By Mani Gupta, Senior Partner, and Pranav Malhotra, Principal Associate, Sarthak Advocates and Solicitors
Acting in pursuance to the Ministry of Finance office memorandum (no. F.1/2/2024-PPD) dated June 3, 2024, the Ministry of Road Transport and Highways (MoRTH) has revised the dispute resolution framework in contract documents for build-operate-transfer (BOT) (toll), hybrid annuity model (HAM), and engineering, procurement and construction (EPC) projects being carried out by it and the National Highways Authority of India, National Highways and Infrastructure Development Corporation Limited, Border Roads Organisation, and National Highways Logistics Management Limited vide its circular dated January 12, 2026.
Contractual concerns
The changes to the framework replace existing articles with immediate effect. Moreover, the ongoing arbitration matters are to be concluded under the pre‑existing provisions. The MoRTH circular is at odds with Clause 27.24 of existing contracts. Clause 27.24 requires that any amendment to the agreement must be made by an instrument in writing signed by the authority and the contractor. Therefore, the changes brought by the MoRTH circular should ideally have been applied prospectively. This is something that industry organisations in the sector have also flagged to the government, as these kinds of changes affect the lenders’ outlook on the projects. It is also not clear what MoRTH considers “ongoing arbitration cases”. The natural interpretation of this should be that any dispute where one of the parties has issued a notice under Section 21 of the Arbitration and Conciliation Act, 1996 is an ongoing arbitration matter, as that commences proceedings under law. An alternative and narrower interpretation could be that arbitration becomes “ongoing” only upon constitution of the arbitral tribunal.
Revised dispute resolution mechanism
The revised dispute resolution clause envisages (i) an initial amicable resolution (irrespective of dispute value); (ii) institutional arbitration under SAROD/IIAC (in monetary disputes of value Rs 0.1 billion or less); (iii) conciliation (in monetary disputes of value more than Rs 100 million, non-monetary disputes, or declaratory disputes) ; and (iv) litigation (when the dispute remains unresolved by steps (i) and (iii).
As anticipated, a key amendment is that any dispute between the parties, where the sum is equal to or above Rs 100 million, shall not be referred to arbitration. Additionally, “all declaratory disputes or non‑monetary disputes” are also excluded from arbitration. The clause clarifies that nothing prevents the parties from seeking resolution of such disputes through civil courts.
Exclusion of high-value and declarat ory disputes from arbitration
The relegation of high-value, non-monetary and declaratory disputes to civil courts marks a significant departure from the past. Commercial courts, while specialised, may not always possess the expertise required for complex disputes, and proceedings before such courts are more time-consuming and susceptible to delays.
For those disputes where arbitration is still the dispute resolution mechanism, the shift to institutional arbitration is a welcome change. The appointment of the arbitral tribunal, the code of conduct for arbitrators, and fees and expenses are to be governed by the Rules of SAROD as amended from time to time, or by the India International Arbitration Centre Act, 2019, and regulations framed thereunder, as amended from time to time.
MoRTH and SAROD are expected to give the necessary fillip to the organisation, boosting its acceptability with contractors. For disputes where “the sum of which is Rs 100 million or above”, the circular prescribes a qualitatively different treatment. Such disputes, if unresolved through the mechanisms in the agreement, are to be resolved by conciliation in accordance with the Arbitration and Conciliation Act, 1996. However, if parties are unable to settle after an (i) initial amicable resolution and (ii) conciliation/mediation process, the only recourse would be litigation in commercial courts.
Practical concerns and gaps
A potential area of dispute or difference of opinion may arise as the MoRTH circular does not provide any criteria to determine when a dispute is “declaratory” or “non-monetary”. There are sufficient examples of when a dispute may be declaratory and coupled with monetary relief. For example, a contractor may require adjudication on whether the termination of an agreement was valid and have consequential monetary reliefs associated with the same. In such a circumstance, the dispute is not wholly “declaratory”. Therefore, would the remedy of approaching a court under Section 9 of the Arbitration and Conciliation Act, 1996 be excluded? These grey areas can potentially affect contractors’ cash flows, credit lines and operational risks.
Conclusion
Viewed in this light, the Ministry of Finance memorandum of June 3, 2024, and the consequent redesign of MoRTH’s dispute resolution framework, are not isolated interventions but appear to be part of a broader recalibration in how the state is approaching dispute risk in high-value infrastructure contracts. However, this shift alone cannot manage MoRTH and NHAI’s liability towards contractors. It is only through proper project planning and contract administration that such liabilities can be mitigated. It is hoped that the authorities will take more proactive steps in those directions.
