{"id":1964,"date":"2020-11-27T10:05:39","date_gmt":"2020-11-27T10:05:39","guid":{"rendered":"https:\/\/ijpiel.com\/?p=1964"},"modified":"2021-02-11T10:28:34","modified_gmt":"2021-02-11T10:28:34","slug":"checks-on-unfair-terms-in-construction-contracts-examining-the-current-legal-landscape","status":"publish","type":"post","link":"https:\/\/ijpiel.com\/index.php\/2020\/11\/27\/checks-on-unfair-terms-in-construction-contracts-examining-the-current-legal-landscape\/","title":{"rendered":"Checks on Unfair Terms in Construction Contracts: Examining the Current Legal Landscape"},"content":{"rendered":"<p>[et_pb_section fb_built=&#8221;1&#8243; _builder_version=&#8221;3.22&#8243; custom_padding=&#8221;29px|||||&#8221;][et_pb_row _builder_version=&#8221;3.25&#8243; background_size=&#8221;initial&#8221; background_position=&#8221;top_left&#8221; background_repeat=&#8221;repeat&#8221; min_height=&#8221;8695.3px&#8221;][et_pb_column type=&#8221;4_4&#8243; _builder_version=&#8221;3.25&#8243; custom_padding=&#8221;|||&#8221; custom_padding__hover=&#8221;|||&#8221;][et_pb_text _builder_version=&#8221;4.5.1&#8243; header_font=&#8221;Cormorant Garamond|700|||||||&#8221; header_text_align=&#8221;left&#8221; header_text_color=&#8221;#000000&#8243; header_font_size=&#8221;45px&#8221; background_size=&#8221;initial&#8221; background_position=&#8221;top_left&#8221; background_repeat=&#8221;repeat&#8221; header_letter_spacing_tablet=&#8221;&#8221; header_letter_spacing_phone=&#8221;&#8221; header_letter_spacing_last_edited=&#8221;on|desktop&#8221; inline_fonts=&#8221;Cormorant Garamond,Molengo,Molle,DM Serif Text,Cormorant Infant&#8221;]<!-- divi:paragraph --><\/p>\n<p><b style=\"font-family: 'Cormorant Garamond'; font-size: x-large; color: #000000;\">Abstract<\/b><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-size: large;\"><span style=\"color: #000000; font-family: Molengo; text-align: justify;\">There is<\/span><span style=\"color: #000000; text-align: justify; font-weight: normal;\"> an increasing tendency to introduce exclusion clauses in construction and infrastructure contracts. Such an exclusion clause can either be a limitation clause, which, limits the pecuniary liability of each party, or an exclusion clause which excludes certain kind of liabilities and claims. Often such clauses are found in standard form contracts or by incorporation through special conditions, wherein the economically stronger party has drafted it and the economically weaker party only has a take-it-or-leave-it option.<\/span><\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"color: #000000; font-size: large; font-weight: normal;\">In construction contracts specifically, where contracts are drafted by employers, or by the contractors wrt the sub-contractors, the operative clauses of the contract are often disadvantageous and onerous for contractors or the sub-contractors respectively. Construction is capital intensive; physically executed over a long period carrying uncertainties of site, design, approvals, funds, unforeseen physical conditions, environmental issues, change in law, changing scope or requirements, unexpected variations, political and natural risks, government regulations, and local bylaws and involving multiple players and third parties. Though the risk should be with the party which is in the best position to undertake it, unbalanced risk allocation is possible in a commercial arrangement. Unfair terms in the contract go beyond freely negotiated risk allocation and exempt a party from liability arising out of its own breach or negligence.<\/span><\/p>\n<p><span style=\"font-weight: normal; font-size: x-large; color: #000000; font-family: 'Cormorant Garamond';\"><strong>A few examples of &#8216;Onerous Clauses&#8217;<\/strong><\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-weight: normal; font-size: large; color: #000000;\">Some onerous clauses which limit liabilities of employers and impose strenuous obligation on contractors are:<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"color: #000000; font-size: large; text-align: left;\">1. \u201cNo-claim\u201d provision in extension of time clauses prohibiting claim of compensation by the contractor for disruption or delay caused by the employer for whatsoever reasons<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"color: #000000; font-size: large;\">2. Price adjustment clauses limiting the payment of price escalation due to rise in price of material and labour for prolongation of contract for reasons attributable to the employer<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"color: #000000; font-size: large; text-align: left;\">3. Convenience termination clauses that entitle the employer to terminate the contract without cause while limiting\/ excluding compensation for such termination<\/span><\/p>\n<p style=\"text-align: justify;\"><span class=\"has-inline-color has-black-color\" style=\"font-weight: normal; font-size: large; color: #000000;\">4. Contract requiring mandatory deployment of man and machinery by the contractor with penal provisions in case of default while exempting any liability on the part of employer for idling of such resources for delay or disruption caused by the employer<\/span><\/p>\n<p style=\"text-align: justify;\"><span class=\"has-inline-color has-black-color\" style=\"font-weight: normal; font-size: large; color: #000000;\">5. \u201cPay if\u201d or \u201cpay when\u201d clauses without right to suspend work by the contractor\/ sub-contractor<\/span><\/p>\n<p style=\"text-align: justify;\"><span class=\"has-inline-color has-black-color\" style=\"font-weight: normal; font-size: large; color: #000000;\">6. Clauses authorizing one of the parties to decide on the interpretation of contract or the issue of breach and making the same final and binding on the other party<\/span><\/p>\n<p style=\"text-align: justify;\"><span class=\"has-inline-color has-black-color\" style=\"font-weight: normal; font-size: large; color: #000000;\">7. The right of employer to recover damages, forfeit security deposit and \/or performance bank guarantee of the contractor, even when there is a disputed question of breach<\/span><\/p>\n<p style=\"text-align: justify;\"><span class=\"has-inline-color has-black-color\" style=\"font-weight: normal; font-size: large; color: #000000;\">8. Provision requiring the contractor to deposit unconditional bank guarantees<\/span><\/p>\n<p style=\"text-align: justify;\"><span class=\"has-inline-color has-black-color\" style=\"font-weight: normal; font-size: large; color: #000000;\">9. Time bar clauses which prescribe onerous time limits for claiming damages or other reliefs under the contract, rigorous notice requirements and forfeiture of rights under the contract on failure to comply with such requirements<\/span><\/p>\n<p style=\"text-align: justify;\"><span class=\"has-inline-color has-black-color\" style=\"font-weight: normal; font-size: large; color: #000000;\">10. Clauses that debar claim of interest on any amount due to the contractor or on disputed amounts to be adjudicated by arbitrators<\/span><\/p>\n<p style=\"text-align: justify;\"><span class=\"has-inline-color has-black-color\" style=\"font-weight: normal; font-size: large; color: #000000;\">11. \u201cNo claim\u201d undertakings in advance in printed forms for seeking extension of time even when the employer is responsible for delay<\/span><\/p>\n<p style=\"text-align: justify;\"><span class=\"has-inline-color has-black-color\" style=\"font-weight: normal; font-size: large; color: #000000;\">12. \u201cNo due certificate\u201d required to release final bill payments of work done discharging the employer from all liability even when the contractor has other legitimate claims<\/span><\/p>\n<p style=\"text-align: justify;\"><span class=\"has-inline-color has-black-color\" style=\"font-weight: normal; font-size: large; color: #000000;\">13. One sided arbitration clause that empowers the employer to appoint the sole arbitrator or decide the composition of the panel of arbitrators<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-weight: normal; font-size: large; color: #000000;\"><span class=\"has-inline-color has-black-color\">14. Arbitration clauses that require the claimant to pre-deposit a certain percentage of claim amount for reference to arbitration<\/span>\u00a0<\/span><\/p>\n<p style=\"text-align: justify;\"><strong style=\"color: #000000; font-size: x-large; text-align: left;\"><span style=\"font-family: 'Cormorant Garamond';\"><\/span><\/strong><\/p>\n<p style=\"text-align: justify;\"><strong style=\"color: #000000; font-size: x-large; text-align: left;\"><span style=\"font-family: 'Cormorant Garamond';\">Inadequacy of statutes and precedents in checking use of unfair terms<\/span><\/strong><\/p>\n<p style=\"text-align: justify;\"><span style=\"color: #000000; font-size: large; font-weight: normal;\">Free consent is the sine qua non for a valid contract. In standard form contracts, free consent is only symbolic in nature that is parties have the freedom to choose to enter or leave a contract, but no freedom to negotiate the terms of the contract. The Indian Contract Act (\u201cICA\u201d) provides no direct recourse for unfair terms. The precedents concerning the use of unfair terms are disjointed and often fail to provide dependable protection to the disadvantaged party.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-size: large; font-weight: normal; color: #000000;\">The ICA provides various reliefs for an innocent party to get compensation in case of breach of contract by the other party.<span class=\"has-inline-color has-black-color\">\u00a0The ICA declares certain agreements between the parties as void. Section 23 of ICA [1] provides that any contract or part of it whose object or consideration is unlawful or of such nature that if implemented will defeat provisions of law or is deemed to be immoral by the court is against public policy and can be declared void. However, the section does not refer to unconscionability specifically, to restrict freedom of contract or private dealings by the law for the good of the community.<\/span>\u00a0\u00a0<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-size: large; font-weight: normal; color: #000000;\"><span class=\"has-inline-color has-black-color\">Section 23 was used to deal with unfair terms for the first time in <em>Central Inland Water Transport Corporation Ltd. v. Brojo Nath Ganguly\u00a0<\/em><\/span><span class=\"has-inline-color has-black-color\">[2]. In this case, the SC held that gross inequality of bargaining power together with terms unreasonably favourable<\/span> <span class=\"has-inline-color has-black-color\">to the stronger party is an indication that the weaker party had no meaningful choice except for accepting the terms of the contract. The termination clause was declared void as it was against public policy. However, the Brojo Nath case does not apply to commercial contracts. In absence of a direct statutory remedy for unfair terms in the contract, the judiciary has resorted to using of various other methods to render justice, including relying on the limited scope of interference under public policy grounds to set aside an arbitral award.