Construction

The legal framework governing the construction industry comprises a complex set of laws, regulations and contractual obligations

Broadly, the following laws and regulations govern the construction sector:

• The Indian Contract Act, 1872 is a comprehensive statute that governs contracts and agreements in India. The act is largely based on English common law and has been amended several times to keep up with changing economic conditions.
• The Specific Relief Act, 1963 provides remedies for persons whose civil or contractual rights have been violated. The act aims to restore a party to the position it would have been in if the contract or agreement had been performed as agreed.
• The Commercial Courts Act, 2015 was introduced to expedite the resolution of commercial disputes, ensuring that businesses can operate with greater confidence and efficiency in Indian market.
• The Real Estate (Regulation and Development Act) 2016 was enacted to ensure the regulation and promotion of the real estate sector.
• The Building and Other Construction Workers (Regulation of Employment and Conditions of Service) Act, 1996 regulates the employment and conditions of service of building and construction workers.
• The Industrial Disputes Act, 1947 was enacted to:
• • provide for the prevention and settlement of industrial disputes; and
  • establish certain safeguards to workers.
• The National Building Code of India, 2016 lays down comprehensive guidelines for the planning, design, construction and maintenance of buildings, with a focus on:
• • structural safety;
  • fire protection; and
  • electrical systems.
• Though initially a model code, it acquires legal enforceability once adopted by local authorities through municipal bylaws or state regulations. The code plays a crucial role in regulating building activities and compliance is often mandatory for obtaining building permissions and occupancy certificates, thus making it a key instrument in the legal framework governing real estate and construction in India.

• The Registration Act, 1908 governs the registration of the documents related to immovable property, ensuring transparency and authenticity in property dealing by:
• • mandating registration for certain documents; and
  • outlining procedures, rights and consequences for non-registration.
• The Indian Stamp Act, 1899 is the key law governing stamp duties in India. It establishes rules for levying stamp duty on specific legal and financial documents, ensuring their validity and enforceability.
• The Indian Easement Act, 1882 defines an ‘easement’ as a right that allows the owner or occupier of land to use or restrict the use of another’s land for the beneficial enjoyment of their own property.
• The Environment Protection Act, 1986 ensures that construction projects comply with environmental safeguards.
• The Factories Act, 1948 sets out provisions pertaining to the safety, health and welfare of workers carried out within factory premises.
• The Hazardous Substances Act, 1986 regulates the use, manufacture and disposal of hazardous substances in India. It requires companies that produce or use hazardous substances to obtain a licence from the government.
• The Occupational Safety, Health and Working Conditions Code, 2020 stipulates requirements for risk assessments and the supply of personal protective equipment in order to ensure worker safety at building sites.

In India, the construction sector is regulated by multiple bodies for different aspects at both the central and state levels.

• Environmental compliance:
• • Ministry of Environment, Forests, and Climate Change:
  • • Grants environmental clearance for large-scale projects; and
    • Sets national environmental policies.
  • Central Pollution Control Board and state pollution control boards (SPCBs): Regulate and enforce air, water, noise pollution and waste management rules.
  • Municipal corporations/urban local bodies:
  • • Enforce local environmental norms; and
    • oversee site sanitation and disposal of construction debris.
• Labour and employment regulation:
• • Ministry of Labour and Employment: Frames central laws on:
  • • worker safety;
    • employment conditions; and
    • benefits.
  • State labour departments:
  • • Enforce labour laws at the local level;
    • Conduct inspections; and
    • Resolve disputes.
  • Building and other construction workers’ welfare boards: Provide welfare schemes, insurance and benefits to registered construction workers.
• Financial regulation and taxation:
• • Goods and Services Tax (GST) Council: Decides GST rates on construction services and materials.
  • Income Tax Department: Regulates income tax on construction contracts and transactions.
• Sector-specific project regulation:
• • The National Highways Authority of India oversees the building of new highways and maintenance of existing highways.
  • Railway infrastructure projects are overseen by the Ministry of Railways.
  • The Real Estate Regulatory Authority (RERA) oversees the development of real estate projects to protect the interests of homebuyers.

There are multiple bodies involved at the central and state levels from which permissions and approvals must be obtained by developers.

At the state level:

• urban development authorities and municipal corporations grant land use and building plan approvals;
• SPBCs ensure environmental compliance;
• public works departments handle infrastructure coordination;
• revenue departments manage land ownership, mutation and land use conversion processes;
• state RERAs oversee real estate project registration and ensure consumer protection and timely delivery; and
• state labour departments enforce worker safety, wages and welfare measures at construction sites.

At the central level:

• the Housing Ministry frames policies;
• the Central Public Works Department handles major public infrastructure projects;
• the Ministry of Environment issues environmental clearances for large projects after the necessary assessments;
• the Bureau of Indian Standards sets construction and safety standards through the National Building Code;
• the Labour Ministry provides national guidelines for labour welfare and safety in the sector; and
• dispute resolution is supported by:
• • RERA tribunals;
  • consumer courts; and
  • arbitration mechanisms.

The construction procurement process involves acquiring goods and services required for a construction project. The process aims to:

• secure the necessary resources;
• achieve project objectives within budget and time constraints; and
• mitigate the risks associated with construction projects, ensuring efficiency, quality and successful project completion.

Construction procurement takes place in both the private sector and the public sector. In the private sector, procurement may be for the purpose of development of, for example:

• housing projects;
• office buildings; and

infrastructure projects -roads, dams, railways, airports, ports, Oil and Gas, power projects

Engagements in this sector are generally governed by direct contractual agreements between the employer and the contractor, via private bidding.

In contrast, procurement in the public sector by the central and state governments constitutes the majority of procurement activity in India and is governed by regulatory frameworks aimed at ensuring:

• competitive bidding processes; and
• transparent, pre-defined tender conditions.

The main approaches to procurement are as follows:

• In the design-bid-build (traditional contract) approach, the owner hires a designer first, then selects a contractor through competitive bidding. This method separates the design and construction phases, allowing for competitive bidding and lower construction costs.
• Design-and-build procurement involves hiring a single entity, usually a design-build firm, to manage the project’s design and construction phases. This integrated approach fosters collaboration between designers and builders:
• • streamlining the construction process; and
  • potentially reducing project delivery time and costs.
• Under the management contract arrangement, the project owner appoints a construction manager to oversee the entire project, including the design, procurement and construction phases. The construction manager acts as an adviser to the owner throughout the project.
• Construction management procurement involves hiring a construction manager who provides advisory services during construction to assist the owner in:
• • selecting and managing subcontractors;
  • monitoring the progress of the project;
  • resolving construction-related issues; and
  • ultimately, optimising project performance and quality.
• Private finance procurement/public-private partnerships (PPP) and build-operate-transfer (BOT) involve private sector entities financing, designing, constructing and often operating infrastructure projects. In this model, the private sector assumes significant project risks and responsibilities in exchange for revenue generated from the project over its lifecycle. Under the PPP model, projects such as Delhi Dedicated Freight Corridor and Delhi Metro Rail Corporation have been funded by a foreign investor, Japan International Cooperation Agency. In such cases, international funding agencies often set procurement conditions.
• In addition to traditional procurement methods, emerging ideas in construction procurement include collaborative approaches such as integrated project delivery, where stakeholders work together from project inception to completion, sharing risks and rewards.

When international parties are involved in projects within India, the procurement methods are governed by Indian laws and regulations, similar to those applicable to domestic entities. However, foreign entities may be subject to additional regulatory requirements, such as:

• obtaining prior approvals from the Reserve Bank of India for investments or remittances; and
• establishing a local presence – such as a project office, liaison office or Indian-incorporated subsidiary – to undertake project-related activities.

Regardless of the party’s origin, once a project is executed within the Indian jurisdiction, all procurement activities must comply with the applicable legal framework, regulatory standards and institutional guidelines prevailing in India.

Infrastructure in India is mostly developed by the government by engaging private contractors through PPPs under the concession model. PPP has become a preferred mode for infrastructure delivery in key sectors such as:

• highways;
• airports;
• urban transit; and
• ports.

The advantages of PPPs are manifold:

• They:
• • provide access to private capital and expertise;
  • enable faster execution of projects; and
  • foster innovation through competitive processes; and
• Technologies such as predictive analytics and generative AI are poised to revolutionise procurement planning and contract management.

However, challenges remain. Internally, procurement teams may struggle with limited data, legacy systems and weak integration, which hamper agility and execution. Externally, factors such as inflation, volatile commodity prices and demand uncertainty disrupt cost forecasting and long-term contract stability.

Integrating procurement and finance operations offers several significant advantages:

• It leads to enhanced cost savings estimated between 20–40% by improving spend visibility and eliminating process inefficiencies; and
• Operational efficiency is boosted by 10–30% through streamlined workflows and automation.

With regard to financing, infrastructure development in India has traditionally relied heavily on:

• budgetary allocations from the central and state governments; and
• borrowings from domestic and international sources, including multilateral development banks.

However, these conventional sources are often constrained by:

• limited financial capacity; and
• selective investment preferences.

