Twilight view of the Mumbai cityscape. Credit: Towering Goals/Adobe Stock

Gagan Anand
Legacy Law Offices, Delhi

Infrastructure development in India is a cornerstone of economic growth, shaping connectivity, trade, and employment. Projects ranging from highways and metro systems to airports and power stations rely heavily on EPC contracts and PPP models, which combine public oversight with private expertise, while attempting to allocate risk predictably.

Recent global and domestic disruptions, including the Covid-19 pandemic, supply chain disruptions, and geopolitical tensions, have exposed the limits of traditional risk frameworks. Rising costs, project delays, and financial pressures on both concessionaires and government authorities have underlined the urgent question of who will bear the burden of unforeseen risk posed by unforeseen circumstances.

As India’s infrastructure ambition expands, its contracting ecosystem has evolved. Traditional risk-sharing agreements are being revisited, contracts are being refined, and judicial approaches increasingly emphasise equitable allocation and appropriate risk mitigation. The revised contracting arrangement marks a significant shift in the force majeure clauses which were previously used to accommodate and safeguard the parties to the contract, ensuring effective risk mitigation and equitable risk distribution between the private concessionaire and the authority.

Legal framework for risk allocation in India

Ongoing challenges in PPP and EPC projects were primarily recognised by the Government of India when it constituted the Kelkar Committee in 2015, chaired by Dr Vijay Kelkar. The Committee’s mandate was to revisit and revitalise the PPP model of infrastructure, which, at that time, was facing widespread difficulties. Several PPP projects were facing obstructions in the form of disputes, the private investment had slowed, and banks were burdened with rising non-performing assets in infrastructure lending.

The Committee diagnosed the central problem as excessive and poorly designed risk allocation. It acknowledges the fact that the concessionaires were required to carry risks that they could not reasonably manage or control, such as delays in land acquisition, regulatory approvals, etc.

In India, allocating risk in infrastructure projects is as much an art as it is a science. While the law offers remedies when contracts cannot be performed, the real power lies in how parties write their agreements. Thoughtfully drafted contracts do not just assign risk, they can make or break a project, shaping outcomes long before courts ever get involved.

The current Indian legal framework offers both contractual and statutory mechanisms for addressing unforeseen events. Particularly, section 56 of the Indian Contract Act, 1872, recognises frustration of contracts and allows agreements to be declared void where performance becomes impossible. However, the Hon’ble Supreme Court in Energy Watchdog v CERC made it clear that when a contract/PPA already contains a force majeure clause, relief must be sought under that clause, rather than through section 56 of the 1872 Act.^[1]

This principle highlights the primacy of contractual arrangements. When parties have anticipated potential contingencies and set out agreed mechanisms for addressing them, the courts will uphold those negotiated provisions. Put simply, the agreed contractual terms take precedence over the statutory doctrine of frustration. Frustration under Section 56 of the Indian Contract Act, 1872, terminates the contract entirely, which is likely to hinder long-term infrastructure projects. In contrast, force majeure clauses provide additional, circumstantially specific relief to the parties, such as suspending obligations, granting time extensions, or offering limited compensation to ensure the continuity of the contract. This flexibility is particularly significant in EPC and PPP projects, where disruption does not necessarily mean failure; instead, keeping the project alive often serves the broader public interest.

Indian courts have applied this principle in other cases of Halliburton Offshore Services v Vedanta Ltd.^[2] The Court granted interim protection to the contractor whose performance was hindered by the Covid-19 lockdown, recognising that the pandemic could fall within the scope of force majeure. Similarly, in Standard Retail Pvt Ltd v G S Global,^[3] the Court emphasised that force majeure relief must be tested against the actual wording of the clause, rather than being assumed under general hardship.

These cases reflect a growing judicial sensitivity to commercial realities. Courts are not quick to discharge contracts under Section 56 but instead prefer to uphold the contractual framework that the parties themselves devised, while interpreting force majeure clauses in a manner which balances fairness, economic sustainability, and public interest.

