NHAI’s answer to arbitration dues: more retired judges

NHAI’s previous legal strategy to fastrack contractual disputes by using more arbitration has fallen flat, stakeholders say, with the result that pending arbitration claims at the end of FY23 have ballooned to over ₹1.16 trillion.

Now, it has set its eyes on the Society for Affordable Redressal of Disputes (Sarod), a body it created 12 years ago for speedy arbitration in the roadways sector.

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Gunita Pahwa, joint managing partner at S&A Law Offices, a Gurugram-based law firm, told Mint that up until the first few weeks of 2025, only about five or six retired judges were empanelled with Sarod, while the rest were former NHAI officials or other technical experts.

Now, about a quarter of Sarod’s arbitrators, 22 of 93, are retired judges—a strategy that ensures arbitral awards which would be difficult to challenge in court.

“The reason is simple—retired judges are adept at evaluating evidence, analyzing arguments and delivering judgments or awards based on the merits of the case and legal principles,” said Krunal Modi, founding member and manager, Presolv360, a Mumbai-based online dispute resolution services firm.

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“This ensures that the award is not only legally sound and well-balanced but also aligns with the provisions of the Arbitration Act and legal principles. In contrast, while technical experts may have deep domain knowledge, they may not always be equipped to meet these requirements, which are crucial for the enforceability and fairness of the award,” said Modi.

Under Sarod rules of arbitration, disputes worth up to ₹3 crore will be decided by a sole arbitrator, while all other matters go to a tribunal of at least three arbitrators.

As per Indian arbitration law, the arbitral tribunal has to have a strength of three, five, or other odd numbers to ensure a majority decision. Commonly, both parties choose an arbitrator each, and then the chosen arbitrators choose a third arbitrator, forming a three-arbitrator panel.

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It is common practice for parties choose an arbitrator who they think is likely to side with them.

Multiple legal practitioners told Mint that in their view NHAI did not have a winning chance in arbitration cases as they appointed former officials as arbitrators, owing to their technical expertise. But technical expertise would not be enough to secure a favourable award.

In cases where NHAI was able to secure a favourable award with a technical arbitrator, the opposing parties would find it easy to challenge the arbitral award, and drag the matter further, keeping the award away from NHAI’s coffers.

Now, by adding more retired judges to Sarod’s list of empanelled arbitrators, NHAI is using the Sarod framework for its intended purpose—reduce the cost as well as time taken for arbitration in road contracts.

Expanding the roster of retired judges as arbitrators in the Sarod panel will assist NHAI in decreasing its arbitration dues over time, said Pahwa of S&A Law Offices. This will be done “by fostering quicker dispute resolutions, more legally robust awards, and minimising court challenges,” said Pahwa.

“Also, judges approach legal matters systematically, resulting in swifter case outcomes and diminished procedural conflicts. This decreases the likelihood of court awards being overturned due to legal misinterpretations,” she said.

This also comes after instances where private parties went to court to substitute the technical arbitrator with one who had a legal or judicial background, in Sarod arbitrations.

Sarod in December 2024 amended its rules to allow each arbitrator to take up five matters at a time, from three matters previously. This would allow more arbitrators with legal expertise to handle more matters at the same time, lending more authority to NHAI’s arbitrations.

Disputes between NHAI and its contractors and concessionaires are one of the core reasons behind delays in road projects, a parliamentary standing committee noted in March 2022. The committee had also taken note of NHAI’s massive ₹88,100 crore pending claims, and called the trend worrisome. This indicates that unfavourable arbitral awards are not a new problem for NHAI.

Long-drawn legal battles also take a toll on the health of private companies. In the 2019 Supreme Court matter of Hindustan Construction Co. vs Union of India, private contractors had alleged that delays by state-run firms in furnishing arbitral dues to private companies had forced some to insolvency.

The case also shed light on the sheer volume of arbitral dues owed by public sector undertakings (PSUs) to the private sector. The judgment indicated PSUs had paid over ₹3,000 crore in arbitration dues from 2008-2019.

This assumes importance as arbitration related to state-run firms has been a pain point for the government in recent years. Last year in June, the finance ministry advised all arms of the government to abstain from arbitration in cases with disputed value over ₹10 crore, as the process was expensive.

Two oil and gas PSUs—Oil and Natural Gas Corp. (ONGC) and Oil India Ltd—followed the finance ministry’s advice and pared their exposure to arbitration in the following months, Mint reported earlier.