Gagan Anand
Legacy Law Offices, New Delhi

Mrigank Shekhar
Legacy Law Offices, New Delhi

Supplementary agreements often sit at the heart of construction disputes, raising a familiar question: were they freely negotiated or signed under pressure? This article explores how Indian courts address such concerns, with particular reference to the recent decision in Union of India v Mago Construction. A clear pattern emerges wherein courts are slow to unsettle arbitral findings where coercion or economic duress is alleged, especially in the presence of unequal bargaining power or forced waiver of claims. Set against the rapid growth of India’s infrastructure sector, the article considers how this judicial approach shapes contractor–employer relationships. It highlights the increasing relevance of supplementary agreements in disputes involving waiver and estoppel and offers a concise guide to their treatment under Indian law.

Introduction^[1]

At its most benign, a supplementary agreement, or ‘supplemental agreements’^[2] or simply ‘amendment’,^[3] is a practical instrument, an agreed addendum to an existing contract. It modifies or adds specific terms that the parties to the existing contract wish to agree to, while leaving the remainder intact; it may change the scope of work envisaged under the contract or, at times, even terminate the original contract. In the construction sector, such agreements are common: project completion times get extended, specifications change and the parties have to reassess and adapt.

However, supplementary agreements also pose a challenge. Construction contracts in India are generally characterised by unequal bargaining power. A public sector employer commands the award of future contracts, while the contractor is dependent on cash flow and timely release of contractual obligations such as completion certificates, performance securities and final bills. When an employer withholds these contractual entitlements, the contractor may in some cases be left with no other choice but to sign the supplementary agreement.

With a rapidly expanding construction sector in India, buoyed by government investment in the sector surging nearly 800 per cent in a single decade, from Rs1.12 lakh crores in 2014 to Rs10 lakh crores in 2024,^[4] disputes between contractors and employers are bound to be on the rise. In view thereof, it has become imperative to address the proverbial elephant in the room: the treatment of supplementary agreements executed between contractor and employer by courts in India.

The legal framework governing supplementary agreements in India

The validity of supplementary agreements in India is governed by the Indian Contract Act 1872 (‘Act’). At its core lies a simple requirement – that is, free consent. Under Section 14 of the Act, consent is free only if it is not caused by coercion, undue influence, fraud, misrepresentation or mistake. Section 15 of the Act defines coercion narrowly, as acts or threats forbidden by the Indian Penal Code 1860 (former substantive code of criminal offences in India) or unlawful detention of property. Notably, the Act does not use the term ‘economic duress’, yet Indian courts have interpreted Sections 15 and 16 to give effect to the concept in commercial settings.

Section 16 of the Act defines ‘undue influence’, which captures situations where one party is in a position to dominate the will of another and uses that position to obtain an unfair advantage. The principle contained in Section 16 has been utilised by the Supreme Court of India in the judgment of Larsen and Toubro Ltd v Puri Construction Pvt Ltd^[5] to hold that a supplementary agreement was a ‘non-starter’ as it was vitiated by economic duress in view of Section 16(3) of the Act. While a party must ordinarily raise coercion or undue influence as a specific ground in arbitral or court proceedings, Indian courts have, in appropriate cases, addressed the issue under Section 34 of the Arbitration and Conciliation Act 1996 where the vitiating circumstances are apparent from the record.

The courts have also utilised Section 23 of the Act, which voids agreements opposed to public policy. In Central Inland Water Transport Corporation v Brojo Nath Ganguly, the Supreme Court of India held that ‘courts will not enforce and will, when called upon to do so, strike down an unfair and unreasonable contract […] entered into between parties who are not equal in bargaining power’.^[6] It is worth noting that in Central Inland Water Transport, the Supreme Court invoked Section 23 on appeal, on facts placed before it by the parties; the Court did not raise the public policy objection of its own motion at first instance.

Together, these provisions allow Indian courts to look past formal validity of a signed agreement and examine the conditions under which it was executed. The question that the courts often find themselves examining is not merely whether the contractor signed, but whether the contractor had any alternative left but to sign.

The recent decision of Delhi High Court in Union of India v Mago Construction Pvt Ltd

The judgment of Delhi High Court in Union of India v Mago Construction, decided on 14 January 2026, offers an illustrative example. It shows how a dispute between a contractor and an employer, centred around the execution of a supplementary agreement, would generally play out.

The parties had entered into a construction contract. A dispute arose when the employer failed to vacate 13 buildings, preventing the contractor from completing the relevant portion of the works for what the arbitrator described as an ‘unending period’.^[7] On 5 December 2013, the contractor signed an amendment removing those 13 buildings from the scope of work. On 6 December 2013, the next day, the employer issued the completion certificate that had previously been withheld.

