By Yuvraj Singh Salh and Advaith Madhu.
Yuvraj Singh Salh and Advaith Madhu are second-year B.A. LL.B. (Hons.) student at National Law Institute University, Bhopal.
Arbitration in India has undergone a visible doctrinal shift since the 2015 amendments to the Arbitration and Conciliation Act. Courts have steadily narrowed public policy review, removed automatic stays, and reinforced the authority of arbitral tribunals. Yet state practice in infrastructure contracting reveals a different instinct. In January 2026, the Ministry of Road Transport and Highways issued a circular directing the National Highways Authority of India not to refer disputes valued above ₹10 crore, as well as declaratory or non-monetary disputes, to arbitration, instead favouring conciliation or civil litigation. This article examines that tension and asks whether executive policy still reacts to an arbitration regime that the law itself has already transformed.
Keywords: Infrastructure arbitration; NHAI disputes; public infrastructure disputes.
For the better part of this decade, India has committed itself to the goal of developing a modern arbitration regime. Reports such as the 246th Law Commission of India Report [“LCI Report”] have acknowledged excessive judicial involvement in the arbitral process as a key factor contributing to the steadily diminishing trust in arbitration as a dispute-resolution mechanism. The Report also proposed restoring autonomy to arbitral tribunals, a position that was reflected in the legislative intent underlying the Arbitration & Conciliation (Amendment) Act, 2015 [“2015”].
Courts clearly responded to these advancements in the field, narrowing the scope of public policy in order to reduce frivolous challenges to arbitral awards under Section 34. This approach has been coupled with the removal of automatic stays, as well as a conscious effort to promote institutional arbitration as a means of dispute resolution. India thus positioned itself as arbitration ready.
A deeper understanding, however, reveals the cracks in the system. The same State that amended the statute to reduce judicial intervention, now issues circulars restricting arbitration under high-value infrastructure disputes. The same framework that speaks of tribunal autonomy quietly redirects large public sector contracts back to the overburdened civil court system and to litigation. Infrastructure authorities rely on arbitration, yet express disapproval the moment adverse awards are rendered. Investor-State disputes follow a similar template: awards are resisted before they are honoured, and treaty frameworks retain arbitration but surround it with sufficient safeguards to postpone its effective implementation.
This article argues that India’s arbitration regime has evolved substantially from its pre-2015 form. The enforcement of arbitral awards has been strengthened, and tribunal authority has been clarified. However, a similar approach has not been adopted by the executive, which continues to rely on preconceived notions rooted in an earlier, more interventionist phase of arbitration law. This resulting disconnect produces an uneasy duality in which arbitration is projected as a symbol of reform but treated as a risk when awards run against the State. The metaphorical credibility of reform depends not on the language embodied in the statute, but on consistency when liability materialises.
Arbitration in India continues to be viewed through the same dated mistrust that characterised one of the main shortcomings of its pre-2015 framework, which was mired in constant challenges under Section 34, judicial interventionism, and a defeatist approach.
This doctrinal shift to the current arbitration framework is not merely cosmetic but strikes at the core of the problem by addressing the structural deficiencies in arbitration. Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc. [“BALCO”][1], was the first clear signal of this shift. By confining the scope of Part I of the Arbitration & Conciliation Act, 1996 [“The Act”] to India-seated arbitrations, the Court emphasised that judicial power flows from statute, and not from instinct. As a result, courts cannot extend the applicability beyond what Parliament has laid down in the Act. This marked a departure from an era where arbitral awards were treated as provisional until accorded judicial assent.
This contraction continued along Ssangyong Engg. & Construction Co. Ltd. v. NHAI [“Ssangyong”][2]. Public policy, which had expanded through ONGC v. Saw Pipes Ltd. [“ONGC”][3] and ONGC v. Western Geco International Ltd. [“Western Geco”][4] into an elastic and far-reaching concept, was subsequently pulled back into the narrow contours articulated in Renusagar Power Co. Ltd. v. General Electric Co. [“Renusagar”][5]. It was restricted to the fundamental policies of Indian law, along with basic notions of justice and morality, and nothing further. The Court made it clear that the interpretation of contractual terms must rest purely with the arbitrator, and that courts must not substitute their own construction based on preference, thereby consciously reducing the scope of their own power of review.