<\/span>\u00a0<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-size: large; font-weight: normal; color: #000000;\">In the case of <em>General Manager Northern Railways v. Sarvesh Chopra\u00a0<\/em>[3], where the contract barred the respondent from claiming compensation for delays caused by the appellants, the SC held that irrespective of such exclusion the respondent had the right to pursue relief under Section 55.\u00a0\u00a0<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-size: large; font-weight: normal; color: #000000;\">However<em>, Sarvesh Chopra<\/em> only concerns itself with contracts where time is of the essence. This precedent is helpful only to a handful of contracts as most construction contracts contain provisions for Extension of Time. In <em>Hind Construction Contractors v. State of Maharashtra\u00a0<\/em>[4], it was held that clauses which allow extension of time in certain contingencies or penalty for an extended time will land the contract outside the purview of contracts where time is of the essence, even where the contracting parties have explicitly provided for the same. Besides, in infrastructure and construction contracts, having heavily invested in the project and blocked resources including the deposit of unconditional bank guarantees without a chance of getting injunctive relief, it is impractical to suggest that a contract can be avoided by the innocent party under section 55 of ICA, on expiry of the original time.\u00a0\u00a0<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-size: large; font-weight: normal; color: #000000;\"><span class=\"has-inline-color has-black-color\">In <em>Ramnath International Construction (P) Ltd. v. Union of India<\/em>, [5] while dealing with clause 11 of the <\/span>MES contract, the Supreme Court resorted to the strict interpretation of the contract and held that a party is not entitled to claim damages if a clause to contrary is present in the agreement. But later in M\/S Asian Tech Ltd v. Union of India, [6] which contained the same clause 11, the Supreme Court upheld the <span class=\"has-inline-color has-black-color\">award of compensation for damages. However, unlike in <em>Ramnath International<\/em>, in <em>Asian Tech<\/em> the arbitration was under the Arbitration Act 1940 and the court had very little scope of interference in a non-speaking award.<\/span>\u00a0<\/span><\/p>\n<p><span style=\"font-size: large; font-weight: normal; color: #000000;\">In <em>Simplex Concrete Piles v. Union of India\u00a0<\/em>[7], the Delhi HC was faced with the task of reconciling these two conflicting decisions by SC. The issue was whether a party who is guilty of the breach under Section 73 and Section 55 can escape such liability due to the presence of an exemption clause barring such damages. The judge held that contracting out of some applicable provisions of ICA is permissible provided it does not deal with matters of public policy. The concerned exemption clause was void on grounds of public policy by virtue of Section 23 as protecting rights of contracting parties by Sections 73 &amp; 55 was a matter of public policy.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-size: large; font-weight: normal; color: #000000;\">Similarly, in <em style=\"font-family: Molengo;\">K.N. Sathyapalan v. State of Kerala\u00a0<\/em>[8] the question before the court was whether, in the absence of any price escalation clause in the original agreement and a specific prohibition to the contrary in the supplemental agreement, the appellant could have made any claim on account of escalation of costs. The court relied on <em style=\"font-family: Molengo;\">P M Paul v. Union of India\u00a0<\/em>[9] while distinguishing other judgments and refused to make a rigid interpretation of the terms of contract in the Supplemental Agreement and held:\u00a0<\/span><\/p>\n<p style=\"text-align: justify;\"><em style=\"color: #000000; font-size: large;\"><span class=\"has-inline-color has-black-color\">\u201cOrdinarily, parties would be bound by terms agreed upon in contract, but in event one of parties to contract is unable to fulfil its obligations under contract which has a direct bearing on work to be executed by other party, Arbitrator is vested with authority to compensate second party for extra costs incurred by him as a result of failure of first party to live up to its obligations.\u201d<\/span><\/em><span style=\"color: #000000; font-size: large;\">\u00a0<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-size: large; font-weight: normal; color: #000000;\"><span class=\"has-inline-color has-black-color\">In the recent case of <em>Assam SEB v. Buildworth\u00a0<\/em><\/span><span class=\"has-inline-color has-black-color\">[10] under the Arbitration Act, 1940, where a party has challenged the arbitrators right to award p<\/span><span class=\"has-inline-color has-black-color\">rice escalation beyond the ceiling provided in the contract, the court upheld the award as the decision of the arbitrator was based on the construction of a provision of contract, correspondence between the parties and the conduct of the responden<\/span><span class=\"has-inline-color has-black-color\">t, for prolongation of the contract. The court followed the PM Paul case and the Sathyapalan case to uphold the award of compensation.\u00a0 Similarly, in <em>Ktech v. Union of India\u00a0<\/em>[11], it was held that a party cannot be permitted to take advantage of a situation brought <\/span><span class=\"has-inline-color has-black-color\">about by itself when it has order<\/span><span class=\"has-inline-color has-black-color\">ed several changes resulting in a delay in completion of a project.<\/span><\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-size: large; font-weight: normal; color: #000000;\">However, there have been many cases where the courts have held that arbitrators have to strictly abide by the terms of contract. In <em>ONGC v. Sawpipe\u00a0<\/em>[12], the SC held that an award which contravenes the agreement between the parties can be set aside. Similarly, in <em>ONGC v. Wig Brothers<\/em>[13] the court held that an arbitrator\u2019s award should be within the terms of the agreement and cannot go beyond it.\u00a0<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-weight: normal; font-size: large; color: #000000;\"><span class=\"has-inline-color has-black-color\">However, since the 2015 amendment to Section 28(3) of the Arbitration &amp; Conciliation Act, 1996 (A &amp; C Act), any contravention of terms of the contract by the tribunal will not <em>ipso facto<\/em> result in rendering the award becoming capable of being set aside[14]. The Supreme Court in <em>Ssangyong Engineering &amp; Construction Co. Ltd. v. NHAI\u00a0<\/em>[15] notices the change in S.28(3) as one of the important amendments in the Arbitration Law, consequent to the 246th Report of the Law Commission of India (LCI), undoing the law laid down in Saw Pipes in this regard. This opens the window for contextual construction of construction contracts under the factual matrix. Mc Dermott International Inc v. Burn Standard Co Ltd.[16] recognizes that the conduct of the parties shall be taken into account in the interpretation of the contracts. Ssangyong also redefines the narrow scope of public policy ground for the challenge of arbitral awards considering the amendment to the Arbitration Act in 2015 regarding the observation made earlier in <em>Associate Builders v. Delhi Development Authority<\/em>, [17] in the pre-amendment regime.<\/span>\u00a0\u00a0<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-size: large; font-weight: normal; color: #000000;\">Another frequently used unfair practice is of obtaining \u201cno-claim\u201d undertakings by employers while granting extension of time in construction contracts and \u201cno-dues\u201d certificate for release of final bill payment.\u00a0 These may either be part of contract or insisted by the employer later. The Delhi High Court in <em>P C Sharma v. Delhi Development Authority\u00a0<\/em>[18] recognised that if the appellant would not give such undertaking, it would face absence of extension of time and other consequences, even when the respondent is in breach of contract causing delay; and upheld the decision of the arbitrator that the undertaking was obtained by force and hence invalid.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-weight: normal; font-size: large; color: #000000;\">Similarly, in <em>R L Kalathia and Co v. State of Gujarat\u00a0<\/em>[19] referring to <em>NTPC Ltd. v. Reshmi Constructions\u00a0<\/em>[20] and <em>Ambica Construction v. Union of India<\/em> [21], the Supreme Court held that merely because the contractor has issued \u201cno-dues certificate\u201d, if there is an acceptable claim, the court cannot reject the same on the ground of \u201cno-dues certificate\u201d. It held that a genuine claim cannot be absolutely barred by such certificates. In <em>Reshmi Constructions<\/em> the Supreme Court observed that it cannot shut its eyes on the ground realties for reasons why a contractor has to issue such certificates. In <em>Ambica Construction<\/em> the Supreme Court tested the efficacy of such clauses in contract requiring \u201cno-claim certificates\u201d.\u00a0<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"color: #000000; font-size: large; font-weight: normal;\">In cases where employers have obtained no-due certificates by withholding payments or security deposits, the contractors can sometimes find relief in doctrines of Undue Influence and Economic Duress. If a clause in a contract provides that a contractor has to submit a no-claim certificate before any payment is made to him, the courts can invalidate such a clause and allow an arbitrator to adjudicate upon the claims if the undertaking was given under undue influence\/economic duress[22]. With the amendment in Section 11 of the A &amp; C Act, this issue shall now fall within the purview of the Arbitrator.<\/span><\/p>\n<p><span style=\"font-weight: normal; font-size: large; color: #000000;\">Regarding clauses authorizing one of the parties to levy damages compensation alleging breach of contract, the SC in <em style=\"font-family: Molengo;\">J. G. Engineers Pvt Ltd v. Union of India\u00a0<\/em>[23] relied on <em style=\"font-family: Molengo;\">State of Karnataka v. Shree Rameshwara Rice Mills\u00a0<\/em>[24] to state that one of the parties to an agreement cannot reserve to himself the power to adjudicate whether the other party has committed breach; when who has committed breach is not admitted and is disputed. In <em style=\"font-family: Molengo;\">Rameshwara Rice Mills,<\/em> the SC had held that the right to assess damages arising from a breach of condition does not include a right to adjudicate upon a dispute relating to the very breach of conditions. This was relied by the SC in <em style=\"font-family: Molengo;\">BSNL v. Motorola<\/em>[25].