The contractor invoked arbitration under the dispute resolution clause of the original construction contract, challenging the validity of the amendment on the ground of coercion; the arbitrator was appointed pursuant to that clause and determined the dispute at first instance. The arbitrator found that the amendment had been executed under coercion. The chronology was clear: the contractor had signed away its entitlement to the 13 buildings on Monday; the certificate appeared on Tuesday, the next day. The arbitrator described the withholding of the completion certificate as a ‘coercive fact’, a deliberate lever used by the employer to compel execution of the amendment. The contractor, whose ability to recover its final bills, secure the release of its securities and invoke its bank guarantees depended on that certificate, had no practical means of resistance.

The employer challenged the award under Section 34 of the Arbitration and Conciliation Act 1996. The Delhi High Court refused to interfere. The Court held that, on the facts before it, the arbitrator’s finding of coercion was a reasonable conclusion, not a perverse one, and that there was no basis for the Court to substitute its view for that of the tribunal.

The case makes a point that is easy to state but difficult for employers to internalise: withholding a contractual entitlement in order to extract a concession is not merely commercially aggressive; it is potentially a coercive fact that a court would find hard to ignore.

The Supreme Court’s decision in Larsen and Toubro Ltd (‘L&T’) v Puri Construction Pvt Ltd (‘PCL’)

In Larsen and Toubro Ltd v Puri Construction Pvt Ltd,^[8] under a 1998 development agreement, L&T undertook to develop PCL’s Gurgaon land in exchange for 75 per cent of the developed area. Having privately assessed the market conditions as unfavourable, L&T failed to perform and did not pay external development charges, triggering a regulatory authority show-cause notice threatening licence cancellation of PCL. Faced with this risk, PCL signed L&T’s proposed supplementary agreement on 30 December 1999. After dispute resolution proceedings that spanned over 25 years, the matter reached the bench of the Supreme Court of India which finally dismissed L&T’s appeal in April 2025. The Supreme Court agreed with the view of the arbitral tribunal that the supplementary agreement was a ‘non-starter’, vitiated by economic duress, in view of Section 16(3) of the Act.

When supplementary agreements may be valid: M/S Unikol Bottlers

Not every supplementary agreement executed in difficult commercial circumstances will be vitiated by coercion. In M/S Unikol Bottlers Ltd v M/S Dhillon Kool Drinks^[9] the parties had entered into a supplemental agreement that terminated the original agreement. The Delhi High Court, while considering the plaintiff’s plea of duress, coercion and unequal bargaining power, examined the facts in detail. It found no material to suggest that any coercion or duress had been exercised. The Court also held that the plaintiff had failed to show unequal bargaining power. On the contrary, the facts and circumstances surrounding the negotiations suggested otherwise. The absence of any immediate protest, competent legal advice received by the plaintiff and the commercial considerations reflected in its conduct all pointed to the exercise of free will. These factors indicated that the supplemental agreement was not vitiated by coercion or duress.

Conclusion

The validity of a supplementary agreement in a construction contract in India is not determined at the moment of signing but rather by the facts and circumstances surrounding the execution by the parties. Even if the contents of the agreement were to state: ‘the parties have entered into this agreement of their own free volition’, it would not be the conclusive factor deciding its validity. As demonstrated by the decision in Mago Construction, what would matter more is whether the contractor was compelled to sign without being presented with a genuine choice.

The decisions in Mago Construction and L&T v PCL reflect a coherent judicial instinct: that none of the parties should have been compelled to give up a right that it otherwise would not have given up were it not for the coercive factor. On the other hand, as demonstrated in M/S Unikol Bottlers Ltd, if a party has displayed, through its conduct, that it negotiated the supplementary agreement after considering its own commercial necessities, the supplementary agreement it enters into will not be considered to have been vitiated by coercion or economic duress.

The courts in India present a very cogent assessment of validity of supplementary agreements: if the parties are unequal in bargaining power; if one of the parties was compelled by the conduct of the other party to waive its rights; if one of the parties had no genuine choice left due to the conduct of the other party but to sign; such supplementary agreements are likely to be held to be vitiated by coercion or economic duress. Contractors doing business in India should especially be mindful of the views of the Court in M/S Unikol Bottlers Ltd: lack of protest, receiving competent legal advice during negotiation and commercial necessity are indicative of the factors that will work against them.

Gagan Anand is Managing Partner at Legacy Law Offices in New Delhi and can be contacted at anand@legacylawoffices.com. Mrigank Shekhar is a Principal Associate at Legacy Law Offices in New Delhi.