To maintain the momentum of infrastructure expansion, the government has been actively promoting the adoption of innovative financing models, such as PPPs and other structured financial instruments. In line with this objective, recent budget announcements have underscored the government’s commitment to enhancing private sector participation by:

• expanding the scope of viability gap funding, whereby the government grants up to 40% of the total cost incurred for infrastructure projects; and
• proposing the development of a market-based financing framework aimed at mobilising long-term capital for infrastructure investment.

Challenges which may arise include the following:

• Market fluctuations: Volatility in market conditions can significantly affect material costs, impacting financial planning and budget stability.
• Supply chain problems: Delays in the supply chain can halt project progress, highlighting the need for robust logistics planning and effective supply chain management.
• Regulatory compliance: Navigating diverse regulatory requirements across jurisdictions can be complex and demands thorough understanding of local laws and compliance obligations.

• Cost-related factors:
• • Complexity of design;
  • Construction variation;
  • Price certainty;
  • Cost control; and
  • Price competition.
• Time-related factors:
• • Training and awareness on procurement;
  • Construction speed;
  • Planning and designing; and
  • Time constraints.
• Quality-related factors:
• • Quality assurance;
  • Material selection;
  • Quality and safety policy; and
  • Logistics.
• Factors related to project characteristics:
• • Project size;
  • Procurement guidelines and procedure;
  • Payment interval of the project;
  • Vendor selection;
  • Improper planning of project schedule;
  • Inventory management;
  • Lack of coordination between contractor and supplier; and
  • Quality level of project.
• Client-related factors:
• • Funding arrangement;
  • Government policy; and
  • Procurement decision-making responsibility.
• Factors relating to the external environment:
• • Market competition;
  • Political and social factors;
  • Worker conditions; and
  • Globalisation.

The Indian construction market does not strictly adhere to any standard form of construction contract, as there are no mandatory requirements in this regard in India and parties are free to negotiate and enter into any contract that they deem appropriate for their project. However, the use of standard contracts helps to avoid disputes and provides a framework that is widely accepted and recognised, to the benefit of all parties involved.

The common structures for infrastructure projects in India are:

• special purpose vehicles (SPVs);
• joint ventures (JVs); and
• consortia.

SPVs are used to:

• isolate project risks;
• streamline financing; and
• meet government requirements

They are particularly common in public-private partnership (PPP) models such as:

• highways;
• airports; and
• smart cities.

JVs are formed when two or more parties, often including foreign companies, collaborate to combine expertise, capital or resources.

Consortia are collaborative arrangements where multiple firms – comprising contractors, financiers, technology providers and consultants – come together to bid for and implement large-scale infrastructure projects. Unlike JVs, a consortium does not necessarily create a separate legal entity but operates under a lead partner or a consortium agreement that clearly defines the roles, responsibilities and risk-sharing mechanisms among the participating entities.

Project agreements are the legal documents that govern the execution and management of infrastructure projects. These include a range of contracts, such as:

• concession agreements;
• engineering, procurement and construction (EPC) contracts;
• operation and maintenance agreements;
• financing agreements; and
• shareholders’ agreements.

These documents clearly define the obligations, risk allocation, financial arrangements, performance standards and dispute resolution mechanisms among the various stakeholders, ensuring clarity and enforceability throughout the project lifecycle.

Further, government construction agencies use their own standard forms of contracts to meet specific departmental needs, especially for PPPs. In general, the standard form of contracts issued by the International Federation of Consulting Engineers and the Central Public Works Department are also used in India.

Some of the most popular building contracts are as follows:

• Under a BOT contract, a contractor is in charge of the project’s design, construction, and operation (for the duration of the contract) before returning it to the employer.
• Under a build-own-operate contract:
• • the employer buys the products and services generated by the construction project; and
  • the contractor manages the money and constructs, own, and runs the project.
• Under a build-operate-lease-transfer contract, a government agency grants a private company a concession to:
• • design or construct a project;
  • own it;
  • lease it to the government agency; and
  • return ownership of the project to the government agency at the end of the lease.
• Under design-build-finance-operate-transfer (DBFOT) agreements, the contractor is in charge of planning, building, funding and running the project during the concession period.
• Under operate-maintain-transfer agreements, the contractor oversees the project’s operation, guarantees upkeep and offers training prior to transferring it to the employer.
• Under EPC contracts:
• • the employer is in charge of material procurement and project construction; and
  • the contractor is in charge of engineering.
• The hybrid annuity model (HAM) combines two infrastructure construction models –BOT-annuity and EPC – and project funding is divided between the government and the concessionaire.
• Under a joint development agreement, a real estate developer and landowner work together to build a project.

When international parties are involved in projects in India, they are governed by Indian laws and regulations. In projects involving international bidding – particularly where foreign lenders are involved, such as the Asian Development Bank or the Japan International Cooperation Agency – the preferred structures are JVs or SPVs.

The choice between setting up a project as a JV, an SPV or a consortium is mainly influenced by:

• the scale and duration of the project;
• the sources of financing;
• the level of risk involved; and
• regulatory or government requirements.

For example, large infrastructure projects with high capital needs and multiple stakeholders often require an SPV to isolate financial risks and meet government or lender conditions. When partners want a long-term stake in a project and share investment, control and returns, a JV is suitable. In contrast, if the goal is to bring together different companies just for bidding or executing a one-time, specialised project, such as a metro line or tunnel, a consortium is more efficient.

Construction projects for domestic and international parties are commonly financed by:

• banks;
• financial institutions;
• non-banking financial companies;
• foreign institutions (eg, private equity funds or foreign portfolio investors); and
• alternative investment funds.

The funding for different project models is outlined below:

• Engineering, procurement and construction (EPC) project: The project is entirely funded by a government authority, which releases payment to the concessionaire upon completion of certain pre-defined stages during the construction period.
• Design-build-finance-operate-transfer (DBFOT) project: The concessionaire must arrange the entire financing for the construction work through banks/financial institutes/non-banking financial companies/foreign institutions (eg, private equity funds or foreign portfolio investors). In general, the debt-equity ratio is 80:20/75:25/70:30.
• Hybrid annuity model (HAM) project:
• • The government authority makes payment of around 40% during construction through pre-defined achievement of physical progress-based milestones; and
  • The concessionaire arranges the remaining 60% for the construction work through banks/financial institutes/foreign funds. In general, the debt-equity ratio is 80:20/75:25/70:30.

The advantages and disadvantages of financing structures differ for the contractor and the employer. The contractor often has limited choice under an EPC contract (funded by the government) and relies on timely payments from the employer; but there is a gap between billing and payment, requiring interim financing through bank loans. In models such as HAM or DBFOT, the contractor must arrange equity or debt financing upfront, which increases financial exposure but also offers long-term revenue opportunities. Gap funding is often managed through interim financing from banks.

From the employer’s perspective, EPC contracts reduce the financial burden on the contractor and offer clear cost control but require large upfront public funding. In the HAM and DBFOT models, the employer benefits from reduced initial investment and shared risks, but it may face long-term financial commitments and less control during execution.

When choosing a funding structure, a number of aspects are taken into account. The entity’s commercial interests are the most important concerns. Therefore, important elements for various financing arrangements include:

• tax treatment;
• interest rates;
• levies; and
• rebates.

When it comes to raising debt or equity financing, the entity’s own financial status may also determine its capabilities and constraints.

In India, lenders financing construction and infrastructure projects have access to a range of security interests and protective mechanisms to safeguard their financial exposure and ensure the enforceability of repayment obligations, even in the event of project distress or borrower default.

Security interests over immovable property are primarily created through mortgages. The two most common types are:

• an English mortgage, which is executed under a registered deed and transfers ownership of the property to the lender subject to a condition of retransfer upon repayment; and
• an equitable mortgage, created by the deposit of title deeds with the lender or a security trustee without the need for registration.

In the case of movable assets, lenders create a charge by executing a deed of hypothecation. Such hypothecation arrangements allow the borrower to retain possession of the movable assets while granting the lender a security interest therein. Additionally, a combination of security over movable assets and immovable property may be created under a composite registered mortgage deed.

Security interests in financial instruments, such as shares, are typically created through a pledge agreement. In the case of dematerialised securities, the pledge is recorded with the relevant depository. For physical share certificates, the pledged securities are delivered to the lender or a security trustee as security interest.

Beyond security interests, lenders may also mitigate credit risk and enhance oversight by:

• obtaining corporate or personal guarantees;
• requiring insurance coverage over key project assets and risks; and
• implementing control mechanisms, such as escrow or joint account arrangements or step-in rights.

Lenders may also assign a debt to another bank/financial institution/non-banking financial company and the assignee/substituted lender may thereafter enforce its security interest under various Indian laws.

In India, a combination of statutes, regulatory guidelines and sector-specific frameworks govern project finance in its entirety, depending on:

• the nature of the project; and
• the source of funding.

Domestic project financing: All rupee-denominated loans are governed by the following key laws and regulations:

• the Reserve Bank of India Act, 1934;
• the Banking Regulation Act, 1949; and
• periodic Reserve Bank of India master directions, notifications and circulars.

Foreign investment through equity or quasi-equity instruments: For projects financed by non-residents via equity or quasi-equity, the following apply:

• the Foreign Direct Investment Policy issued by the Department for Promotion of Industry and Internal Trade;
• the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000; and
• the Master Direction on External Commercial Borrowings, Trade Credit, Borrowing and Structured Obligations (commonly known as the ECB Master Direction).

