India's Contract Management Knowledge Hub

The Indian Contract Act 1872 is the primary legislation governing contracts in India. It governs all agreements involving offer, acceptance, consideration, capacity, and free consent. Construction contracts, EPC agreements, supply contracts, and service contracts in India are all subject to this Act, along with any sector-specific provisions under CPWD/GCC or FIDIC when applicable.

Force majeure is a contractual clause that excuses a party from performance when an extraordinary event beyond their control makes performance impossible or impractical. Under Indian law, force majeure provisions must be explicit in the contract — Section 56 of the Indian Contract Act (frustration) provides limited residual relief. Typical events include natural disasters, pandemics, riots, and regulatory government action. COVID-19 was treated as a force majeure event by many Indian courts and government authorities.

A valid EOT claim requires: (1) a qualifying event — typically defined in the contract, such as force majeure, employer-caused delay, or statutory variation; (2) timely notice — FIDIC Sub-Clause 20.1 requires notice within 28 days, GCC Clause 5 typically requires 14 days; (3) contemporaneous records — daily site diaries, correspondence, and site instructions; and (4) a substantiated claim demonstrating the causal link between the event and the delay. Late notice can bar the claim entirely under strict FIDIC interpretation.

Under Section 74 of the Indian Contract Act 1872, Indian courts treat LD and penalty as a single category — courts may award a reasonable amount even if the contract specifies a fixed LD rate. Unlike English law, Indian law allows courts to reduce an unreasonably high LD rate to "reasonable compensation." However, if the LD rate is a genuine pre-estimate of loss, courts typically enforce it. Contractors can challenge an LD deduction if the employer caused or contributed to the delay.

Most Indian government contracts (GCC, CPWD) and FIDIC contracts include a termination for convenience clause, allowing the employer to terminate without a breach by the contractor. Under GCC, compensation typically covers work completed plus certified costs — not lost profit on unexecuted work. Under FIDIC Red Book Clause 15.5, the employer must pay for work executed, plant and materials, reasonable profit on future work, and demobilisation costs. Without an express termination for convenience clause, termination must be for breach or frustration.

Under the Limitation Act 1963, the general limitation period for contract disputes in Indian courts is 3 years from the date the cause of action arises. The same period applies to arbitration proceedings under the Arbitration and Conciliation Act 1996 (Section 43 applies the Limitation Act to arbitrations). A written acknowledgement of liability or a part-payment can reset the limitation clock. Missing the limitation period bars the remedy entirely, even if the underlying claim is valid.