NEW DELHI: The road transport ministry has launched a crackdown on the ballooning costs of legal disputes over highway projects as the central government aims to make the country’s premier road-building agency debt-free by 2030.
The ministry has decided to strictly cap arbitrator fees and mandate tiered payouts as it aims to clear ₹1.17 trillion of pending construction claims that have choked the National Highways Authority of India (NHAI) and strained the federal budget.
As part of this push, the ministry has asked state and municipal road-building authorities to strictly follow the rules for calculating arbitrator fees after noting they had been flouted in some cases, according to correspondence reviewed by Mint and a person aware of the development.
“In cases of ad-hoc arbitration involving the Ministry/State PWDs, there is a lack of uniformity regarding the fixation and release of fees to the Arbitral Tribunal,” the road transport ministry told state and regional officers in a letter dated 16 June, adding that arbitrator fees are often not fixed according to the rules. “All Regional Officers of the Ministry must ensure that the fee of arbitrators in case of Ad-hoc arbitration is fixed in accordance with the Fourth Schedule of The Arbitration and Conciliation Act 1996,” the ministry said in the letter.
Schedule IV prescribes a model fee structure for arbitrators based on the value of the dispute, ranging from ₹45,000 for disputes up to ₹5 lakh to a maximum of ₹30 lakh for disputes exceeding ₹20 crore.
However, lawyers said that parties can decide arbitrator fees mutually, without following Schedule IV of the law. A precedent that allows this is the 2022 case of ONGC v Afcons Gunanusa JV, where the Supreme Court clarified that Schedule IV is not mandatory and left the decision of the arbitrator’s fees to the parties.
Binding norm
According to Anuradha Mukherjee, partner and head of disputes for north India at law firm Cyril Amarchand Mangaldas, while the ministry’s circular does not qualify as “law” per se, it binds the government and its officers in their conduct.
“However, it is open to arbitrators to not accept nomination from a dispute if Schedule IV or the phase-wise disbursal as provided in the Circular are not acceptable to them,” Mukherjee said.
The efforts to reduce arbitration dues come as the NHAI, the country's road-building behemoth, aims to become debt-free by 2030. NHAI’s debt was ₹2.16 trillion as of January.
“The plan is to reduce debt to ₹1.5 trillion in the next financial year (FY27)," the person said.
NHAI’s debt peaked at about ₹3.5 trillion in FY22 on the back of market borrowings for road building and it has since been on a deleveraging path. The government has halted fresh incremental borrowings by NHAI and shifted to direct budgetary support.
Being debt-free would allow NHAI to invest further in road building and unlock technological advances to maximize revenue generation.
Also, the road transport ministry asked stakeholders to use arbitration institutions such as the Society for Affordable Redressal of Disputes (SAROD) set up by NHAI, the Delhi International Arbitration Center (DIAC) of the Delhi high court and the India International Arbitration Centre run by the central government to resolve disputes.
In June 2024, the ministry of finance nudged all government bodies to reduce arbitration for disputes over ₹10 crore and instead opt for mediation, which is quicker and cheaper.
Pain point
Adverse decisions in road and highway construction disputes have been a pain point for the government, which owed highway builders thousands of crores of rupees. Road developers and concessionaires had arbitration claims worth ₹1.17 trillion pending against NHAI, according to its latest available annual report (FY24).
“Highway contracts combine long gestation periods, heavy capital, land-acquisition delays and shifting scope, so disagreements over cost and time overruns are almost inevitable,” said Chirag Gupta, associate partner at Alpha Partners, a law firm based in Noida. “These pressures pushed NHAI towards conciliation committees and dispute-resolution boards, eventually leading to avoidance of arbitration as a resolution mechanism for high-value claims.”
The ministry and NHAI have a specific dispute-resolution process, which mandates amicable settlement attempts for 30 days, followed by referral to the Dispute Resolution Board and the Conciliation Committees of Independent Experts, before escalating high-value claims to civil courts while eliminating arbitration for disputes exceeding ₹10 crore.
The central ministry also noted that arbitrator fees are paid early, and they will now be released in a tiered way, according to the letter. The ministry asked regional officers to pay 80% of the arbitrator fee during the proceedings and the remaining 20% after the award is passed.
The order to pay full arbitrator fees only once an award is passed could push parties towards institutional arbitration, but only gradually, said Gupta of Alpha Partners.
“By releasing the full fee only once the award is delivered, the arbitrator's remuneration is contingent upon completion of the proceedings rather than to the number of sittings, thereby discouraging deliberate adjournments and drawn-out hearings,” he said.
Mukherjee of Cyril Amarchand Mangaldas, however, noted that arbitration institutions such as DIAC, SAROD, and IIAC already call for payment of 60% of the fees before and the remaining 40% after the award is passed.
“Therefore, introduction of stage-wise payments, by itself, is not likely to push the parties to institutional arbitration,” she said.
Queries emailed to the road transport and highways ministry and NHAI on 16 July remained unanswered.