. Processes D. Methods of Dispute Resolution 2 1

2 Sectoral Overview - Prakash Pillai Sectoral Overview I India s Infrastructure Demands From , slow economic growth meant limited resources available for infrastructure. From 1991 onwards, realisation that infrastructure was India s Achilles heel. On the back of economic growth of 9%. Indian government has set ambitious targets to double investment in infrastructure to 9% of GDP or US$500 bn. 4 2

3 Source: FT 5 Constituted Committee on Infrastructure in Purpose to initiate policies that ensure creation of world class infrastructure delivering services matching international standards; Develop structures that maximise the role of public-private partnerships in the filed of infrastructure; and Monitor progress of key infrastructure projects to ensure that established targets are realised. 6 3

4 Indian government has recognised the need for private sector participation. Encouraged private sector investment in almost all infrastructure sectors through the public private partnership (PPP) programme. PPP means project based on a contract between the government and private sector for providing an infrastructure service. Role of public sector facilitator enabler; private sector financier, builder and operator. Importance of PPP to State Governments. 7 II Sectoral Analysis (i) Airports Airport Authority of India (AAI) constituted in 1995 for creating, upgrading, maintaining and managing civil aviation infrastructure. Controls the entire Indian airspace of 2.8 million nautical miles. AAI manages 127 airports which include 15 international airports, 8 customs and 78 domestic airports and 25 civil enclaves at defence airfields. In , Indian, Indian airports handled 60 million passengers and 1.3 million tonnes of cargo: passenger traffic grew at over 22% compared with , projected to grow at CAGR of over 15% p.a. crossing 100 million passengers by 2010 cargo traffic grew at 21.6% compared with ; projected to grow at over 20% p.a. crossing 3.3 million tonnes by

5 Indian Government has liberalised the aviation sector in order to attract much needed private sector investment for expansion and modernisation. Foreign Direct Investment (FDI) in the following proportions: Airport Greenfield Projects: 100% FDI under the Automatic Route subject to sectoral regulations notified by the Ministry of Civil Aviation Existing projects: FDI up to 100% permitted but any investment above 74% would require FIPB approval. 100% tax exemption for airport projects for a period of 10 years. 9 Examples of Airport Greenfield Projects: Bangalore Airport: AAI 13%, Karnataka State Government 13%, Larsen & Toubro 17%, Unique Zurich Airport 17% and Siemens Project 40% Hyderabad Airport: GMR Group 63%, Malaysia Airports Holding Berhad 11%, Government of Andhra Pradesh 13% and AAI 13% Examples of Existing Airport Projects: Mumbai Airport: GVK group and Airports Company of South Africa 74%, AAI 26% New Delhi Airport: GMR Group 50.1%, AAI 26%, Fraport 10%, Eraman Malaysia 10%, IDF 3.9%. 10 5

6 Future Ventures: Expansion of existing Chennai Airport (4, acres) and Greenfield Airport Project in Sriperumbudur (off Chennai) (1, acres) at an estimated costs of Rs 2,000 crores. Leading players reportedly interested in this project are Changi Airport, Macquarie, GMR Group, GVK Group and Tata Group Modernisation of 35 non-metropolitan airports through PPP. Examples include Ahmedabad, Amritsar, Guwahati, Jaipur, Udaipur, Trivandrum, Lucknow, Madhurai, Mangalore, Goa. 11 (ii) Ports In , Indian ports handled cargo of 519 million tonnes, 11% increase over previous year. 70% of volume is dry and bulk and 30% general cargo. Principal legislation governing ports in India are the India Ports Act, 1908 (IPA) and the Major Ports Trusts Act, 1963 (MPTA). Ports in India are divided into two categories: Major and Minor ports. Cargo handling at the Major ports projected to grow at 7.7% p.a. (CAGR) till Containerised cargo expected to grow at 15.5% (CAGR) over 7 years. 12 6

