NLA Insights
28 September 2026
Infrastructure and construction contracts in India rarely run their full course without incident. Delays accumulate, defects persist, milestones are missed, payments are withheld and, eventually, one party concludes that the project has crossed the point at which contractual non-performance can be accepted.
Yet “project failure” by itself is not a legal ground for termination. In infrastructure and construction contracts, the right to exit is ordinarily created and conditioned by the contract itself. The real question is therefore not whether the project is failing, but whether the failure has crossed the contractual threshold for termination and whether the prescribed procedure for exercising that right has been followed.
EPC contracts and infrastructure concessions typically identify specific “Events of Default” and prescribe the consequences of their occurrence. Depending on the contractual structure, these may include abandonment, persistent delay, failure to achieve milestones, defective performance, insolvency or failure to comply with specified contractual obligations. A concession agreement may additionally employ concepts such as a “Material Adverse Effect”. These thresholds are contract-specific and should not be treated as universal tests applicable to every infrastructure project.
Equally important is the procedure accompanying the substantive default. A termination clause may include a notice identifying the breach, a stipulated cure period, and in some contracts, an opportunity to demonstrate that effective steps towards cure are being taken. The termination right therefore does not ordinarily arise merely because a breach has occurred. It crystallises when the contractual conditions attached to that right have been satisfied.
This distinction is particularly important where the contract differentiates between curing a breach and taking effective steps towards curing it. A party that has not completely remedied a defect may nevertheless have complied with the contract if it has taken demonstrably effective steps within the prescribed period. Conversely, a termination that disregards the agreed notice-and-cure mechanism may itself be vulnerable, even where an underlying breach existed.
The Supreme Court’s decision in DMRC Ltd. v. Delhi Airport Metro Express (P) Ltd., (2024) 6 SCC 357, provides a clear illustration of this principle. The dispute arose from the termination of the Airport Metro concession after structural defects were alleged to have produced a “Material Adverse Effect”. The concession agreement contemplated a ninety-day period during which the affected party could either cure the relevant defects or take effective steps towards curing them.
The Supreme Court, exercising curative jurisdiction, held that the distinction between completely curing the defects and taking effective steps towards cure could not be disregarded. The material question was whether the contractual standard had been satisfied on the facts, including the significance of the steps being undertaken to remedy the defects. The decision consequently underscores a broader proposition: termination must be tested against the language and structure of the bargain the parties actually made, rather than against a general impression that continued performance has become commercially undesirable.
For infrastructure contracts, the practical lesson is significant. Before issuing a termination notice, the terminating party must identify the precise contractual ‘Event of Default’, establish the consequences required by the contract, and demonstrate compliance with the stipulated cure process. Equally, a contractor resisting termination should focus not merely on denying the underlying breach, but on demonstrating compliance with the contractual standard for cure or effective steps towards cure.
Termination, however, does not necessarily bring the dispute to an end. Infrastructure contracts commonly provide for performance guarantees, retention money and other forms of security. A further question may therefore arise: whether the employer can realise contractual security while the validity or consequences of termination remain under challenge. The Hon’ble Supreme Court’s decision in Jindal Steel & Power Ltd. v. Bansal Infra Projects (P) Ltd., (2025) 10 SCC 176, answers this separate question. In the said case, the dispute involved termination of a construction work order and proposed encashment of an unconditional bank guarantee. The Hon’ble Supreme Court maintained interim protection against encashment in the procedural circumstances of that case, while the underlying petition under Section 9 of the Arbitration and Conciliation Act, 1996 (“Act”) remained pending.
Jindal Steel should not, however, be read as establishing a general rule that a disputed termination automatically prevents encashment of an unconditional bank guarantee. Its significance lies in demonstrating that the consequences of termination may require a separate judicial enquiry. The invocation of termination and the realisation of every contractual security are not necessarily one indivisible legal event; the latter may be subject to the principles governing interim relief and the particular procedural requirements of the dispute.
A further issue arises particularly in government and railway contracts containing “excepted matters” clauses. Such clauses may purport to reserve specified matters for the employer’s final decision and exclude them from arbitration. The question then becomes whether the very issue of whether a termination dispute falls within that exclusion can itself be determined by the Arbitral Tribunal.
In GVV Constructions (P) Ltd. v. Union of India, 2026 SCC OnLine SC 1799, the Hon’ble Supreme Court considered a railway contract terminated under Clause 62 of the Indian Railways General Conditions Contract (“GCC”). The Court held that whether a particular dispute falls within an “excepted matters” clause is a question falling within the competence of the Arbitral Tribunal under Section 16 of the Act. A writ court could not pre-determine or restrict the Tribunal’s enquiry into its own jurisdiction.
GVV Constructions therefore addresses a different stage of the termination dispute. It does not decide whether the termination was substantively valid; rather, it clarifies who gets to decide whether that question is capable of being examined in arbitration. The distinction is important because a contractual label such as “excepted matter” cannot, by itself, foreclose the Tribunal’s statutory jurisdiction to determine the scope of its own authority.
Taken together, these decisions suggest that a termination dispute should be analysed through three separate questions.
First, was there a contractual default sufficient to trigger the termination right, and were the substantive and procedural conditions for termination satisfied? DMRC is particularly instructive on this question.
Second, what consequences follow from the invocation of termination, particularly concerning performance security and interim protection? Jindal Steel demonstrates that this enquiry may be distinct from the ultimate determination of termination validity.
Third, who has jurisdiction to determine the validity of the termination? GVV Constructions demonstrates that even an “excepted matters” clause may itself give rise to a jurisdictional question for the Tribunal under Section 16.
Infrastructure project failure is therefore not a self-executing ground for contractual exit. The decisive issue is whether the failure has crossed the threshold specified by the contract, whether the agreed cure and notice mechanism has been observed, and whether the consequences and forum for challenging termination have been correctly identified.
The modern approach is consequently neither to permit a party to terminate merely because a project has become difficult, nor to make termination impossible whenever a contractor disputes the alleged default. The better approach is contractual: identify the agreed trigger, apply the agreed procedure, distinguish cure from effective steps towards cure, and separately examine the consequences and the correct adjudicatory forum that follow from termination. In infrastructure disputes, where termination can affect not only the parties but also public assets and project continuity, this discipline is particularly important.
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