\u00a0<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-weight: normal; font-size: large; color: #000000;\">In <em>Union of India v. Raman Iron Foundry,\u00a0<\/em>[26] it was held that a claim of damages which have not been adjudicated by appropriate forum and awarded, does not become a \u201cdebt due\u201d and cannot be recovered from the other party. This was later partially overruled by the SC in <em>Kamaluddin Ansari\u00a0<\/em>[27] to allow withholding a sum by the government till adjudication, subject to such a provision in the contract.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-weight: normal; font-size: large; color: #000000;\">In <em style=\"font-family: Molengo;\">S K Jain v. State of Haryana,\u00a0<\/em>[28] the Supreme Court upheld the agreement of the parties wherein the party seeking arbitration had to make substantial amount of prior deposit of money. However, more recently in <em style=\"font-family: Molengo;\">M\/S ICOMM Tele Ltd.\u00a0 v. Punjab State Water Supply &amp; Sewerage Board &amp; Anr<\/em>, [29] the Supreme Court while distinguishing the above judgment on the touchstone of the Article 14 of the Constitution of India, held \u201cDeterring a party to an arbitration from invoking this alternative dispute resolution process by a pre-deposit of 10% would discourage arbitration, contrary to the object of de-clogging the Court system, and would render the arbitral process ineffective and expensive.\u201d\u00a0 It referred to <em style=\"font-family: Molengo;\">ABL International Ltd. v. Export Credit Guarantee Corporation. of India Ltd<\/em>., [30], to state \u201cthis Court has held that even within the contractual sphere, the requirement of Article 14 to act fairly, justly and reasonably by persons who are state authorities or instrumentalities continues.\u201d\u00a0<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-size: large; font-weight: normal; color: #000000;\">The Supreme Court in <em>Perkins Eastman Architects v. HSCC(India) Ltd.\u00a0<\/em>[31] referring to various other judgments interpreting Section 12(5) of the A &amp; C Act introduced in 2015 has restricted the power of a party to appoint a sole arbitrator, despite such a provision in the arbitration agreement.\u00a0 However, the law allowing one of the parties to suggest a small panel as per the arbitration clause from which to choose three arbitrators, is in a flux, consequent to the decision of a 3 judges bench of SC in <em>Central Organization for Railways v. M\/S ECI-SPIC-SMO-MCML<\/em>[32] This decision in essence is contrary to earlier judgments mandating a broad-based panel of arbitrators and defeats the amendment to section 12 of the A &amp; C Act to give an unfair advantage to one of the parties.\u00a0<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-weight: normal; font-size: large; color: #000000;\"><span class=\"has-inline-color has-black-color\">The agreement sometimes restrains absolutely a party\u2019s legal rights and remedies. Section 28 of ICA makes such agreements void to that extent. The amendment through Section 28(b) of ICA prohibits any such bar in agreement with respect to the <\/span>right of a party to make claims till the limitation period as per law. Such time barring clauses in the agreement has<span class=\"has-inline-color has-black-color\"> been held to be void in most judgments (<em>See B L Kashyap &amp; Sons v AAI DHC<\/em> [33]).<\/span>\u00a0<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-size: large; font-weight: normal; color: #000000;\">The cost of capital is very high in the construction industry and the claim of interest is substantial considering the time taken in obtaining an arbitral award, including a lengthy pre-arbitral process.\u00a0 Under Arbitration Act 1940, courts have allowed arbitrators to award interest despite the prohibition on awarding of interest under the contract. However, under the 1996 Act, when the parties have agreed under the terms of the agreement that interest shall not be payable, the Arbitrator cannot award\u00a0<em>pendente lite<\/em>\u00a0interest or pre-reference interest. [34] This is due to the phrase \u201cUnless otherwise agreed by the parties in Section 31. (7) (a), which allows the parties to make their own arrangements with regards to awarding of interests.\u00a0<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-size: large; font-weight: normal; color: #000000;\">The most difficult form of unfair terms of the contract is unconditional bank guarantees, against which the scope of injunctive relief is very remote, due to the high threshold fixed by the courts. However, the Supreme Court in Gangotri Enterprises[35], gave relief on the specific facts of the case, where it was held encashment against the claim of damages, which are not a debt due till adjudicated, is not permissible. Similar relief is rare in other cases.\u00a0<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-size: large; font-weight: normal; color: #000000;\">The courts have also overlooked provision contained in saving to Section 1 of ICA which provides that an agreement will not be affected by ICA unless it is inconsistent with its provisions; meaning thereby, that terms in derogation with provisions provided in ICA will be hit by the saving and are capable of being declared ineffective.\u00a0<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-size: large; font-weight: normal; color: #000000;\"><span class=\"has-inline-color has-black-color\">Similarly, despite the provisions in S.51, 53,<\/span> and 54 of ICA codifying the law of reciprocal promises and prevention principle, the right of suspension of work by the contractor for non-payment of running bills, is generally not upheld, following the practice as per English common law, which itself has changed in the <span class=\"has-inline-color has-black-color\">UK as per the HGCRA, 1996.<\/span>\u00a0<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-weight: normal; font-size: medium; color: #000000;\"><span class=\"has-inline-color has-black-color\" style=\"font-size: large;\">Thus, the statutory protection from unfair terms of contract in India for commercial contracts is inadequate. The law on unfair terms in contracts as per the judicial precedents is unsettled and uncertain; and depends on the factual matrix of each case and on the construction of the terms of contract.\u00a0<\/span>\u00a0\u00a0<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-weight: normal; font-size: medium; color: #000000;\"><\/span><\/p>\n<h3><span style=\"font-family: 'Cormorant Garamond'; font-weight: normal; font-size: x-large; color: #000000;\"><strong>Other jurisdictions<\/strong><\/span><\/h3>\n<p style=\"text-align: justify;\"><span style=\"font-size: large; font-weight: normal; color: #000000;\">There has been a concerted effort in many countries to limit the scope of unfair terms in contracts to protect weaker parties.\u00a0 Countries have enacted statutes to ensure fairness in contracts, especially contracts where there is an imbalance of bargaining power.\u00a0<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-weight: normal; font-size: large; color: #000000;\"><span class=\"has-inline-color has-black-color\">In the<\/span> <span class=\"has-inline-color has-black-color\">United Kingdom in 1977 introduced the Unfair Contract Terms Act (UCTA) to regulate contracts by limiting the extent to which one party can avoid liability through the use of exclusion clauses. Section 11(1) of UTCA permit limitation of liability clauses only when they are fair and reasonable to be included having regard to the circumstances which were, or ought reasonably to have been known to the parties at the time the contract was entered into. The act is however plagued by a<\/span> <span class=\"has-inline-color has-black-color\">lack of clarity on terms such as exclusion clause and test for reasonableness.<\/span>\u00a0\u00a0<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-size: large; font-weight: normal; color: #000000;\"><span class=\"has-inline-color has-black-color\">In the United States, the Uniform Commercial Code (UCC) allows the court to refuse to enforce the unconscionable terms in contracts. The courts rely on both substantive and procedural unfairness to determine unconscionability. \u00a0Both types of unfairness need not be present to the same degree. Rather, \u201cthe more substantively oppressive the contract term, the less evidence of procedural unconscionability is required to come to the conclusion that the term is unenforceable and vice versa.\u201d [36]. However, the UCC only applies to the sale of goods. Unfair terms in other types of contracts are governed by common law principles.<\/span>\u00a0\u00a0<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-weight: normal; font-size: large; color: #000000;\"><span class=\"has-inline-color has-black-color\">In 2016 The Australian Consumer Law was extended to apply to all standard form contracts entered by small businesses. Under the Law for a term to be unfair,<\/span> <span class=\"has-inline-color has-black-color\">it must cause a significant imbalance in the parties\u2019 rights and obligations, such imbalance should not be reasonably necessary to protect the legitimate interests of the party advantaged by the term, and it must cause financial or other detriments to a small business if it were relied on[37]. Terms such as unilateral changes, limiting rights, penalties, unilateral assignments are explicitly covered in Section 24 of Australian Commercial Law. However, the protection only extends to those parties which come within the narrow scope of small business.<\/span>\u00a0\u00a0<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-weight: normal; font-size: large; color: #000000;\"><span class=\"has-inline-color has-black-color\">In Civil Law countries such as France and Germany, the principle of good faith has been considered a limit on the freedom to contract and a valuable instrument to determine the existence of an abusive clause in contracts. One of the obligations arising from good faith is the \u201cduty of loyalty\u201d, which consists of the abstention from all unfair behavior [38]. The Principle of Good Faith is applied by courts to avoid harsh or inequitable results arising out of unfair terms in a contract. However, due to ambiguities arising out of the principle of good faith, countries like France and Belgium, and Switzerland, the legislators have chosen \u2018a significant imbalance\u2019 as the criteria to determine unconscionability. Other countries like Germany have retained the principle of good faith as a yardstick for measuring unfairness[39].<\/span><\/span><\/p>\n<p style=\"text-align: justify;\"><strong style=\"color: #000000; font-size: x-large; text-align: left;\"><span style=\"font-family: 'Cormorant Garamond';\"><\/span><\/strong><\/p>\n<p style=\"text-align: justify;\"><strong style=\"color: #000000; font-size: x-large; text-align: left;\"><span style=\"font-family: 'Cormorant Garamond';\">Conclusion and Suggestions<\/span><\/strong><\/p>\n<p style=\"text-align: justify;\"><span style=\"color: #000000; font-size: large; font-weight: normal;\">The construction sector is in distress due to a liquidity crisis. The PPP model has failed in India partly due to unbalanced risk allocation. Long-term construction contracts and contracts with heavy investments in the infrastructure sector in India need more cooperative and less adversarial contracts based on good faith and balanced risk allocation. Clauses like convenience termination with unilateral power to terminate a contract at will shall discourage private investment. Hence having fair terms in contracts is a policy imperative.