7 Major Ports What are these Major Ports? A list of named ports where the Central government performs policy development and regulatory functions. It is defined in the IPA as any port which the Central Government may, by notification in the Official Gazette declare, or may under any law for the time being in force have declared, to be a major port. Why are these ports, so designated? The 12 major Indian ports, which are managed by the Port Trust of India under Central Government jurisdiction, handle 75 percent of the all-india port throughput (according to the Economic Survey of released along with the annual budget of the same year by the Ministry of Finance) 13 Major Ports The 12 major ports in India are: 1. Chennai 2. Cochin 3. Ennore 4. Jawaharlal Nehru (Mumbai) 5. Kandla 6. Kolkata 7. Mormugao 8. Mumbai 9. New Mangalore 10. Paradip 11. Tuticorin 12. Visakhapatnam 14 7

8 Minor Ports What are Minor Ports? Minor Ports are those which are regulated by State Governments, some of whom have set up specific statutory maritime bodies for governing such non-major ports. However, the inclusion of minor ports, as Entry 31, in List III of Schedule VII of the Constitution of India, 1950, allows for the Central Government to make certain overarching regulations which are then applicable to all minor ports, usually over-riding any regulations pertaining to the same subject matter prescribed by the State Government. The minor ports are located in Gujarat (40), Maharashtra (53), Goa (5), Daman & Diu (2), Karnataka (9), Kerala (13), Lakshadweep (10), Tamil Nadu (14), Pondicherry (1), Andhra Pradesh (12), Orissa (2), West Bengal (1) and Andaman and Nicobar Islands (23). 15 Private Participation: Opportunities Projected growth in merchandise exports at over 13% p.a. Investment need of US$13.5 bn in Major Ports to boost infrastructure Proposed additional port capacity of 530 MMTA in Major Ports through: Projects related to port development (construction of jetties, berths etc Procurement, replacement and/or upgrade of port equipment Deepening of channels to improve draft Projects relating to port connectivity Investment need of US$4.5 bn for improving Minor ports. 16 8

9 Private Participation: Incentives In order to promote foreign investment in the port sector the Indian Government recently announced a series of measures as listed below: Automatic approval for foreign equity up to 100% in construction and maintenance of ports and harbours, However, if the total foreign equity investment exceeds Rs. 15 billion, the proposal will be referred to the FIPB. No approval required for foreign equity up to 51% in projects providing supporting services to water transport, such as operation and maintenance of piers, loading and discharging of vehicles. Open tenders are to be invited for private sector participation on a Build-Operate-Transfer (BOT) basis. Evaluation of bids will be based on the maximum license period will not exceed 30 years and at the end of the BOT period all assets will revert to the port in accordance with the conditions of the agreement. As a result of the above 17 port privatization schemes amounting to Rs 45 billion have already been approved by the government. 17 (iii) Power India has the fifth largest electricity generation capacity in the world, generation capacity of 122 GW. Generation capacity: coal-fired plants 57%, 25% hydro power, 10% gas based, 3% nuclear energy and 5% renewable sources. India is the world s sixth largest energy consumer accounting for about 3.5% of the world s total consumption. India s need for energy to sustain growth. Mckinsey: if the economy continues to grow at 8%, India will need to triple generating capacity within the next decade to 440,000 MW. This means adding up to 10 times more capacity each year than the 4,000 MW built during the previous ten years. Power outages costing 7% of sales. 18 9

10 Source: FT 19 Indian Ministry of Power nodal authority concerned with planning, policy formulation, processing of projects for investment, monitoring of the implementation of power projects and administration and enactment of legislation in relation to power generation, transmission and distribution. 100% FDI permitted in generation, transmission and distribution. Electricity Act 2003 enacted to provide an enabling framework for overall development of electricity industry. Incentives: income tax holiday for 10 years in the first 15 years of operation; waiver of capital goods import duties on mega power projects above 1,000 MW generation capacity

11 Private sector opportunities in generation for: coal based plants natural gas based turbines at load centres or near gas terminals renovation, modernisation, upgrading and life extension of old thermal and hydro power plants Opportunities in distribution through bidding for privatisation of distribution in various states Total investment opportunity of about US$200 bn over 7 years. 21 (iv) Roads India has one of the largest road networks in the world 3.34 million km. Consists of national highways, state highways, major district roads, other district roads and village roads. Roads carry about 61% of freight and 85% of passenger traffic National highways: total length of 66,590 km. arterial network of India connecting state capitals, ports and major cities 2% of total length of roads but carry 40% of total traffic 32% single lane, 56% two laned, 12% four laned 22 11

