Challenging Liability Caps And Exclusion Clauses In Indian Infrastructure Arbitration: Statutory Protections Versus Contractual Restraints

I. Introduction

1. Exclusion clauses and liability caps are frequently used in infrastructure arbitration to protect government authorities from the consequences of their own breaches. However, the applicability of these clauses raises concerns especially when the contractor incurs damages due to reasons attributable to the Claimant. This article examines how Courts and Arbitral Tribunals have scrutinized such clauses, especially when employer-caused delays harm contractors. By analyzing key judicial decisions, it highlights the tension between contractual autonomy and statutory protections under the Indian Contract Act, advocating for a balanced framework that ensures equitable remedies.

II. Judicial Endorsement of Strict Interpretation of Liability Caps and Exclusion Clauses

2. Courts and Arbitral Tribunals have dealt with the tension between contractual autonomy and the need for fairness, particularly in public infrastructure contracts where the State or its instrumentalities dictate the terms of the contract. This tension is mostly evident in disputes involving exclusion and limitation clauses, which often operate to the detriment of contractors facing delays and procedural bottlenecks not of their own making.
3. This judicial dilemma was exemplified in Ch Ramalinga Reddy v Superintending Engineer¹, the Court set aside an award for items expressly barred under the contract, stating that equitable considerations cannot override clear contractual stipulations.

4. Similarly, in General Manager Northern Railways v Sarvesh Chopra² (“Sarvesh Chopra”), wherein the Supreme Court held that for a contractor to succeed in a claim for delay, three conditions must be satisfied: first, the contract must not contain a clear bar excluding damages; second, the delay must be attributable to the employer; and third, the contractor must establish actual loss caused by the delay. Where the contract expressly excluded compensation, as in that case, no claim could succeed. Sarvesh Chopra thus entrenched the principle that arbitral tribunals are bound by exclusionary clauses and cannot rewrite the contract on equitable considerations alone.
5. In Union of India v. Ramnath International Construction Pvt Ltd,³, (“Ramnath International“) the Apex Court reinforced this approach by striking down compensation awards that contravened Clause 11C's exclusion provisions, even where delays were caused by the employer. The judgment confirmed that arbitral authority is confined to the four corners of the contract. This position was further reaffirmed in Marappan v Superintending Engineer⁴ where the Supreme Court held that arbitral discretion cannot extend to rewriting or bypassing contractual prohibitions, even in the face of employer-caused delay.
6. These decisions collectively reflect a strict and narrow approach to exclusionary clauses. However, they also reveal a significant analytical gap. In the cases discussed above, the Court has confined its reasoning on contractual interpretation and arbitral limits, without engaging with the interplay of Sections 55, 73, and 74 of the Contract Act.
7. This has left unresolved the question of whether statutory protections for reciprocal obligations and reasonable compensation should qualify the sanctity of contractual commitments. The silence on this issue has perpetuated the tension between two strands of jurisprudence, one that blindly enforces one-sided contractual privileges, and another that seeks to uphold statutory principles to prevent unfair outcomes.
8. This judicial restraint becomes particularly problematic when viewed against the backdrop of recurring delays that are endemic to public infrastructure projects. These delays are mostly beyond the control of the contractor or arise from delays attributable to the employer like failure to hand over possession, shift utilities, or obtain necessary clearances⁵. Due to this, Contractors are left with idle plant and equipment, mounting overheads, and financing burdens due to lapses attributable to the employer⁶.
9. However,when contractors seek compensation, employers invoke exclusionary clauses and liability caps to defeat such claims. Such practice undermines the statutory right to compensation and distorts the allocation of risk in government procurement and public sector contracting. It is in this context that the Supreme Court's decision in Central Inland Water Transport Corporation v Brojo Nath Ganguly⁷ assumes renewed relevance. Although rendered in the context of employment law, the Court's invocation of Section 23 of the Contract Act to strike down an unconscionable termination clause has had wider resonance in contractual jurisprudence. It affirmed that contractual freedom cannot legitimise oppressive terms that deprive the weaker party of all remedies.