Cross-border debt transactions: Such transactions must comply with the External Commercial Borrowing (ECB) Guidelines. Specific regulations governing ECBs include:

• the Foreign Exchange Management Act, 1999 (FEMA);
• the Master Direction on External Commercial Borrowings, Trade Credit, and Borrowing and Lending in Foreign Currency;
• the FEMA (Borrowing or Lending in Foreign Exchange) Regulations, 2000; and
• the FEMA (Borrowing or Lending in Rupees) Regulations, 2000.

Additional laws: Other laws with relevance to project finance transactions include:

• the Indian Contract Act, 1872
• the Companies Act, 2013
• the Transfer of Property Act, 1882
• the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002.

Infrastructure projects – the primary focus of project finance – are regulated by sector-specific authorities in the absence of a central project finance regulator. Depending on the sector, the applicable regulator may influence the structuring and compliance of project finance deals. Key regulatory bodies include:

• the National Highways Authority of India;
• the Directorate General of Hydrocarbons;
• the Central Electricity Regulatory Commission;
• the Airports Authority of India;
• the state maritime boards, port trusts and the Tariff Authority for Major Ports; and
• other relevant state-level authorities, depending on the location and nature of the project.

Legal framework:

• Prevention of Corruption Act, 1988: This is the principal anti-corruption legislation in India. It criminalises acts of bribery by public servants as well as individuals who offer or accept bribes. An amendment in 2018 introduced provisions making it illegal for any person, including public officials, to solicit or accept bribes.
• Prevention of Money Laundering Act, 2002: This statute criminalises money laundering and prohibits the use of proceeds of crime in India. It aims to:
• • disrupt financial networks involved in corruption; and
  • enforce asset recovery mechanisms.
• Companies Act, 2013: This act imposes corporate governance obligations and contains specific provisions targeting fraud and corruption in corporate entities. The definition of ‘fraud’ under the act is broad and criminalises a wide range of misconduct.
• Bharatiya Nyaya Sanhita, 2023: Relevant provisions of this statute address offences such as criminal breach of trust, cheating and misappropriation, which are often involved in corruption cases.
• Benami Transactions (Prohibition) Act, 1988: This law prohibits individuals from holding property in the name of another person (‘benami property’) with the intent to conceal ownership. It is designed to prevent the use of illicit funds in real estate and asset holdings.

Regulatory and institutional framework:

• Lokpal and Lokayuktas Act, 2013: This law establishes the Lokpal at the central level and lokayuktas at the state level to function as anti-corruption ombudsmen. They are empowered to investigate complaints against public functionaries, including high-ranking officials.
• Central Vigilance Commission (CVC): This independent body oversees vigilance administration and advises the central government on anti-corruption strategies. The CVC monitors and guides the conduct of public servants and public sector enterprises.
• Foreign Contribution Regulation Act, 2010 (FCRA): The FCRA regulates the acceptance and use of foreign contributions by individuals, associations and entities. It prohibits legislators, judges, political parties, government employees and employees of government-controlled organisations from receiving foreign contributions or hospitality without prior government approval. A ‘foreign source’ includes:
• • foreign individuals;
  • foreign corporations; multinational companies; and
  • foreign trusts and foundations.
• Comptroller and Auditor General (CAG): Established under the Constitution, the CAG audits the revenues and expenditures of the central and state governments, as well as government-owned corporations. Although the CAG does not possess investigative powers, its audit reports often expose irregularities that lead to further inquiries into suspected corruption.

In India, several forms of construction contracts have emerged in different industries, each tailored to meet specific needs and requirements.

The following are commonly used for international projects:

• International Federation of Consulting Engineers contracts – standard form contracts which are widely used in the construction industry for international engineering and construction projects;
• multilateral development bank contracts for projects funded by institutions such as the World Bank;
• Institution of Civil Engineers contracts; and
• AUTM model inter-institutional agreements, which are used in particular for technical collaborations or academic/innovation-driven construction projects involving foreign stakeholders.

For domestic projects, concession agreements are formulated by different regulatory bodies, each with its own standard agreements. Additionally, India uses turnkey contracts, which are comprehensive agreements where the contractor handles everything from design to project handover. This type of contract offers convenience to the owner but transfers significant risk to the contractor. Further, turnkey contracts can be classified into the following models:

• engineering, procurement and construction;
• hybrid annuity model; and
• build, operate, transfer.

The advantages and disadvantages of using different standard forms of contracts depend largely on:

• the entity entering the market; and
• the specific needs and structure of the project.

The advantages of turnkey contracts include:

• price certainty;
• safeguards concessionaire in case of uncertainties (eg, a price escalation, change in law, force majeure events) during the course of the contract period;
• reduced change management challenges;
• reduced cost overruns;
• condensed project timelines;
• collaborative approach;
• risk transference;
• reduced management efforts;
• consistent quality expectations across phases; and
• reduced blaming and finger-pointing.

The disadvantages of turnkey contracts include:

• the stringent scope definition;
• dependence on trust of full scope; and
• design cost contingency.

Several factors may influence the decision to use standard form contracts and the selection of a specific standard form, including:

• the nature and provisions of the contract;
• the complexity of the project;
• the extent of the owner’s desired involvement;
• the project timeline; and
• the availability of specialised expertise and resources.

In public procurement:

• contracts are generally based on the tender terms; and
• modifications are not permitted once the contract is awarded.

However, during clarification meetings:

• parties/bidders may raise questions; and
• any adjustments to the agreement are made based on the decisions from those discussions.

Additionally, special terms and conditions may be introduced by the employer and become part of the final contract. In contrast, private procurement allows for more flexibility. While standard form contracts may be used as a base, the terms are often subject to negotiation between the parties. Modifications to the provisions are common, as both parties can tailor the contract to meet their specific needs and requirements. Therefore, public procurement follows a more rigid structure, while private procurement provides room for customisation and adjustments.

Under Indian law, the parties to a contract are generally free to choose the governing law of their agreement, including foreign law. Consequently, the application of foreign law is legally recognised, subject to public policy considerations.

The Indian courts have consistently upheld the validity of such choices in international commercial contracts, interpreting them to govern the substantive rights and obligations of the contracting parties.

In Bharat Aluminium Co v Kaiser Aluminium Technical Services Inc [(2016) INSC 96], the Supreme Court emphasised that party autonomy is a fundamental principle in arbitration. It confirmed that parties can independently choose:

• the substantive law of the contract;
• the law governing the arbitration agreement; and
• the curial (procedural) law.

The court further clarified that if the arbitration agreement is governed by foreign law or the seat of arbitration is located outside India, Part I of the Arbitration and Conciliation Act, 1996 will not apply to the arbitration. This position of law has been affirmed in subsequent landmark decisions – including Amazon.com NV Investment Holdings LLC v Future Retail Limited [(2021) INSC 385] and Arif Azim Co Ltd v Micromax Informatics FZE [(2024) INSC 850] – thereby reinforcing party autonomy and the primacy of juridical seat in determining the applicable legal framework in international arbitrations.

In the context of public procurement:

• Indian law typically governs the contractual relationship; and
• Indian courts generally retain jurisdiction.

Conversely, in private procurement contracts, parties may agree to a foreign governing law and foreign jurisdiction, subject to enforceability under Indian law.

With respect to contractual arrangements between a contractor and a subcontractor, foreign law and jurisdiction may be agreed upon. However, in agreements between the employer (often a public authority) and the contractor, the governing law and jurisdiction are Indian, unless otherwise permitted under the specific procurement framework.

In certain foreign-funded public procurement contracts, international arbitration is permissible. Such arbitration clauses are usually drafted to accommodate both domestic and foreign contractors, with specific provisions addressing the applicable procedural rules, the seat of arbitration and the governing law in a manner that ensures neutrality and enforceability.

The following terms are mandatory:

• A performance/security deposit is mandatory as per the pre-defined terms of the contract.
• Fulfilment of the obligations mentioned in the ‘conditions precedent’ of a contract is mandatory for both parties.
• Construction projects are time bound, with construction milestones specified. Damages are applicable if the timelines are not met by the contractor.
• The quality of construction delivered by the contractor is essential. There is a certain period of defect liability after construction (eg, four years/five years/10 years/15 years), as per the pre-defined terms of the contract.
• Provisions relating to release of payment/annuity and bank guarantees on achieving project milestones/completion of construction are mandatory, as per the pre-defined terms of the contract.

The following are typically prohibited:

• The contractor is prohibited from subcontracting the entire project to another agency.
• The contractor is prohibited from delivering work that is substandard or does not comply with the defined specifications.
• The contractor is prohibited from carrying out unsafe work.

The following terms are typically included:

• terms on the termination payment under various circumstances, as per the pre-defined terms of the contract;
• terms on indemnities; and
• terms on force majeure events.

