When parties enter into a contract they are bound to follow the terms of the
contract that are mutually agreed by the parties of such contract. One of such
clauses included in the contract is that of claiming damages. As a general
provision the contracting party that breaches the contract is obligated to
compensate the other ,but in some of the contract, their lies 'No damage for
delay clause', it is an exclusionary clause where the contractors right to claim
damages is restricted.
The no damage for delay clause is of conflicting nature. In the case of Lucas
Earthmovers Pty Limited v Anglogold Ashanti Australian Limited
federal court of Australia took proper consideration of the clause restricting
the right of the contractor. The consideration of the clause was time- related costs
The Supreme court of India in the case of Ramnath International Construction
(P) Ltd. vs. Union of India
( hereinafter Ramnath) held that all kind of
delay including those which are attributable to the owner, no compensation
howsoever is payable by the employer to the contractor of delay or damages
caused. The sole remedy available to the contractor will be regarding the
extension of time.
Concurrent delay and no compensation clause: International perspective
A situation where there are two or more independent cause of delay takes place
results in concurrent delay. There are different approaches that are followed by
different courts while dealing with a case where concurrent delay arises and
the No damage for delay clause
also forms the part of the contract. In the
case of Henry Boot Construction Ltd. v. Malmaison Hotel
 the technology and
construction court of United Kingdom came up with Malmaison Approach
approach holds the view that when there is two concurrent cause of delay , one
of which is beyond the control of the contract and the other is not, then the
contractor is entitled to an extension of time for the period of delay cause by
the relevant event but no time-related cost can be recovered for the other
The Scottish Courts in City Inn v. Shepherd Construction Ltd
 declined to
follow the Malmaison Approach, and came up with Apportionment Approach
According to this approach when neither of the concurrent cause is dominant the
delay should be shared between the contractor and the employer. Similar approach
was followed by different courts such as the United Arab Emirates and the Hong
Kong. The Hong Kong High Court in Hing Construction Co Ltd v Boost Investments
Ltd expressly approved and followed the City Inn judgment of the Scottish
Law in India
The law regarding the delay in performance of the contract is codified under the
Indian Contract Act 1872, section 55 and 56. If the delay is caused in the
completion of the contract and for such delay, a belated performance is accepted
by the contractor then he would not be entitled to any claim for any loss caused
by non-performance for such reciprocal promise unless a notice regarding the
same has be delivered to the employer.
Under the Indian law where the contractor has agreed not to claim any damages as
a result of delay in competition of the project, the contractor can still be
entitled to damages under some situation like when the contractor repudiates the
contract under section 55 of the Indian contract act or if the employer give
extension of time by entering into to supplement agreement and making it clear
that the escalation cost would be paid.
In the case of Northern Railway v. Sarvesh Chopra
 (hereinafter Sarvesh
;) the court held that the contractor will be entitled to claim damages
provide that at the time of extension of time for the performance of contract,
the contractor gives notice of his intension to claim damages for the delay.
Even after the judgment given the three bench judge in the above mention case
of Sarvesh Chopra, there has been a considerable amount of confusion regarding
the law relating to delay in performance of the contract especially in the case
of building and engineering contract.
Due to the inconsistent judgment by different benches of the Supreme Court,
there has been confusion in the interpretation by various high courts on the
similar contractual clause agreed upon by the parties.
In the case of Rawal
Construction Company v. Union of India
 the Delhi High Court stated that:
when the cause of delay is due to the breach of contract by the employer, and
there is also an applicable power to extend the time, the exercise of that power
will not, in the absence of clearest possible language deprive the contractor of
his right to damages for the breach. Such provision as attempt to deprive the
contractor of the right to claim damages will be strictly construed against the
Analysis of the view of Supreme Court
The problem regarding the view on 'No damage for delay clause' had been
compounded by the case of Ramnath International Construction, where the
contractor would not be able to recover any damages including those which are
attributable to the employer as mentioned earlier.
The Supreme Court in one of its judgment in the case of Asian Techs Ltd. v.
Union of India
 held that the exclusionary clause prohibits the department
from entering any claim for damages, but does not prohibit the arbitrator from
The court after going to the factual analysis was of the conclusion
that the department was solely responsible for the delay in the execution of the
contract therefore the department cannot go way with its responsibility by
taking advantage of no liability clause. The supreme court relied on the
judgment of the earlier decision of the court in the case of Port of
Calcutta v. Engineers-De-Space-Age
This view has also been supported in the
case of Bharat Drilling & Foundation Treatment (P) Ltd. v. State of
 by the supreme court.
In the case of Associated Construction v. Pawanhans Helicopters Ltd
under the clause of the contract, there was a bar on the payment of price
escalation charges if the contract gets extended for any reason whatsoever. The
Supreme Court held that such an embargo can only be during the contractual
period and not thereafter. The no damage or no escalation or exclusionary clause
operates during the period of the contract.
The Supreme Court relied upon its
earlier judgment in the case P.M. Paul v. Union of India
 and K.N.
Sathyapalan v. State of Kerala
 where price escalation cost to the contract
was upheld during the extended period of the contract despite there being
In one of the recent judgment by three benched judges of the Supreme Court in
the case of Assam SEB v. Bulidworth (P) Ltd
.( hereinafter Bulidworth
) upheld the award passed by the arbitrators granting price
escalation costs to the contractor during the extended period of the contract.
