Termination of Highway Contracts by NHAI: Legal Framework and Remedies

As India accelerates the development of its highway infrastructure through PPP models, disputes leading to contract termination have become increasingly common. This article examines the legal framework governing NHAI contract terminations, analysing contractual provisions, statutory safeguards, judicial trends, and the growing emphasis on balancing public interest with contractual fairness and project completion

Termination of highway contracts by the National Highways Authority of India (NHAI) is governed by a well-defined yet evolving legal framework that combines contractual provisions, statutory law, and judicial interpretation. India’s rapid expansion of highway infrastructure has been largely driven by Public-Private Partnership (PPP) models, particularly under Build-Operate-Transfer (BOT), Hybrid Annuity Model (HAM), and Engineering, Procurement, and Construction (EPC) formats. These projects are regulated through Model Concession Agreements (MCAs), which establish the rights and obligations of both NHAI and private concessionaires. Despite the structured nature of these agreements, disputes frequently arise due to delays, financial stress, or breaches of contractual terms, often culminating in termination. As a result, the legal principles governing such termination have become increasingly significant in balancing infrastructure development with contractual fairness.

Contractual Framework Governing Termination

At the contractual level, MCAs provide a detailed mechanism for termination and typically classify it into three categories: termination due to concessionaire default, termination due to authority (NHAI) default, and termination arising from force majeure events. Concessionaire default may include failure to achieve financial closure, delays in construction, inability to meet the Commercial Operation Date (COD), or abandonment of the project. On the other hand, authority default may involve failure to provide the required Right of Way (RoW), delays in statutory approvals, or non-payment of annuities. Force majeure covers unforeseeable events such as natural disasters, political instability, or pandemics that prevent contract performance. These agreements also include essential clauses such as material breach provisions, cure periods allowing the defaulting party an opportunity to rectify the breach, and termination payment formulas that determine compensation based on debt due, adjusted equity, and project progress. The termination process usually begins with a Notice of Intent to Terminate (NITT), followed by a formal termination notice, ensuring adherence to principles of natural justice.

Statutory Framework

The statutory framework further strengthens the termination regime, particularly through the Arbitration and Conciliation Act, 1996. Most concession agreements include arbitration clauses, making arbitration the primary mode of dispute resolution. Courts play a limited supervisory role under Sections 9, 11, and 34 of the Act. Section 9 allows parties to seek interim relief, Section 11 deals with the appointment of arbitrators, and Section 34 provides limited grounds for challenging arbitral awards. Indian courts have consistently emphasized minimal interference in arbitral decisions, thereby reinforcing the autonomy of the arbitral process. For instance, the Delhi High Court has upheld arbitral awards granting termination compensation, reiterating that judicial review under Section 34 is confined to instances of patent illegality or violation of public policy.

In addition, the Specific Relief Act, 1963, particularly after its amendment in 2018, plays a crucial role in shaping the legal landscape. Sections 14 and 41 establish that determinable contracts cannot be specifically enforced and that courts generally cannot grant injunctions in infrastructure contracts. Since concession agreements are considered determinable by nature -meaning they can be terminated by either party upon the occurrence of specified conditions -courts are reluctant to order specific performance or restrain termination. This statutory position significantly tilts the balance in favor of allowing termination rather than enforcing continuation of contracts.

Judicial Approach to Termination

Judicial interpretation has consistently reinforced this approach. In the landmark case of NHAI v. HK Toll Road Pvt Ltd (2025), the Delhi High Court held that concession agreements are determinable contracts and therefore not capable of specific enforcement. The Court ruled that injunctions cannot be granted to restrain termination, relying on Sections 14 and 41 of the Specific Relief Act. This decision reflects a broader judicial philosophy that prioritizes the timely completion of infrastructure projects over prolonged contractual disputes. Courts have emphasized that allowing stalled projects to continue under litigation would be detrimental to public interest.

