Introduction
In the realm of construction contracts, especially those related to public works, the enforceability of ‘no-claim, no-damage’ clauses (often referred to as ‘exclusion clauses’) is a frequent issue. These clauses effectively eliminate a contractor’s ability to claim compensation if the employer delays the contract, instead permitting only a time extension. This article delves into the legitimacy of such clauses and examines how they are addressed by courts in India and internationally.
Why Contractors Accept No-Claim Clauses
Contractors often find themselves compelled to accept these clauses, which might seem unjust. The Law Commission of India’s report on ‘unfair terms in contract’ highlights this dynamic, noting that contractors must often accept offers from large organizations, regardless of the contract terms [Chapter 2, 103rd Report, May 1984]. This scenario is prevalent not just among smaller contractors but also among industry leaders, often due to the non-negotiable nature of tender processes.
Statutory Remedies and Exclusion Clauses
The Indian Contract Act, 1872, specifically Section 73, provides an aggrieved party the right to claim compensation for losses due to a contract breach. Additionally, Section 55 outlines that if time is not of the essence—a common situation in construction contracts—the remedy is limited to damages. Therefore, exclusion clauses can deprive contractors of these statutory remedies.
Judicial Perspectives on Exclusion Clauses
The Indian judiciary has taken varying stances on these clauses, categorized into three principal approaches:
Freedom of Contract
Some courts uphold the sanctity of the contract, including its exclusion clauses. For instance, in Seth Thawardas Pherumal v. Union of India [(1955) 1 SCC 372], the Supreme Court validated an exclusion clause that relieved the government of liability, emphasizing contractual obligations. Similarly, in Oil and Natural Gas Corporation v. Wig Brothers Builders and Engineers Private Limited [(2010) 13 SCC 377], the court upheld the clause barring damages, though allowing a time extension.
Public Policy
Other courts have invalidated exclusion clauses on public policy grounds, arguing they cannot negate statutory remedies. The Delhi High Court, in Simplex Concrete Piles (India) Ltd. v. Union of India [2010 SCC OnLine Del 821], nullified an exclusion clause that conflicted with the statutory rights under Sections 55 and 73. In MBL Infrastructures Limited v. Delhi Metro Rail Corporation [2023 SCC OnLine Del 8044], the court set aside an award that enforced an exclusion clause despite the employer’s delay.
Conduct-based Compensation
Some judgments base the validity of exclusion clauses on the contractor’s conduct. For example, in Asian Techs Limited v. Union of India [(2009) 10 SCC 354], the Supreme Court awarded damages to a contractor due to the employer’s egregious delay. Conversely, in C&C Constructions Ltd. v. IRCON International Ltd. [(2025) 4 SCC 234], the court enforced the exclusion clause, as the contractor had accepted time extensions without reserving claims for damages.
The Sarvesh Chopra Decision
The landmark case of General Manager, Northern Railway v. Sarvesh Chopra [(2002) 4 SCC 45] provides a nuanced view. The Supreme Court upheld exclusion clauses but allowed claims for damages if specific conditions are met, such as repudiation of contract or employer’s acceptance of performance with compensation notice. This ruling aligns with exceptions recognized in American law, where clauses are not enforced in cases of extreme delay, abandonment, interference, or bad faith.
Conclusion
The current ambiguity in Indian case law concerning exclusion clauses poses challenges to construction and public-works contracts. Implementing a clear, exception-based rule similar to that in the United States could benefit both employers and contractors, balancing contract enforcement with accountability for delays. Until further clarity emerges, contractors are advised to meticulously document employer delays and reserve compensation claims when accepting time extensions.
About the Authors: Angad Varma and Toyesh Tewari are Partners, and Agastya Sen is a Senior Associate at Dua Associates.
Disclaimer: The opinions expressed in this article are those of the authors and do not necessarily reflect the views of Bar & Bench.
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