Industry Odisha Bureau, Aug 23: The central government is tightening regulations governing arbitration fees in highway construction disputes. The move forms part of a broader effort to control NHAI’s mounting debt burden. National Highways Authority of India currently faces approximately ₹1.17 trillion in pending arbitration claims. The road transport ministry has mandated stricter fee caps and introduced tiered payment structures. NHAI’s debt stood at ₹2.16 trillion as of January, down from ₹3.5 trillion in FY22. The government aims to reduce debt to ₹1.5 trillion in FY27 and become debt-free by 2030.
The pending construction claims represent a substantial financial challenge for NHAI and government budgets. Developers and concessionaires have arbitration claims worth ₹1.17 trillion against NHAI, according to FY24 data. These disputes arise from highway contracts characterised by long gestation periods and significant capital requirements. Land-acquisition delays, changing project scope and cost overruns frequently generate disagreements between parties. The claims create ongoing financial uncertainty and strain NHAI’s capacity for future infrastructure investment.
The ministry’s instructions address irregularities in ad-hoc arbitration fee-setting across multiple road-building authorities. The ministry noted that state and municipal authorities had not uniformly followed prescribed fee rules. According to the Arbitration and Conciliation Act, 1996, Schedule IV provides a model fee structure. The structure ranges from ₹45,000 for disputes valued up to ₹5 lakh to ₹30 lakh maximum fees. However, these prescribed amounts had not been consistently applied across government arbitration proceedings.
A 2022 Supreme Court decision in ONGC v Afcons Gunanusa JV clarified an important legal distinction. The Supreme Court determined that Schedule IV fees are not universally mandatory for all arbitrations. The court held that parties may mutually agree on arbitrator fees outside Schedule IV framework. This precedent creates legal flexibility, yet the ministry’s circular binds government officials to prescribed structures. Anuradha Mukherjee, disputes partner at Cyril Amarchand Mangaldas, noted that arbitrators may decline nominations.
The revised payment structure introduces a significant operational change for how fees are released. The ministry instructed regional officers to pay eighty percent of arbitrator fees during proceedings. The remaining twenty percent will be released only after the award is formally delivered. The government expects this structure to reduce upfront expense exposure and improve cost discipline. The staged approach may also discourage prolonged proceedings and encourage timely dispute resolution.
NHAI’s debt reduction strategy requires multiple simultaneous approaches to lower government liabilities significantly. The authority borrowed approximately ₹3.5 trillion at peak levels in FY22 to finance road construction. The government subsequently halted fresh incremental borrowing by NHAI and increased direct budgetary support instead. Lower debt levels could unlock capacity for greater infrastructure investment and technological improvements. NHAI seeks to position itself for debt-free operations by 2030 under current targets.
The government is increasingly encouraging alternative dispute resolution mechanisms beyond traditional ad-hoc arbitration. The finance ministry encouraged government bodies to favour mediation for disputes exceeding ₹10 crore threshold. Mediation potentially resolves disputes faster and cheaper than protracted arbitration proceedings. The ministry also promoted institutional arbitration through SAROD, DIAC and IIAC frameworks. These institutions have established procedures and fee structures designed to manage complex construction disputes.
Highway construction disputes emerge naturally from the structural complexity of infrastructure contracts themselves. These agreements combine heavy capital requirements, extended project timelines and frequently shifting contractual scope. Land acquisition delays, subcontractor relationships and regulatory changes create persistent sources of disagreement. Cost and time overruns are nearly inevitable in projects spanning multiple fiscal years. The disputes create a challenging environment for both public authorities and private developers.
Experts differ on whether the revised payment structure alone will fundamentally alter dispute patterns. Chirag Gupta of Alpha Partners suggested staged payments could gradually encourage institutional arbitration usage. However, Mukherjee noted that DIAC, SAROD and IIAC already employ sixty-forty payment structures. She argued that staged payments alone may not necessarily push parties toward institutional arbitration. The real incentive structure depends on multiple factors beyond payment timing mechanisms.
The tighter arbitration rules represent just one component of NHAI’s broader deleveraging strategy. Controlling dispute-related costs while managing ₹1.17 trillion in pending claims requires sustained effort. The government’s shift toward mediation and institutional frameworks reflects recognition of arbitration’s limitations. Successfully reducing NHAI’s liabilities requires cooperation from developers, concessionaires and government agencies. The outcome will significantly influence India’s future infrastructure financing capacity and public-sector debt management.