In Indian construction contracts, risk is allocated between the contractor and the employer based on the responsibilities and obligations of each party. The risks are categorised as follows:

• Contractor-borne risks: Contractors are generally responsible for risks relating to the execution of the project. This includes ensuring the availability of adequate manpower and machinery. Even if shortages occur without the contractor’s fault, it will typically be held liable, as these aspects fall under its domain of responsibility. The Supreme Court emphasised in Energy Watchdog v CERC [(2017) SCR 153] that contractors cannot claim frustration of contract due to increased input costs, reinforcing the principle that such risks are to be borne by the contractor.
• Employer-borne risks: Employers are usually accountable for:
• • providing an encumbrance-free site; and
  • making timely payments.
• If the site is entangled in legal disputes or if there are delays in payments, the employer bears the associated risks.

The parties can take the following steps to mitigate risks:

• Clearly defined responsibilities: Ensure that the contract explicitly outlines the obligations and liabilities of each party concerning potential risks.
• Force majeure clauses: Include provisions that address unforeseen events beyond the control of either party, specifying the course of action in such scenarios.
• Regular risk assessments: Conduct periodic evaluations to identify new risks and adjust the contract terms accordingly.
• Dispute resolution mechanisms: Establish clear procedures for resolving disputes, such as arbitration or mediation clauses, to handle disagreements efficiently.
• Insurance coverage: Obtain appropriate insurance policies to cover specific risks, thereby transferring potential liabilities to insurers.

Under Indian law, exclusion or limitation of liability clauses are legally enforceable. The parties to a construction contract have the autonomy to limit or exclude liability for specific types of damages, such as indirect or consequential losses. It is also common practice to cap the contractor’s liability to a certain agreed percentage of the total contract value.

However, standard contractual practice generally excludes from the ambit of such clauses liabilities arising from:

• fraud;
• wilful misconduct;
• recklessness; or
• gross negligence.

Establishing the applicability of these exceptions typically imposes a significant evidentiary burden on the aggrieved party.

Indian courts:

• interpret exclusion and limitation of liability clauses strictly; and
• adhere closely to the express terms of the contract.

Such clauses will generally be upheld unless their enforcement would:

• frustrate the fundamental purpose of the contract; or
• contravene the public interest or public policy.

Where an exclusion clause is found to be inconsistent with the core objective of the contract, the courts may decline to enforce it to the extent of such inconsistency.

The manner in which the parties address delays will depend on the specific contractual arrangements negotiated between them. In most construction contracts, the contractor is permitted to claim an extension of time in the event of delays attributable to the employer. Such delays may be due to the non-availability of land/rights of way/permissions required to be provided by the employer to the contractor to commence construction. In such cases, the contractor may be entitled to:

• claim pre-defined liquidated damages as per the contract; or
• raise a claim for overhead costs and loss of profit on account of delays, in accordance with the Hudson, Eichleay or Emden formula.

However, entitlement to monetary compensation and claims for additional costs are often subject to proof of financial loss, such as an increase in material or labour costs.

Where the delay is caused by the contractor:

• the employer is usually entitled to levy pre-defined liquidated damages as provided in the construction contract; and
• the contractor is not granted any extension of time.

Since the nature and cause of delay can vary significantly from case to case, the consequences of delay are largely determined by:

• the attribution of fault; and
• the conduct of the parties involved.

Issues such as concurrent delays are rarely addressed in standard contract clauses. Additionally, expressions such as ‘time is of the essence’ may be interpreted to impose an obligation on the contractor to expedite performance and mitigate any potential losses arising from delays. In some cases of concurrent delays, an extension of time is granted without any consequence of financial liability for either the employer or the contractor.

The concept of force majeure is recognised under Indian law, though it is not expressly codified in any statute. Its legal basis is generally derived from contractual provisions and interpreted under Section 56 of the Indian Contract Act, 1872, which deals with the doctrine of frustration. However, force majeure and frustration are distinct legal concepts:

• Frustration arises when a contract becomes impossible to perform due to unforeseeable and unavoidable events.
• ‘Force majeure’ refers to exceptional events beyond the control of the parties that may hinder or delay contractual performance.

Notably, financial hardship alone does not constitute frustration under Indian law.

Force majeure has significant relevance in the construction industry due to the complex nature of projects involving:

• extended timelines;
• multiple stakeholders; and
• high financial exposure.

Events such as natural disasters, political instability, epidemics or global supply chain disruptions can severely affect construction timelines and costs, often leading to:

• delays;
• suspension of work; or
• even termination of the contract.

In Indian construction contracts, force majeure clauses are commonly included and the invocation of such clauses may entitle a party to:

• an extension of time;
• suspension of obligations; or
• in certain cases, termination without liability.

The Indian courts interpret force majeure clauses strictly in accordance with their wording, making precise drafting critical to ensure adequate protection.

In Indian construction contracts, the parties generally possess considerable contractual latitude to introduce material variations to the scope of works, provided that such variations are contemplated within the express provisions of the contract. Standard construction contracts include a ‘variation clause’, which authorises the employer or its representative (eg, an engineer or architect) to instruct changes relating to the quality, quantity or manner of execution of the works.

These variations may include alterations in:

• design;
• materials;
• dimensions;
• sequence of performance; or
• time of performance.

The enforceability of such instructions hinges on their issuance in accordance with the procedural formalities stipulated in the contract, often requiring:

• written instructions;
• valuation mechanisms; and
• agreement on cost and time implications.

In the absence of a variation clause, any substantial deviation from the original scope may be construed as a breach or necessitate the formation of a new contract, exposing the parties to legal and financial risks. Moreover, ambiguity in the drafting or application of variation clauses frequently gives rise to disputes. To mitigate the likelihood of litigation or arbitral proceedings, it is imperative that such clauses be:

• drafted with precision;
• tailored to the specific nature of the project; and
• implemented in alignment with established contract administration practices.

Under Indian law, there are specific regulatory requirements for both commencement and completion of construction or engineering projects. Obtaining the necessary approvals and permissions from the relevant authorities is an essential prerequisite before initiating any construction activity. This is critical as once a project begins, significant financial and resource commitments must be made.

If the required approvals are not obtained, the authorities have the power to halt the project at any stage. Such interruptions:

• can disrupt the workflow; and
• may lead to considerable financial losses.

Prior to starting construction, the builder must obtain a commencement certificate from the local development authority. This certificate serves as official permission to begin construction in accordance with sanctioned plans. Without this document, even preliminary activities such as laying the foundation or marking the property boundaries are considered unauthorised and may render the property illegal or disputed.

Upon completion of the construction, the builder must apply for a completion certificate from the municipal authority. This certificate confirms that the construction has been completed as per the approved plans, with no material deviations. It is a mandatory prerequisite for subsequent formalities such as property registration and obtaining connections for utilities (eg, water and electricity).

Given the substantial financial investment involved in construction and engineering projects, it is crucial that the work proceeds without interruption. Builders must ensure that:

• all required approvals are secured; and
• all applicable legal requirements are strictly followed throughout the project lifecycle.

A party may rescind or terminate a contract under the Indian Contract Act, 1872 if the other party commits a breach, including by refusing to perform or becoming incapable of performing its obligations. While a contract need not explicitly reference grounds for termination, it is advisable to incorporate specific examples of breach.

These may include:

• force majeure events;
• abandonment of the project;
• liquidation or insolvency of a party; and
• delay in project execution beyond a specified time period.

In addition to the contractual grounds, the Indian Contract Act provides for termination under the following statutory provisions:

• Section 19: A contract is voidable at the option of the aggrieved party if its consent was obtained through coercion, fraud or misrepresentation.
• Section 39: If one party refuses to perform or disables itself from performing its obligations in entirety, the other party is entitled to terminate the contract.
• Section 53: In contracts involving reciprocal promises, if one party prevents the other from fulfilling its obligations, the contract becomes voidable at the option of the party so prevented.
• Section 55: Where time is of the essence of the contract and one party fails to perform within the stipulated period, the contract is voidable at the discretion of the aggrieved party.
• Section 56: A contract becomes void when its performance becomes impossible due to the occurrence of an unforeseeable and unavoidable event.

Delays in construction projects may arise:

• due to breaches by either employer or the contractor; and
• at times, due to circumstances beyond the control of either party.

The contract will contain a clause permitting the employer to recover damages in the form of liquidated damages if the delay is attributable to the contractor’s breach. Conversely, if the delay is caused by the employer, the contractor may claim compensation or damages, before either a court or an arbitral tribunal, in accordance with the dispute resolution mechanism prescribed in the contract.

Liquidated damages are pre-estimated sums agreed upon by the parties at the time of contracting to be payable upon breach (usually delay). Indian courts generally uphold liquidated damages clauses, provided that:

• the sum is a genuine pre-estimate of loss or damage; and
• the damages are not in the nature of a penalty.

This is governed by Section 74 of the Indian Contract Act.

Thus, while Indian courts do enforce such provisions, proof of actual loss or damage is not always required, but the amount must be reasonable and not penal in nature. If the court finds the sum to be excessive or arbitrary, it may reduce it.