\u00a0<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-size: large; font-weight: normal; color: #000000;\">Unlike many countries, unfair contractual terms in India continue to be governed by precedents, which are often in conflict with each other. The 103rd Report of the Law Commission of India suggested the incorporation of Section 67A into ICA with two sub-sections invalidating exclusion of liability for negligence and for breach of contract. The 199th report of LCI suggested the enactment of a new statute to deal with this issue. The proposed statute divides unfair terms into procedural and substantive unfairness. A contract or a term is procedurally unfair if it has resulted in an unjust disadvantage to one party due to the conduct of the other party or the circumstances under which the contract has been entered into[40]. A contract or term is substantively unfair when it is harsh oppressive or unconscionable.\u00a0\u00a0<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-size: large; font-weight: normal; color: #000000;\"><span class=\"has-inline-color has-black-color\">The proposed Act enlists the circumstances under which and the substantive provisions which will indicate unfairness in contract or its terms. The proposed Act also allows courts and arbitral tribunals to declare the contract void, vary the terms of the contract, order payment of damages and issue injunctions among other reliefs.<\/span>\u00a0<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"color: #000000; font-size: large; font-weight: normal;\">The inability of the present legal landscape to safeguard the interest of weaker contracting parties w.r.to unfair contract terms calls for legislative reform. The recommendations of the LCI, which has not been acted upon by successive governments, if enacted will be a welcome step in protecting the commercial interests of economically weaker parties.<\/span><\/p>\n<p><span style=\"font-size: x-large;\"><strong><span style=\"color: #000000;\"><span style=\"font-family: 'Cormorant Garamond';\">About the Authors<\/span><\/span><\/strong><\/span><\/p>\n<p><span style=\"font-family: Molengo; font-weight: normal; color: #000000; font-size: large;\">Ganesh Chandra Kabi, FCIArb is the Managing Partner of Kabi &amp; Associates, New Delhi. He was formerly a Chief Engineer at the Central Public Works Department (CPWD) and is a seasoned arbitrator, having rendered 175+ awards.<\/span><\/p>\n<p><span style=\"font-family: Molengo; font-weight: normal; color: #000000; font-size: large;\"><\/span><\/p>\n<p><span style=\"font-family: Molengo; font-weight: normal; font-size: large;\"><span style=\"color: #000000;\">Mitali Kshatriya is a 3rd Year Law Student at the Ram Manohar Lohiya National Law University (RMLNLU), Lucknow. She is an Associate Editor at the Indian Journal of Projects, Infrastructure, and Energy Law (IJPIEL).\u00a0<\/span>\u00a0<\/span><\/p>\n<p><span style=\"font-size: x-large; color: #000000; font-family: 'Cormorant Garamond';\"><strong>Editorial Team<\/strong><\/span><\/p>\n<p><span style=\"color: #000000; font-size: large;\"><em>Managing Editor: Naman Anand<\/em><\/span><\/p>\n<p><span style=\"color: #000000; font-size: large;\"><em>Editors-in-Chief: Akanksha Goel &amp; Samarth Luthra<\/em><\/span><\/p>\n<p><span style=\"color: #000000; font-size: large;\"><em>Senior Editor: Aakaansha Arya<\/em><\/span><\/p>\n<p><span style=\"color: #000000; font-size: large;\"><em>Associate Editor: Mitali Kshatriya<\/em><\/span><\/p>\n<p><span style=\"color: #000000; font-size: large;\"><em>Junior Editor: Amrith R.<\/em><\/span><\/p>\n<p><span style=\"color: #000000; font-size: large;\"><em><\/em><\/span><\/p>\n<p><span style=\"font-size: x-large;\"><span style=\"font-family: 'Cormorant Garamond'; font-weight: normal; color: #000000;\"><strong>Preferred Method of Citation<\/strong><\/span>\u00a0<\/span><\/p>\n<p><span style=\"font-size: large; color: #000000;\">Ganesh Chandra Kabi, FCIArb &amp; Mitali Kshatriya \u2018Checks on Unfair Terms in Construction Contracts: Examining the Current Legal Landscape\u2019 (IJPIEL, 7 October 2020)<\/span><\/p>\n<p><span style=\"font-size: large; color: #000000;\">\u00a0&lt;https:\/\/ijpiel.com\/index.php\/2020\/11\/27\/checks-on-unfair-terms-in-construction-contracts-examining-the-current-legal-landscape\/&gt;<\/span><\/p>\n<p><span style=\"font-size: large; color: #000000;\"><\/span><\/p>\n<p><span style=\"font-size: x-large;\"><span style=\"font-weight: normal; color: #000000;\"><strong style=\"font-family: 'Cormorant Garamond';\">Endnotes<\/strong>\u00a0<\/span><span style=\"color: #000000;\">\u00a0<\/span><\/span><\/p>\n<p><span style=\"color: #000000; font-size: medium;\"><span style=\"font-size: large;\">[1] Section 23, Indian Contract Act, 1872.<\/span><\/span><\/p>\n<p><span style=\"font-size: large;\"><span style=\"color: #000000;\">[2]\u00a0<\/span><span style=\"color: #000000;\">Central Inland Water Transport Corporation Ltd. v. Brojo Nath Ganguly, 1986 AIR SC 1571. <\/span><\/span><\/p>\n<p><span style=\"font-size: large;\"><span style=\"color: #000000;\">[3]\u00a0<\/span><span class=\"has-inline-color has-black-color\" style=\"font-weight: normal; color: #000000;\">General Manager Northern Railways v. Sarvesh Chopra, (2002) 4 SCC 45.<\/span><\/span><\/p>\n<p><span style=\"font-size: large;\"><span class=\"has-inline-color has-black-color\" style=\"font-weight: normal; color: #000000;\">[4] Hind Construction Contractors v. State of Maharashtra, (1979) 2 SCC 70.<\/span><\/span><\/p>\n<p><span style=\"font-size: large;\"><span class=\"has-inline-color has-black-color\" style=\"font-weight: normal; color: #000000;\">[5] Ramnath International Construction (P) Ltd. v. Union of India, (2007) 2 SCC 453.<\/span><\/span><\/p>\n<p><span style=\"font-size: large;\"><span class=\"has-inline-color has-black-color\" style=\"font-weight: normal; color: #000000;\">[6] M\/S Asian Tech Ltd v. Union of India, (2009) 10 SCC 354.<\/span><\/span><\/p>\n<p><span style=\"font-size: large;\"><span class=\"has-inline-color has-black-color\" style=\"font-weight: normal; color: #000000;\">[7] Simplex Concrete Piles v. Union of India, LR (2010) II Delhi 699.<\/span><\/span><\/p>\n<p><span style=\"font-size: large;\"><span class=\"has-inline-color has-black-color\" style=\"font-weight: normal; color: #000000;\">[8] K.N. Sathyapalan v. State of Kerala, (2007) 13 SCC 43.<\/span><\/span><\/p>\n<p><span style=\"font-size: large;\"><span class=\"has-inline-color has-black-color\" style=\"font-weight: normal; color: #000000;\">[9] P. M. Paul v. Union of India, (1989) Supp (1) SCC 368.<\/span><\/span><\/p>\n<p><span style=\"font-size: large;\"><span class=\"has-inline-color has-black-color\" style=\"font-weight: normal; color: #000000;\">[10] Assam SEB v. Buildworth, (2017) 8 SCC 146.<\/span><\/span><\/p>\n<p><span style=\"font-size: large;\"><span class=\"has-inline-color has-black-color\" style=\"font-weight: normal; color: #000000;\">[11] Ktech v. Union of India, LR 2015 SCC OnLine Del 13369.<\/span><\/span><\/p>\n<p><span style=\"font-size: large;\"><span class=\"has-inline-color has-black-color\" style=\"font-weight: normal; color: #000000;\">[12] ONGC v. Sawpipe, (2003) 5 SCC 705.<\/span><\/span><\/p>\n<p><span style=\"font-size: large;\"><span class=\"has-inline-color has-black-color\" style=\"font-weight: normal; color: #000000;\">[13] ONGC v. Wig Brothers, (2010) 13 SCC 377.<\/span><\/span><\/p>\n<p><span style=\"font-size: large;\"><span class=\"has-inline-color has-black-color\" style=\"font-weight: normal; color: #000000;\">[14] ONGC Ltd. v. Western Geco International Ltd., (2014) 9 SCC 263.<\/span><\/span><\/p>\n<p><span style=\"font-size: large;\"><span class=\"has-inline-color has-black-color\" style=\"font-weight: normal; color: #000000;\">[15] Ssangyong Engineering &amp; Construction Co. Ltd. v. National Highways Authority of India, (2019) 15 SCC 131.<\/span><\/span><\/p>\n<p><span style=\"font-size: large;\"><span class=\"has-inline-color has-black-color\" style=\"font-weight: normal; color: #000000;\">[16] Mc Dermott International Inc v. Burn Standard Co Ltd., (2016) 11 SCC 181.<\/span><\/span><\/p>\n<p><span style=\"font-size: large;\"><span class=\"has-inline-color has-black-color\" style=\"font-weight: normal; color: #000000;\">[17] Associate Builders v. Delhi Development Authority, (2015) 3 SCC 49.<\/span><\/span><\/p>\n<p><span style=\"font-size: large;\"><span class=\"has-inline-color has-black-color\" style=\"font-weight: normal; color: #000000;\">[18] P.C. Sharma v. Delhi Development Authority, 2011 SCC OnLine Del 5149.<\/span><\/span><\/p>\n<p><span style=\"font-size: large;\"><span class=\"has-inline-color has-black-color\" style=\"font-weight: normal; color: #000000;\">[19] R.L. Kalathia and Co v. State of Gujarat, (2011) 2 SCC 400.<\/span><\/span><\/p>\n<p><span style=\"font-size: large;\"><span class=\"has-inline-color has-black-color\" style=\"font-weight: normal; color: #000000;\">[20] Chairman and MD, NTPC Ltd. v. Reshmi Constructions, Builders, and Contractors, (2004) 2 SCC 663.<\/span><\/span><\/p>\n<p><span style=\"font-size: large;\"><span class=\"has-inline-color has-black-color\" style=\"font-weight: normal; color: #000000;\">[21] Ambica Construction v. Union of India, (2006)13 SCC 475.<\/span><\/span><\/p>\n<p><span style=\"font-size: large;\"><span class=\"has-inline-color has-black-color\" style=\"font-weight: normal; color: #000000;\">[22] Union of India v. Parmar Constructions, (2019) 15 SCC 682.<\/span><\/span><\/p>\n<p><span style=\"font-size: large;\"><span class=\"has-inline-color has-black-color\" style=\"font-weight: normal; color: #000000;\">[23] J.G. Engineers Pvt Ltd v. Union of India, (2011) 5 SCC 758.<\/span><\/span><\/p>\n<p><span style=\"font-size: large;\"><span class=\"has-inline-color has-black-color\" style=\"font-weight: normal; color: #000000;\">[24] State of Karnataka v. Shree Rameshwara Rice Mills, (1987) 2 SCC 160.<\/span><\/span><\/p>\n<p><span style=\"font-size: large;\"><span class=\"has-inline-color has-black-color\" style=\"font-weight: normal; color: #000000;\">[25] Bharat Sanchar Nigam Limited v. Motorola India Pvt. Ltd., (2009) 2 SCC 337.<\/span><\/span><\/p>\n<p><span style=\"font-size: large;\"><span class=\"has-inline-color has-black-color\" style=\"font-weight: normal; color: #000000;\">[26] Union of India v. Raman Iron Foundry, (1974) 2 SCC 231.<\/span><\/span><\/p>\n<p><span style=\"font-size: large;\"><span class=\"has-inline-color has-black-color\" style=\"font-weight: normal; color: #000000;\">[27] Kamaluddin Ansari v. Union of India, (1983) 4 SCC 417.<\/span><\/span><\/p>\n<p><span style=\"font-size: large;\"><span class=\"has-inline-color has-black-color\" style=\"font-weight: normal; color: #000000;\">[28] S.K. Jain v. State of Haryana, (2009) 4 SCC 357.