The economy of our country depends mostly on the agriculture sector, but the second most important sector for the economy of our country is the construction sector. Growth in this sector is considerably faster than any other sector because the population of our country is increasing day by day and with the increase in population the demand for housing and infrastructure is increasing. This sector is the second largest employer in our country, employing over 40 million people directly and many more in the business-related with it. The union budget of the country also lays emphasis on this sector; the growth in this sector depends on various factors such as an increase in population, rapid urbanisation, and the need for good roads to travel from one place to another.
These all things make this sector very important and in coming years demands for houses, infrastructure projects and urbanisation of villages are going to increase only so this sector will flourish very well. It is speculated that the construction sector of our country will become the third-largest construction sector of the world by the year 2025. The government scheme of developing smart cities also pushed this sector in a positive way, because those were very big projects, a large group of people will get employment because of the smart cities project. Currently this sector is contributing more than 8% to India’s GDP.
Different types of laws regulate construction sector.
In this sector, a large numbers of things have to be taken in mind before doing anything because it involves danger and it also poses’ threat to the life of others as well. So in order to do anything or to construct anything we have to take several permissions from different departments of law. And a lot of laws are involved in it. In our country, most of the construction work depends on the contract between two or more parties, incorporation of companies, and most importantly the amount of tax to be paid in doing all those activities. All of this cannot be done by a proper legal framework.
In this sector there were various activities performed by the companies so in order to have a check on all of that different laws were important. Because the activities performed by them were different from each other so we cannot use anyone law that governs all those activities. They have to take permissions from many departments such as environmental law, it is very important that no construction is done by hampering any part of the environment. They have to make a plan of the building earlier and have to get permission from the municipal corporation of the city before starting the construction. In the construction of roads or any other governmental projects, there were several contracts and many other legal formalities that have to be performed by the construction companies before starting any of their projects. Some important laws that govern the working of construction companies in India were-
The companies act, 2013
In construction business, there were many companies present the first and the foremost activity that is applicable to them is the companies act because without it they cannot even register their companies. Before starting the business they have to register their company by submitting the appropriate documents to the registrar. There were several rules that any company have to follow before doing any kind of business such as registering their company, stating the type of the company e.g. private or public in our country most of the construction companies are private because it is easy to manage and to register, reservation of the name of the company as per the act, after all the other formalities were completed by them then the registrar of the company will give then a number known as corporate identity number (CIN).
The Indian contract act, 1872
In construction companies have to do several contracts with different persons as well as different companies so all the contracts will be regulated by the Indian contract act, 1872. There were different types of contracts as well in the construction sector such as EPCs, PPP, etc.
The goods and services tax, 2017
All the activities in this sector come under the taxation by the government. In order to facilitate their services, the government had issued fresh guidelines under the goods and services act 2017. Under this rates of different taxes that will be applicable on construction contracts and projects were given.
Ministry of environment and forest
The approval of the ministry of environment and forest is very necessary no company can even start their project without getting prior permission from the ministry. Environment clearance is very important for any project that is equal to or bigger than 20,000 sq. Metres needs environment clearance. There were different projects to establish a township or to develop the existing one then if that project is greater than 50 hectares then also the environment clearance is very important.
If the area of the project is less than 20,000 sq. Meters or 50 hectares then the environment clearance is not necessary but taking prior permission of state pollution control board, Municipal Corporation, Panchayat is necessary. There was other permission as well that is necessary such as permission from the aviation department or to get permission from the regional office of the Ministry of Environment and Forest in the case where any part of our land is coming into their area.
In this sector, we have to do a lot of paperwork or contracts before the starting of any projects because in this sector many works were outsourced so there must be a contract between both the parties so in case any problem occurs then the other party has some remedy. A construction contract can be also called a work contract where the employer and the contractor form a contractual relationship between others to construct something.
There is no standard form of contracts in our country with respect to construction, but there are some contracts that were commonly used were contracts that are published by the International Federation of Consulting Engineers, Institute of Civil Engineers, and the model published by the Indian Institute of Architects. Some other contracts that you can easily found in this industry were -
Engineering, Procurement, and Construction Contracts (EPCs) - this is the most common type of construction contract under this there is a binding relationship between the contractor and the employer. In this contract, the employer transfers all the risk associated with construction and a basic design to the contractor. This contract gives both of them powers in some manners so this is the most common contract in this sector. The contractor has all the freedom regarding the way of work so he can take all the decisions without any interference.