Generally, no entirely distinct legal issues specific to subcontracting beyond those applicable to standard construction contracts arise. However, there are certain key considerations that parties should be mindful of:

• Applicability of main contract terms: The subcontract is governed by the terms of the principal contract through a cascade clause mechanism, whereby the obligations and responsibilities assumed by the main contractor under the primary agreement are contractually extended to the subcontractor, ensuring consistency and alignment across all tiers of contractual performance.
• No direct privity: Subcontractors usually do not have a contractual relationship with the employer. As such, they cannot directly claim or be held liable to the employer, unless there is express provision to that effect.
• Back-to-back payment clauses: Payment to subcontractors is often structured on a back-to-back basis – that is, contingent upon the main contractor receiving payment from the employer.
• Dispute resolution and risk allocation: The main contractor remains primarily liable to the employer for the performance of the subcontractor. Therefore, risk allocation, indemnity and dispute resolution clauses in subcontracts must be carefully drafted.

Employers may, at times, seek to exercise a degree of control over the selection of subcontractors engaged in the execution of their projects. Standard forms of construction contracts typically accommodate this preference through a ‘nomination’ mechanism, whereby the employer nominates a particular subcontractor to be formally appointed by the contractor.

This practice is often adopted to ensure the involvement of subcontractors with which the employer has prior experience or which are known to possess the requisite technical competence, commercial reliability and financial solvency – thereby affording the employer greater confidence in the subcontractor’s performance and overall project execution.

Under the Indian legal framework, parties are generally free to determine the terms and structure of payment in their contracts, provided that such terms comply with applicable laws and regulations. This flexibility allows the parties to negotiate payment schedules, amounts and methods that suit the nature of the project or transaction, as long as they do not contravene statutory requirements.

While these clauses may exist in contracts, the validity of such clauses is dependent on the nature of the agreement executed between the parties and the facts and circumstances of a case. The Supreme Court in Zonal General Manager, Ircon International Ltd v Vinay Heavy Equipments [(2015) SCC Online 432], after examining the relevant contractual provisions, held that the principal contractor could not evade its liability to pay the subcontractor merely on the ground that corresponding payments had not been received from the employer. The court reasoned that, in the absence of a back-to-back payment clause in the main contract, the principal contractor had assumed independent and exclusive liability towards the subcontractor. Further, applying the doctrine of privity of contract, the court emphasised that the legal relationships between the employer and the principal contractor, and the principal contractor and the subcontractor, were separate and distinct.

Similarly, in Gannon Dunkerley & Co Ltd v Zillion Infraprojects (P) Ltd [2023: DHC:5632], the Delhi High Court ruled that a contractor could not withhold payments to a subcontractor solely on the grounds that the contract was on a back-to-back basis and that the contractor had not received payments from the principal employer – particularly when the bills submitted by the subcontractor had not been rejected by the employer.

Retention clauses, whereby the employer withholds a specified percentage of the payment due to the contractor from each invoice, are a common feature in construction contracts. The retention is typically held until the contractor has:

• fulfilled the performance requirements; and
• completed the final handover of the project.

The retained amount serves as security to ensure that the contractor meets its obligations, including:

• rectifying any defects; and
• completing outstanding work.

The retention is generally released upon:

• successful completion of the project; or
• satisfaction of specific contractual conditions.

India has a robust legal framework in place to ensure the safety and wellbeing of construction workers. The key regulations that govern construction site safety include:

• the Building and Other Construction Workers (Regulation of Employment and Conditions of Service) Act, 1996;
• the Factories Act, 1948; and
• the Occupational Safety Code, 2020.

Other statutes which have mandatory application for all employers and contractors hiring workers in the construction industry include:

• the Employee’s Compensation Act, 2009;
• the Employees’ State Insurance Act, 1948;
• the Maternity Benefit Act, 1961;
• the Payment of Gratuity Act, 1972;
• the Employees’ Provident Fund and Miscellaneous Provisions Act, 1952; and
• the Sexual Harassment of Women at Workplace (Prohibition, Prevention and Redressal) Act, 2013.

The central government is committed to the welfare, safety and health of construction workers, including migrant labourers. It enforces the Building and Other Construction Workers (BOCW) (Regulation of Employment and Conditions of Service) Act, 1996 and the BOCW Central Rules, 1998 to regulate employment conditions and ensure safety at construction sites through regular inspections by the chief labour commissioner (central).

The Construction Advisory Service Division under the Directorate General Factory Advice Service and Labour Institutes offers safety-related training and certifications. Compensation for workers/families is provided under:

• BOCW welfare schemes; and
• the Employee’s Compensation Act, 1923.

For inter-state migrant workers, the Interstate Migrant Workmen (Regulation of Employment and Conditions of Service) Act, 1979 mandates contractors to report accidents to authorities and kin. A model welfare scheme and an action plan have been shared with states and union territories for strict implementation and better utilisation of cess funds to ensure social security and welfare of all construction workers, especially migrants.

As part of the newly implemented Labour Codes, the Code on Occupation Safety, Health, and Working Conditions, 2020 lays out the criminal penalties that apply in case of breach of obligations.

The foundation of construction site safety is provided by safety clauses, which specify roles, procedures and sanctions for non-compliance. In order to promote a culture of construction safety and responsibility, they set explicit Indian construction standards for:

• risk assessment;
• hazard control;
• emergency protocols; and
• worker training.

Important safety provisions include the following:

• Risk assessment: In-depth risk assessments are required in order to recognise dangers and put control mechanisms in place.
• Safety equipment: Personal protective equipment – such as gloves, harnesses and helmets – must be provided and used.
• Certification and training: Employees must receive sufficient instruction on:
• • emergency protocols;
  • equipment operation; and
  • construction safety regulations.
• Hazard communication:
• • Hazardous materials must be labelled;
  • Workers must be informed of the dangers; and
  • Clear signage must be used.
• Emergency preparedness: Specifications apply in relation to:
• • evacuation protocols;
  • emergency response plans; and
  • first aid stations.
• Regulatory compliance: Penalties for violating construction safety laws include:
• • fines;
  • suspension of work; and
  • legal action.

• Develop a site-specific safety plan: Tailor safety plans to the specific construction project, considering:
• • site conditions;
  • worker roles; and
  • potential hazards.
• Provide regular training: Offer regular training on health and safety procedures, including:
• • emergency response;
  • first aid; and
  • equipment operation.
• Ensure personal protective equipment (PPE) compliance:
• • Ensure that workers use PPE as required; and
  • Provide regular PPE inspections.
• Conduct regular site inspections:
• • Regularly inspect the construction site to identify potential hazards; and
  • Ensure compliance with safety regulations.
• Foster a safety culture: Encourage a culture of safety among workers, supervisors and management:
• • promoting open communication; and
  • reporting safety concerns.
• Promotional activities/safety campaigns: Promote awareness among staff and public by conducting regular promotional activities and safety campaigns at project sites.

The Seventh Schedule of Concurrent List includes labour welfare, giving the central government and state governments the authority to enact laws and regulations in this area. Therefore, the primary regulating bodies in charge of the construction industry’s health and safety requirements are:

• the Ministry of Labour and Employment; and
• respective state ministries.

In India, regulating the construction sector from a health and safety perspective focuses on ensuring:

• worker protection;
• legal compliance; and
• project efficiency.

Key aspects include the following:

• Worker and public safety: The risks of accidents and injuries on and around construction sites should be minimised.
• Legal compliance: Statutory safety norms should be observed to avoid penalties and delays.
• Quality and efficiency: Safe environments boost productivity and timely completion.
• Cost savings: Fewer accidents mean lower liabilities and project disruptions.
• Employee morale and retention: Safe practices foster loyalty and a positive work culture.

India enforces these principles through dedicated laws and guidelines to maintain safety, quality and accountability in the construction industry.

Infrastructure projects in India must comply with strict environmental, forest and biodiversity conservation regulations. The required authorisations vary based on the type, scale and location of the project. The environmental authorisations needed are primarily governed by the Environmental Impact Assessment (EIA) Notification, 2006.

The Ministry of Environment, Forests, and Climate Change (MoEFCC) mandates environmental and forest clearances under the Environment Protection Act, 1986. Under this Act, environmental clearance is granted for large-scale projects such as:

• industrial plants;
• highways; and
• airports.

The EIA process determines whether clearance will be granted.

Additionally, approvals from state pollution control boards (SPCBs) are required under:

• the Air (Prevention & Control of Pollution) Act, 1981; and
• the Water (Prevention & Control of Pollution) Act, 1974.

These permits include consent to establish and consent to operate, regulating:

• emissions;
• effluents; and
• overall environmental impact.

Projects affecting forested areas or wildlife sanctuaries must also secure permissions under:

• the Forest (Conservation) Act, 1980; and
• the Wildlife (Protection) Act, 1972.

Coastal regulation zone (CRZ) clearance is further required for projects near India’s coastline, regulated under the CRZ Notification, 2011, to prevent ecological damage.

Compliance with these laws is essential at various project stages, requiring multiple approvals and ongoing adherence. Authorisations vary depending on the project’s:

• nature (residential, commercial, industrial or infrastructure); and
• location (eco-sensitive zones, coastal areas or urban regions).

Any environmental harm resulting from non-compliance can lead to both civil and criminal liabilities.

