Regulatory Bodies, Arbitration, and Judiciary

lending to or not and at what cost (Kaur, 2020). Each CRA has its rating scale. In the financial system, AAA-rated assets have been the most valuable asset because they are safest for investors and easiest to sell (i.e. with low yield and low risk). Out of the total 20 ratings ranging from AAA to D, up to BBB– is considered ‘Investment Grade’ ratings.

These ratings usually motivate the investors to constantly improve their fiscal plight to cope-up and improve their credit ratings and avail benefits. In India’s context, the lowest tier of federal structure is under the jurisdiction of Local Bodies (Rural Local Bodies-RLB and Urban Local Bodies-ULB), which play a crucial role to deliver the economic, social, and infrastructure services. In this case, ratings promised advantages on many fronts - transparency of ULB finances to both investors and citizens which increases accountability of ULB government as they would have to improvise their tactics with changing time, and ensure constant development and accomplishment of their functionality as it would in-turn help to maintain their credit ratings and thus issue of bonds. “Cities rated below BBB– need to undertake necessary interventions to improve their ratings for obtaining a positive response to the Municipal Bonds to be issued” (Yojana Magazine, 2019). Therefore, it led to the formation of an eternal loop which eventually contributed to India’s progress in modernizing its “municipal finance system” along with attracting private capital to finance urban infrastructure.

Further, the Government of India (GoI) set-up an expert group called the “Rakesh Mohan Committee” which worked closely with FIRE-D (the Indo-US Financial Institution Reform and Expansion- Debt project) to provide international experience on tax-free municipal bonds, which would in-turn help in the commercialization of Infrastructure Project. The municipal bonds introduced were an example of debt-financing. The tax-incentives received on these municipal bonds indeed acted as a national government subsidy where-in interest cost was substantially reduced. A mix of public and private funding was now possible in India to finance Urban Infrastructure. As there are multiple bodies involved in this process, certain regulatory bodies are set up by the government which have autonomous authority to supervise (B2B, 2017)and maintain stability in their respective sectors, by regulating the market, and arbitrating any disputes before moving the court.

Regulatory Bodies, Arbitration, and Judiciary

Respective legislatures of most of the countries give rise to independent yet accountable “Regulatory bodies” . They are vested with functions and powers earlier enjoined by the governments or their agencies. These regulators draw parallel to the government in terms of the power that they possess, and with great power comes great responsibility. Therefore, they are responsible to a much greater degree for their actions and have much larger expectations to fulfil (Sundar et al.).

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The regulators relish certain judicial powers; their proceedings are often quasi-judicial and they have the status of a civil court. But certainly, they are not the judiciary as the judiciary is majorly responsible for the resolution of disputes and interpretations, defence, and application of the law in the name of the state (“Judiciary, ” 2020). They usually deal in cases involving disputes among two parties, whereas the regulatory bodies are required to manage the interests of multiple groups and establish an equilibrium among them for the overall development of their respective sector. Examples of regulatory bodies are IRDA (Insurance Regulatory and Development Authority), RBI (Reserve Bank of India), and SEBI (Securities and Exchange Board of India). IRDA is for the insurance industry which looks after the well-being of policyholders. They also manage the growth of the insurance industry. RBI is the regulatory authority for the banking industry which reinforces rules to ensure financial stability. The regulatory body of the securities and commodity market in India is SEBI. SEBI looks after the interest of investors, they also manage and build the securities market4 in India.

Unlike the judiciary, the regulators must work within the constraints of specified regulatory objectives, which are made clear within the legislation itself and are obligated to the stated policy of the govt. The judicial process is retrospective whereas the regulatory process, charged with accountability for competence, evolution, and sector development, must be proactive and, where necessary, transcend current data to appear in the longer term (Sundar et al.).

Before moving the court for any disputes, both the parties often choose to resolve the conflict privately by appointing one or several arbitrators. These arbitrators are chosen consensually, and the case is heard in confidentiality. This process allows both the parties a neutral ground and an agreement is reached by the arbitrator that is appealing to both the parties. Arbitration is preferred as it avoids any penalty depositions, interrogations, and time consuming court hearings while providing a flexible solution in complete confidence. However, when arbitration does not resolve the dispute, the judiciary is consulted.

To understand the importance of the Judiciary in the infrastructure sector, let’s take the example of DND Flyway, which was, in fact, the very first instance where the public sector was seeking help from the private sector in India. DND flyway is a 9.2km, 8 lane road connecting Noida and East Delhi to South Delhi. In 1992, an MOU (Memorandum of Understanding) was signed between the UP government, Delhi administration, and IL&FS to build a toll bridge across the Yamuna. IL&FS made it a BOOT project (Build-Own-Operate-Transfer basis) and promoted Noida Toll Bridge Company Ltd (NTBCL) to take charge. With Rs 10 as the toll tax, DND started functioning in February 2001.

4 Securities market helps move resources from those who have idle resources to others who have productive needs for it. It provides channels for allocation of savings to investments and thereby separating these two activities.

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