Construction Arbitration in Flux: Statutory Intervention and the Path Ahead

The present article is an analysis of the friction between statutory laws and contractual clauses pertaining to dispute resolution via arbitration in light of this year’s Conference theme.

Introduction

The Society of Construction Law, India (SCL India) recently concluded its 5th Biennial International Conference on Construction Law & Arbitration in New Delhi. The Conference was particularly timely, coming at a moment when India is witnessing significant changes in the manner in which construction disputes are being resolved. The theme, “The Future of Construction Disputes: Navigating Change in India and Beyond”, closely reflects the evolving legal tensions in the sector, especially as arbitration continues to assume a central role in construction dispute resolution.¹

The theme of the Conference brought me on the very pertinent issue of present time, i.e. growing friction between arbitration clauses in construction contracts and statutory dispute resolution mechanisms. The prevalence of this issue particularly falls under special laws under the Real Estate (Regulation and Development) Act, 2016 (RERA) and the National Highways Act, 1956 (including Ministry of Road Transport & Highways/National Highways Authority of India frameworks). This conflict, once seen as occasional, is now a systemic pattern.

The present article is an analysis of the friction between statutory laws and contractual clauses pertaining to dispute resolution via arbitration in light of this year’s Conference theme. Prior to the exploration of the same it is important to delve into the rationale of the increment of construction disputes.

Understanding the escalation of construction disputes

India in line of converting its economy from developing to developed has come a long way in its infrastructure. In consonance with the same India’s infrastructure push towards elevated corridors, expressways, metro networks, data centers, renewable parks, and smart cities has accompanied with the challenges of disputes.² The most common disputes include:

1. Delays and cost overruns.

2. Variation claims.

3. Defective design allegations.

4. Land acquisition challenges.

5. Termination and performance disputes.

The aforementioned dispute is not something coming out of the blue, but it has been in existence since the inception of infrastructural facilities in the country. Conventionally, the burden of its resolution has been shouldered by arbitration. But the entry of sectoral statutes with their own adjudicatory bodies has fundamentally altered the dispute resolution map. Now the presence of arbitration clauses in the construction contracts and adjudicatory mechanisms in sectoral statutes are standing against each other, raising the question: What will prevail? Let’s understand how these statutes have incorporated adjudicatory mechanisms in the Act itself to resolve the construction disputes.

Statutory adjudicatory frameworks and the limits of arbitration

Although arbitration continues to be the dominant method for resolving construction disputes, Indian Courts have increasingly emphasised that it cannot operate in isolation from statutory frameworks. Where legislation creates specific rights, duties, and adjudicatory mechanisms particularly in areas involving public interest or sovereign functions contractual arbitration clauses have been held to give way. The following specific legislation is detailed below:

1. RERA is not merely regulatory; it creates statutory rights

RERA was enacted to regulate real estate development and provide a dedicated mechanism for resolving disputes in the sector, with a clear focus on protecting homebuyers. As a special legislation, RERA creates its own regulatory and adjudicatory framework.³

The conflict arises when real estate agreements contain arbitration clauses alongside this statutory mechanism. The question then is whether disputes should be resolved through contractual arbitration or before the authorities constituted under RERA. This overlap has led to a jurisdictional tussle between party autonomy under arbitration agreements and the statutory mandate of RERA.

The courts have consistently held that RERA provides special, non-derogable, public-interest-oriented remedies. In Rashmi Realty Builders (P) Ltd. v. Rahul Rajendrakumar Pagariya⁴:

59. Thus, on the touchstone of the well established parameters for determining the non-arbitrary nature of the dispute it has to be held that dispute which is covered under the RERA is non-arbitrable and therefore, the jurisdiction of Real Estate Regulatory Authority established under Section 20 of the RERA is not ousted.⁵

This has led to the RERA assuming primacy over arbitration in all disputes where homebuyer rights are implicated in delayed possession, structural defects, refunds, or interest claims.

2. The National Highways Act, 1956: Arbitration, but only within limits

Another special legislation which deals with the issue of highways engineering, procurement, and construction (EPC) and concession agreements place a strong reliance on arbitration. The courts have categorised the disputes to be resolved through arbitration usually arising purely of contracts and are technical in nature. The disputes covered under this ambit are majorly the issue of delays, cost escalation, termination, and performance-related claims.

