Price escalation in the Construction Contracts - Judicial perspective

Price escalation clauses in construction contracts allow for adjustments to contract prices based on changes in specified factors such as labor costs, material costs, or inflation rates. Here are a few Indian case laws related to price escalation in construction contracts:

1. Union of India v. Hardy Exploration and Production (India) Inc., (2018) 16 SCC 561: In this case, the Supreme Court of India dealt with the interpretation of price escalation clauses in contracts. The court held that price escalation claims must be supported by clear and specific contractual provisions. The burden of proof lies with the party seeking the price escalation, and they must demonstrate that the conditions triggering the escalation have been met.
2. M/s F.C. Sharma & Co. v. M/s Oil & Natural Gas Commission, AIR 2003 SC 4094: This case involved a dispute over price escalation claims in a construction contract. The Supreme Court held that price escalation clauses must be interpreted strictly and in accordance with the language used in the contract. The court emphasized the importance of clarity and specificity in contractual provisions relating to price adjustments.
3. Maharashtra State Electricity Distribution Co. Ltd. v. Datar Switchgear Ltd., (2017) 14 SCC 73: In this case, the Supreme Court considered the validity of price escalation claims in a contract for the supply of goods. The court held that price escalation clauses are valid and enforceable if they are fair, reasonable, and based on objective criteria specified in the contract. The court also emphasized the importance of good faith and fair dealing in interpreting and applying price escalation clauses.
4. National Highway Authority of India v. ITD Cementation India Ltd., (2015) 2 SCC 716: This case involved a dispute over price escalation claims in a construction contract for highway projects. The Supreme Court held that price escalation clauses must be interpreted in light of the surrounding circumstances and the intentions of the parties at the time of entering into the contract. The court emphasized the need for flexibility and pragmatism in interpreting and applying price escalation clauses to ensure fairness and equity.

These cases highlight the importance of clear and specific contractual provisions, fairness, and good faith in interpreting and enforcing price escalation clauses in construction contracts in India. They also emphasize the need for parties to carefully negotiate and draft contract terms to avoid disputes related to price adjustments during the course of the project.

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