III. Ground realities of delay: Beyond the walls of contractual limitation.

9. While cases mentioned in the preceding section indicate a strict view that Arbitral Tribunals cannot award damages where the contract excludes them, the Supreme Court took a different view in N. Sathyapalan v. State of Kerala⁸ (“Sathyapalan”). The dispute was on whether a contractor could recover escalation costs when the original agreement contained no price escalation clause and the supplemental agreement expressly prohibited such claims. Ordinarily, such a bar would have been fatal to the contractor's claim.
10. However, the arbitral tribunal, and later the Supreme Court, recognised that the case was not one of simple contractual allocation of risk but of delay caused entirely by the employer and circumstances beyond the contractor's control. The tribunal awarded compensation for claims relating to antisocial disturbances at site and escalation in material and labour costs, holding that the contractor could not be made to absorb the consequences of a delay attributable to the State.
11. The approach in Sathyapalan was adopted and further developed in the case of Simplex Concrete Piles (India) Ltd v Union of India⁹ (“Simplex”). The tribunal found that the employer had caused the delay and examined whether Clause 11C could bar compensation. Faced with two apex Court conflicting precedents, including Ramnath Internationaland Asian Techs Ltd. vs. Union of India (UOI) and Ors¹⁰  (“Asia Tech”), the tribunal adopted the reasoning in Asian Techs, which upheld the arbitrator's authority to award damages despite contractual prohibitions. The Delhi High Court endorsed this view, holding that allowing the employer to benefit from its own breach would violate the Contract Act.
12. What makes Simplex significant is its methodical approach to the core issue of whether statutory rights under Sections 55 and 73 of the Contract Act can be contractually waived. The tribunal did not disregard the contract but interpreted it considering these provisions, recognising that rigid enforcement of boilerplate clauses must yield to the statutory guarantee of compensation as stipulated under the Indian Contract Act. The Court held that Sections 55 and 73 of the Contract Act represent the foundation of contractual enforcement and if breaches occur without consequence due to such exclusionary clauses, the very purpose of entering into contracts is defeated.
13. The Court in Simplexalso acknowledged that allowing employers to escape liability through exclusionary clauses would weaken public policy and destabilise commercial relations. The decision reflects the Court's willingness to hold employers accountable even if there is a contractual limit and upholds the principle that statutory entitlements under section 55 and 73 of the Contract Act are not subject to waiver, especially when public interest is at stake.
14. The approach in Simplex is reflected in most of the infrastructure arbitration appeals of the Delhi High Court. For instance, in the case of Delhi Metro Rail Corporation v. J Kumar-CRTG JV¹¹, the Court examined Clause 2.2 of the contract, which stated that in the event of delay in handing over possession, only an extension of time would be granted and “no monetary claims whatsoever” would be entertained Similarly, In Govt of N.C.T. of Delhi v. Afcons Infrastructure Ltd¹²., the dispute involved Clause 3.22 of the EPC contract, which excluded claims for delays caused by the shifting of utilities and external hindrances. In MBL Infrastructures Ltd v. DMRC¹³, the arbitral tribunal initially declined certain claims on the ground that the contract did not contain any clause providing for damages.
15. In all the cases mentioned above, the Delhi High Court has, awarded damages beyond contractual limitations, particularly where the employer was found to be at fault and the exclusionary clauses were deemed to be unconscionable or contrary to public policy.
16. Similarly, in Union of India v. Chiraj Stock & Security Pvt. Ltd,¹⁴ the Delhi High Court upheld an arbitral award granting damages for delays caused by the employer, even though the contract contained clauses that purported to bar such claims. The Court emphasized that Sections 55 and 73 of the Contract Act confer statutory rights to damages that cannot be contractually waived. In distinguishing its approach from the decision in Sarvesh Chopra, the Court clarified that, even when a claim relates to an excepted matter, contractors may still pursue legitimate claims if justified by the facts. However, the Court noted that each such claim must be considered on its own merits, particularly where the contractor has explicitly expressed an intention to seek compensation for the delay.¹⁵
17. The aforementioned cases collectively affirm that when delay is attributable to the employer, Sections 55 and 73 of the Indian Contract Act automatically apply, overriding any boilerplate clauses, whether exclusionary or limiting that attempt to deprive the contractor of their statutory right to claim damages. The Delhi Court has consistently upheld this interpretation, emphasizing that clauses which entirely bar access to statutory remedies defeat the purpose of the Contract Act and are void under Section 23.
18. Most recently, the Delhi High Court in National Highways Authority of India v. Yedeshi Aurangabad Tollway Limited¹⁶ upheld an arbitral award that granted compensation to the contractor beyond the limits set by Clause 10.3.4 of the Concession Agreement. The tribunal had taken a practical approach, recognizing that the clause didn't cover broader breaches, like the government's failure to hand over 80 percent of the land by the Appointed Date.¹⁷ As a result, the contractor received damages for several breaches that delayed construction and drove up costs. Although the Court agreed with this reasoning, it did not address whether parties can waive their statutory rights to compensation under Sections 55 and 73 of the Contract Act.