<\/span><\/span><\/p>\n<p><span style=\"font-size: large;\"><span class=\"has-inline-color has-black-color\" style=\"font-weight: normal; color: #000000;\">[29] M\/S ICOMM Tele Ltd.\u00a0 v. Punjab State Water Supply &amp; Sewerage Board, (2019) 4 SCC 401.<\/span><\/span><\/p>\n<p><span style=\"font-size: large;\"><span class=\"has-inline-color has-black-color\" style=\"font-weight: normal; color: #000000;\">[30] ABL International Ltd. v. Export Credit Guarantee Corporation. of India Ltd., (2004) 3 SCC 553.<\/span><\/span><\/p>\n<p><span style=\"font-size: large;\"><span class=\"has-inline-color has-black-color\" style=\"font-weight: normal; color: #000000;\">[31] Perkins Eastman Architects v. HSCC(India) Ltd., 2019 SCC OnLine SC 1517.<\/span><\/span><\/p>\n<p><span style=\"font-size: large;\"><span class=\"has-inline-color has-black-color\" style=\"font-weight: normal; color: #000000;\">[32] Central Organization for Railways v. M\/S ECI-SPIC-SMO-MCML, 2019 SCC OnLine SC 1635.<\/span><\/span><\/p>\n<p><span style=\"font-size: large;\"><span class=\"has-inline-color has-black-color\" style=\"font-weight: normal; color: #000000;\">[33] B.L. Kashyap &amp; Sons v. AAI DHC, 2016 SCC Online Del 5473.<\/span><\/span><\/p>\n<p><span style=\"font-size: large;\"><span class=\"has-inline-color has-black-color\" style=\"font-weight: normal; color: #000000;\">[34] Chittaranjan Maity v. Union of India, (2017) 9 SCC 611.<\/span><\/span><\/p>\n<p><span style=\"font-size: large;\"><span class=\"has-inline-color has-black-color\" style=\"font-weight: normal; color: #000000;\">[35] Gangotri Enterprises v. Union of India, (2016) 11 SCC 720.<\/span><\/span><\/p>\n<p><span style=\"font-size: large;\"><span class=\"has-inline-color has-black-color\" style=\"font-weight: normal; color: #000000;\">[36] Baltazar v. Forever21, Inc., 62 Cal. 4th 1237 (2016).<\/span><\/span><\/p>\n<p><span style=\"font-size: large;\"><span style=\"font-weight: normal; color: #000000;\"><span class=\"has-inline-color has-black-color\">[37] Determining whether a contract term is unfair, ACCC https:\/\/www.accc.gov.au\/business\/business-rights-protections\/unfair-contract-terms\/determining-whether-a-contract-term-is-unfair<\/span><span class=\"has-inline-color has-black-color\">\u00a0(<span size=\"3\">last visited Oct. 20, 2020)<\/span><\/span><\/span><\/span><\/p>\n<p><span style=\"font-size: large;\"><span class=\"has-inline-color has-black-color\" style=\"font-weight: normal; color: #000000;\">[38] Ejan Mackaay, Good faith in civil law systems. A legal-economic analysis, (July 2012), Sceilo\u00a0<\/span><span class=\"has-inline-color has-black-color\" style=\"font-weight: normal;\"><a href=\"https:\/\/scielo.conicyt.cl\/scielo.php?script=sci_arttext&amp;pid=S0718-80722012000100004#:~:text=It%20refers%20here%20to%20not,all%20civil%20law%20systems17\u00a0\"><span style=\"color: #000000;\">https:\/\/scielo.conicyt.cl\/scielo.php?script=sci_arttext&amp;pid=S0718-80722012000100004#:~:text=It%20refers%20here%20to%20not,all%20civil%20law%20systems17<\/span>\u00a0<\/a><\/span><\/span><\/p>\n<p><span style=\"font-size: large;\"><span style=\"font-weight: normal; color: #000000;\">[39] Chapter 5: Good Faith, LegisCompare\u00a0https:\/\/www.legiscompare.fr\/web\/IMG\/pdf\/13._CH_5_Good_faith.pdf(last visited Oct. 20, 2020).<\/span><\/span><\/p>\n<p><span style=\"font-size: large;\"><span class=\"has-inline-color has-black-color\" style=\"font-weight: normal; color: #000000;\">[40] Law Commission of India &#8211; 199th Report Unfair (Procedural &amp; Substantive) Terms in Contract, Law Commission of India,\u00a0https:\/\/www.legiscompare.fr\/web\/IMG\/pdf\/13._CH_5_Good_faith.pdf(last visited Oct. 20, 2020).<\/span><\/span><\/p>\n<p><!-- \/divi:list --><\/p>\n<p>&nbsp;<\/p>\n<p>[\/et_pb_text][\/et_pb_column][\/et_pb_row][\/et_pb_section][et_pb_section fb_built=&#8221;1&#8243; _builder_version=&#8221;4.5.1&#8243; _module_preset=&#8221;default&#8221;][et_pb_row _builder_version=&#8221;4.5.1&#8243; _module_preset=&#8221;default&#8221;][et_pb_column type=&#8221;4_4&#8243; _builder_version=&#8221;4.5.1&#8243; _module_preset=&#8221;default&#8221;][\/et_pb_column][\/et_pb_row][\/et_pb_section]<\/p>\n","protected":false},"excerpt":{"rendered":"<p>[et_pb_section fb_built=&#8221;1&#8243; _builder_version=&#8221;3.22&#8243; custom_padding=&#8221;29px|||||&#8221;][et_pb_row _builder_version=&#8221;3.25&#8243; background_size=&#8221;initial&#8221; background_position=&#8221;top_left&#8221; background_repeat=&#8221;repeat&#8221; min_height=&#8221;8695.3px&#8221;][et_pb_column type=&#8221;4_4&#8243; _builder_version=&#8221;3.25&#8243; custom_padding=&#8221;|||&#8221; custom_padding__hover=&#8221;|||&#8221;][et_pb_text _builder_version=&#8221;4.5.1&#8243; header_font=&#8221;Cormorant Garamond|700|||||||&#8221; header_text_align=&#8221;left&#8221; header_text_color=&#8221;#000000&#8243; header_font_size=&#8221;45px&#8221; background_size=&#8221;initial&#8221; background_position=&#8221;top_left&#8221; background_repeat=&#8221;repeat&#8221; header_letter_spacing_tablet=&#8221;&#8221; header_letter_spacing_phone=&#8221;&#8221; header_letter_spacing_last_edited=&#8221;on|desktop&#8221; inline_fonts=&#8221;Cormorant Garamond,Molengo,Molle,DM Serif Text,Cormorant Infant&#8221;] Abstract There is an increasing tendency to introduce exclusion clauses in construction and infrastructure contracts. Such an exclusion clause can either be a limitation clause, [&hellip;]<\/p>\n","protected":false},"author":9,"featured_media":1936,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_et_pb_use_builder":"on","_et_pb_old_content":"<!-- wp:paragraph -->\n<p><span class=\"has-inline-color has-black-color\"><strong>Abstract<\/strong><\/span><\/p>\n<!-- \/wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p><span class=\"has-inline-color has-black-color\">There is an increasing tendency to introduce exclusion clauses in construction and infrastructure contracts. Such an exclusion clause can either be a limitation clause, which, limits the pecuniary liability of each party, or an exclusion clause which excludes certain kind of liabilities and claims. Often such clauses are found in standard form contracts or by incorporation through special conditions, wherein the economically stronger party has drafted it and the economically weaker party only has a take-it-or-leave-it option.<\/span><\/p>\n<!-- \/wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p><span class=\"has-inline-color has-black-color\">In construction contracts specifically, where contracts are drafted by employers, or by the contractors wrt the sub-contractors, the operative clauses of the contract are often disadvantageous and onerous for contractors or the sub-contractors respectively. Construction is capital intensive; physically executed over a long period carrying uncertainties of site, design, approvals, funds, unforeseen physical conditions, environmental issues, change in law, changing scope or requirements, unexpected variations, political and natural risks, government regulations, and local bylaws and involving multiple players and third parties. Though the risk should be with the party which is in the best position to undertake it, unbalanced risk allocation is possible in a commercial arrangement. Unfair terms in the contract go beyond freely negotiated risk allocation and exempt a party from liability arising out of its own breach or negligence.<\/span><\/p>\n<!-- \/wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p><span class=\"has-inline-color has-black-color\">Some onerous clauses which limit liabilities of employers and impose strenuous obligation on contractors are:<\/span><\/p>\n<!-- \/wp:paragraph -->\n\n<!-- wp:list {\"ordered\":true,\"type\":\"i\"} -->\n<ol type=\"i\"><li><span class=\"has-inline-color has-black-color\">\u201cNo-claim\u201d provision in extension of time clauses prohibiting claim of compensation by the contractor for disruption or delay caused by the employer for whatsoever reasons<\/span><\/li><li><span class=\"has-inline-color has-black-color\">Price adjustment clauses limiting the payment of price escalation due to rise in price of material and labour for prolongation of contract for reasons attributable to the employer<\/span><\/li><li><span class=\"has-inline-color has-black-color\">Convenience termination clauses that entitle the employer to terminate the contract without cause while limiting\/ excluding compensation for such termination<\/span><\/li><li><span class=\"has-inline-color has-black-color\">Contract requiring mandatory deployment of man and machinery by the contractor with penal provisions in case of default while exempting any liability on the part of employer for idling of such resources for delay or disruption caused by the employer<\/span><\/li><li><span class=\"has-inline-color has-black-color\">\u201cPay if\u201d or \u201cpay when\u201d clauses without right to suspend work by the contractor\/ sub-contractor<\/span><\/li><li><span class=\"has-inline-color has-black-color\">Clauses authorizing one of the parties to decide on the interpretation of contract or the issue of breach and making the same final and binding on the other party<\/span><\/li><li><span class=\"has-inline-color has-black-color\">The right of employer to recover damages, forfeit security deposit and \/or performance bank guarantee of the contractor, even when there is a disputed question of breach<\/span><\/li><li><span class=\"has-inline-color has-black-color\">Provision requiring the contractor to deposit unconditional bank guarantees<\/span><\/li><li><span class=\"has-inline-color has-black-color\">Time bar clauses which prescribe onerous time limits for claiming damages or other reliefs under the contract, rigorous notice requirements and forfeiture of rights under the contract on failure to comply with such requirements<\/span><\/li><li><span class=\"has-inline-color has-black-color\">Clauses that debar claim of interest on any amount due to the contractor or on disputed amounts to be adjudicated by arbitrators<\/span><\/li><li><span class=\"has-inline-color has-black-color\">\u201cNo claim\u201d undertakings in advance in printed forms for seeking extension of time even when the employer is responsible for delay<\/span><\/li><li><span class=\"has-inline-color has-black-color\">\u201cNo due certificate\u201d required to release final bill payments of work done discharging the employer from all liability even when the contractor has other legitimate claims<\/span><\/li><li><span class=\"has-inline-color has-black-color\">&nbsp;One sided arbitration clause that empowers the employer to appoint the sole arbitrator or decide the composition of the panel of arbitrators<\/span><\/li><li><span class=\"has-inline-color has-black-color\">Arbitration clauses that require the claimant to pre-deposit a certain percentage of claim amount for reference to arbitration<\/span><\/li><\/ol>\n<!-- \/wp:list -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Inadequacy of Statutes and Precedents in Checking Use of Unfair Terms<\/h3>\n<!-- \/wp:heading -->\n\n<!