12 National Highways Authority of India, constituted under the National Highways Authority of India Act, the main agency for implementing the important projects on national highways. Traditionally, road projects fully financed by Indian government but traffic pressure resulted in demand for infrastructure and need for private sector investment. National Highways Act amended in June 1995 to allow private sector investment in road projects; levy collect and retain fee from users etc. Launch of National Highways Development Project; Golden Quadrilateral (5846 km of four lane highways), North-South and East-West corridors (7300 km of four lane highways)

13 Bandra-Worli Sea link 25 Private sector opportunities 100% FDI under the automatic route permitted for all road development projects. Incentives: 100% tax exemption for period of 10 year; Model Concession Agreement. Large component of highways to be developed through PPP: stretches of highways awarded to private companies on BOT basis BOT contracts permit tolling on certain stretches of highway US$5 bn project plans to lay 6 lane roads over 6,500 km of National Highways on a Design, Build, Finance and Operate basis in Golden Quadrilateral and other high traffic stretches

14 (v) Railways Indian Railway is the largest rail network in Asia and key component of India s transport sector for over 150 years. Network controlled by 16 zonal offices. World s second largest employer with over 1.4 million employees. Vast network of 7,133 stations spread over route length of 63,465 km. Fleet of 7,910 locomotives, 42,441 passenger service vehicles, 5,822 other coaching vehicles and 222,379 wagons. Two main segments are freight and passenger which bring two-thirds and one-third of revenue respectively. 27 Ministry of Railways is the nodal authority for the development and maintenance of rail transport. Growth in industrial and agricultural sectors has generated high demand for rail transport, particularly in core sectors like coal, iron and steel ores, petroleum products and commodities such as food grains, fertilisers, cement, sugar, salt etc. Generated need for private sector investment to modernise railway network and obtain funding for rail projects such as port connectivity, connectivity to rural areas laying new lines, electrification, suburban transportation etc

15 Pipavav Railway Corporation first infrastructure model of PPP in rail transportation. Joint venture of Indian Railways and Gujarat Pipavav Port Ltd set up to construct, maintain and operate 271 km long broad gauge railway line, connecting Port of Pipavav to Surendranagar Junction in the State of Gujarat. Indian government has introduced rail-based mass rapid transit system projects in Delhi, Mumbai, Chennai, Bangalore, Hyderabad and Kolkata. 29 Private sector opportunities Rise of international trade and domestic cargo resulted in strain on Delhi-Mumbai and Delhi-Kolkata rail sectors. Resulted in dedicated freight corridors in Western and Eastern high density routes. Investment of US$5 bn. Container movement by rail formerly monopoly of public sector entity CONCOR. Due to increasing containerisation of cargo and demand for movement by rail, container movement opened up to private sector. PPP envisaged in new routes, railway stations, logistics parks, cargo aggregation and warehousing

16 FDI and Structuring Issues - Leena Pinsler Basic Project Structure 32 16

17 Equity Funding FDI liberalisation in the infrastructure sector Some structuring issues for equity investments Quirks in Indian joint venture agreements Exit mechanisms 33 FDI Liberalisation POWER 100%; automatic; provisions of Electricity Act AIRPORTS: (i) Greenfield: 100%; automatic ; sectoral regulations by Min. of Civil Aviation (ii) Existing: 100%; FIPB beyond 74%; sectoral regulations by Min. of Civil Aviation REAL ESTATE: 100%; automatic (i) Construction Development / Townships (PN 2) (ii) SEZs (iii) Industrial Parks (iv) Hotels & Hospitals INFRASTRUCTURE / SERVICES: 100%; FIPB TELECOMMUNICATIONS: automatic up to 49%; FIPB above 49% 34 17

