Highway Builders Sound Alarm: New Arbitration Ban Could Derail India’s Infrastructure Push

Highway builders write to FM, road ministry; seek review of new arbitration norms

India’s ambitious infrastructure dreams may be hitting a legal roadblock—literally. In a dramatic escalation, the National Highway Builders Federation (NHBF) has sent an urgent appeal to Finance Minister Nirmala Sitharaman and the Ministry of Road Transport & Highways, demanding an immediate review of a controversial new policy that bans arbitration for contractual disputes exceeding ₹10 crore .

The move, introduced quietly by the government as part of broader fiscal streamlining, has sent shockwaves through the construction industry. Contractors argue that stripping away arbitration—a long-standing, efficient mechanism for resolving complex engineering and payment disagreements—will cripple project execution, scare off investors, and even trigger defaults in the banking sector. With over ₹10 lakh crore worth of national highway projects underway, the stakes couldn’t be higher.

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What Are the New Highway Arbitration Norms?

Under the revised policy, any dispute between the National Highways Authority of India (NHAI) and its contractors involving claims above ₹10 crore can no longer be resolved through private arbitration. Instead, such cases must now go through lengthy departmental adjudication or civil courts—a process that can take years, if not decades .

This marks a sharp reversal from past practice. For over two decades, arbitration was the preferred method for settling disagreements over land acquisition delays, design changes, cost escalations, and force majeure events like floods or pandemics. It was fast, confidential, and technically sound—often overseen by retired judges or engineering experts.

Why Builders Are Furious

The NHBF’s letter outlines three core concerns:

  1. Cash Flow Crisis: Without timely dispute resolution, contractors face delayed payments, making it impossible to pay workers, suppliers, or equipment leases. Many mid-sized firms operate on razor-thin margins and could collapse.
  2. Investor Flight: Domestic and foreign investors rely on predictable dispute mechanisms. Removing arbitration increases perceived risk, potentially drying up capital for future bids.
  3. Project Delays: Ongoing projects—like the Delhi-Mumbai Expressway or Bengaluru-Chennai corridor—could stall as contractors withhold work pending resolution of unresolved claims.

“This isn’t just about money—it’s about trust,” said a senior NHBF official. “Arbitration was the glue holding public-private partnerships together.”

Impact on Banks and Lenders

Perhaps most alarmingly, the federation warns that the policy could destabilize the financial system. Most highway projects are debt-funded, with banks like SBI, PNB, and ICICI holding collateral against future toll revenues and government payments.

If contractors default due to non-payment—and disputes drag on in court—banks may be forced to classify these loans as NPAs (Non-Performing Assets). This could trigger a domino effect across the infrastructure lending ecosystem, especially at a time when the government is pushing for greater private participation in the Gati Shakti master plan.

Arbitration in Infrastructure: A Proven Tool

India’s infrastructure sector has long relied on arbitration under the Arbitration and Conciliation Act, 1996. Landmark cases—such as those involving Reliance Infrastructure, IRB, and L&T—were resolved within 12–18 months through arbitration, compared to 5–10 years in civil courts.

In fact, the Supreme Court has repeatedly emphasized the need for “minimal judicial interference” in arbitration to uphold commercial certainty. The new policy appears to contradict this judicial philosophy, raising questions about regulatory coherence.

For deeper insights into India’s legal framework for infrastructure, the World Bank’s India Infrastructure Report highlights arbitration as a critical enabler of private investment.

Government Stance: Efficiency or Overreach?

Officials defend the move as a cost-control measure, arguing that some contractors abused arbitration to inflate claims or delay project handovers. They claim centralized adjudication will reduce “frivolous” disputes and ensure uniformity.

However, industry experts counter that the solution isn’t to eliminate arbitration—but to reform it. Suggestions include appointing technical arbitrators, capping timelines, and digitizing proceedings. Banning it outright, they say, is like “throwing the baby out with the bathwater.”

Conclusion: A Sector at Crossroads

The controversy over highway arbitration norms is more than a bureaucratic squabble—it’s a test of India’s commitment to ease of doing business in strategic sectors. As the NHBF awaits a response from the Finance Ministry, thousands of kilometers of roads hang in the balance. If the government doesn’t reconsider, its own infrastructure ambitions may end up stuck in the very traffic jams it’s trying to solve.

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