New Delhi - India and Iran have agreed not to seek commercial foreign arbitration for disputes between users and operators at Chabahar Port, paving the way for the two sides to sign a long-term deal for the development of the strategic port, two persons aware of the development said.

They said a team from the ministry of port and shipping is expected to visit Iran in September to try and reach an agreement over the rules of engagement and mode of arbitration. This would be followed up with the two countries reaching a formal agreement for long-term operation of the port located in South-east Iran, with an unhindered sea route to India’s West coast.

“We have agreed that disputes at Chabahar will not go for commercial arbitration in foreign courts but take investment arbitration or other any other mode of dispute settlement. This would prevent Iran from having to amend its Constitution,” one of the persons quoted above said. Under Iran’s Constitution, an arbitration cannot be referred to a foreign court. It would require a constitutional amendment, which would have been difficult and would have delayed a long-term contract. Currently, India and Iran sign one-year contracts for developing and running the terminal at Chabahar Port. However, New Delhi has been pushing Teheran to sign a longer-term agreement as it seeks more certainty for investment and development plans for the India-designed port. A long-term contract may be for a period of 10 years with provisions for automatic renewal.

Negotiations on long-term contract had been held up due to disagreements over the arbitration clause. Both sides have now agreed to pursue arbitration under rules framed by the UN Commission on International Trade Law (UNCITRAL) which is favoured by India over those framed by the International Chambers of Commerce (ICC). Both arbitration routes do not have designated courts in specific jurisdictions. India had earlier suggested arbitration matters be taken up either in Dubai or Mumbai. The ministry of ports, shipping and waterways did not respond to a query sent on the issue till press time.

The positive development comes at a time when China has been showing growing interest in investments in ports and other coastal infrastructure in Iran, and the Iranian side has been pressing New Delhi to step up development of Shahid Beheshti terminal, which is operated by the state-run India Ports Global Limited (IPGL).