On 16 December 2003, Hon'ble Justice Mr. Chandrashekaraiah of the High Court of Karnataka quashed the acquisition of land for the townships in the Bangalore-Mysore Infrastructure Corridor project, and allowed acquisition only for the expressway itself. With this, the controversial plans for this development - recently further tainted by former PM Deve Gowda's accusations of graft by the Karnataka government - appear to have taken a distinct turn for the worse.

Considering that this project has been conceived to recover expressway costs using profits made from development of townships along the route, the judge's order appears to derail the financial basis for the project. Clause 7.1 of the Framework Agreement accepts that " Each of GOK and the Company acknowledges and agrees that the industrial and commercial development of the Townships by the Company is an integral part of the Infrastructure Corridor Project and its goal of increasing and promoting industry, trade, commerce and tourism in Bangalore, Mysore and the Infrastructure Corridor." With the townships now under question, the expressway too might be shelved; plans to widen the existing state highway between Mysore and Bangalore are already being made.

The judge's order relied on his findings that the Karnataka government had not properly notified the purpose for which the acquired lands would be used. At the time the state issued the notification for land acquisition, the stated intention was "the establishment of industries by the Karnataka Industrial Area Development Board". The court heard petitions challenging this; petitioners argued that the a large portion of the lands acquired were not really needed to establish industries, and were in fact in green-belt areas reserved for non-industrial use.

The petitioners claimed that the government was acquiring lands for townships without having stated that intention in its notifications. Therefore, the notifications should be vacated. The judge agreed with this view, and allowed acquisition of lands needed only for the expressway but not for the townships.

This finding may also come as a useful means by which the government can withdraw from this project. Under its present agreement, the lands should be made available to the Nandi Infrastructure Corridor Enterprises Ltd. to develop the expressway and the townships. This agreement is guaranteed by a comfort letter from the government agreeing to compensate the developers in case the project loses its financial prospects. This, despite the fact that RBI guidelines on infrastructure projects forbid such assurances - a stand vindicated by the Enron fiasco. The judge may have opened the door for the government to back out of this project without the risk of having to fork out taxpayers' money.