Mohit K Dubey, IDSE, Deputy Director, Military Engineer Services (MES) under Ministry of Defence (MoD), Non-Resident Fellow at Dhirubhai Ambani University School of Law
INTRODUCTION
Recent events which compelled the Indian Construction Arbitration community for introspection are: First is the curative petition disposed of by the Hon’ble Supreme Court in the matter of DMRC v. DAMPEL, wherein the decision of the Supreme Court raised a debate between “justice” and “certainty” associated with the arbitration procedure. Second, the OM issued by the Department of Expenditure, Ministry of Finance, dated 03 June 2024, discouraged Arbitration in disputes having a claim value of more than ₹10 crore. Third, the Karnataka government removed the mandatory arbitration clause from all their work contracts. Fourth Ministry of Law OM titled “Directive for the efficient and effective management of Litigation by the government of India” dated 04 April 2025 endorsed the viewpoint of MoF OM dated 03 June 2024 in para 6.13(ii). Fifth PWD of Government of National Capital Territory of Delhi by notification dated 21 April 2025 removed the arbitration clause from all their future contracts. These events raised a question about certainty in dispute resolution related to construction industry
Though there could be questions on a specific method of dispute resolution, but one issue which should not miss the attention of experts is the lack of substantial laws specific to construction industry, which is leading to confusion, uncertainty, ambiguity and eventually to disputes. This takes us to the subject of this blog that why “Construction Law” in India needs to be strengthened.
The importance of “construction law” in the overall ecosystem of ADR can’t be underestimated. As per the reports, construction arbitration is 2/3rd of all arbitrations globally, and this share is 3/4th in an Indian setup. Despite such a large contribution to construction disputes, it is unfortunate that there isn’t a set of comprehensive construction laws capable of clearly defining the basic principles of the construction industry and the rights and liabilities associated with the parties to such a contract.
CONSTRUCTION LAW AND ISSUES WHICH NEED CLARITY
In his celebrated work on “Construction Law”, Julian Bailey defines construction law as “Construction law is the law that applies to and in respect of the undertaking of construction and engineering projects”. Julian Bailey explains that the definition is not confined to “construction contracts” or a specific or identifiable body of Jurisprudence. It is a definition that embraces the totality of legal issues that may arise from a particular field of economic endeavour. Therefore, overall, construction law includes various domains applicable such as labour laws, contract acts, companies act, health and safety acts, municipal laws, building and safety codes, security of payment acts, fair contract acts, etc.
For the sake of brevity, if we list some of the issues specific to only construction contracts which require immediate clarity to avoid ambiguity and disputes are: Definition of Construction Contracts; Cause of Action; Differentiation between Cancellation, Termination, Determination and Foreclosure; Payment Security clauses; Escalation clause; Exception clauses; calculation of damages; entitlement of Liquidated Damages; Banning and Debarment of Contractors; Delay vs Disruption etc.
Similarly, the requirement of substantive laws related to Health and Safety; Labour Laws; Adjudication; Setting up of Construction Courts in construction shall go a long way in achieving the desired objectives.
BEST GLOBAL PRACTICES
Some of the notable legislations in various jurisdictions related to Security of Payment are such as Housing Grants, Construction and Regeneration Act 1996, also known as the “Construction Act” in UK; New South Wales in Australia has the “Building and Construction Industry Security of Payment Act 2002”. Singapore has the “Building and Construction Industry Security of Payment Act 2004”. New Zealand has the “Construction Contracts Act 2002”. Malaysia has enacted the “Construction Industry Payment and Adjudication Act 2012”. Ireland has the “Construction Contracts Act 2013”.
Besides “Security of Payment”, there are various other legislations which cover other aspects and issues of construction industry thus bringing more clarity and certainty