-- wp:paragraph -->\n<p><span class=\"has-inline-color has-black-color\">Free consent is the sine qua non for a valid contract. In standard form contracts, free consent is only symbolic in nature that is parties have the freedom to choose to enter or leave a contract, but no freedom to negotiate the terms of the contract. The Indian Contract Act (\u201cICA\u201d) provides no direct recourse for unfair terms. The precedents concerning the use of unfair terms are disjointed and often fail to provide dependable protection to the disadvantaged party.<\/span><\/p>\n<!-- \/wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p><a><span class=\"has-inline-color has-black-color\">The ICA provides various reliefs for an innocent party to get compensation in case of breach of contract by the other party. However, contracts often restrict such rights with the help of exclusion clauses<\/span><\/a><span class=\"has-inline-color has-black-color\"><a>. <\/a>&nbsp;The ICA declares certain agreements between the parties as void. Section 23 of ICA [1] provides that any contract or part of it whose object or consideration is unlawful or of such nature that if implemented will defeat provisions of law or is deemed to be immoral by the court is against public policy and can be declared void. However, the section does not refer to unconscionability specifically, to restrict freedom of contract or private dealings by the law for the good of the community.<\/span><\/p>\n<!-- \/wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p><span class=\"has-inline-color has-black-color\">Section 23 was used to deal with unfair terms for the first time in <\/span><a><em><span class=\"has-inline-color has-black-color\">Central Inland Water Transport Corporation Ltd. v. Brojo Nath Ganguly<\/span><\/em><\/a><span class=\"has-inline-color has-black-color\">[2]. In this case, the SC held that gross inequality of bargaining power together with terms unreasonably favorable<\/span> <span class=\"has-inline-color has-black-color\">to the stronger party is an indication that the weaker party had no meaningful choice except for accepting the terms of the contract. The termination clause was declared void as it was against public policy. However, the Brojo Nath case does not apply to commercial contracts. In absence of a direct statutory remedy for unfair terms in the contract, the judiciary has resorted to using of various other methods to render justice, including relying on the limited scope of interference under public policy grounds to set aside an arbitral award.<\/span><\/p>\n<!-- \/wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p><span class=\"has-inline-color has-black-color\">In the case of <em>General Manager Northern Railways v. Sarvesh Chopra,<\/em>[3] where the contract barred the respondent from claiming compensation for delays caused by the appellants, the SC held that irrespective of such exclusion the respondent had the right to pursue relief under Section 55.&nbsp;<\/span><\/p>\n<!-- \/wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p><span class=\"has-inline-color has-black-color\">However<em>, Sarvesh Chopra<\/em> only concerns itself with contracts where time is of the essence. This precedent is helpful only to a handful of contracts as most construction contracts contain provisions for Extension of Time. In <em>Hind Construction Contractors v. State of Maharashtra<\/em>, [4] it was held that clauses which allow extension of time in certain contingencies or penalty for an extended time will land the contract outside the purview of contracts where time is of the essence, even where the contracting parties have explicitly provided for the same. Besides, in infrastructure and construction contracts, having heavily invested in the project and blocked resources including the deposit of unconditional bank guarantees without a chance of getting injunctive relief, it is impractical to suggest that a contract can be avoided by the innocent party under section 55 of ICA, on expiry of the original time. <\/span><\/p>\n<!-- \/wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p><span class=\"has-inline-color has-black-color\">In <em>Ramnath International Construction (P) Ltd. v. Union of India<\/em>, [5] while dealing with clause 11 of the <\/span>MES contract, the Supreme Court resorted to the strict interpretation of the contract and held that a party is not entitled to claim damages if a clause to contrary is present in the agreement. But later in M\/S Asian Tech Ltd v. Union of India, [6] which contained the same clause 11, the Supreme Court upheld the <span class=\"has-inline-color has-black-color\">award of compensation for damages. However, unlike in <em>Ramnath International<\/em>, in <em>Asian Tech<\/em> the arbitration was under the Arbitration Act 1940 and the court had very little scope of interference in a non-speaking award.<\/span><\/p>\n<!-- \/wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p><span class=\"has-inline-color has-black-color\">In Simplex Concrete Piles v. Union of India[7], the Delhi HC was faced with the task of reconciling these two conflicting decisions by SC. The issue was whether a party who is guilty of the breach under Section 73 and Section 55 can escape such liability due to the presence of an exemption clause barring such damages. The judge held that contracting out of some applicable provisions of ICA is permissible provided it does not deal with matters of public policy. The concerned exemption clause was void on grounds of public policy by virtue of Section 23 as protecting rights of contracting parties by Sections 73 &amp; 55 was a matter of public policy.<\/span><\/p>\n<!-- \/wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p><span class=\"has-inline-color has-black-color\">Similarly, in <em>K.N. Sathyapalan v. State of Kerala<\/em>[8] the question before the court was whether, in the absence of any price escalation clause in the original agreement and a specific prohibition to the contrary in the supplemental agreement, the appellant could have made any claim on account of escalation of costs. The court relied on <em>P M Paul v. Union of India<\/em>[9] while distinguishing other judgments and refused to make a rigid interpretation of the terms of contract in the Supplemental Agreement and held:<\/span><\/p>\n<!-- \/wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p><em><span class=\"has-inline-color has-black-color\">&nbsp;\u201cOrdinarily, parties would be bound by terms agreed upon in contract, but in event one of parties to contract is unable to fulfil its obligations under contract which has a direct bearing on work to be executed by other party, Arbitrator is vested with authority to compensate second party for extra costs incurred by him as a result of failure of first party to live up to its obligations.\u201d<\/span><\/em><\/p>\n<!-- \/wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p><span class=\"has-inline-color has-black-color\">In the recent case of <\/span><a><em><span class=\"has-inline-color has-black-color\">Assam SEB v. Buildworth<\/span><\/em><\/a><span class=\"has-inline-color has-black-color\">, [10] under the Arbitration Act, 1940, where a party has challenged the arbitrators right to award price escalation beyond the ceiling provided in the contract, the court upheld the award as the decision of the arbitrator was based on the construction of a provision of contract, correspondence between the parties and the conduct of the respondent, for prolongation of the contract. The court followed the PM Paul case and the Sathyapalan case to uphold the award of compensation.&nbsp; Similarly, in Ktech v. Union of India[11], it was held that a party cannot be permitted to take advantage of a situation brought about by itself when it has ordered several changes resulting in a delay in completion of a project.<\/span><\/p>\n<!-- \/wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p><span class=\"has-inline-color has-black-color\">However, there have been many cases where the courts have held that arbitrators have to strictly abide by the terms of contract. In <em>ONGC v. Sawpipe<\/em>[12], the SC held that an award which contravenes the agreement between the parties can be set aside. Similarly, in <em>ONGC v. Wig Brothers<\/em>[13] the court held that an arbitrator\u2019s award should be within the terms of the agreement and cannot go beyond it.<\/span><\/p>\n<!-- \/wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p><span class=\"has-inline-color has-black-color\">However, since the 2015 amendment to Section 28(3) of the Arbitration &amp; Conciliation Act, 1996 (A &amp; C Act), any contravention of terms of the contract by the tribunal will not ipso facto result in rendering the award becoming capable of being set aside[14]. The Supreme Court in Ssangyong Engineering &amp; Construction Co. Ltd. v. NHAI[15] notices the change in s.28(3) as one of the important amendments in the Arbitration Law, consequent to the 246th Report of the Law Commission of India (LCI), undoing the law laid down in Saw Pipes in this regard. This opens the window for contextual construction of construction contracts under the factual matrix. Mc Dermott International Inc v. Burn Standard Co Ltd.[16] recognizes that the conduct of the parties shall be taken into account in the interpretation of the contracts. Ssangyong also redefines the narrow scope of public policy ground for the challenge of arbitral awards considering the amendment to the Arbitration Act in 2015 regarding the observation made earlier in <em>Associate Builders v. Delhi Development Authority<\/em>, [17] in the pre-amendment regime.<\/span>&nbsp;<\/p>\n<!-- \/wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p><span class=\"has-inline-color has-black-color\">Another frequently used unfair practice is of obtaining \u201cno-claim\u201d undertakings by employers while granting extension of time in construction contracts and \u201cno-dues\u201d certificate for release of final bill payment.&nbsp; These may either be part of contract or insisted by the employer later. The Delhi High Court in <em>P C Sharma v. Delhi Development Authority<\/em>[18] recognized that if the appellant would not give such undertaking, it would face absence of extension of time and other consequences, even when the respondent is in breach of contract causing delay; and upheld the decision of the arbitrator that the undertaking was obtained by force and hence invalid.<\/span><\/p>\n<!-- \/wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p><span class=\"has-inline-color has-black-color\">Similarly, in <em>R L Kalathia and Co v. State of Gujarat<\/em>[19] referring to <em>NTPC Ltd. v. Reshmi Constructions<\/em>[20] and <em>Ambica Construction v. Union of India<\/em> [21], the Supreme Court held that merely because the contractor has issued \u201cno-dues certificate\u201d, if there is an acceptable claim, the court cannot reject the same on the ground of \u201cno-dues certificate\u201d. It held that a genuine claim cannot be absolutely barred by such certificates. In <em>Reshmi Constructions<\/em> the Supreme Court observed that it cannot shut its eyes on the ground realties for reasons why a contractor has to issue such certificates. In <em>Ambica Construction<\/em> the Supreme Court tested the efficacy of such clauses in contract requiring \u201cno-claim certificates\u201d.