In NHAI v. Bumihiway DDB Ltd. (JV), the Court classified the disputes relating to performance of concession agreements as contractual in nature.⁶ Therefore, can be resolved via arbitration. Further in Gayatri Jhansi Roadways Ltd. v. NHAI⁷, where the Court upheld arbitration as the appropriate forum for resolving disputes under concession agreements, even as it struck down unilateral appointment mechanisms that undermined neutrality.

Similarly, in Patel Engg. Ltd. v. North Eastern Electric Power Corpn. Ltd.⁸, the Court reiterated that claims relating to delay, prolongation, and additional costs arise from contractual obligations and must be resolved through arbitration.

It is pertinent to note that the acceptance of arbitration as dispute resolution means has boundaries and cannot be utilised as straitjacket formula. The distinction has been drawn that if the dispute does not arise from contractual performance rather than from sovereign power of the State, arbitration would not be correct forum.

In Union of India v. Tarsem Singh⁹, the Supreme Court clarified that proceedings under Section 3-G form part of a statutory scheme governing compulsory acquisition of land. The Court held that such proceedings do not arise from party consent but from the State’s exercise of sovereign power.

This distinction is consistent with the broader principle laid down in Vidya Drolia v. Durga Trading Corpn.¹⁰, where the Court held that “disputes involving sovereign functions, public rights, or statutory powers are inherently non-arbitrable”.

Other statutory regimes affecting construction arbitration

The approach adopted under the National Highways Act, 1956 reflects a wider judicial trend. Several other statutes governing construction-related disputes similarly limit or exclude arbitration.

The Micro, Small and Medium Enterprises Development Act, 2006 is particularly relevant in construction projects involving micro, small and medium enterprises (MSME) suppliers and subcontractors. Section 18, Micro, Small and Medium Enterprises Development Act, 2006 provides for a mandatory reference to the Micro and Small Enterprises Facilitation Council in cases of delayed payment. In Gujarat State Civil Supplies Corpn. Ltd. v. Mahakali Foods (P) Ltd.¹¹, the Supreme Court held that:

33. It is trite to say that the provisions of the special statute would override the provisions of the general statute. It is also well settled that while determining the effect of a statute overriding the other statute, the purpose and policy underlying the two statutes and the clear intendment conveyed by the language of the relevant provisions therein would be the relevant consideration.¹²

Land acquisition statutes also place disputes beyond the reach of arbitration. The disputes arising under the Land Acquisition Act, 1894 and the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 concern compulsory acquisition and statutory determination of compensation. These disputes flow from the exercise of eminent domain and are therefore treated as matters of public law rather than private adjudication.

In the power sector, the Electricity Act, 2003 similarly restricts arbitral jurisdiction. Regulatory issues such as tariff determination and grid connectivity fall within the exclusive domain of electricity regulatory commissions. In Gujarat Urja Vikas Nigam Ltd. v. Essar Power Ltd.¹³, the Court stated that the role of statutory functions cannot be displaced.

Environmental and planning laws further reinforce this approach. In Bhopal Gas Peedith Mahila Udyog Sangathan v. Union of India¹⁴, the Court noted that environmental disputes involve collective rights and public interest considerations and should be dealt with by the National Green Tribunal, an adjudicatory body delineated in the Act. Construction disputes involving environmental clearances or statutory compliance must therefore be addressed before designated statutory forums such as the National Green Tribunal.

Conclusion: An emerging judicial consensus

The future of construction dispute resolution in India lies not in pushing back against statutory intervention, but in learning to work within it. The emergence of special legislation has not weakened arbitration; it has clarified where arbitration truly belongs.

Recent judicial decisions point to a consistent approach. Arbitration remains the preferred forum for resolving technical, performance based, and contractual disputes that arise during the execution of construction projects. At the same time, the courts have made it clear that where disputes involve statutory rights, regulatory oversight, consumer protection, or the exercise of sovereign power, arbitration must give way to the mechanism prescribed by law.

Statutes such as the RERA, the National Highways Act, 1956, and the Micro, Small and Medium Enterprises Development Act, 2006 do not erode the foundations of arbitration. Rather, they reshape its role by allowing arbitration to operate where it supports the statutory scheme and excluding it where public law considerations call for specialised adjudication. This careful balancing of party autonomy and legislative intent is increasingly shaping the future of construction arbitration in India.