Exclusion Clauses In Infrastructure Contracts – The Judicial Approach



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Exclusion clauses are clauses introduced by a party to the contract (generally the employer), restricting or limiting the amount of damages or compensation one party can seek from another party...
India Litigation, Mediation & Arbitration
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Exclusion clauses are clauses introduced by a party to the contract (generally the employer), restricting or limiting the amount of damages or compensation one party can seek from another party due to any default or breach in the contract. Such clauses are often introduced to restrict the obligation of one party in the event of default.

The exclusion clauses can range from complete exclusion of liability, for example, complete bar on payment of damages/compensation on breach of contract, as applicable in contracts of Indian Railways. Exclusion clauses can also restrict the quantum of maximum compensation payable, such as in Ministry of Road Transport and Highways contracts, wherein the maximum payable compensation is restricted to 1% of the contract value.


Several High Courts and even the Supreme Court of India have taken a divergent view on the issue of enforcement and validity of exclusion clauses, wherein majority of the judgements are against the enforcement of exclusion clauses. However, multiple judgements have also accepted the exclusion clauses in certain scenarios and enforced the same. The section below will discuss the landmark judgments on the issue of exclusion clauses.

  • Judgements upholding and enforcing the Exclusion Clauses

The Hon'ble Supreme Court, in Ramnath International Construction (P) Ltd. v. Union of India1, while dealing with a clause wherein the only remedy provided for delays was extension of time and no compensation, has held exclusion clauses to be valid and binding. The Hon'ble Supreme Court relied on its previous decisions in Ch. Ramalinga Reddy v. Superintending Engineer2 and Associated Engineering Co. v. Government of Andhra Pradesh3 to deny the claim for damages on account of extension of time, wherein the delays were not attributable to the contractor.

Similarly, the Hon'ble Supreme Court in case of Oil and Natural Gas Corporation v. Wig Brothers Builders and Engineers Pvt. Ltd4, while relying on the judgement of Ramnath International (supra), held that a party to the contract cannot claim compensation for delays when the same is barred under the clauses of the contract.

The Hon'ble Punjab and Haryana High Court, in the case of Union of India v. Sanjeev Builders5, while relying on Ramnath International (supra), held that the contractor is not entitled to any compensation for delays in handing over of land.

The Hon'ble High Court of Andhra Pradesh at Hyderabad while upholding the validity of exclusion clauses observed:

"40. ... It is well settled that when the contract prohibits any claim for compensation on account of delay in completion of the work, the arbitrator would be acting illegally and without jurisdiction if such claim for compensation is allowed. We may also point out that when once the contract contains time extension clause as well as no compensation clause, no contractor can be allowed to claim compensation after seeking extension of time for completion of the work. ..."6.

As recently as in 2020, the Hon'ble Supreme Court has in K. Marappan (Dead) through Sole L.R. Balasubramanian v. The Superintending Engineer T.B.P.H.L.C.7, held as follows:

"26. It is our view that it will not be open to a contractor to claim compensation which arises on account of the fact that the work is delayed or hindrance caused to the work from any cause whatsoever. To demystify this further, it means that should the work be delayed on account of reasons which are attributable either partially or entirely to the employer namely the Respondent herein, the claim for compensation is barred. Equally, the Clause interdicts raising claim for compensation by the contractor if the employer poses hindrance to the work. If work gets delayed on account of the contractor himself, it is axiomatic that he cannot claim compensation as it would amount to a person taking advantage of his own wrong. Delay from any cause cannot found a claim for compensation. It may also happen that the work may get delayed not due to the fault of the employer. There may be natural causes such as natural calamities which may cause delay in carrying out the work. Even in such cases, in our view, Clause 59 would cast an embargo against a claim by the contractor. This interpretation gives full play to the words 'delays from any cause whatsoever'. Equally, if there is hindrance to the work from any cause whatever, a claim for compensation would not lie."

The Hon'ble Supreme Court, with the above observations, has held that if in a contract, the exclusion clause states that no claim for delays can be raised, then a contractor is barred from claiming compensation/damages.

Therefore, as seen from above cited decisions, courts in India have rejected claims for damages/compensation and have upheld and enforced the exclusion clauses present in contracts.

  • Judgements against the Exclusion Clauses

As seen from the preceding section, the courts in India have upheld and enforced the exclusion clauses. However, there exist decisions to the contrary, in fact in more number, wherein various High Courts and the Supreme Court of India refused to enforce the exclusion clauses or gave a very restrictive meaning to the exclusion clauses.

