Summary: The recent circular published by the Ministry of Road Transport & Highways in respect of dispute resolution process under the EPC, BoT and HAM projects, marks a significant policy shift with clear and direct implications for road developers and investors in the infrastructure sector developing road projects.
The recent National Highways Authority of India (NHAI) circular[1] has effectively excluded arbitration as a dispute-resolution mechanism for claims exceeding ₹10 crore. This represents a significant recalibration of the legal architecture governing India’s highway sector. While the policy has been justified on grounds of fiscal prudence, systemic efficiency, and institutional integrity, its broader implications, particularly relating to investor confidence and the rule-of-law narrative in public contracting, warrant closer scrutiny.
Arbitration has historically commanded a pivotal role within India’s public infrastructure contracting landscape. It’s allure emanated not solely from procedural expediency, but also from its perceived impartiality and insulation against the chronic delays that surrounded conventional civil litigation. In projects characterised by protracted gestation periods, intricate engineering challenges, and considerable capital infusion, arbitration furnished a dispute resolution paradigm congruent with commercial exigencies. This was especially enshrined in the national highways sector, where EPC, BOT, and HAM contracts commonly generate claims precipitated by land acquisition impediments, alterations in project scope, force majeure contingencies, and regulatory interventions. Arbitration, at least in principle, offered a forum adept at navigating such multifaceted disputes without jeopardising project schedules or financial sustainability.
The new circular disrupts this equilibrium by mandating a two-step process, i.e. conciliation followed by civil court adjudication for disputes exceeding the ₹10-crore threshold. This shift is not merely procedural – it is philosophical, signalling Union Government’s broader policy direction discouraging arbitration in high-value public procurement contracts, driven by concerns over prolonged proceedings, inconsistent awards, and mounting contingent liabilities for the exchequer. The government’s rationale is not without merit. The volume and value of arbitral awards rendered against the NHAI over the past decade have been substantial, creating sizeable contingent liabilities and prolonged enforcement battles. Allegations, whether substantiated or anecdotal, of arbitrator bias, inconsistent awards, and procedural excesses have further eroded confidence in ad hoc arbitration, involving public authorities. From a public finance perspective, the desire to rein in exposure and ensure uniformity of outcomes is understandable. Arbitration, when poorly administered, can replicate many of the inefficiencies it was designed to avoid.
It appears that the circular has misdiagnosed arbitration itself as the malady, while overlooking the more profound institutional shortcomings, namely, the absence of robust institutional arbitration frameworks, deficient contract administration, and a fragmented approach to government litigation, which have historically undermined the efficacy of public-sector dispute resolution.
The circular, its repercussion, is likely to impact foreign investors and international contractors, for whom arbitration is the linchpin of risk management, and is not merely a procedural convenience. Arbitration confers an invaluable sense of impartiality. For overseas investors engaged with sovereign entities, the guarantee of an independent adjudicatory forum serves as a fundamental pillar of contractual assurance. Redirecting high-value disputes to domestic courts, however capable and judicious, inevitably invites apprehensions related to perceived home court advantage. In the calculus of international investments, the spectre of bias, whether real or imagined, can be as influential as the strictures of legal doctrine. Further, judicial delay remains an inexorable challenge. Notwithstanding the creation of commercial courts and incremental procedural reforms, the expeditious resolution of complex infrastructure disputes within conventional civil courts remains elusive. For foreign investors, protracted litigation can create significant uncertainty in revenue realisation, debt amortisation, and project valuation — variables that critically influence bid strategies and financing terms. The abrogation of arbitration provisions may significantly undermine the bankability of highway infrastructure projects. The absence of a neutral and fair dispute resolution mechanism could inadvertently elevate the cost of capital of these ventures, or dissuade international lenders, including multilaterals, from participating.
NHAI’s circular epitomises a legitimate endeavour to rectify entrenched dysfunctions within public-sector dispute resolution mechanism. However, in its zeal to redress systemic excesses, it appears to have overreached by dispensing with a dispute resolution instrument that is regarded as indispensable worldwide for large-scale infrastructure contracting. The imperative is not to repudiate arbitration altogether, but to revitalise and refine its deployment through robust institutional arbitration frameworks, meticulous contract drafting, and a disciplined approach to government litigation strategy. In the absence of such forward-looking reforms, the abrogation of arbitration for high-value disputes threatens to dampen investor confidence, escalate project costs, and merely supplant one form of procedural delay with another.
The credibility of India’s infrastructure regime will be judged not by the forums it excludes, but by its ability to resolve disputes efficiently, neutrally, and predictably, qualities essential for sustaining both domestic execution and foreign capital participation.
For further information, please contact:
Ajay Sawhney, Partner, Cyril Amarchand Mangaldas
ajay.sawhney@cyrilshroff.com
[1] Circular dated January 12, 2026, issued by the Ministry of Road Transport & Highways; the same can be accessed at: Circular dated 12.01.2026.pdf