<\/span><\/p>\n<!-- \/wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p><span class=\"has-inline-color has-black-color\">In cases where employers have obtained no-due certificates by withholding payments or security deposits, the contractors can sometimes find relief in doctrines of Undue Influence and Economic Duress. If a clause in a contract provides that a contractor has to submit a no-claim certificate before any payment is made to him, the courts can invalidate such a clause and allow an arbitrator to adjudicate upon the claims if the undertaking was given under undue influence\/economic duress[22]. With the amendment in section 11 of the A &amp; C Act, this issue shall now fall within the purview of the Arbitrator.<\/span><\/p>\n<!-- \/wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p><span class=\"has-inline-color has-black-color\">Regarding clauses authorizing one of the parties to levy damages compensation alleging breach of contract, the SC in <em>J. G. Engineers Pvt Ltd v. Union of India<\/em>[23] relied on <em>State of Karnataka v. Shree Rameshwara Rice Mills<\/em>[24] to state that one of the parties to an agreement cannot reserve to himself the power to adjudicate whether the other party has committed breach; when who has committed breach is not admitted and is disputed. In <em>Rameshwara Rice Mills,<\/em> the SC had held that the right to assess damages arising from a breach of condition does not include a right to adjudicate upon a dispute relating to the very breach of conditions. This was relied by the SC in <em>BSNL v. Motorola<\/em>[25].<\/span><\/p>\n<!-- \/wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p><span class=\"has-inline-color has-black-color\">In <em>Union of India v. Raman Iron Foundry,<\/em>[26] it was held that a claim of damages which have not been adjudicated by appropriate forum and awarded, does not become a \u201cdebt due\u201d and cannot be recovered from the other party. This was later partially overruled by the SC in <em>Kamaluddin Ansari<\/em>[27] to allow withholding a sum by the government till adjudication, subject to such a provision in the contract.<\/span><\/p>\n<!-- \/wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p><span class=\"has-inline-color has-black-color\">In <em>S K Jain v. State of Haryana,<\/em>[28] the Supreme Court upheld the agreement of the parties wherein the party seeking arbitration had to make substantial amount of prior deposit of money. However, more recently in <em>M\/S ICOMM Tele Ltd.&nbsp; v. Punjab State Water Supply &amp; Sewerage Board &amp; Anr<\/em>, [29] the Supreme Court while distinguishing the above judgment on the touchstone of the Article 14 of the Constitution of India, held \u201cDeterring a party to an arbitration from invoking this alternative dispute resolution process by a pre-deposit of 10% would discourage arbitration, contrary to the object of de-clogging the Court system, and would render the arbitral process ineffective and expensive.\u201d&nbsp; It referred to <em>ABL International Ltd. v. Export Credit Guarantee Corporation. of India Ltd<\/em>., [30], to state \u201cthis Court has held that even within the contractual sphere, the requirement of Article 14 to act fairly, justly and reasonably by persons who are state authorities or instrumentalities continues.\u201d<\/span><\/p>\n<!-- \/wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p><span class=\"has-inline-color has-black-color\">The Supreme Court in <em>Perkins Eastman Architects v. HSCC(India) Ltd.<\/em>[31] referring to various other judgments interpreting Section 12(5) of the A &amp; C Act introduced in 2015 has restricted the power of a party to appoint a sole arbitrator, despite such a provision in the arbitration agreement.&nbsp; However, the law allowing one of the parties to suggest a small panel as per the arbitration clause from which to choose three arbitrators, is in a flux, consequent to the decision of a 3 judges bench of SC in <em>Central Organization for Railways v. M\/S ECI-SPIC-SMO-MCML<\/em>[32] This decision in essence is contrary to earlier judgments mandating a broad-based panel of arbitrators and defeats the amendment to section 12 of the A &amp; C Act to give an unfair advantage to one of the parties.<\/span><\/p>\n<!-- \/wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p><span class=\"has-inline-color has-black-color\">The agreement sometimes restrains absolutely a party\u2019s legal rights and remedies. Section 28 of ICA makes such agreements void to that extent. The amendment through Section 28(b) of ICA prohibits any such bar in agreement with respect to the <\/span>right of a party to make claims till the limitation period as per law. Such time barring clauses in the agreement has<span class=\"has-inline-color has-black-color\"> been held to be void in most judgments (<em>See B L Kashyap &amp; Sons v AAI DHC<\/em> [33])<\/span><\/p>\n<!-- \/wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p><span class=\"has-inline-color has-black-color\">The cost of capital is very high in the construction industry and the claim of interest is substantial considering the time taken in obtaining an arbitral award, including a lengthy pre-arbitral process.&nbsp; Under Arbitration Act 1940, courts have allowed arbitrators to award interest despite the prohibition on awarding of interest under the contract. However, under the 1996 Act, when the parties have agreed under the terms of the agreement that interest shall not be payable, the Arbitrator cannot award&nbsp;<em>pendente lite<\/em>&nbsp;interest or pre-reference interest. [34] This is due to the phrase \u201cUnless otherwise agreed by the parties in section 31. (7) (a), which allows the parties to make their own arrangements with regards to awarding of interests.<\/span><\/p>\n<!-- \/wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p><span class=\"has-inline-color has-black-color\">The most difficult form of unfair terms of the contract is unconditional bank guarantees, against which the scope of injunctive relief is very remote, due to the high threshold fixed by the courts. However, the Supreme Court in Gangotri Enterprises[35], gave relief on the specific facts of the case, where it was held encashment against the claim of damages, which are not a debt due till adjudicated, is not permissible. Similar relief is rare in other cases.<\/span><\/p>\n<!-- \/wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p><span class=\"has-inline-color has-black-color\">The courts have also overlooked provision contained in saving to Section 1 of ICA which provides that an agreement will not be affected by ICA unless it is inconsistent with its provisions; meaning thereby, that terms in derogation with provisions provided in ICA will be hit by the saving and are capable of being declared ineffective.<\/span><\/p>\n<!-- \/wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p><span class=\"has-inline-color has-black-color\">Similarly, despite the provisions in s.51, 53,<\/span> and 54 of ICA codifying the law of reciprocal promises and prevention principle, the right of suspension of work by the contractor for non-payment of running bills, is generally not upheld, following the practice as per English common law, which itself has changed in the <span class=\"has-inline-color has-black-color\">UK as per the HGCRA, 1996.<\/span><\/p>\n<!-- \/wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p><span class=\"has-inline-color has-black-color\">Thus, the statutory protection from unfair terms of contract in India for commercial contracts is inadequate. The law on unfair terms in contracts as per the judicial precedents is unsettled and uncertain; and depends on the factual matrix of each case and on the construction of the terms of&nbsp;&nbsp; contract.&nbsp;<\/span><\/p>\n<!-- \/wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Other jurisdictions<\/h3>\n<!-- \/wp:heading -->\n\n<!-- wp:paragraph -->\n<p><span class=\"has-inline-color has-black-color\">There has been a concerted effort in many countries to limit the scope of unfair terms in contracts to protect weaker parties.&nbsp; Countries have enacted statutes to ensure fairness in contracts, especially contracts where there is an imbalance of bargaining power.<\/span><\/p>\n<!-- \/wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p><span class=\"has-inline-color has-black-color\">In the<\/span> <span class=\"has-inline-color has-black-color\">United Kingdom in 1977 introduced the Unfair Contract Terms Act (UCTA) to regulate contracts by limiting the extent to which one party can avoid liability through the use of exclusion clauses. Section 11(1) of UTCA permit limitation of liability clauses only when they are fair and reasonable to be included having regard to the circumstances which were, or ought reasonably to have been known to the parties at the time the contract was entered into. The act is however plagued by a<\/span> <span class=\"has-inline-color has-black-color\">lack of clarity on terms such as exclusion clause and test for reasonableness.<\/span><\/p>\n<!-- \/wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p><span class=\"has-inline-color has-black-color\">In the United States, the Uniform Commercial Code (UCC) allows the court to refuse to enforce the unconscionable terms in contracts. The courts rely on both substantive and procedural unfairness to determine unconscionability. &nbsp;Both types of unfairness need not be present to the same degree. Rather, \u201cthe more substantively oppressive the contract term, the less evidence of procedural unconscionability is required to come to the conclusion that the term is unenforceable and vice versa.\u201d [36]. However, the UCC only applies to the sale of goods. Unfair terms in other types of contracts are governed by common law principles<\/span><\/p>\n<!-- \/wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p><span class=\"has-inline-color has-black-color\">In 2016 The Australian Consumer Law was extended to apply to all standard form contracts entered by small businesses. Under the Law for a term to be unfair,<\/span> <span class=\"has-inline-color has-black-color\">it must cause a significant imbalance in the parties\u2019 rights and obligations, such imbalance should not be reasonably necessary to protect the legitimate interests of the party advantaged by the term, and it must cause financial or other detriments to a small business if it were relied on[37]. Terms such as unilateral changes, limiting rights, penalties, unilateral assignments are explicitly covered in Section 24 of Australian Commercial Law. However, the protection only extends to those parties which come within the narrow scope of small business.<\/span><\/p>\n<!