Stabilization Clauses and Indian Contract Practice

Reflecting international practice, a large variety of concessions agreements in India contain stabilization clauses — or, more specifically, a ​‘change in law’ clause which (in the version generally used in India) entitles a concessionaire impacted adversely by a ​‘change in law’ event to be recompensed to a point of economic equilibrium i.e. restitution to a position of profitability projected at the time of entering into the concession. Not surprisingly, these powerful clauses (with the ability ​‘to stop time’) have been debated extensively for their legality, enforceability, and impact on sovereign regulatory rights. On the other hand, they are perceived as essential for workable long-term investments in high-risk geographies — often in the developing world. In the Indian context, such clauses have become increasingly prominent in recent infrastructure disputes.