Metro funder ADB doesn’t want Mumbai as centre for arbitration

While Chief Minister Devendra Fadnavis has set a 2019 deadline for the two Metro rail routes, the target seems unattainable at this stage. (Express Archive)

The Asian Development Bank (ADB) that is funding the Metro projects in Mumbai wants Singapore to be the arbitral centre for disputes, and not the Mumbai International Centre for Arbitration (MCIA). Mumbai Metropolitan Commissioner U P S Madan confirmed the news to The Indian Express, saying, “The ADB is not agreeable to MCIA being the preferred centre for arbitration. It is insisting on the Singapore International Arbitration Centre.”

In a bid to promote Mumbai as the newest arbitration hub, Maharashtra Chief Minister Devendra Fadnavis has adopted a policy to promote, propagate and patronise institutional arbitration as the preferred mode of dispute resolution in order to ease of enforcement of contracts and reduce litigation, following the launch of MCIA in October 2016.

Fadnavis had made it mandatory for all commercial contracts of the state government, above Rs 5 crore, to have the institutional arbitration clause for dispute resolution.

It was hoping that companies doing business with the state will opt for MCIA as the arbitral centre.

An executive fiat, issued by the Chief Minister-led Urban Development Department in October 2016, had stated: “In all contracts worth over Rs 5 crore involving the state government, state-run corporations and companies shall have a standard institutional arbitration clause to the effect that the dispute shall be referred to a recognised Indian Arbitration Institute.”

But in what comes as a dampener, Madan said: “The foreign companies (involved in the Metro projects) aren’t entirely comfortable with Indian laws. They feel that the domestic laws have a lot more loopholes.”

He added: “But we are hopeful that they may agree to refer disputes involving local companies to the MCIA. In the case of foreign companies, we might have to go to Singapore. The ADB seems agreeable to such an arrangement.”

Currently, the MCIA is the only recognised aribitration institute in India. The CMO also believes that institutional arbitration will be a game changer that will provide a fillip to the establishment of the International Financial Services Centre at Mumbai. Madan, however, said, “The procurement rules of international funding agencies supersede local rules.”

MCIA’s chief executive Madhukeshwar Desai, while choosing not be drawn into a discussion over the specific instance, said: “Sometimes, companies do not prefer to choose arbitration centres in the same jurisdiction to the one where they are doing business. They opt for neutral venues.”

The ADB is financing two Mumbai metro rail routes —- the 18.5-km Dahisar-D N Nagar Metro 2A line and the 16-km Dahisar (E)-Andheri (E) Metro 7 line. It has agreed to bear up to 40 per cent of the project cost, totalling Rs 12,618 crore cumulatively.

Madan also confirmed that ADB has declined to accept the agency’s “purchase preference” clause. The state government wanted the clause incorporated to ensure that domestic companies that bid for the same value as foreign players got more preference. “We were trying to convince them about purchase preference but that did not happen. So now, there will be no preference to anybody. It will be a regular bidding process,” Madan said.

The ADB had earlier also turned down the Union government’s insistence of ensuring that 75 per cent of the rolling stock be procured from Indian manufacturers.

Madan also conceded that the negotiations with ADB over the contract clauses had delayed the rake procurement. “We are a little late. But we will try to make up time as much as possible. We plan to immediately invite bids for the rakes once we get the clearance,” he added.

It takes over 18 months to procure rakes from the date of placing an order, said MMRDA officials. While Fadnavis has set a 2019 completion deadline for the two Metro rail routes, this target seems unattainable at this stage.