-- \/wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p><span class=\"has-inline-color has-black-color\">In Civil Law countries such as France and Germany, the principle of good faith has been considered a limit on the freedom to contract and a valuable instrument to determine the existence of an abusive clause in contracts. One of the obligations arising from good faith is the \u201cduty of loyalty\u201d, which consists of the abstention from all unfair behavior [38]. The Principle of Good Faith is applied by courts to avoid harsh or inequitable results arising out of unfair terms in a contract. However, due to ambiguities arising out of the principle of good faith, countries like France and Belgium, and Switzerland, the legislators have chosen \u2018a significant imbalance\u2019 as the criteria to determine unconscionability. Other countries like Germany have retained the principle of good faith as a yardstick for measuring unfairness[39].<\/span><\/p>\n<!-- \/wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>CONCLUSION AND SUGGESSTIONS<\/h3>\n<!-- \/wp:heading -->\n\n<!-- wp:paragraph -->\n<p><span class=\"has-inline-color has-black-color\">The construction sector is in distress due to a liquidity crisis. The PPP model has failed in India partly due to unbalanced risk allocation. Long-term construction contracts and contracts with heavy investments in the infrastructure sector in India need more cooperative and less adversarial contracts based on good faith and balanced risk allocation. Clauses like convenience termination with unilateral power to terminate a contract at will shall discourage private investment. Hence having fair terms in contracts is a policy imperative.&nbsp;<\/span><\/p>\n<!-- \/wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p><span class=\"has-inline-color has-black-color\">Unlike many countries, unfair contractual terms in India continue to be governed by precedents, which are often in conflict with each other. The 103rd Report of LCI suggested the incorporation of section 67A into ICA with two sub-sections invalidating exclusion of liability for negligence and for breach of contract. The 199th report of LCI suggested the enactment of a new statute to deal with this issue. The proposed statute divides unfair terms into procedural and substantive unfairness. A contract or a term is procedurally unfair if it has resulted in an unjust disadvantage to one party due to the conduct of the other party or the circumstances under which the contract has been entered into[40]. A contract or term is substantively unfair when it is harsh oppressive or unconscionable.<\/span><\/p>\n<!-- \/wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p><span class=\"has-inline-color has-black-color\">The proposed Act enlists the circumstances under which and the substantive provisions which will indicate unfairness in contract or its terms. The proposed Act also allows courts and arbitral tribunals to declare the contract void, vary the terms of the contract, order payment of damages and issue injunctions among other reliefs.<\/span><\/p>\n<!-- \/wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p><span class=\"has-inline-color has-black-color\">The inability of the present legal landscape to safeguard the interest of weaker contracting parties w.r.to unfair contract terms calls for legislative reform. The recommendations of the LCI, which has not been acted upon by successive governments, if enacted will be a welcome step in protecting the commercial interests of economically weaker parties.<\/span><\/p>\n<!-- \/wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p><strong>ENDNOTES<\/strong><\/p>\n<!-- \/wp:paragraph -->\n\n<!-- wp:list -->\n<ul><li><span class=\"has-inline-color has-black-color\">Section 23, Indian Contract Act, 1872.<\/span><\/li><li><span class=\"has-inline-color has-black-color\">Central Inland Water Transport Corporation Ltd. v. Brojo Nath Ganguly, 1986 AIR SC 1571.<\/span><\/li><li><span class=\"has-inline-color has-black-color\">General Manager Northern Railways v. Sarvesh Chopra, (2002) 4 SCC 45.<\/span><\/li><li><span class=\"has-inline-color has-black-color\">Hind Construction Contractors v. State of Maharashtra, (1979) 2 SCC 70.<\/span><\/li><li><span class=\"has-inline-color has-black-color\">Ramnath International Construction (P) Ltd. v. Union of India, (2007) 2 SCC 453.<\/span><\/li><li><span class=\"has-inline-color has-black-color\">M\/S Asian Tech Ltd v. Union of India, (2009) 10 SCC 354.<\/span><\/li><li><span class=\"has-inline-color has-black-color\">Simplex Concrete Piles v. Union of India, LR (2010) II Delhi 699.<\/span><\/li><li><span class=\"has-inline-color has-black-color\">K.N. Sathyapalan v. State of Kerala, (2007) 13 SCC 43.<\/span><\/li><li><span class=\"has-inline-color has-black-color\">P. M. Paul v. Union of India, (1989) Supp (1) SCC 368.<\/span><\/li><li><span class=\"has-inline-color has-black-color\">Assam SEB v. Buildworth, (2017) 8 SCC 146.<\/span><\/li><li><span class=\"has-inline-color has-black-color\">Ktech v. Union of India, LR 2015 SCC OnLine Del 13369.<\/span><\/li><li><span class=\"has-inline-color has-black-color\">ONGC v. Sawpipe, (2003) 5 SCC 705.<\/span><\/li><li><span class=\"has-inline-color has-black-color\">ONGC v. Wig Brothers, (2010) 13 SCC 377.<\/span><\/li><li><span class=\"has-inline-color has-black-color\">ONGC Ltd. v. Western Geco International Ltd., (2014) 9 SCC 263.<\/span><\/li><li><span class=\"has-inline-color has-black-color\">Ssangyong Engineering &amp; Construction Co. Ltd. v. National Highways Authority of India, (2019) 15 SCC 131.<\/span><\/li><li><span class=\"has-inline-color has-black-color\">Mc Dermott International Inc v. Burn Standard Co Ltd., (2016) 11 SCC 181.<\/span><\/li><li><span class=\"has-inline-color has-black-color\">Associate Builders v. Delhi Development Authority, (2015) 3 SCC 49.<\/span><\/li><li><span class=\"has-inline-color has-black-color\">P. C. Sharma v. Delhi Development Authority, 2011 SCC OnLine Del 5149.<\/span><\/li><li><span class=\"has-inline-color has-black-color\">R. L. Kalathia and Co v. State of Gujarat, (2011) 2 SCC 400.<\/span><\/li><li><span class=\"has-inline-color has-black-color\">Chairman and MD, NTPC Ltd. v. Reshmi Constructions, Builders, and Contractors, (2004) 2 SCC 663.<\/span><\/li><li><span class=\"has-inline-color has-black-color\">Ambica Construction v. Union of India, (2006)13 SCC 475.<\/span><\/li><li><span class=\"has-inline-color has-black-color\">Union of India v. Parmar Constructions, (2019) 15 SCC 682.<\/span><\/li><li><span class=\"has-inline-color has-black-color\">J. G. Engineers Pvt Ltd v. Union of India, (2011) 5 SCC 758.<\/span><\/li><li><span class=\"has-inline-color has-black-color\">State of Karnataka v. Shree Rameshwara Rice Mills, (1987) 2 SCC 160.<\/span><\/li><li><span class=\"has-inline-color has-black-color\">Bharat Sanchar Nigam Limited v. Motorola India Pvt. Ltd., (2009) 2 SCC 337.<\/span><\/li><li><span class=\"has-inline-color has-black-color\">Union of India v. Raman Iron Foundry, (1974) 2 SCC 231.<\/span><\/li><li><span class=\"has-inline-color has-black-color\">Kamaluddin Ansari v. Union of India, (1983) 4 SCC 417.<\/span><\/li><li><span class=\"has-inline-color has-black-color\">S. K. Jain v. State of Haryana, (2009) 4 SCC 357.<\/span><\/li><li><span class=\"has-inline-color has-black-color\">M\/S ICOMM Tele Ltd.&nbsp; v. Punjab State Water Supply &amp; Sewerage Board, (2019) 4 SCC 401.<\/span><\/li><li><span class=\"has-inline-color has-black-color\">ABL International Ltd. v. Export Credit Guarantee Corporation. of India Ltd., (2004) 3 SCC 553.<\/span><\/li><li><span class=\"has-inline-color has-black-color\">Perkins Eastman Architects v. HSCC(India) Ltd., 2019 SCC OnLine SC 1517.<\/span><\/li><li><span class=\"has-inline-color has-black-color\">Central Organization for Railways v. M\/S ECI-SPIC-SMO-MCML, 2019 SCC OnLine SC 1635.<\/span><\/li><li><span class=\"has-inline-color has-black-color\">B. L. Kashyap &amp; Sons v. AAI DHC, 2016 SCC Online Del 5473.<\/span><\/li><li><span class=\"has-inline-color has-black-color\">Chittaranjan Maity v. Union of India, (2017) 9 SCC 611.<\/span><\/li><li><span class=\"has-inline-color has-black-color\">Gangotri Enterprises v. Union of India, (2016) 11 SCC 720.<\/span><\/li><li><span class=\"has-inline-color has-black-color\">Baltazar v. Forever21, Inc., 62 Cal. 4th 1237 (2016).<\/span><\/li><li><span class=\"has-inline-color has-black-color\"><em>Determining whether a contract term is unfair<\/em>, ACCC <a href=\"https:\/\/www.accc.gov.au\/business\/business-rights-protections\/unfair-contract-terms\/determining-whether-a-contract-term-is-unfair\">https:\/\/www.accc.gov.au\/business\/business-rights-protections\/unfair-contract-terms\/determining-whether-a-contract-term-is-unfair<\/a>(last visited Oct. 20, 2020)<\/span><\/li><li><span class=\"has-inline-color has-black-color\">Ejan Mackaay, <em>Good faith in civil law systems. A legal-economic analysis, <\/em>(July 2012),Sceilo<a href=\"https:\/\/scielo.conicyt.cl\/scielo.php?script=sci_arttext&amp;pid=S0718-80722012000100004#:~:text=It%20refers%20here%20to%20not,all%20civil%20law%20systems17\">https:\/\/scielo.conicyt.cl\/scielo.php?script=sci_arttext&amp;pid=S0718-80722012000100004#:~:text=It%20refers%20here%20to%20not,all%20civil%20law%20systems17<\/a><\/span><\/li><li><span class=\"has-inline-color has-black-color\"><em>Chapter 5: Good Faith<\/em>, LegisCompare <a href=\"https:\/\/www.legiscompare.fr\/web\/IMG\/pdf\/13._CH_5_Good_faith.pdf\">https:\/\/www.legiscompare.fr\/web\/IMG\/pdf\/13._CH_5_Good_faith.pdf<\/a>(last visited Oct. 20, 2020).<\/span><\/li><li><span class=\"has-inline-color has-black-color\"><em>Law Commission of India - 199th Report Unfair (Procedural &amp; Substantive) Terms in Contract, <\/em>Law Commission of India, <a href=\"http:\/\/lawcommissionofindia.nic.in\/reports\/rep199.pdf\">http:\/\/lawcommissionofindia.nic.in\/reports\/rep199.pdf<\/a>(last visited Oct. 20, 2020).<\/span><\/li><\/ul>\n<!-- \/wp:list -->","_et_gb_content_width":"","footnotes":"","wp_social_preview_title":"","wp_social_preview_description":"","wp_social_preview_image":0},"categories":[1],"tags":[],"_links":{"self":[{"href":"https:\/\/ijpiel.com\/index.php\/wp-json\/wp\/v2\/posts\/1964"}],"collection":[{"href":"https:\/\/ijpiel.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/ijpiel.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/ijpiel.com\/index.php\/wp-json\/wp\/v2\/users\/9"}],"replies":[{"embeddable":true,"href":"https:\/\/ijpiel.com\/index.php\/wp-json\/wp\/v2\/comments?post=1964"}],"version-history":[{"count":19,"href":"https:\/\/ijpiel.com\/index.php\/wp-json\/wp\/v2\/posts\/1964\/revisions"}],"predecessor-version":[{"id":2654,"href":"https:\/\/ijpiel.com\/index.php\/wp-json\/wp\/v2\/posts\/1964\/revisions\/2654"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/ijpiel.com\/index.php\/wp-json\/wp\/v2\/media\/1936"}],"wp:attachment":[{"href":"https:\/\/ijpiel.com\/index.php\/wp-json\/wp\/v2\/media?parent=1964"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/ijpiel.com\/index.php\/wp-json\/wp\/v2\/categories?post=1964"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/ijpiel.com\/index.php\/wp-json\/wp\/v2\/tags?post=1964"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}