In one of the landmark judgments on exclusion clauses, the Supreme Court, in P.M. Paul v. Union of India8, upheld the award of escalation by the arbitrator when no such clause permitting escalation was present in the contract. The Hon'ble Supreme Court held that escalation is a normal incident arising out of gap of time and once the arbitrator has decided the question of delay, the arbitrator is empowered to grant damages.

Similarly, in Food Corporation of India v. A.M.Ahmed & Co. and Anr.9, the Supreme Court held that once the arbitrator had jurisdiction to find delays, the delaying party was also liable for the consequences arising from the delay.

The Supreme Court in another widely referred judgment in the case of Asian Techs Ltd. v. Union of India10 observed that the exclusion clauses only prohibit the department/party from granting damages but does not bar the arbitrator from granting damages. Interestingly, the judgement of Asian Tech was pronounced after judgement of Ramnath International (supra), however, does not discuss or differentiate the same.

In K.N.Sathyapalan (Dead) by LRs Vs. State of Kerala and Anr11, the Hon'ble Supreme Court of India observed that while parties are bound by the terms of the agreement, but when one party is unable to fulfill its obligations, the arbitrator is vested with the authority to compensate the other party for failure of the first party.

In Assam State Electricity Board and Ors. v. Buildworth Pvt. Ltd.12, the maximum permissible escalation was INR 9,16,825/- as per the contract. However, the arbitrator held that such a provision would not bind the parties after the scheduled date of completion and proceeded to grant escalation beyond the maximum limit. The Hon'ble Supreme Court upheld the interpretation given by the arbitrator that the exclusion clause would not operate beyond the original completion period.

Similarly, in Associated Construction Vs. Pawanhans Helicopters Pvt. Ltd.13, the Supreme Court observed that the exclusion clause barring any price fluctuations/escalation cannot operate beyond the original completion period.

The High Court of Delhi, in Simplex Concrete Piles (India) Ltd. Vs. Union of India14, had the opportunity to discuss the observations of the Hon'ble Supreme Court in Ram Nath (supra) as well as Asian Tech. (supra) while deciding the validity of an exclusion clause. The Hon'ble High Court of Delhi proceeded to hold that exclusion clauses that disentitle a party from getting benefits under Section 55 and 73/74 of the Indian Contract Act, 1872 are void for being violative of Section 23 of the Contract Act. The observations made in this judgement have been subsequently followed in a number if judgements across the years, including as recently as December, 202315.

A slightly different approach was adopted by the Supreme Court in one of the landmark judgements of General Manager Northern Railways and Ors. V. Sarvesh Chopra16, wherein the Hon'ble Supreme Court held as follows:

"15. ... Thus, it appears that under the Indian law, in spite of there being a contract between the parties whereunder the contractor has undertaken not to make any claim for delay in performance of the contract occasioned by an act of the employer, still a claim would be entertainable in one of the following situations: (i) if the contractor repudiates the contract exercising his right to do so under Section 55 of the Contract Act, (ii) the employer gives an extension of time either by entering into supplemental agreement or by making it clear that escalation of rates or compensation for delay would be permissible, (iii) if the contractor makes it clear that escalation of rates or compensation for delay shall have to be made by the employer and the employer accepts performance by the contractor in spite of delay and such notice by the contractor putting the employer on terms."

Based on the above observation, it is clear that even in presence of an exclusion clause, a claim is maintainable subject to the party fulfilling the above stated conditions, i.e., either the party agrees to grant compensation or accepts the performance of the works after being put to notice that the other party will be claiming compensation/damages. This also underscores the importance of issuing timely notices, if required, under the provisions of Section 55 of the Contract Act.

In light of the above discussion, it is observed that the courts in India have interpreted the exclusion clauses in various methods, i.e., from restricting it to only till the original completion period to allowing the affected party to claim compensation to declaring the exclusion clauses as void.

  • Role of Arbitrator in Exclusion Clause

While courts in India have taken divergent view on the issue of implementing exclusion clauses, the Hon'ble High Court of Delhi in a recent judgment in Bharat Sanchar Nigam Limited v. Maverick Mobile Solution17, has added a new dimension to the applicability of exclusion clauses by empowering the arbitral tribunal to decide on the constitutionality and applicability of a clause. The relevant portion is extracted herein below:

"71. The Constitution of India is the law of the land and it must be treated as such irrespective of the proceedings, even in Arbitration. The Arbitral Tribunal is bound by substantive law like the Indian Contract Act, 1872 as well as the Contract entered into by the parties in itself. The mandate of testing the validity of the Contract and analyzing the legality of the provisions of the contract is also vested with the Arbitral Tribunal."

