By S&S Co. Advocates & Solicitors · Published 8 May 2026 · Informational content, not legal advice: see our disclaimer
The Structural Problem: No Direct Contract With the Employer
Sub-contractors on large infrastructure and EPC projects typically contract only with the main contractor, not with the project employer or authority, which means a sub-contractor generally has no direct contractual remedy against the employer even where the employer's own delayed payment to the main contractor is the root cause of the sub-contractor's non-payment. Understanding this privity limitation is the starting point for any sub-contractor payment dispute strategy.
Back-to-Back Payment Clauses: Read Them Carefully
Many sub-contracts on infrastructure projects contain 'pay-when-paid' or 'pay-if-paid' clauses, making the main contractor's obligation to pay the sub-contractor conditional on the main contractor itself first receiving payment from the employer. Indian courts have generally required such clauses to be clearly and unambiguously worded to shift payment risk in this way: an ambiguous or standard invoicing clause will not automatically be read as a pay-when-paid condition, and sub-contractors should negotiate to delete or narrow such clauses wherever possible at the contracting stage.
The MSME Samadhan Route
Where the sub-contractor qualifies as a micro or small enterprise registered under the Micro, Small and Medium Enterprises Development Act, 2006, delayed payment disputes can be referred to the Micro and Small Enterprises Facilitation Council under Section 18 of the Act, which provides for statutory interest at a punitive rate (currently three times the bank rate notified by the Reserve Bank of India) on delayed payments, and a conciliation-then-arbitration process independent of any arbitration clause in the underlying sub-contract. This route has become an increasingly significant remedy for smaller infrastructure sub-contractors and suppliers.
Arbitration Under the Sub-Contract
Where the sub-contract itself contains an arbitration clause, the sub-contractor's claim proceeds against the main contractor directly: the sub-contractor generally cannot join the employer to that arbitration absent a specific multi-party arbitration structure, which is uncommon in standard Indian sub-contracting arrangements. Sub-contractors should ensure their invoicing and delay-notice practices under the sub-contract independently satisfy any notice conditions precedent to a payment claim, rather than relying on the main contractor's own claim correspondence with the employer.
Practical Safeguards at the Contracting Stage
Sub-contractors negotiating infrastructure sub-contracts should seek: a capped or deleted pay-when-paid clause; a defined, independent payment certification timeline not solely dependent on the main contractor's own certification from the employer; and an express right to suspend work (with notice) for sustained non-payment, mirroring protections increasingly built into main contracts between employers and contractors.
Frequently Asked Questions
Can a sub-contractor sue the project employer directly for non-payment by the main contractor?
Ordinarily no: in the absence of a direct contract or an express assignment/novation, the sub-contractor's remedy lies against the main contractor, not the employer, due to lack of privity of contract.
Does the MSME Samadhan remedy apply even if the sub-contract has its own arbitration clause?
Yes: the Micro, Small and Medium Enterprises Development Act, 2006 remedy under Section 18 operates independently of any arbitration clause in the underlying contract, and the Facilitation Council's jurisdiction has generally been upheld even where the contract separately provides for arbitration.
Are pay-when-paid clauses enforceable in Indian sub-contracts?
Courts have generally required such clauses to be clear and unambiguous to be given effect as shifting payment risk to the sub-contractor; a poorly drafted or ambiguous clause is less likely to be read as conditioning payment on the main contractor's own receipt from the employer.
References & Further Reading
This article references the following statutory provisions. Readers should always verify current rules, fees and timelines against the applicable statute and rules as amended, since these are revised from time to time.
- Micro, Small and Medium Enterprises Development Act, 2006, Sections 15-18.
- Indian Contract Act, 1872, principles of privity of contract.