Key Takeaways:
- Union road transport ministry removes arbitration for disputes exceeding Rs 10 crore, favouring conciliation or mediation followed by civil courts.
- Rule change applies to BOT-Toll, HAM and EPC contracts and follows finance ministry guidance against routine arbitration clauses.
- Review cites nearly 2,600 arbitration awards from 2015–2025 with contractor claims of about Rs 90,000 crore, prompting the shift.
- Move aims to curb malpractice but could affect dispute timelines, investor confidence and contract bankability.
The Union road transport ministry has moved to curb what it sees as misuse of arbitration in high-value highway disputes by excluding arbitration as a dispute-resolution mechanism for cases exceeding Rs 10 crore. Under the revised contract norms, parties will first be expected to pursue conciliation or mediation. If those routes fail, they will have to approach civil courts for adjudication.
Highway disputes arbitration now limited for high-value claims
The change will apply across major highway contract formats, including Build-Operate-Transfer (BOT-Toll), Hybrid Annuity Model (HAM) and Engineering, Procurement and Construction (EPC) agreements. According to sources cited by The Times of India, the decision follows a comprehensive review of arbitration practices in the highway sector over the past decade.
Officials said the review covered the period from 2015 to 2025, during which there were nearly 2,600 arbitration awards in the sector. Contractors raised claims totalling roughly Rs 90,000 crore, of which arbitration awards accounted for a little over Rs 30,000 crore. Separately, developers have pursued around Rs 1 lakh crore in claims through arbitration proceedings, figures that have raised concerns about recurring high-value disputes and alleged manipulation of arbitration processes.
The move aligns with guidance issued by the finance ministry in June 2024, which recommended against the automatic inclusion of arbitration clauses in procurement contracts for large-value projects. The guidance advised that arbitration be limited to disputes with values below Rs 10 crore and that bid conditions should expressly state where arbitration will not be available.
Officials indicated that the ministry is also examining how contractors have sometimes obtained favourable court orders to sidestep administrative penalties such as blacklisting or barring from bidding after failing to perform. By narrowing the scope for arbitration, the ministry intends to close loopholes that may be exploited to delay sanctions or reverse administrative action.
Industry lawyers and project financiers have offered mixed reactions. Supporters say the change could strengthen accountability by reducing the perceived ease with which parties can use arbitration to stall administrative remedies. Critics warn that removing arbitration for large claims could lead to longer resolution times in civil courts and increase legal uncertainty, potentially affecting the bankability of projects and the appetite of private players to bid for future contracts.
Practical implications will depend on implementation details. Market participants will look for clear provisions on timelines for conciliation and mediation, the authorities responsible for appointing neutrals, and whether specialised commercial benches will be used to handle complex infrastructure disputes in civil courts.
Given the scale of infrastructure investment underway in India, changes to dispute resolution mechanisms will be closely watched by developers, lenders and international partners. The ministry has said the revised norms will be incorporated into contract templates and procurement documents. Observers expect a transition period as stakeholders adapt to the new regime and as courts and alternative dispute-resolution providers manage an anticipated shift in caseloads.
For now, the policy signals a preference by the government for greater administrative control and judicial oversight in the settlement of high-value infrastructure disagreements, a step it expects will reduce malpractice and ensure that project sanctions remain effective.
