MoRTH Arbitration Ban Rewrites Infrastructure Claims

The end of the arbitral era

Three regulatory moves inside 18 months have ended the predictable arbitral era for Indian infrastructure claims.

1. The Ministry of Finance first capped arbitration above Rs 10 crore in June 2024, requiring recorded reasons and Secretary-level approval.
2. The Ministry of Road Transport and Highways (MoRTH) operationalised that policy on 12 January 2026, removing arbitration as the default across build-operate-transfer (BOT), hybrid annuity model (HAM) and engineering, procurement and construction (EPC) contracts.
3. The 56th GST Council then lifted the government works contract rate from 12% to 18% effective 22 September 2025, draining working capital on live contracts.

Section 142(2)(a) of the CGST Act now treats upward price revisions on pre-2017 legacy contracts as taxable outward supply.

Where claims now fail

High-value disputes funnel through tiered administrative settlement into civil courts, where evidentiary standards are unforgiving.

In MMRDA v. Mumbai Metro One, the Bombay High Court upheld a delay claim but struck down Rs 248 crore of the award for want of evidence, ruling that guesswork cannot substitute for proof.

Tax exposure is equally sharp. In Karam Chand Thapar & Bros (Coal Sales), a Rs 69.38 crore escalation-linked claim inside a Rs 94.56 crore settlement was taxed at 18% under Section 142(2)(a) — a Rs 12.5 crore hit on a single head.

Breach-compensation heads stayed protected under CBIC Circular 178/10/2022-GST.

The commercial signal

For general counsels and bid teams, the shift is structural.

Claims must now be pleaded with tax classification settled before the first hearing.

Counsel who can read S-curve deviations and Section 142 exposure together will determine whether a recovery survives the GST Department.

Contractors still splitting engineering, litigation and tax across three retainers are structurally pricing in margin loss.