The Division Bench of the Calcutta High Court in State of W.B. v. Pam
Developments (P) Ltd
. and the Division Bench of the Andhra Pradesh High
Court in T.A. Choudhary v. State of A.P
 came to the conclusion by
considering all the judgment of all the Supreme Court and High Court on the
lines laid down in the case of BULDWORTH and SARVESH CHOPRA that no damages
clause or exclusionary clause are not valid during the extended period of the
Legality of no compensation of damage clause
No damage clause
vis-Ó-vis provision of Indian contractor act 1872 .The
enforceability of the no damage clause
deals under section 23 of the Indian
contract act 1872. The section provides that the object of an agreement is
unlawful if is opposed by public policy.
The Delhi High Court in the case
of Simplex Concrete Piles (India) Ltd. vs. Union of India
) referred to section 73 and 55 of the Indian contract act 1872 , the
court was of the view that where any clause of the contract takes away the right
to claim damages under section 73 and 55 would violate public policy under
section 23. The court held that both of the section 73 and 55 forms the heart of
the Indian contract act 1872.
The Delhi High Court dealing in the same context in the case of Public Work
Department vs. M/S Navayuga Engineering Co. Ltd
(hereinafter PWD) distinguished the Simplex case , was of the view that such clause to be
in conformity with public policy. The court pointed out in Simpelx case the
contractor did not had an option to sue for the breach whereas in PWD the
contractor had an option to sue for damages by not agreeing the time extension
of the contract.
However the contractor can claim damages under certain circumstances with the
existence of no compensation for delay
clause in the contract.
Some of these circumstance my include:
- Delays due to owner's bad faith or malicious or negligent conduct
- Uncontemplated delays
- Delays due to owner's active interference
- Delays so unreasonable that they constitute an abandonment of the contract
- Delays resulting from an owner's breach of a fundamental contract obligation
Impact On The Award Passed Bt The Arbitrator
Most the contracts dealing with construction comes with a case of Arbitration
in case of dispute. One of the major reasons for an arbitration proceeding in
the construction contract is that of delay in performance. One of the major
issue while deciding such contract is that whether the Arbitrator is bound by
the clause of compensation as provided in the contract.
In Ramnath Case
the arbitrator held that the contractor would be entitled to
compensation even with the presence of 'No damage for delay clause'. The same
order was set aside by the Supreme Court and was held that the contractor would
not be entitled to any compensation as the contractor and the employer have
mutually agreed upon the 'No damage for delay clause'. However in the case
of Asian Tech the court held that the arbitrator is not bound by such clause.
It is to be noted that both the judgments, Ramnath and Asian techs are decided
by two judge bench and both cases deal with identical clauses. Further, Asian
techs was decided after Ramnath but it does not refer to the latter in the
judgment. However, Ramanath has been followed in subsequent cases also by
the Apex Court.
The Punjab and Haryana High Court in Union of India v. Om Construction
, set aside the award of damages awarded by the Arbitral Tribunal to
the contractor. The court held that the Arbitral Tribunal is exceeding the
jurisdiction by awarding damages to the party. The court held the parties
mutually agreed upon such clause and they are bound to follow the consequence of
such clause. The tribunal by delivering award is altering the clause of the
contract which is beyond its jurisdiction.
The Delhi High Court in PWD case, distinguished Asian Tech and held that in the
latter case the respondent gave a clear assurance to work in the extended period
and the price of such extension would be decided across-table. The respondent
cannot take the plea that the appellant cannot claim the damages that the prices
where never decided across-table and thus the court in the case held that the
arbitrator had jurisdiction to award the same.
Therefore the Delhi High Court
observed that in case of No damage for delay
the Arbitral tribunal cannot
award damages. The court pointed out by distinguishing Asian Tech case, the
court upheld that arbitration award because the respondent assured the appellant
that the price would be decided across-table.
The clause to impede compensation to the contractor is relatively uncommon. A no damage for delay
clause are designed to protect the owner from the claims
made by the contractor and the contractor from the claims made by the
sub-contractor. No damage for delay
clause requires contractors to contemplate
the impact on their pricing due to the acceptance of risk for delay whatsoever.
The courts while deciding such matters should take into account the party
autonomy in deciding the terms of the contract, intention behind and the purpose
of such clause.
-  FCA 1049
- (2007)2 SC 453
-  70 Con LR 32
-  CSIH 68
-  BLR 339
- (2002) 4 SCC 45
- 1981 SCC OnLine Del 315 : ILR (1982) 1 Del 44
- Hudson & Alfred Arthur, Hudson's Building and Engineering Contracts (9th Edn., Sweet & Maxwell, London, 1965) p. 492.
- Id, p. 493
- (2009) 10 SCC 354
- (1996) 1 SCC 516
- (2009) 16 SCC 705
- (2008) 16 SCC 128
- 1989 Supp(1) SCC 368
- (2007) 13 SCC 43
- (2017) 8 SCC 146
- 2017 SCVC OnLine Cal 13272: (2017) 4 Cal LT 366
- 2003 SCC OnLine AP 494 : (2004) 3 ALD 357.
- (2010)115 DRJ 616
- 2014 SCC Online Del 1343
- Oil & Natural Gas Corp v M/S Wig Brothers Builders & Engineers Pvt. Ltd.
(2010) 13 SCC 377
- 1996 SCC OnLine P&H 1042 : PLR (1997) 116 P&H 92
Award Winning Article Is written By:áMs.Vartika Singhania
Authentication No: SP31067734573-9-920