Turnkey contracts- Nowadays people were also adapting this contract because under this contract all the work is given to the contractor so there is literally no work or tension for the owner. Under this contract, the employer hires a contractor to plan, design, and build infrastructure before a specific date. The contractors have to just complete the whole task before the expiration of the date in the contract otherwise it is seen that there must be a penalty for any kind of delay without a genuine cause. This contract is also advantageous because it is relatively faster than any other contracts. The government is using this type of contract because it is in their favour and the government can put a penalty on the company for not completing the task on time. The government cannot monitor each and every project and the work of the government needed to be done quickly so in order to ensure this they use these types of contracts mostly.
Public-private partnership contracts- In this contract, a government and a private agency came together and form a contractual relationship between each other. Under this contract, all the risk is shared with the private sector. The public sector is not so advance or we can say that they do not have the latest technology in this field. So the public sector gets the benefit of technical expertise, experience and the efficiency of the private sector. There are various types of PPP contracts are present such as-
Build operate transfer (BOT) under this PPP contract the private party is responsible for the financing, construction, and operation of property before it will transfer to the government. It is the most common type of PPP contract.
Build own operate transfer ( BOOT) under this contract the private party completes the whole construction of the infrastructure then that property is transferred to the public sector and for doing this the private parties will also get some tax exemptions and funding from the government.
Additionally, Build transfer operate (BTO) under this PPP contract the private party is contracted only for some specific work so after the completion of the work then they again transfer the property to the public sector.
Further, Build own operate (BOO) under this PPP contract the ownership rests with the private sector only. The private sector also builds, designs, owns, and operates the infrastructure after the completion of the project.
Statutory requirements to follow-
General requirements- As discussed earlier all the contracts related to construction must follow the Indian contracts act otherwise they won’t be enforceable in nature.
Labour- In this sector, it is the responsibility of the employer as well as the contractor to follow the relevant labor legislation. If the states in which they are working have some special rules in addition to the existing rule they have to follow that as well. It is the responsibility of the employer as well as the contractor to follow all the relevant rules. Under the industrial dispute act, 1947 the term “workman” is defined from their only laborers gets the legal right as a workman in any industry. If an employer or contractor hires 20 or more than 20 workers on a contract then he must have to follow the Contract Labour (Regulation and Abolition) Act, 1970. Under this act, it is clearly explained that the employer has to register its organisation as given under the statute and have to obtain a licence from the authorised licensing authority specified in the Act. If an employer or contractor hires 5 or more labourers from a different state then he has to follow all the rules that is given under the Inter-State Migrant Workmen (Regulation of Employment and Conditions of Service) Act, 1979, this act is established because it protects the rights of migrant labourers. Under the Workmen's Compensation Act, 1923, it is the responsibility of an employer to provide compensation to the family of the workmen if he gets injured during the time of work. Under the Minimum Wages Act, 1948, it is the responsibility of the employer or the contractor to provide the minimum wage which is established by the local government and no contractor or employer can refuse to give the minimum wage to the worker. If that happens then the worker can go to court to get his right wage.
It is very difficult nowadays to establish a construction company in our country. There were a number of procedures that one has to follow before registering its company and even after registering it is not easy in this industry to survive and succeed. There were numbers of big players that are already well established in the market and in this field everybody thinks that if some company has a reputation then only he can get big works because everybody thinks twice before investing in any company. So a person will hesitate to invest such a large amount in a new company. Even after doing some work, it’s not easy for small companies to hire different persons to do each job so it is a very tough task for them to follow all the legal requirements for doing any construction. so it is important to have some variation in construction laws because it protects the rights of the labourers. It’s difficult to follow for everybody but it is important.
The binding nature of an expert's decision has been confirmed in Owen Pell Limited v Bindi (London) Limited  QBD (TCC).
This would depend on the law governing the contract between the Parties. For example under Indian Law a provision such as this would face challenge under Section 28 of the Indian Contract Act, 1872.
By- Amartya Sharan