The evolution of force majeure clauses in India

The trajectory of force majeure in India has been significantly influenced by contemporary crises. The onset of the Covid-19 pandemic exposed serious drafting deficiencies in many contracts, particularly in the infrastructure sector, where supply chains were paralysed and projects brought to a standstill. In response, the Ministry of Finance issued its Office Memorandum in February 2020,^[4] recognising Covid-19 related disruptions as qualifying force majeure events in the context of government procurement. However, this memorandum was merely advisory in nature and did not displace the supremacy of contractual terms in private agreements. For many stakeholders, this underlined the limitations of relying on generic clauses and the urgent need for greater contractual precision.

In the aftermath, procurement manuals and contractual practices evolved to address these shortcomings. Structured notice requirements, mitigation obligations, comprehensive documentation standards, and reliance on technical expertise have since become central features of force majeure management. Courts and arbitral tribunals, while cautious in their treatment of supply-chain disruption claims, have consistently insisted on two key thresholds: that the disruption must have directly impeded performance, and that the affected party must demonstrate genuine efforts to mitigate delay. In practice, evidentiary records such as correspondence with suppliers, attempts at alternative sourcing, and contemporaneous communications have often determined the success of such claims.

The drafting of force majeure clauses has also undergone a marked transformation. Moving beyond the traditional and vague reference to ‘Acts of God’, modern contracts specifically identify events such as pandemics, quarantines, port closures, import/export restrictions, supplier insolvency, cyber-attacks, and geopolitical disruptions, including sanctions and trade embargoes. These clauses are increasingly supplemented by obligations requiring timely notifications, proactive mitigation efforts, the pursuit of insurance, and regular updates to the employer on remedial steps undertaken. Such drafting developments reflect the lessons drawn from the uncertainties of the pandemic period, during which imprecise or incomplete provisions resulted in inconsistent judicial outcomes and, in some instances, project failures.

Concurrently, government procurement contracts have revived and reinforced the use of price-variation clauses, particularly in the wake of Covid-19. By linking payments to indices such as the Wholesale Price Index (WPI) or sector-specific commodity benchmarks, these clauses provide a degree of predictability in volatile markets and complement force majeure provisions, by mitigating risks associated with long-term projects.

Ultimately, the approach to force majeure has shifted from being a peripheral consideration to a critical component of contractual architecture. Today, these clauses are designed not only to apportion risk fairly but also to ensure continuity of projects in times of crisis. By specifically addressing risks ranging from pandemics to geopolitical conflicts, and by embedding obligations of mitigation and documentation, force majeure provisions safeguard the interests of contracting parties, while simultaneously supporting the resilience of infrastructure development in India.

Force majeure in PPP and EPC projects: lessons from practice

Force majeure has become a defining feature of risk management in PPP and EPC projects. The Covid-19 pandemic starkly revealed how vulnerable infrastructure contracts could be when provisions were vaguely worded or procedurally weak. Many concessionaires discovered that, even where force majeure was contractually recognised, the absence of clear notice procedures, mitigation requirements, or adequate insurance left them struggling to secure meaningful relief. Prolonged stoppages often resulted in case-by-case negotiations or costly litigation, undermining the financial viability of projects.

In response, recent drafting practices in Indian PPP and EPC contracts have shifted focus from merely listing qualifying events to embedding operational clarity. Contracts are increasingly mandating structured notices, obligations to mitigate, contemporaneous documentation, and stepwise remedies, such as deadline extensions or partial cost sharing. This emphasis on process ensures that relief is not only recognised in theory but also practically accessible in times of crisis.

The pandemic also highlighted that force majeure clauses cannot function in isolation. A critical gap was the underuse of insurance policies covering political risk, construction delays, or even health-related disruptions, which existed but were rarely integrated into concession frameworks. Without such mechanisms, concessionaires remained financially exposed despite contractual relief. Going forward, the integration of risk-transfer tools such as political risk insurance, delay-in-start-up cover, and specialised products for pandemics or supply chain shocks is increasingly seen as essential.