The process for obtaining environmental authorisations in India involves multiple stages, depending on the type and scale of the project. The EIA Notification 2006 mandates that certain projects – such as mining, infrastructure and thermal power plants – obtain environmental clearance before commencing operations. The schedule to the EIA Notification provides a list of over 39 classes of projects and activities requiring prior environmental clearance. These include industries such as:

• textile processing;
• sugar refining;
• tanneries;
• ship-breaking;
• e-waste recycling;
• paint and pigments;
• pesticides;
• cement;
• fertilisers;
• oil and gas extraction;
• coal preparation plants; and
• nuclear facilities.

The process includes several keys steps, including the following:

• The project proponent selects a location that aligns with siting guidelines, to evaluate potential environmental impacts, considering socio-economic, cultural and public health effects. If non-compliant, an alternative site must be identified.
• The projects is classified under:
• • Category A (requiring clearance from MoEFCC); or
  • Category B (handled by the state government). B1 projects require an EIA, while B2 projects do not.
• The SPCB will evaluate pollution control measures and, if satisfied, will issue a consent to establish, which is valid for 15 years.
• For certain projects, a hearing is conducted to address local concerns before the NOC is issued. This is a vital step, as this provides local residents with a platform to voice their concerns.
• Moving forward, the environmental appraisal committee or state expert appraisal committee reviews the proposal and must complete the appraisal process within 60 days of submission of the final EIA report.
• The final decision to grant or reject environmental clearance is conveyed within 105 days of receiving the complete application.

In India, contractors must comply with various environmental requirements while a site is operational to ensure minimal ecological impact and adherence to legal standards:

• They must follow the Air (Prevention and Control of Pollution) Act, 1981, which mandates air quality monitoring and dust suppression measures to control emissions.
• The Water (Prevention and Control of Pollution) Act, 1974 requires proper wastewater management and sewage treatment, to prevent water contamination.
• Waste disposal is governed by:
• • the Hazardous and Other Wastes (Management and Transboundary Movement) Rules, 2016;
  • the Construction and Demolition Waste Management Rules, 2016; and
  • the E-Waste (Management) Rules, 2016.
• These laws aim to ensure the proper handling and recycling of hazardous, construction and electronic waste.
• The Central Pollution Control Board periodically issues guidelines and best practices for waste management. According to Rule 3(c) of the Construction and Demolition (C&D) Waste Management Rules, 2016, construction and demolition waste includes building materials, debris, and rubble generated from the construction, renovation, repair or demolition of civil structures. Additionally, Rule 4(4) of the C&D Waste Management Rules prohibits the indiscriminate dumping of such waste to prevent obstructions to:
• • traffic;
  • public spaces; or
  • drainage systems.
• These regulations:
• • apply to individuals, organisations and authorities responsible for generating C&D waste; and
  • outline clear environmental and waste management obligations.
• Contractors must also adhere to the Noise Pollution (Regulation and Control) Rules, 2000, which set permissible noise limits, especially in residential and sensitive zones.
• If the project is near forests or wildlife sanctuaries, compliance with the Forest (Conservation) Act, 1980 and the Wildlife (Protection) Act, 1972 is mandatory to avoid environmental harm.
• Additionally, continuous environmental monitoring and reporting are essential under the environmental clearance conditions, requiring contractors to submit compliance reports to the SPCB and the MoEFCC.

Non-compliance with these regulations may lead to:

• penalties;
• project suspension; or
• legal action.

It is thus crucial for contractors to strictly follow environmental guidelines throughout the project’s operational phase.

Violating environmental laws can lead to both civil and criminal penalties. Over the years, the National Green Tribunal (NGT), established under the NGT Act, 2010, has actively enforced the ‘polluter pays’ principle by imposing substantial fines. Additionally, violations may lead to suspension or cancellation of project approvals, causing delays and financial losses. Violations of the EIA Notification 2006 are penalised under the Environment Protection Act, 1986, with the Supreme Court occasionally mandating environmental compensation equivalent to 10% of the total project cost. In certain instances, illegal constructions have faced demolition orders as a consequence. Reputational damage is another significant risk, as public and stakeholder trust can erode, affecting future business opportunities.

Under the Water (Prevention & Control of Pollution) Act, 1974, violations of the consent process may lead to imprisonment for 18 months to six years, along with fines. Companies operating without the required approvals face immediate closure notices from the SPCB.

Section 166(2) of the Companies Act, 2013 imposes a statutory duty upon directors to protect the environment. Under Section 166(7) of the Companies Act, failure to fulfil duties outlined in Section 166(2), including environmental protection, can result in a fine of up to INR 500,000. Beyond financial penalties, shareholders which believe that a company prioritises profit over environmental conservation may invoke Section 241 of the act. This allows them to approach the National Company Law Tribunal and argue that the company’s operations are against the public interest.

For contractors, failure to adhere to environmental norms can lead to:

• fines;
• suspension of project approvals;
• blacklisting; or
• cancellation of contracts.

Authorities such as the SPCBs and the MoEFCC have the power to shut down operations or seize equipment if violations pose a significant threat.

Corporate liability laws can hold directors and managers personally accountable for environmental breaches. Under Section 16 of the Environment (Protection) Act, 1986, company executives can face imprisonment for up to five years and fines up to INR 100,000 per day if violations continue. Further, employees who are directly responsible for non-compliance may face:

• fines;
• job termination;
• disciplinary actions; or
• legal prosecution.

Additionally, if the offence occurs due to the negligence, consent or involvement of a director, manager or officer, that individual may also face legal action.

In India, new buildings must adhere to environmental regulations, including those outlined in the following statutes:

• The National Building Code 2016 and the Environment (Protection) Act 1986 focus on:
• • sustainable practices;
  • water conservation; and
  • pollution control.
• The EIA Notification, established under Sections 3(1) and (2)(v) of the Environment Protection Act and Rule 5(3) of the Environmental Protection Rules, mandates obtaining prior environmental clearance for various activities. These include:
• • new construction projects or activities (detailed in Item 8 of the schedule to the notification);
  • the expansion or modernisation of existing projects; and
  • other activities outlined in the schedule.
• The Energy Conservation Building Code, 2017, issued by the Bureau of Energy Efficiency, sets energy efficiency standards for commercial buildings, covering aspects such as:
• • thermal performance;
  • lighting; and
  • heating, ventilation and air conditioning systems.
• Compliance with the code is required for buildings with a connected load of 100 kilowatts or more.
• Under the C&D Waste Management Rules, 2016, developers must responsibly manage debris and prevent illegal dumping.
• The Air (Prevention and Control of Pollution) Act, 1981 and the Noise Pollution (Regulation and Control) Rules, 2000 regulate emissions and noise levels during construction activities.
• The Draft Building Construction Environment Management Regulations, 2022, issued by the Ministry of Environment, Forest and Climate Change on 25 February 2022, regulate environmental management in building construction. They apply to projects exceeding 5,000 square metres, including new buildings and expansions/renovations.

The key institutional bodies involved in drafting and enforcing environmental laws and regulations in India include the following:

• MoEFCC: This nodal ministry is responsible for formulating environmental policies, issuing guidelines and granting environmental clearances for large projects.
• Central Pollution Control Board (CPCB): Established under the Water (Prevention and Control of Pollution) Act, 1974, the CPCB monitors and enforces environmental standards related to air, water and hazardous waste pollution at the national level. It also provides technical guidance to SPCBs.
• State-level environment departments, SPCBs and municipal corporations: These bodies enforce environmental regulations at the state and union territory levels, granting pollution control approvals and monitoring industrial compliance. They also have the power to issue directions, closure orders and remediation costs against non-compliant industries.
• Forest departments (central and state level): These bodies are responsible for enforcing laws such as the Forest (Conservation) Act, 1980 and the Wildlife Protection Act, 1972, ensuring conservation of biodiversity and forest resources.
• NGT: In several of its rulings, the Supreme Court has held that the NGT has the authority to initiate suo moto proceedings on environmental matters, thereby granting it extensive powers to uphold and enforce environmental standards. The NGT is a specialised judicial body empowered to:
• • handle environmental disputes; and
  • enforce the ‘polluter pays’ principle.

In recent years, regulatory enforcement has intensified in India due to several developments. The MoEFCC, along with SPCBs, plays a pivotal role in formulating and enforcing environmental regulations. The regulators adopt a preventive and compliance-based approach, focusing on:

• EIAs;
• pollution control; and
• sustainable construction practices.

Certain important regulations in regulating the construction sector in India include the following:

• The EIA Notification, 2006 mandates prior environmental clearance for large-scale construction projects based on their potential environmental impact.
• Regulations such as the Energy Conservation Building Code (ECBC), 2017 and the Construction and Demolition (C&D) Waste Management Rules, 2016 impose requirements on:
• • energy efficiency;
  • waste disposal; and
  • resource conservation.
• Additionally, the Air (Prevention and Control of Pollution) Act, 1981 and the Noise Pollution (Regulation and Control) Rules, 2000 regulate emissions and noise pollution from construction sites.
• The state high courts, the Supreme Court and the NGT actively oversee the enforcement of environmental laws, with courts often imposing high penalties for environmental violations.
• State governments and local authorities also enforce sustainable building practices through municipal bylaws and green certification programmes. Regulators emphasise sustainable practices, such as rainwater harvesting, energy efficiency and green building initiatives. Public consultations and hearings are integral to the clearance process, allowing stakeholders to voice concerns.