That said, the judiciary has not entirely closed the door on interim relief. In exceptional circumstances, courts may grant temporary protection to prevent irreparable harm or arbitrary action. For example, in Roadway Solutions India Infra Ltd v. NHAI (2026), the Delhi High Court stayed a termination notice and restrained the invocation of bank guarantees pending arbitration. Such interventions, however, are rare and typically short-lived, reinforcing the principle that disputes should ultimately be resolved through arbitration rather than judicial intervention.

Grounds of Termination

Public interest remains a dominant factor in cases involving highway contract termination. Courts have consistently held that infrastructure projects, particularly highways, serve a vital public function and should not be delayed due to private disputes. In a 2026 case concerning delays in the Delhi–Mumbai Expressway, the Delhi High Court allowed NHAI to proceed with termination, observing that citizens cannot be deprived of essential infrastructure and that termination decisions fall within the authority’s discretion. This pro-public interest stance underscores the judiciary’s inclination to ensure that infrastructure development is not hindered by contractual disagreements.

A significant aspect of termination disputes involves the determination of termination payments. These payments are calculated based on predefined formulas in the concession agreement and may include repayment of debt due to lenders, compensation for equity invested by the concessionaire, and other financial adjustments. Courts generally refrain from interfering with such calculations unless there is clear evidence of illegality. In a 2025 Delhi High Court case, an arbitral award directing NHAI to pay ₹229.5 crore as termination compensation was upheld, highlighting the judiciary’s deference to arbitral findings. Escrow mechanisms also play a critical role in safeguarding the interests of lenders by ensuring that termination payments are properly allocated.

In practice, disputes often arise in situations where both parties allege breach, leading to competing termination notices. Such scenarios complicate the determination of liability and require detailed factual and legal analysis by arbitral tribunals. Despite these complexities, the available remedies remain largely monetary in nature. Arbitration serves as the primary forum for resolving disputes, where tribunals assess the validity of termination and determine compensation. Interim relief under Section 9 may be sought to protect bank guarantees or preserve project assets, but such relief is typically temporary. Challenges to arbitral awards under Section 34 are limited to narrow grounds, and courts maintain a hands-off approach in most cases.

Beyond compensation, NHAI also possesses administrative powers such as blacklisting defaulting contractors and re-tendering projects to new developers. Courts rarely interfere with these decisions unless there is clear evidence of mala fide intent or arbitrariness. This further reinforces the authority’s ability to ensure continuity in project execution.

Recent Trends

Recent trends indicate a shift toward pro-completion jurisprudence, where courts and policymakers emphasize timely project delivery over contractual disputes. Arbitration continues to be the preferred mechanism for dispute resolution, and MCAs have been refined to include clearer and more detailed termination payment provisions. Additionally, there has been an increased reliance on conciliation as a means of resolving disputes efficiently and reducing litigation.

However, this framework is not without criticism. Contractors often face asymmetric risks, and termination clauses are sometimes perceived as favoring NHAI. The limited scope of judicial intervention, while beneficial for project continuity, may raise concerns about fairness in certain cases. Nonetheless, given the scale and importance of highway infrastructure, the legal system attempts to strike a balance by allowing termination where necessary while ensuring that affected parties receive adequate compensation through arbitration.

Conclusion

In conclusion, the termination of highway contracts by NHAI is governed by a comprehensive and structured legal regime that prioritizes public interest and infrastructure development. Courts have consistently upheld the determinable nature of concession agreements, restricted the grant of injunctions, and emphasized minimal judicial interference. The prevailing legal position is clear: highway projects should not be stalled by disputes, and the appropriate remedy lies in financial compensation rather than the continuation of contracts. As India continues to expand its highway network, this legal framework is likely to evolve further, seeking to balance efficiency, fairness, and investor confidence.

Shraddha Sharma has experience of more than a decade in litigation and arbitration in infrastructure & commercial disputes. She advises developers, contractors, and public authorities on contract structuring, risk management, and dispute avoidance.