Therefore, while it was always the settled law that the Arbitral Tribunal was empowered to interpret the clauses of the contract and such interpretation, unless perverse, could not be a ground for setting aside of the award, However, by empowering the Arbitral Tribunal to determine the legality and constitutionality of the clauses in a contract has provided more power to the Arbitral Tribunal.


While the above section has discussed applicability and interpretation of exclusion clauses on damages/compensation, the applicability of exclusion clauses in relation to bar on payment of interest has been treated differently.

In the contemporary contracts used by both private and state entities, a clause barring payment of interest is incorporated. In arbitrations governed by Arbitration Act, 1940, a bar on payment of interest did not disentitle the Arbitral Tribunal from payment of interest, as held in Port of Calcutta v. Engineers-De-Space-Age18 and Madnani Construction Corpn. (P) Ltd. v. Union of India19.

However, after the implementation of the Arbitration and Conciliation Act, 1996, by virtue of Section 31(7), if the contract prohibits payment of interest for any period, the Arbitral Tribunal is bound by such clauses and cannot grant interest for any period prior for which the payment of interest was barred as held by Supreme Court in Sree Kamatchi Amman Constructions v. Railways20. Similarly, the Supreme Court in Union of India v. Manraj Enterprises21 proceeded to set aside the award on the ground that the Arbitral Tribunal had awarded interest despite there being a bar on the same.

However, the Hon'ble High Court of Delhi has taken a different view in Union of India v. M/s. N.K. Garg & Co.22 and held that clauses barring payment of interest are violative of public policy and deserve to be struck down. An appeal against the said judgement is still pending and the operation of the judgement has been stayed.

Therefore, even though the Supreme Court has, in some decisions, permitted payment of damages/compensation despite an exclusion clause, the payment of interest in presence of an exclusion clause is barred under the Arbitration and Conciliation Act, 1996.


The authors respectfully disagree with the line of judgments wherein the exclusion clauses have been upheld. We have seen that most of the infrastructure projects are plagued with delays and most of them not attributable to the contractors. Therefore, in such cases, if the exclusion clauses are given a strict interpretation, it will have an adverse impact on the contractors' cashflow and a cascading effect on the country's economy. It would also discourage contractors from bidding for projects where they feel there will be delays attributable to the employer, for example delay in handing over sites etc. Further, almost all government contracts have no room for negotiation and the contractor must sign the dotted line or else risk losing the contract. Further, the contracts also have provisions for liquidated damages in case of delay by the contractor but on the other hand, for the delays by the employer, the only remedy is an extension of time. In such cases, allowing such restrictive clauses to prevail is not only against the principles of natural justice but also allowing a party to be a judge in its own cause. On the contrary, the judgements striking down the exclusion clauses promote transparency in business and encourage contractors to take on more work as they are assured that they will not be left remedy-less in case the project is delayed due to the reasons solely attributable to the employer.

Further, while we welcome the judgement in Maverick Mobile Solution (supra), we respectfully disagree on the issue of arbitrator deciding on the constitutionality of a certain clause. We believe that the test of constitutionality is best left to the courts and not a private arbitrator/tribunal.


1 (2007) 2 SCC 453

2 (1999) 9 SCC 610

3 (1991) 4 SCC 93

4 (2010) 13 SCC 377

5 MANU/PH/1556/2014

6 Dhirubai D. and Company, Engineers and Contractors vs. Nizam Sugar Factory Limited and Ors. [MANU/AP/0585/2009]

7 (2020) 15 SCC 401

8 1989 Supp (1) SCC 368

9 (2006) 13 SCC 779

10 (2009) 10 SCC 354

11 (2007) 13 SCC 43

12 (2017) 8 SCC 146

13 (2008) 16 SCC 128

14 MANU/DE/4538/2010

15 MBL Infrastructures Limited v. Delhi Metro Rail Corporation, 2023 SCC OnLine Del 8044

16 (2002) 4 SCC 45

17 2023 SCC OnLine Del 2211

18 (1996) 1 SCC 516

19 (2010) 1 SCC 549

20 (2010) 8 SCC 767

21 (2022) 2 SCC 331

22 2015 SCC OnLine Del 13324

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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