For construction companies to effectively navigate India’s complex regulatory framework, they must adopt a proactive compliance strategy. Early engagement with environmental authorities and thorough EIAs are crucial to obtaining timely clearance, particularly under the Environment (Protection) Act, 1986.

In response to increasing concerns about global warming, the Paris Agreement – a legally binding international treaty on climate change – was adopted by 196 nations, including India, in 2015. The treaty’s objective is to limit global temperature rise to well below 2°C. Net zero is the phenomenon whereby the amount of greenhouse gases emitted is balanced by the removal of an equal amount from the atmosphere.

India’s commitment to achieving net-zero emissions by 2070, announced at COP 26, has significant implications across legal, regulatory and economic frameworks, as the government has introduced multiple policies and regulations to align industries with this goal, impacting sectors such as:

• energy;
• construction;
• manufacturing; and
• transportation.

To meet this goal, countries are working towards achieving net-zero emissions by 2050. While no legal requirements exist for infrastructure projects to adhere to net-zero targets, voluntary efforts in this area are gaining traction.

In India, construction projects generally require a range of insurance arrangements – both compulsory and optional – to mitigate risks associated with property damage, third-party liabilities and project delays:

• The Employees’ State Insurance Act of 1948:
• • mandates registration for any firm employing over 10 workers; and
  • requires employers to provide insurance coverage to employees.
• Insurance under this covers compensation for workers for maternity leave, illness, injury, physical disability or death resulting from workplace hazards that may lead to loss of earnings or reduced earning capacity.
• The contractor’s all risk policy is widely used by employers, contractors and subcontractors, either individually or collectively, to ensure coverage during construction projects.
• Professional indemnity insurance is required for architects, engineers and consultants under certain contracts to cover errors, omissions or negligence in design and planning.
• Fire policy – During operation & maintenance period.
• Public liability insurance is required for projects that pose potential hazards to third parties, covering:
• • injury;
  • death; or
  • property damage.

Yes, local insurers in India can assign reinsurance contracts with both domestic and international reinsurance companies, provided that they comply with the Insurance Regulatory and Development Authority of India) (IRDAI) Regulations 2018, including the reinsurance regulations, which require insurers to:

• submit reinsurance programmes; and
• obtain approvals.

Indian insurers must follow a specified order of preference when assigning reinsurance contracts, whereby:

• the first preference is to Indian reinsurers;
• the second preference is to foreign reinsurers with a branch in India; and
• the third preference is to cross-border reinsurers that meet the IRDAI’s criteria.

Additional requirements apply when reinsuring with foreign companies, such as the foreign reinsurer meeting a specified minimum credit rating from a recognised credit rating agency. While pre-approval from the IRDAI is not required for reinsurance arrangements, these agreements must be properly documented and submitted to the IRDAI within the prescribed timeframe.

In India, although implied terms such as fitness for purpose design obligations are acknowledged in construction contracts, obtaining insurance coverage for these obligations is not feasible. Contractual fitness for purpose obligations is generally uninsurable and may even exclude coverage or reduce the insured’s ability to recover under the policy.

In India, several types of insurance are commonly used in construction projects to mitigate risks and ensure financial protection:

• Erection all risk insurance: Designed for projects involving heavy machinery installation, covering risks related to:
• • equipment failure; or
  • damage during erection.
• Workers’ compensation insurance: Required under the Employees’ Compensation Act, 1923, covering workplace injuries.
• Performance bonds and surety insurance: Ensures project completion in case of contractor default.
• Environmental liability insurance: Covers pollution-related liabilities arising from construction activities.

In India, employers and contractors must comply with several key labour laws when hiring workers for construction and other projects. These include the following, among others:

• The Code on Wages, 2019 governs:
• • minimum wages;
  • equal remuneration; and
  • payment of wages.
• Under the Minimum Wages Act, 1948, it ensures the regulation of minimum wage rates across sectors.
• State-specific Shops and Commercial Establishments Acts govern aspects such as the following in shops and businesses:
• • working hours;
  • salary payments;
  • holidays;
  • leave entitlements;
  • probation;
  • termination; and
  • dismissals.
• The Industrial Disputes Act, 1947 governs:
• • the resolution of industrial disputes;
  • strikes;
  • layoffs; and
  • retrenchment.
• It applies only to workers, not those in primarily managerial or supervisory roles.
• The Contract Labour (Regulation and Abolition) Act, 1970 regulates the employment of contract labour and mandates benefits for contract agencies employing 20 or more contractual workers.
• The Employees’ State Insurance Act, 1948 provides health and social security benefits for workers.
• The Building and Other Construction Workers Act, 1996 sets out welfare, safety, and health regulations for construction workers. It:
• • applies to businesses employing at least 10 construction workers;
  • simplifies registration; and
  • protects their employment conditions.
• The Factories Act, 1948:
• • prohibits the employment of individuals under 14 years in factories;
  • requires fitness certificates for those aged 15 to 18; and
  • mandates safety inspectors in factories with more than 1,000 workers.
• The Inter-State Migrant Workmen (Regulation of Employment and Conditions of Service) Act, 1979 governs the working conditions of interstate migrant workers.

Construction projects in India are subject to various taxation laws that impact:

• project costs;
• compliance; and
• profitability.

Key tax considerations include the following:

• Income Tax Act: As per Section 194C of the act, individuals required to pay contractors for jobs, including labour supply, must deduct taxes at the time of payment.
• Goods and services tax (GST): With the introduction of GST, work contracts associated with immovable property are now categorised as services, with tax rates ranging from 12% to 18%.
• The Building and Other Construction Workers Welfare Cess Act, 1996: This was enacted to enhance the welfare of construction workers by addressing their safety, health and service conditions. Under this act, employers must contribute a cess of 1% of the total construction cost.
• Stamp duty and registration charges: Property transactions in construction projects attract state-specific stamp duty and registration fees, varying from 5% to 7% of the property value.
• Customs and import duties: Construction equipment, raw materials and specialised machinery imported for projects may attract custom duties and integrated GST.

Yes, various exemptions and incentives are available in India to encourage construction projects, including the following:

• Infrastructure development incentives: The National Infrastructure Pipeline provides funding support and tax breaks for road, metro and power projects.
• Incentives for special economic zones (SEZs): Developers of SEZs benefit from:
• • duty-free imports;
  • tax holidays; and
  • exemptions from GST and stamp duty on land transactions.
• Income tax benefits: Under Section 80-IBA of the Income Tax Act, 1961, developers of affordable housing projects can claim a 100% deduction on profits. Similarly, tax exemptions are available for infrastructure projects under Section 35AD for capital expenditure.
• GST benefits: Under the Pradhan Mantri Awas Yojana, construction services provided solely through labour contracts are exempt from taxation. Similarly, pure labour contracts are not taxed when used for the construction of individual residential units or specific sections of residential complexes.
• Green building and sustainability incentives: The government offers property tax rebates and extra floor area ratio for projects certified under:
• • the India Green Building Council;
  • the Green Rating for Integrated Habitat Assessment; and
  • Leadership in Energy and Environmental Design.

Companies whose activities involve infrastructure facilities – such as roads, water supply, ports, telecommunications, industrial parks or SEZs, the electricity sector or natural gas distribution – can claim a tax reduction for all profits earned from such activities under Section 80-IA of the Income Tax Act 1961. A deduction of 30% to 100% of the profits is available for a period of 10 years for such businesses. Depreciation benefits under Section 32 of the Income Tax Act 1961 reduce taxable income for machinery used in construction.

There are no government-mandated BIM standards in place. However, awareness of BIM is growing and its full potential is being explored.

Smart contracts may involve cryptocurrency as consideration; therefore, questions arise about its validity under the Indian Contract Act, 1872. As per Section 10 of the act, a valid contract must include essential elements such as:

• an offer;
• acceptance;
• intention; and
• consideration.

Smart contracts fulfil these requirements and can thus be regarded as legitimate and valid contracts under Indian law. Sections 5 and 10 of the Information Technology Act, 2000 recognise digital signatures and electronic contracts as legitimate; while Section 65B of the Evidence Act, 1872 deems digitally signed contracts to be admissible in court. Despite advancements in legislation and growing awareness of smart contracts, the legal framework remains ambiguous, particularly regarding cryptocurrency. This poses complications for smart contracts, which typically operate without traditional digital signatures. Moreover, the legal status of cryptocurrencies, which are often integral to smart contract transactions, remains uncertain in India, adding another layer of complexity.