18 Some Structuring Issues Mauritius or Singapore to avoid Indian capital gains tax Use of compulsorily convertible debentures in order to extract income from project in the form of interest Conversion of debentures and buy-backs to produce capital gains Interest limited to SBI Prime Lending Rate + 300bp Extraction of income through sources other than dividends 35 Fund Raising Strategies Listing on Capital Markets: since August 2005, SEBI has required Indian companies to first be listed in India; hence offshore holding company for Indian SPVs is sometimes set up at the outset and might do IPO on AIMS / Catalyst etc Exit by way of REIT/ Business Trust: usually reserved for later stage when at least some operating income is available; however, need to see if the asset / project transferred is FDI compliant 36 18

19 Quirks In Indian Joint Ventures Importance of incorporation of JVA terms in Articles RBI Pricing Guidelines apply to transfers between non-residents and residents this impacts agreed bases for put and call options, sales at a premium or discount in cases of deadlock and default Guidelines by erstwhile CCI apply to price at which securities can be issued (including conversion prices for convertible securities) Put options and redeemable securities may not be effective if lockin period is prescribed Ability to repatriate damages / indemnity payments is subject to prior approval of Reserve Bank of India 37 Debt Funding Potential Sources of Funds Foreign Borrowings (including shareholder loans) regarded as ECBs: Average Maturity All-in-cost ceiling above 6-month LIBOR 3 5 years 200 basis points more than 5 years 350 basis points 38 19

20 Debt Funding Potential Sources of Funds Domestic loans Loans from multilateral agencies Subsidised loans Funding through IIFCL 39 IIFCL Funding Debt from Foreign May be multinational Currency guaranteed Equity Rp. Debt agencies Debt by Indian Govt. IIFCL pays guarantee of 0.25% IIFCL < 20% of total project cost Long-term debt Int. Rate Project Company Refinancing banks Other Modes lending to Eligible Projects 40 20

21 IIFCLF Eligible Projects Roads, seaports, airports, waterways, transportation Power Urban transport, water supply, sewage, waste management Gas pipelines Infrastructure in SEZs International convention centres, tourism infrastructure projects 41 Risk Factors Impacting Bankability Completion of projects on time; cost-overruns Environmental issues Acquisition of land Tariff-setting and credit-worthiness of purchasers Regulatory issues Political Issues 42 21

22 43 PPP/BOOT Projects in India - The Process - Amanda Davidson 22

23 Summary What is PPP? History of PPP India s Infrastructure Needs Committee on Infrastructure Ministry of Finance Infrastructure Development Issues 45 Summary Typical Structure for PPP project delivery Outline of Process Australia/Singapore India Case study Process Concession Agreement Outline 46 23

24 What Is PPP? Public-Private Partnership. PPP is method of project delivery used for infrastructure projects. Developed in the early 1990 s in UK and Australia. Used more recently in South Korea and Singapore. The term PPP has come to mean a specific type of project delivery. 47 What Is PPP? Private sector participation in projects traditionally considered to be the domain of government. Now used in civil as well as social infrastructure. To be distinguished from privatisation or sale

25 PPP History In Australia PPP has been used very regularly since 1990 s Types of projects include in courts, prisons, road, hospitals, water treatment projects, desalination, plants, rail and light rail, sports facilities and stadia. In Singapore the PPP method of project delivery was introduced in 2004 To be used for high value projects only. 49 PPP History Recently used for an incineration project and the Sports Hub project. In India debate over the use of PPP model Socio-economic and demographic issues concerning access to infrastructure. Some movement in some sectors, e.g. roads, airports, telecoms

26 India s Infrastructure Needs Opportunities exist in India in a range of industries. By million more people in India s cities. Need for growth to meet increasing demand. Increased urgency to improve logistics and transportation in particular e.g. ports, aviation, roads. 51 India s Infrastructure Needs Inherent inefficiencies in public sector provision of infrastructure leading to higher cost. non profit driven corrupt practices Jurisdictional issues 52 26

27 India s Infrastructure Needs Projects under consideration in the Ministry of Finance s Eleventh Plan (to 2012) include: modernisation and redevelopment of 4 metro and 35 non metro airports/new airports; 70,000 megawatts of electricity producing capacity including electrifying all rural households; 53 India s Infrastructure Needs 387 port related projects to increase capacity in both major and minor ports; 6 major road development projects including construction of and widening 40,000 kilometres of roads; construction and upgrading of rural roads; freight rail privatisation; 54 27