Then came NHAI v. M. Hakeem [“M. Hakeem”][6], arising in the specific context of large infrastructure awards against a government authority. The Supreme Court expressly rejected a holistic interpretation of Section 34 that would ascribe to the Court a power to modify or vary an award. If an award is flawed, the primary remedy would be its annulment, a position that was particularly significant for public bodies as it foreclosed the possibility of approaching courts to seek partial trimming of the award. M. Hakeem was, perhaps, the first sign of a souring of relations between the government and arbitration.
Against the background exhibited by M. Hakeem, Gayatri Balasamy v. ISG Novasoft Technologies Ltd. [“Gayatri Balasamy”][7] may seem to mark a departure. However, it does not do so in substance. Here the Supreme Court recognized a limited power to modify arbitral awards under hyper-specific circumstances. While the doctrine of severability was applied to these contentious agreements, manifest clerical or computational errors cannot, and should not, be corrected. The Court repeatedly emphasized that this is not an appellate review but a re-appreciation of evidence or a merit substitution. Hence, the scope is tightly bounded and clearly carved out by virtue of the judgment as a whole.
A thorough analysis of these judicial advancements shows that courts have signalled restraint and the enforcement framework has hardened. If executive policy continues to respond to arbitration as though it was still embedded in its earlier, more interventionist phase, it is responding to an outdated version of the law. Therefore, the question that follows is: has the policy position kept pace with the legal transformation?
[1] Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc., (2012) 9 SCC 552.
[2] Ssangyong Engg. & Construction Co. Ltd. v. NHAI, (2019) 15 SCC 131.
[3] ONGC v. Saw Pipes Ltd., (2003) 5 SCC 705.
[4] ONGC v. Western Geco International Ltd., (2014) 9 SCC 263.
[5] Renusagar Power Co. Ltd. v. General Electric Co., 1994 Supp (1) SCC 644.
[6] NHAI v. M. Hakeem, (2021) 9 SCC 1.
[7] Gayatri Balasamy v. ISG Novasoft Technologies Ltd., (2025) 7 SCC 1.
Committee deliberations chaired by T. K. Vishwanathan continued along the same path as the LCI Report, but with greater focus on institutional arbitration, the use of technology and clearer jurisdictional boundaries. Lawmakers reflected the same view, describing arbitration as user friendly and capable of faster resolution. The establishment of the New Delhi International Arbitration Centre demonstrated the same long-sighted confidence.
Yet sovereign contracting practice, particularly in infrastructure, reveals a far more uneven reality. The National Highways Authority of India’s experience illustrates this clearly, with its Annual Report for 2022–23 recording 140 ongoing arbitration matters involving claims of approximately ₹1.16 lakh crore, alongside 219 court proceedings involving nearly ₹28,863 crore. These figures are substantial and outline the scale at which disputes arise within public infrastructure, with approximately ₹8,109 crore already deposited pursuant to judicial directions, which demonstrates that arbitration and litigation were ongoing realities rather than far-off risks. Within Highway projects alone, around 150 arbitration matters were identified, with claims exceeding ₹1.09 lakh crore. 95 awards had already been delivered while others remained pending, suspended somewhere between contractual and financial disagreement.
Institutional arbitration mechanisms have also been widely used, with more than 100 disputes referred under the Society for Affordable Redressal of Disputes [‘SAROD’]– Highways, resulting in 47 awards and several others concluding through negotiated settlement. Individual outcomes could also be substantial, such as the ₹485.28 crore award in favour of PNC Infratech in relation to the Agra Bypass Project. These numbers show how common arbitration has become and how deeply it is integrated into infrastructure contracting.
However, these instances are not evidence of arbitral malfunction, since highway concession agreements structured under EPC (Engineering, Procurement, Construction), BOT (Build, Operate, Transfer) or HAM (Hybrid Annuity Model) models operate within unstable conditions. Land acquisition delays, regulatory approvals that shift midway and scope modifications are rampant. Arbitration does not create these disputes but resolves issues that arise from contractual realities already in place. The Comptroller and Auditor General of India noted that the Employees’ State Insurance Corporation failed to provision ₹138.29 crore linked to an arbitral award, understating liabilities and overstating surplus. The liability did not originate in arbitration. Arbitration simply forced its recognition.
