Legal Issues in Construction Industry

By Sameer Rastogi, Managing Partner, INDIA JURIS

Sameer Rastogi, Managing Partner, INDIA JURIS

Headquartered in New Delhi, INDIA JURIS is a full service International Law Firm with immense expertise in Business, Corporate, Litigation, and Arbitration & Intellectual Property Laws.

Construction Industry

Construction Industry in India may be primarily classified into three segments Infrastructure, Industrial & Real Estate. The Construction sector has seen growth in the recent year more specifically in the regime of the NDA government. The Infrastructure sector comprises of roads, highways, residential buildings, commercial complexes, airports, SEZs and IT parks. The Real Estate sector in India is comprised of four sub sectors- housing, retail, hospitality and commercial. Challenges in the construction sector mainly arise during resolution of various ambiguities that arise from the role of stakeholders in construction projects. Major issue in the construction sector is the risk involved in the construction project for which the solution is that SWOT analysis strategy should be implemented which is crucial for identifying critical success factors for identifying strength, weaknesses and effective warding off of threats.

The major laws that govern the Construction industry in India are: Building and Other Construction Workers (Regulation of Employment and Condition of Service) Act, 1996 which is intended to provide welfare measures to workmen, National Building Code, 2005 which enlists the general guidelines to be followed for regulating building construction activities across the country. It serves as a model code for adoption by all agencies whether Public Works department, other governmental construction departments, local bodies or private construction agencies. The Code mainly comprises of administrative regulations, developmental rules for control, and general building requirements.

Various infrastructure programs like the National Highway Development Program (NHDP) and PMGSY/ Bharat Nirman Program have been instrumental in the average growth rate in the construction sector at average rate of 7.3 percent during FY08-FY12. Further initiatives such as Swatch Bharat Mission has been launched which is an initiative to provide India with cleaner infrastructure. Various changes have been initiated in India’s FDI policy with respect to construction sector where requirements for minimum area and capitalization has been waived which in turn allows foreign investors to invest in small projects through FDI route. The growth rate in the second quarter of the fiscal year of 2016 through data released from Central Statistics Office projected a growth rate of 7.6 percent in 2015-16 which is an increase from 7.3 percent which was posted in the quarter end of December. According to RBI such a growth is welcomed as India is seen as economy which promotes stability because of steady disinflation, a moderate current account deficit and a pledge to fiscal correctness.

Real Estate Industry

India at present is witnessing manifold changes to the Real Estate Sector in India. Earlier the Real Estate sector lacked a single nodal agency for the administration and the control of the real estate sector including registration of real estate projects and real estate agents.

Recently the Real Estate (Regulation and Development) Act, 2016 received presidential assent on 25th March, 2016 and is came into force on May 1, 2016. The Real Estate Act is instituted with the objective of establishing the Real Estate Regulatory Authority which is a nodal agency which is given the task of regulating the real estate sector regarding the registration of real estate projects and registration of real estate agents. A salient feature of the act is that 70 percent of the money which has been realized from the customers of the real estate project is required to be deposited in an Escrow account which is required to be opened in a scheduled purpose solely to be used for construction purpose. Another significant change brought about by the Act is the creation of Real Estate Appellate tribunals which is required to be formed within one year.

Roads and Highways industry

Infrastructure output during the fiscal year March, 2016 rose to a cap of 6.4  percent which is a sharp increase from the -1.30 percent which was recorded in November of 2015. According to Finance Minister Arun Jaitely the best mode of increasing public investment was the development of roads sector, alongside railway and ports. An enormous Rs 97,000 has been allocated to the roads sector in the fiscal year 2016-17. It is also noted that the Government of India has approved the plan for construction of 1000 km of expressways under the National Highways Development Project which is supposed to cost around Rs 16,680 Crore.

Power and Electricity Industry

The electricity generation in the country during the current fiscal year has seen a growth amounting to 4.4 percent by addition of 3030 MW of grid-connected power generation through renewable sources of energy such as solar and wind.

Challenges put forward by NGT in Construction Sector

The National Green Tribunal established under the National Green Tribunal Act 2010 is a government body solely for disposal of cases relating to environment protection and conservation of forest and other natural resources including enforcing of legal rights relating to environment. The NGT in the past few years has proved to be a serious threat to the construction sector where it has issued notice for cessation of various construction projects on the grounds of non-compliance with MoEF guidelines, 2010 on Manual on norms and standards for environment clearance of large construction projects which include putting of scaffolding around area of construction and providing of masks to construction members. One of the major reasons that NGT gave for issuing orders of cessation is the widespread emission of dust including dust components resulting from construction activities.  

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