28 India s Infrastructure Needs construction of dedicated freight corridors; 57 oil and gas concessions recently offered (with 99 companies bidding for them); major irrigation works programme; 10,300 km new railway lines, modernisation and redevelopment of 21 railway stations. 55 India s Infrastructure Needs Assessment by Committee on Infrastructure $494 billion (US) required to be spent by 2012 roughly 1/3 by central govt., 1/3 by state and 1/3 needed from Public-Private Partnerships ($175 bn US from PPP) Estimated debt requirements are $240 billion (US) Estimated debt financing availability is only $200 billion. $40 billion shortfall in debt component

29 India s Infrastructure Needs Public sector financing is unable to meet demand. Need for innovation and change in approach. Government needs off balance sheet financing. The PPP model is an alternative which could enable rapid development of infrastructure. Some successes already with PPP in road transport. 57 Committee On Infrastructure In 2004 the government established the Committee on Infrastructure composed of Prime Minister and 11 Ministers; Purpose: to establish policies to ensure creation of world class infrastructure; to develop structures to maximize PPP s in infrastructure; monitoring progress of infrastructure projects

30 Ministry Of Finance Public Private Partnerships Approval Committee established in Modifications to approval process by PPP-AC in Viability Gap Funding Scheme established in Deals with obtaining approvals for projects to be developed by PPP methodology for certain projects. 59 Infrastructure Development Issues Processes unclear, no clear route to concessions. Land Title issues, leading to problems in financing projects. Slow and inefficient court system. Overall enormous demand and need, leading to need for co-ordination and planning. Lack of transparency in some processes. Lack of credibility in regulatory structures

31 Infrastructure Development Issues Unclear principles of risk allocation. Existing subsidies in power and water and inability to charge users the real cost of the infrastructure. Government ownership of businesses near monopoly status in oil, power and telecoms leads to lower productivity levels than private sector competitors (including bribery and theft). Overall slower development than needed. 61 Typical Structure For PPP Project Delivery Government entity engages a private sector entity to design, construct, operate and maintain a infrastructure asset. The private sector usually establishes a special purpose vehicle. The private sector entity usually enters into design and construct contract for the construction of the asset and an operations and maintenance agreement

32 Typical Structure For PPP Project Delivery Operations period is usually long term years. Asset reverts to government after the concession period is concluded. The government can contribute financially by user charges. 63 Typical Structure For PPP Project Delivery 64 32

33 Outline Of Competitive Bid Process EOI Phase Shortlist Phase RFP Phase Clarification sessions Selection of Preferred Bidder Financial Close Design and Construction Phase Operations and Maintenance typically months depending on asset 1-4 years years 65 India Committee On Infrastructure Process No single clear process. No centralised agency to conduct bid processes, each agency or government likely to have different requirements. Committee on Infrastructure guidelines and standard Concession Agreement. Committee on Infrastructure - Selection of concessionaire to be based on open competitive bidding but actual process not defined

34 India Committee On Infrastructure Process Bid Period between submission of bid to Financial Close maximum of 180 days (extendable by 120 days on payment of a penalty). Forfeiture of bid bond if delayed beyond this time. By comparison, recent projects in Australia, Singapore and South Korea utilising this model have taken between 1 2 years to reach financial close. 67 India Committee On Infrastructure Process Standard Concession Agreement envisages:- Invitation for Proposals/Tender Notice Preparation of a shortlist of bidders Request for Tender Receipt and Evaluation of bids Letter of Acceptance requiring execution of Concession Agreement within 45 days 68 34

35 PPP Process Swiss Challenge Swiss Challenge System Formal System for dealing with unsolicited bids Bid published and third parties invited to match or exceed it. Original offeror allowed to counter match any superior proposal To be used in some projects in India e.g. Outer Ring Road Hyderabad 69 Process Case Study Indian Airports Project Airports Authority of India True PPP style project delivery structure Competitive Bid Process Expressions of interest were invited in October 2007 Last date for EOI was 14 January