The evolution in India mirrors international best practice. Standardised forms such as the World Bank’s PPP frameworks and FIDIC contracts not only define force majeure with precision but also align it with structured notice, mitigation, and compensation mechanisms. They further stress the importance of linking contractual relief to financial structures, including insurance and guarantees, thereby ensuring project continuity even under extreme disruptions. Indian practice is gradually moving in this direction, although gaps remain in implementation and enforcement.

The central lesson is clear: effective force majeure management requires more than careful drafting. It must combine precise contractual obligations with fair risk allocation and robust financial safeguards. Only then can PPP and EPC projects withstand crises, without derailing the broader infrastructure ambitions on which they depend.

Judicial perspectives and case studies from Indian projects

The judiciary has played a significant role in shaping the practical allocation of risk. Courts have repeatedly stressed that contracts must be interpreted in accordance with their precise terms, while also recognising fairness where extraordinary events occur.

In Halliburton Offshore Services v Vedanta Ltd,^[5] interim relief was granted recognising that Covid-19 lockdowns had severely affected performance. In this case, Halliburton Offshore Services Inc was contracted by Vedanta Ltd for oil and gas exploration activities in Rajasthan. Due to the Covid-19 lockdown, Halliburton invoked the force majeure clause, seeking to prevent Vedanta from encashing eight performance bank guarantees. The Delhi High Court, in its ad-interim order dated 20 April 2020, restrained Vedanta from invoking the guarantees, recognising the lockdown as a prima facie force majeure event.

Several high-profile projects illustrate how risk allocation plays out practically. The Delhi-Gurgaon Expressway became embroiled in disputes over toll revenue sharing and traffic management.^[6] The lack of clear renegotiation mechanisms meant that disagreements escalated into prolonged litigation, delaying the resolution and undermining public confidence.

In the airport sector, disputes at Delhi International Airport highlight how unclear terms in PPP contracts can lead to conflicts between government regulations and the autonomy of private operators.^[7] For instance, during the Covid-19 pandemic, Delhi International Airport Limited (DIAL) invoked a force majeure clause in its 2006 agreement with the Airports Authority of India (AAI) to suspend its revenue-sharing obligations. This move was prompted by a significant decline in passenger traffic, which had a severe impact on revenue. Subsequently, an arbitral tribunal ruled in favour of DIAL, ordering AAI to refund approximately INR500 crore and waive about INR1,800 crore in dues for the period from March 2020 to February 2022. The tribunal’s decision also extended DIAL’s concession period by nearly two years to compensate for the force majeure period. The Delhi High Court upheld this arbitral award, affirming the relief granted to DIAL. These developments underline how ambiguities in PPP contracts can disrupt even high-profile projects when unforeseen events occur.

The shift in the highways sector from Build-Operate-Transfer (BOT) to Hybrid Annuity Model (HAM) projects is itself a case study in adaptive risk allocation. Under BOT, traffic and revenue risks left many concessionaires financially stressed, with several projects stalled or abandoned. Under HAM, risk is more evenly distributed, and projects have achieved higher completion rates. These examples underline that risk allocation is not a theoretical construct but a determinant of real project outcomes.

Future directions

The evolving experience of India’s infrastructure projects suggests several directions for reforms. Contracts must move beyond rigid or contemporary templates that combine certainty with adaptability. Risks should be allocated not simply on paper but in ways that reflect the practical capacity of parties to manage them. Dispute resolution must be swift and credible, with institutional mechanisms that prevent projects from stalling. Financial and insurance innovations must be mainstreamed into project design, ensuring that disruptions do not immediately translate into insolvency or abandonment.

These insights have particular resonance in the present world scenario. With global supply chain shocks, inflationary pressures, and geopolitical risks disrupting projects, the need for adaptable and equitable risk allocation is greater than ever. The Kelkar Committee’s framework provides a valuable foundation for reforming and understanding India’s contractual practices.