Highway builders evaluate legal route to address arbitration rule

India’s highway construction industry is considering legal options against the government’s recent move to restrict arbitration in high-value disputes, amid concerns that the decision could hurt investor confidence, raise project costs and delay execution of large road projects, sources told Business Today.

The National Highways Builders Federation (NHBF) has written to the Ministry of Finance and the Ministry of Road Transport and Highways (MoRTH) seeking reconsideration of a recent circular that removes arbitration as a dispute resolution mechanism for claims exceeding ₹10 crore in government contracts.

The restriction originates from a Finance Ministry office memorandum issued in June 2024 to curb prolonged litigation and encourage conciliation. MoRTH implemented the directive through a circular dated January 12, 2026, amending model concession agreements for BOT (toll), HAM and EPC highway projects.

While NHBF has acknowledged the intent behind the reform, it has warned that a uniform application of the ₹10 crore threshold is commercially unworkable for large highway projects, which typically cost between ₹3,000 crore and ₹5,000 crore. Industry executives say disputes exceeding this amount are routine and often arise from authority-led issues such as land acquisition delays, change of scope, force majeure events and delayed payments.

NHBF has cautioned that restricting arbitration will effectively push most disputes into civil courts, where cases can take several years to conclude. For capital-intensive projects with fixed debt obligations, prolonged litigation could severely strain cash flows, refinancing prospects and overall project viability.

The federation has also flagged risks to bankability and investor confidence, noting that arbitration has historically provided a neutral, technically informed and time-bound forum aligned with international best practices. Industry participants warn that global infrastructure investors and lenders rely on predictable arbitration mechanisms, and curtailing them could raise India’s risk perception.

Builders have further warned that increased uncertainty may compel contractors to factor in a 10-15% risk premium in future bids, potentially increasing costs for the government under major highway development programmes.

Sources familiar with the matter told Business Today that NHBF is currently pursuing consultations with the government but is also examining legal remedies if no sector-specific clarification is issued. Legal advisers believe that arbitration under the amended Arbitration Act, which now prescribes strict timelines and limited scope for challenge, remains significantly more efficient than civil litigation.

NHBF has sought either a sector-specific carve-out for highway projects or a reconsideration of the monetary threshold, warning that removing arbitration without addressing the root causes of disputes could increase financial stress across the sector and dampen private investment.