36 Process Case Study EOI s opened 16 January 2008 (23 applicants shortlisted to 5) RFT and draft Concession Agreement not yet received (although it was due in early May 2008) Bidder expected to submit bid within 45 days of receipt of RFT. Balance of process, including timing, not made clear. 71 Tender Process Issues Recent case law in other countries regarding tender processes. Process contract arises in certain circumstances. Obligations on government in the way tenders are conducted. Substantial rights to bidders

37 Concession Agreement Outline Grant of Concession Performance obligations and standards Concession Period Concession Fee Risk allocation regarding traffic volumes to private sector Political risks to government 73 Concession Agreement Construction obligations Operations and maintenance obligations Rights of substitution Force Majeure events Termination and Step in Rights Monitoring and Supervision Support and guarantees by government 74 37

38 Methods of Dispute Resolution - Nanda Kumar Ponniya Methods Of Dispute Resolution Litigation ADR Mediation Conciliation Arbitration 76 38

39 Litigation Central and state laws are administered by an integrated system of Courts India has about 10,000 courts 1 Supreme Court 21 High Courts 3150 District level Courts 4816 Munsif/ Magistrate Courts 1964 Magistrate and equivalent Courts 77 Hierarchy Of Courts METROPOLITON CITY LEVEL Civil Side City Civil Court Court of Small Causes Criminal Side Sessions Court Metropolitan Magistrate s Court SUPREME COURT HIGH COURT DISTRICT LEVEL Civil Side District Court Civil Judge - Senior Division Civil Judge - Junior Division Criminal Side Sessions Court Judicial Magistrate COMPANY LAW BOARD 1. Principal Bench New Delhi 2. Regional Bench [Single / Double Member] New Delhi Calcutta Bombay Madras TRIBUNALS National Central Administrative State Administrative Income Tax Motor Accidents Claims Co-operative Rent INDUSTRIAL COURT (Both City & District Levels) Labour Court FAMILY COURT 78 39

40 Jurisdiction The Courts have jurisdiction in all civil criminal constitutional matters The Supreme Court is the apex court and has original, appellate and advisory jurisdiction 79 Limitations Of Litigation In India Time consuming daily workload exceeds capacity by 500% Backlog of cases Supreme Court has 40,000 outstanding cases, Lower courts will take 124 years to clear backlog Lack of sufficient judges No practice of awarding costs to successful litigant 80 40

41 Corrective Measures Establishment of fast track courts till 2010 Increase in number of judges Proposal for computerization of district and subordinate courts 81 Enforcement Of Foreign Judgments Decrees passed by superior courts in reciprocating territories can be enforced in India under the Code of Civil Procedure, 1908 India has recognised 10 countries as reciprocating territories including Singapore, Malaysia and UK 82 41

42 Mediation Facilitative, non-evaluative process where independent third party helps parties resolve dispute 83 Mediation Mediator unlike judge or arbitrator lacks power to impose an outcome Court can make a reference of a dispute for mediation in certain matters Permanent mediation centres established in 2005 at the Tis Hazari Court in New Delhi where 59% of the cases were settled over a 2 year period 84 42

43 Conciliation Recognised as a concept under the Arbitration & Conciliation Act, 1996 Conciliator to assist parties in an independent and impartial manner To be guided by the principles of objectivity fairness and justice At any stage conciliator may propose a settlement, even orally and without stating the reasons for proposal 85 Conciliation If conciliator finds that there exist elements of a settlement which may be acceptable to the parties, then the terms of a possible settlement shall be formulated and submitted to the parties for their observations May re-formulate settlement terms and help parties in drawing up a settlement 86 43

44 Arbitration Arbitration and Conciliation Act, 1996 Based on UNCITRAL Model law Object to minimize supervisory role of courts in arbitration to enforce final arbitration award as if it were decree of the Court 87 Modes Of Arbitration Usually ad-hoc Institutional arbitration Indian Council of Arbitration ( ICA ) International Centre for Alternative Dispute Resolution Bombay Chamber of Commerce & Industry SIAC-CIDC Centre for Arbitration 88 44