Beyond the Ceiling Limit; Enforceability of Ceiling Clauses

19. The Delhi High Court's ruling in National Highways Authority of India vs. Ashoka Buildcon Ltd¹⁸ (‘Ashoka Buildcon').has brought attention to the enforceability of ceiling limit clauses in government contracts. The arbitral award in favour of the contractor stemmed from NHAI's failure to hand over 90% of the Right of Way, which delayed the commencement of work and the fixation of the Appointed Date. The Tribunal held that this was not a procedural lapse but a breach of reciprocal obligations and rejected the applicability of 1% liability cap under Clause 4.1.5. The tribunal awarded compensation for overheads, idle machinery, demobilization, and unexecuted work, after a detailed assessment of actual impact and documentation. The High Court concurred with award passed by the Arbitral Tribunal and held that such ceiling caps cannot protect NHAI from the consequences of its own breach.
20. The Ashoka Buildcon case highlights the need for a practical framework to deal with Ceiling clauses. For assessing the validity of limitation clauses, courts and Tribunals should determine whether the cap was intended as a genuine pre-estimate of damages at the time of contracting. The Court and the Tribunals should examine whether the cap bears a rational link to the actual loss established on the facts. If the cap provided is illusory or disproportionate limit in the face of real losses, it must be read down in favour of the statutory guarantee under Sections 73 and 74 of the Indian Contract Act, 1872. Clauses limiting damages should only be enforced if they preserve meaningful remedies, and employers should not be permitted to rely on nominal caps to escape liability.

V. Conclusion

21. An analysis of the above judgments reveals that exclusion clauses and liability caps in infrastructure contracts do not offer blanket protection to employers, especially when they are responsible for delays. Courts are increasingly holding that the statutory rights provided by Sections 55, 73, and 74 of the Indian Contract Act take precedence over strict contractual limitations. In essence, contractual terms cannot override legal entitlements to compensation when delays are attributable to the employer. Courts and tribunals have refused to enforce clauses that deprive contractors of meaningful remedies, particularly when such clauses distort risk allocation and violate public policy.
22. A structured approach is emerging, based on factors such as employer conduct, proportionality of the cap, and the contractor's contemporaneous objections. These principles can guide consistent evaluation of limitation clauses. Moving forward, infrastructure contracts must align with fairness, transparency, and statutory compliance. Clear documentation of delays and expert assessment of costs can support legitimate claims without encouraging frivolous disputes. This balanced approach promotes equitable outcomes and brings Indian arbitration practices closer to international standards of justice and commercial reasonableness.

Footnotes

1. Ch. Ramalinga Reddy v. Superintending Engineer [1994] Supp 6 SCR 266.

2. General Manager Northern Railways v. Sarvesh Chopra (2002)4 SCC 45.

3. Union of India v. Ramnath International Construction Pvt Ltd (2007 )2 SCC 453.

4. K. Marappan v Superintending Engineer (2020) 15 SCC 401.

5. Delays and Cost Overruns in Infrastructure Projects: Extent, Causes and Remedies' (2023) SSRN https://ssrn.com/abstract=4378997 accessed 26 August 2025.

6. Ibid.

7. Central Inland Water Transport Corporation Limited and Ors. vs. Brojo Nath Ganguly and Ors. (06.04.1986 - SC): MANU/SC/0439/1986

8. K.N. Sathyapalan v State of Kerala (2007)13 SCC 43.

9. Simplex Concrete Piles (India) Ltd. vs. Union of India (23.02.2010 - DELHC): MANU/DE/4538/2010

10. Asian Techs Ltd. vs. Union of India (UOI) and Ors. (07.09.2009 - SC): MANU/SC/1620/2009

11. Delhi Metro Rail Corporation v J Kumar-CRTG JV 2022: DHC:1505.

12. Govt of N.C.T. of Delhi vs. Afcons Infrastructure Ltd. (26.04.2023 - DELHC): MANU/DE/2678/2023

13. MBL Infrastructures Ltd v DMRC 2023: DHC:9067.

14. Union of India vs. Chiraj Stock and Security Pvt. Ltd.: 2024:DHC:1581.

15. Union of India vs. Chiraj Stock and Security Pvt. Ltd.: 2024:DHC:1581.

16. National Highways Authority of India vs. Yedeshi Aurangabad Tollway Limited: 2025:DHC:424.

17. National Highways Authority of India vs. Yedeshi Aurangabad Tollway Limited: 2025:DHC:424.

18. National Highways Authority of India vs. Ashoka Buildcon Ltd 2025: DHC:424

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.