New Delhi: Infrastructure contracts should be scrutinized by a specialized government agency before being signed, as early screening can prevent costly arbitration disputes and save thousands of crores of public money, former Chief Justice of India YU Lalit said on Saturday.
Justice Lalit was speaking at a conference on “Dispute Resolution and Arbitration Rules for Construction and Infrastructure Sector: Indian and International Perspective” hosted by the PHD Chamber of Commerce and Industry here in the national capital.
“According to me, all contracts for such construction and infrastructure projects should be vetted by an agency in the ministry first before signing on the dotted line in the contract. This is one area, if you are careful, you will save thousands and thousands of crores from the public exchequer,” he said.
Drawing on his experience of participating in nearly 20 construction and infrastructure arbitrations over the past three years, Justice Lalit said many disputes arise due to gaps in contract drafting, project planning and coordination between government agencies.
He noted that arbitration claims in infrastructure projects often exceed the original project cost, creating a perception that contractors sometimes use the mechanism to obtain higher compensation.
“If the project cost is approx $800 Crores, claims more than $1000 Crores. “It gives the impression as if arbitration has become a tool to obtain more and more profits and revenues for contractors,” he said.
The former CJI also cited the example of environmental restrictions like GR-III and GR-IV measures imposed during severe air pollution, which often lead to halting of construction work.
“Contractors later demand compensation on the basis that manpower and machinery remained idle during these periods,” he added, noting that contracts rarely anticipate such frequent disruptions.
He also referred to disputes arising from inaccurate estimates at the tender stage.
“At the contract stage, sufficient attention may not have been paid, and this creates difficulties for the arbitral tribunal because there are no rules on the basis of which such claims can be evaluated,” he said.
Justice Lalit said infrastructure projects must balance three objectives: quality construction, timely completion, and benefits to society, while ensuring costs do not spiral out of control.
The former Supreme Court judge also pointed to the lack of coordination between government departments, especially in projects related to railway bridges, where design changes by railways after contracts are awarded often lead to disputes.
“What happens is that someone gives you a design that might be for an existing railway line that might be about two years old, and suddenly the railway decides that, let there be a wider kind of network you know. If there has to be a wider network, then naturally your way over the bridge is going to be of a different dimension, and there’s a complete lack of connection between those two sections,” he said.
He also suggested creating mechanisms to address disputes during the project implementation phase instead of waiting for them to escalate to arbitration after several years.
Former Supreme Court Justice Hema Kohli was also present among the dignitaries who spoke during the inaugural session of the event and said that India is witnessing massive investments in highways, railways, urban transport, energy and logistics that are reshaping the country’s development landscape.
The National Infrastructure Pipeline currently identifies projects of value, she said, citing official data $184 thousand crores, which reflects the volume of investment in this sector.
Justice Kohli stressed the importance of having strong dispute resolution frameworks in supporting major infrastructure projects and maintaining investor confidence.
“The strength of the infrastructure ecosystem is measured not only by the size of the projects it implements, but also by the credibility of the legal structure and institutional framework that supports them,” she said.
The former Supreme Court judge stressed that effective dispute resolution mechanisms are crucial to ensuring the stability of business relationships even when disputes arise in complex infrastructure projects involving multiple stakeholders.
“In a sector of this size, disputes are not aberrations. They are structural contingencies inherent in complex business engagements,” she said, adding that the real challenge is ensuring disputes are resolved “efficiently, predictably and fairly.”
The event was attended by other eminent personalities, including Delhi High Court judge Justice Tejas Karia, former Supreme Court judge Justice Jayant Nath and others.
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