45 Institutional Arbitration- ICA ICA arbitration clause Any dispute or difference whatsoever arising between the parties out of or relating to the construction, meaning, scope, operation or effect of this contract or the validity or the breach thereof shall be settled by arbitration in accordance with the Rules of Arbitration of the Indian Council of Arbitration and the award made in pursuance thereof shall be binding on the parties. Used by large number of government departments and public sector units 89 Types Of Awards Place of arbitration in India Domestic Award Place of arbitration outside India Foreign Award International Commercial Arbitration Domestic arbitration 90 45

46 Domestic Award International commercial arbitration Considered commercial under Indian law Where at least one of the parties is a national/habitually resident in a country other than India; foreign government; body corporate incorporate outside India Parties can choose substantive law 91 Domestic Award Domestic Arbitration Arbitration other than international commercial arbitration carried out in India Substantive law of India must be used to decide disputes 92 46

47 Domestic Awards Arbitration tribunal can be of any nationality and comprise any number but not an even number Sole arbitration in case of default Tribunal can use mediation, conciliation or other procedures to encourage settlement 93 Grounds For Setting Aside Domestic Award An arbitral award may be set aside by the court: if party making application proves: - A party was under some incapacity - Arbitration agreement not valid under law to which parties have subjected it - Party not given proper notice of the appointment of arbitrator/proceedings or was unable to present his case - Arbitral award goes beyond scope of arbitration agreement - Composition of arbitral tribunal /arbitral procedure not in accordance with agreement of the parties 94 47

48 Grounds For Setting Aside Domestic Award (b) if the court finds: the subject matter of the dispute is not capable of settlement by arbitration under the law for the time being in force the arbitral award is in conflict with the public policy of India Application for setting aside has to be made within 3 months from the date of receipt of the arbitral award 95 Foreign Award An award made in pursuance of an agreement in writing to which the New York Convention or the Geneva Protocol on Arbitration Clauses apply and in a territory notified by the Central Government as a reciprocating territory (44 countries notified including Singapore) Award made outside India would be foreign award even if agreement governed by Indian law 96 48

49 Enforcement Of Foreign Award Party applying for the enforcement of foreign award shall produce before the court: original award or authenticated copy original or duly certified copy of arbitration agreement evidence to prove award is a foreign award Enforcement takes 4 months - 3 years in practice 97 Grounds For Court To Refuse Enforcement Of Foreign Award Grounds for court intervention are similar to that for domestic awards. In practice, court intervention is limited. Enforcement may be refused only if party furnishes to the court proof parties to arbitration agreement under some incapacity agreement not valid under law to which parties have subjected it / law of country where award was made party against whom the award passed was not given proper notice of the appointment of an arbitrator / arbitral proceedings or unable to present his case award deals with matters beyond scope of arbitration agreement 98 49

50 Grounds For Court To Refuse Enforcement Of Foreign Award composition of the tribunal or arbitral procedure not in accordance with the agreement of the parties the award has not yet become binding on the parties, has been set aside or suspended by competent authority in the country in which the award was made Court may refuse enforcement if it finds: matter not capable of settlement by arbitration contrary to public policy of India 99 Most Preferred Dispute Resolution Mechanism ARBITRATION Party autonomy and confidentiality Choice of venue Informal procedure Specialist Tribunal

51 Most Preferred Dispute Resolution Mechanism Equal treatment Expeditious and less expensive Domestic and foreign awards enforceable Limitation: ultimately still needs to be enforced through the courts 101 SIAC Arbitration A Viable Alternative SIAC Rules permit Indian lawyers to appear before it SIAC Rules substantially based on UNCITRAL Rules Costs of conducting an arbitration cheaper than London, Paris or even India

52 SIAC Arbitration A Viable Alternative India and Singapore are both signatories to the New York Convention on Recognition and Enforcement of Foreign Arbitral Awards Singapore in list of scheduled countries by India which are provided reciprocal treatment Awards passed in Singapore would be enforceable in India 103 THANK YOU For more information, please contact: Leena Pinsler Tel: (65) leena.pinsler@rajahtann.com Amanda Davidson Tel: (65) amanda.davidson@rajahtann.com Prakash Pillai Tel: (65) prakash.pillai@rajahtann.com Nanda Kumar Ponniya Tel: (65) nanda.kumar@rajahtann.com Website: