By Amit Kapoor & Amitabh Kant
In an economy with infrastructure needs as vast and varied as India’s, mobilising private capital at scale is key for inclusive development. In this context, contracts are not just legal instruments; they are integral to the overall regulatory environment on which long-term investments rest. When ambiguity seeps into this regulatory ecosystem, the resulting stress is not only legal but also financial, institutional, and global.
Judicial interpretations creating uncertainty
The December 2024 judgment in Noida Toll Bridge Company Ltd v. Federation of NOIDA RWAs has sparked renewed debate about the underlying legal frameworks governing public-private partnerships (PPPs). The ripple effects of this judgment will have a significant impact across India’s infrastructure investment. At the centre of this shift lies the idea that a private concessionaire’s right to collect user charges may be curtailed once a “reasonable return” based on historic interest rates is recovered. While the judgment dealt with a specific case, it raises a broader question: are long-term investments still protected by the predictability they were once promised? The consequences are not hypothetical. Over the next five years, India hopes to mobilise Rs 3.5 lakh crore through infrastructure investment trusts, particularly in the road sector. These are not minor financial instruments; they are fundamental vehicles for converting public infrastructure into investible assets. Their viability depends on long-term, enforceable revenue streams derived typically from user charges. If judicial interpretation now suggests that these streams can be truncated based on a retrospective assessment of “reasonable” returns, the trust underwriting these investments begins to erode.
Need for legislative and procedural clarity
Consider the real-world impact. Investors calibrate their bids based on cash flow models that span decades. If the tail-end of those models is no longer legally secure, they will either exit the market or demand significantly higher return. The cost of capital will rise. The pool of risk-taking capital will shrink. This affects not only the major national projects but also municipal and state-level infrastructure, where project structuring is often more fragile. Projects such as the upcoming Jewar airport where long-term revenue projections and land-based concessions are central to financial closure could experience investor caution if the legal treatment of user fees remains unsettled.
Adding to the complexity is a lack of alignment in judicial interpretations on the treatment of PPP contracts. Just weeks after the NTBCL ruling, in February, a different bench of the Supreme Court delivered a verdict in Racing Promotions Pvt. Ltd v. Dr. Harish & Ors, holding that PPP contractual arrangements fall outside the scope of public interest litigation (PIL) scrutiny. This judgment recognised the evolution of economic policy toward public-private collaboration and reaffirmed that courts should not interfere with commercial agreements under PIL. The juxtaposition of these two rulings within weeks of each other has created a situation where fundamental questions around legal risk in PPP projects remain unresolved. This divergence in interpretations, though reflective of the evolving legal discourse, has introduced new considerations for risk assessment in PPP financing. For lenders, developers, and policymakers alike, the uncertainty underscores the need for predictable jurisprudence, consistent regulatory guidance, and clear contractual frameworks that reduce ambiguity and reassure investors of long-term stability. It also complicates the task for institutions like the National Highways Authority of India, Airports Authority of India, or urban development authorities looking to attract private capital for long-gestation projects. In the absence of a clear and consistent legal baseline, private investors may increasingly seek judicial pre-clearance.
What, then, might a forward-looking response look like? One possibility is legislative. A dedicated law under the banner of a Viksit Bharat Infrastructure Development Act could codify key principles around contract enforcement, land use, and revenue mechanisms. Such a statute could also embed transparent dispute resolution mechanisms, define the respective roles of the Centre and states, and create predictable norms for risk-sharing that reduce transaction costs for both public and private partners. This would not diminish judicial scrutiny, but it would provide a clear framework within which such scrutiny can operate. Another option is procedural innovation. The Supreme Court could consider setting up a mechanism akin to an “advance ruling” process for PPP concessions. Just as advance tax rulings offer legal clarity for investors, such a mechanism could ensure that large, long-term PPP contracts are vetted at the outset for legal and public policy alignment. This would insulate projects against litigation risk but may require careful balancing to avoid project delays. In practice, such conditional vetting would operate less as a barrier and more as an enabling device, offering reassurance upfront while still allowing judicial review if fundamental concerns arise later. Meanwhile, project developers and lenders could begin including conditionality clauses that require the contracting authority to obtain judicial confirmation that the concession is aligned with public interest, if such doubts persist.
Ultimately, moving towards greater coherence may require deliberation at the judicial level. The Union of India may consider seeking a review of the NTBCL judgment and request that it be referred to a larger bench for clarity. Pending such review, temporary measures could be considered to minimise uncertainty and allow for informed stakeholder engagement. None of these solutions are quick fixes but they are necessary if India is to maintain its momentum as a destination for infrastructure capital. With rising interest in logistics, urban mobility, clean energy, and digital infrastructure, the country stands at a moment of immense opportunity. Yet this moment demands that its institutional machinery, especially legal and financial, operate in coordination and work in close synchrony, ensuring predictability, stability, and confidence for all stakeholders. The NTBCL ruling may be a single node in a complex system, but it has lit up the vulnerabilities that exist within. Whether India can close those gaps through law, practice, and institutional design will determine whether its infrastructure ambitions remain bankable. Investors are watching, and so are the projects yet to be built.
The writers are respectively chair, Institute for Competitiveness, and former G20 Sherpa & CEO, NITI Aayog.
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