• Digital solutions: To address time and cost challenges in construction, technology-driven techniques and digital practices in areas such as engineering, planning and monitoring are increasingly adopted, integrating stakeholders through data sharing at all project stages. According to a 2020 PwC survey:
• • 25% of respondents used unmanned aerial vehicles (UAVs) for project monitoring and surveying;
  • 22% adopted e-document management systems;
  • 20% implemented BIM 3D modelling in major projects;
  • 19% utilised cost estimation tools; and
  • 18% introduced enterprise resource planning systems for cost control.
• Digital solutions such as document management tools, procurement systems and UAV-based technologies have gained traction, though satisfaction with their ability to meet business goals remains varied.
• AI and machine learning: AI-driven predictive analytics help to mitigate project risks and optimise resource allocation. Machine learning assists in analysing project data for improving construction timelines.
• Drones and robotics: The use of drones for site inspections is assisting with:
• • surveying and monitoring;
  • reducing costs; and
  • improving safety.
• Robotics is aiding in:
• • automated bricklaying; and
  • material handling.
• Blockchain and smart contracts: Secure, transparent contract management through blockchain enhances trust and reduces disputes. Smart contracts ensure automatic execution of agreements.
• Augmented reality (AR) and virtual reality (VR): AR/VR improve design visualisation and on-site worker training. Clients can experience projects before completion through virtual walkthroughs.

In India, construction disputes are commonly resolved through arbitration or other alternative dispute resolution (ADR) methods, as provided under multi-tier dispute resolution clauses. For domestic projects involving Indian parties, ad hoc arbitration under the Arbitration and Conciliation Act, 1996 is common; while foreign contractors may opt for institutional arbitration.

The Commercial Courts Act, 2015 was introduced to streamline the resolution of high-value commercial disputes, initially defined as those exceeding INR 10 million. Subsequent amendments lowered this threshold to INR 300,000, enabling district-level commercial courts and dedicated divisions in high courts to handle these cases. Disputes arising from construction contracts are adjudicated by a bench established under the act, with Section 2(1)(c) categorising construction and infrastructure contracts as ‘commercial disputes’.

The key forums include:

• arbitration tribunals;
• commercial courts;
• national, state and district consumer disputes redressal commissions; and
• real estate regulatory authorities, under the Real Estate (Regulation and Development) Act, 2016.

In India, construction disputes broadly arise from following issues:

• contract errors or omissions which arise due to non-compliance with the contract terms;
• unforeseen site conditions;
• delays from the employer in providing site access due to land acquisition issues;
• disagreements over variations, scope of work and defects in construction quality, such as:
• • the quality of materials used;
  • construction standards; and
  • safety protocols; and
• issues related to zoning laws, environmental regulations and compliance with the Real Estate (Regulation and Development) Act, which may also lead to disputes between:
• • builders;
  • contractors; and
  • regulatory authorities.

India offers the following dispute resolution mechanisms in the construction sector:

• Negotiation: Often the initial step in dispute resolution, negotiation is an informal process that enables parties to resolve issues amicably while preserving commercial relationships.
• Mediation: If negotiation is unsuccessful, parties may opt for mediation – a voluntary and confidential process in which a neutral third party facilitates dialogue to assist in reaching a mutually agreeable settlement. The mediator does not possess adjudicatory authority.
• Conciliation: Conciliation is a voluntary/optional and confidential ADR mechanism involving a neutral conciliator who aids parties in achieving a negotiated settlement. If a settlement agreement is executed, it will be binding on the parties.
• Arbitration: Arbitration remains the predominant method for resolving construction disputes in India. Governed by the Arbitration and Conciliation Act, 1996, it provides for the adjudication of disputes by an arbitral tribunal, whose award is final and binding. Arbitration clauses are routinely incorporated into construction contracts.
• Litigation: When alternative mechanisms fail, parties may seek recourse to litigation before the civil courts or designated commercial courts for complex matters.

Yes, the use of ADR is both common and actively encouraged in India, supported by legislation and the judiciary. The most common methods are arbitration, mediation and conciliation. The Arbitration and Conciliation Act, 1996 plays a crucial role in formalising ADR processes, particularly arbitration and conciliation. The act has been amended multiple times to improve efficiency, with provisions facilitating:

• the swift resolution of disputes; and
• the enforcement of foreign arbitral awards.

The Indian courts also promote the use of ADR mechanisms to resolve conflicts before resorting to formal litigation, as it helps to reduce the burden on the courts.

The Indian courts have been actively promoting ADR, particularly in commercial and construction disputes. They often refer parties to ADR mechanisms such as arbitration and mediation for both the parties and courts. This judicial endorsement is evident in several cases where courts have suggested or mandated arbitration before litigation.

The use of dispute boards in India remains nascent but is steadily gaining traction, particularly in large-scale infrastructure and construction projects. Although arbitration and litigation continue to be the predominant modes of dispute resolution, the adoption of dispute boards has been encouraged through government initiatives and contractual stipulations in projects financed by international funding agencies. Notably, entities such as the National Highways Authority of India and various metro rail projects have integrated dispute boards into their contractual frameworks to facilitate early-stage dispute resolution.

However, unlike in countries such as the United Kingdom and the United States, dispute boards are not yet a widely mandated practice in India. Limited awareness, party reluctance and certain legal ambiguities have at times impeded their effective implementation. Despite the contractual availability of dispute board mechanisms, arbitration continues to be the preferred mode of dispute resolution in the Indian construction sector. Nonetheless, with the growing emphasis on expedited and cost-effective dispute resolution, the utilisation of dispute boards is anticipated to increase in the foreseeable future.

The Indian courts have consistently held that, in the realm of construction and infrastructure contracts, time is generally not of the essence. This principle was established by the Supreme Court in Hind Construction Contractors v State of Maharashtra [(1979) 2 SCC 3660], in which it held that if a contract includes a provision for extension of time, whether or not accompanied by a clause for liquidated damages, the stipulation as to time does not remain essential to the contract’s performance. This reflects a commercial understanding that delays may be inherent in complex infrastructure works and flexibility is often necessary.

In Satluj Jal Vidyut Nigam v M/s Jaiprakash Hyundai Consortium [OMP (COMM) 170/2017], the Delhi High Court emphasised the standard of care required from arbitrators, particularly in technically complex construction disputes. The court held that an arbitral award cannot be based on mathematical calculations that are unsupported by evidence on record. This decision highlighted the growing expectation that arbitrators must exercise a reasonable duty of care in their reasoning and evidentiary assessment, especially in high-stakes construction disputes.

Additionally, in ONGC v SAW Pipes Ltd [(2003) 5 SCC 705], the Supreme Court laid down guidelines for the enforceability of liquidated damages clauses. The court held that if such damages are a genuine pre-estimate of loss and not in the nature of a penalty, they may be awarded even without proof of actual loss. This ruling continues to serve as a cornerstone in interpreting and enforcing provisions of liquidated damages under Indian contract law.

In Indian Railway Construction Company Limited v National Buildings Construction Corporation Limited [(2023) SCC Online 294], the Supreme Court, while allowing the appeal, held that in the absence of a specific contractual prohibition, the arbitrator/arbitral tribunal has the authority to award pendente lite interest.

The COVID-19 pandemic severely impacted the construction sector:

• Numerous projects were left incomplete due to funding shortages; and
• Many completed projects went unsold as buyer preferences shifted.

The pandemic’s critical impact on the construction sector includes challenges such as:

• labour shortages;
• disrupted supply chains;
• reduced productivity on construction sites;
• a higher rejection rate for project financing; and
• a decline in foreign investment.

A major challenge was the mass migration of labourers to their hometowns, resulting in a severe workforce shortage even after restrictions were lifted. This led to reduced productivity and increased labour costs as companies struggled to bring workers back. Additionally, the rise in raw material costs, particularly steel and cement, further strained budgets.

The pandemic also impacted cash flow for construction firms due to delayed payments and funding constraints. Many small and medium-sized developers faced liquidity issues, forcing project cancellations or postponements. Regulatory changes, such as extended project deadlines under Real Estate Regulatory Authority Act, provided temporary relief but did not fully mitigate financial losses.

India’s construction industry is experiencing significant growth, driven by substantial public and private investments. Estimates show that the industry is set to reach $1.4 trillion by 2025.

The Indian government has acknowledged the crucial role of infrastructure development in driving the nation’s overall growth, as reflected in the Union Budget 2025. Reforms include a reduction in goods and services tax rates on essential materials: cement rates have been lowered from 28% to 18%, and steel from 18% to 12%, making construction more cost effective. Furthermore, the Credit Guarantee Scheme has been expanded, improving access to financing for contractors and enabling them to undertake larger projects.

• Parties must carefully adhere to their contractual rights and obligations, ensuring that all claims are strictly based on the terms outlined in the contract, as claims beyond the written provisions are often challenging to defend in court.
• To minimise the risk of disputes, it is essential to maintain clear and accurate documentation regarding extensions of time or variations in scope of work.
• Construction projects involve inherent risks, including:
• • adverse weather;
  • design modifications; and
  • regulatory compliance.
• Effective risk management requires project managers to:
• • identify potential challenges early;
  • formulate mitigation strategies; and
  • proactively address issues as they arise.
• Contracts should be drafted in a fair and balanced manner, avoiding the imposition of one-sided terms. Agreements that are exploitative or result from a dominant position are contrary to public policy and are unenforceable under Indian law.
• Effective management of construction projects requires attention to payments and cash flow, ensuring:
• • clear terms with contractors;
  • proper documentation; and
  • financial preparation for unforeseen events such as delays.
• Keeping the construction programme up to date and addressing delays through planning and communication are vital. Further, implementing quality management systems, enhancing communication and utilising modern project management tools contribute significantly to:
• • efficiency;
  • cost control; and
  • successful project delivery.