Despite this, executive policy has moved towards restricting arbitration precisely in those disputes where it has been most visible. A circular issued in January 2026 by the Ministry of Road Transport and Highways directed that disputes valued at ₹10 crore or above, along with declaratory or non-monetary disputes, were not to be referred to arbitration. Instead, conciliation or civil litigation was to be pursued. A nuanced appreciation of the ₹10 crore threshold reveals that its effect is not merely just restrictive but exclusionary in substance. Infrastructure disputes arising from EPC, BOT and HAM contracts are inherently high value, as evidenced by the data reflected in the NHAI’s Annual Report for 2022–23. The Government’s rationale for this exclusion is problematic in nature as referring these high value disputes to conciliation and the court system is reactionary rather than solving the root of the problem. Hence, it can be stated that this circular does not operate as a selective filter but as a near substantive bar leaving arbitration to a category of disputes that rarely arise in practice. Therefore, arbitration exists in a limbo wherein it is rendered ineffective in dispute resolution mechanisms through no fault of its own.
This shift exposes a deeper institutional tension. Arbitration reform was premised on courts being structurally incapable of resolving complex commercial issues efficiently. Redirecting high-value infrastructure disputes back to courts risks recreating those conditions. It also recasts arbitration less as a dispute resolution mechanism and more as a forum where fiscal exposure becomes visible. This contradiction is further sharpened by statutory reforms that strengthen tribunal authority and repeated committee recommendations that signal internalising arbitration. Therefore, while it is present at the level of architecture, its adoption remains cautious when the financial consequences are immediate.
Investor-state arbitration reflects a similar pattern as observed in the dispute involving Cairn Energy. In December 2020, an arbitral tribunal directed India to refund retrospective tax collections along with interests and penalties, which was not immediately complied with. Cairn Energy, as a response, initiated enforcement actions targeting state-owned assets including aircrafts and diplomatic property. Only later did legislative change intervene where retrospective tax demands were withdrawn in 2021, and approximately ₹7,900 crore was refunded, though interest and penalties were excluded.
A related but somewhat distinct pattern appeared in the dispute between Antrix Corporation and Devas multimedia. Domestic courts annulled the arbitral award, citing fraud in the formation of the underlying contract, but the enforcement proceedings abroad did not treat annulment as automatically determinative. Foreign courts examined the reasoning behind the annulment, particularly weighing it against the international standards of due process. Therefore, the Hague Court of Appeal held that such setting aside of arbitral awards cannot be based on an annulment ruling which is procedurally deficient.
India’s treaty framework reflects comparable caution. The 2016 Model Bilateral Investment Treaty requires investors to exhaust domestic remedies before initiating arbitration along with structured consultation requirements. Arbitration remains available as an option under Article 14.4, but stays intertwined with multiple conditions such as an advance notice to the responding party, thereby weakening its promise of speed and neutrality.
Taken together, these developments demonstrate that arbitration is strengthened as a system, yet its use is narrowed in situations where its outcomes carry immediate fiscal repercussions. Arbitration turns such consequences visible, making that moment of visibility generate a discomfort among the stakeholders.
Indian arbitration has structurally changed from its raw and pre-2015 state. Over the years, courts have increasingly exercised self-restraint, and Parliament has tightened statutory language, with the scope of public policy being correspondingly confined. It is precisely this evolution that exposes the present policy retreat as legally and logically unjustifiable.
Large infrastructure awards are not aberrational outcomes; rather, they represent financial systemic shortcomings, including deficiencies in contractual design, delays in land acquisition, misallocation of risk, and administrative fragmentation. Arbitration does not create these conditions but merely records them to adjudicate in an unbiased manner. When the State deliberately narrows arbitration down precisely at the stage when financial liabilities become visible, it risks mistaking fiscal discomfort for systemic malfunction.
The deeper concern is not confined to any single sector but relates to the coherence of the system as a whole. A country cannot divulge significant funds into arbitral architecture, promulgate institutional reform and seek international credibility while simultaneously acting hesitant where the outcomes challenge authority. International markets respond to observable patterns within a country, rather than to official rhetoric. If India genuinely seeks to position itself as a global powerhouse, it must back its ambitions with concrete action and demonstrate commitment to a credible dispute resolution framework.
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