By Acquiring a fleet for employee transport often involves a split procurement process: purchasing the chassis from an OEM and engaging a separate contractor for body fabrication. While this “Chassis-Cow” model offers customization and cost efficiency, it exposes the chassis owner to specific liabilities under the Indian Contract Act, 1872.
Handing over a high-value asset to a third-party fabricator creates a bailment relationship that requires strict legal safeguards. Beyond basic commercial terms, the agreement must enforce compliance with CMVR Rule 125-C and AIS-052 standards to ensure the final vehicle obtains RTO registration.
This guide outlines the mandatory clauses—from GST structuring to the 15% penal interest on defects—required to protect your asset during the fabrication phase.
The Legal Framework for Staff Bus Fabrication
Why buying a chassis and hiring a contractor creates a complex bailment relationship. A guide to AIS-052 compliance, GST structuring, and risk management in India.
By Evaakil Legal Research Team
14 min read
Transporting employees in India has shifted from a perk to a strict operational requirement. Companies operating in SEZs or industrial corridors rely on punctuality. The “Staff Bus” is the asset that guarantees this. Unlike buying a car, acquiring a bus often follows a split path: purchase the chassis from an OEM (like Tata or Ashok Leyland), then hire a contractor to build the body.
This “Chassis-Cow” model saves money and allows customization. It also introduces legal risk. You own the chassis. A third party holds it for 60 days. This creates a bailment relationship under the Indian Contract Act, 1872. If the contractor fails to meet the Central Motor Vehicles Rules (CMVR), specifically AIS-052, the vehicle cannot be registered. This guide breaks down the agreement you need to protect your asset, drawing directly from standard industry contracts and recent regulatory updates.
1. The Regulatory Bedrock: Rule 125-C
The Motor Vehicles Act, 1988, governs this process. The specific rule for companies is Rule 125-C of the CMVR, 1989. It mandates that bus bodies must conform to the “Code of Practice for Bus Body Design and Approval” (AIS-052).
Your contract cannot simply ask for a “good quality bus.” It must specify the Bus Type. For staff transport, you need Type III certification.
Type I (City Bus)
Designed for frequent stops. Allows standing passengers. Not suitable for long corporate commutes.
Type III (Staff Bus)
Designed exclusively for seated passengers. No standing allowed. Mandates higher comfort, specific emergency exits, and rollover strength (AIS-031).
2. Defining the “Scope of Work”
A loose scope of work is where disputes begin. The agreement must reference specific materials. Under the “Schedule of Specifications” in your contract, ensure these standards are explicitly listed to avoid receiving sub-par fabrication.
Structure & Paneling
GI Tubular Structure: Must use Galvanized Iron (GI) tubes, not Mild Steel (MS), to prevent rust.
Exterior: 18G/20G Aluminum or GI Sheets.
Flooring & Safety
Base: 12mm/19mm Marine Grade Plywood (Boiling Water Proof).
Top: 2mm Anti-skid Vinyl Flooring (PVC).
Glass & Electricals
Windows: Toughened Safety Glass (IS 2553).
Wiring: Fire-retardant (FR) grade cables with proper conduiting.
Paint System
Process: PU (Polyurethane) Paint system. Must include phosphating treatment for the skeleton before paneling.
3. The Homologation Trap
This is the single biggest point of failure in bus fabrication contracts. “Type Approval” is chassis-specific. A contractor may have approval to build on an Ashok Leyland chassis but not on a Tata chassis.
If your contractor builds a body on a chassis for which they do not hold a valid Type Approval Certificate (TAC) from agencies like ARAI, CIRT, or ICAT, the RTO will refuse registration. The bus becomes scrap metal.
Mandatory Clause: TAC Validation
“The Contractor warrants that they possess a valid Type Approval Certificate (TAC) for the specific Chassis Model [Insert Model No.] provided by the Company. A copy of this TAC must be attached as Annexure A to this Agreement.”
Compliance Risk Calculator
Rate your current draft agreement to see your exposure to regulatory or financial loss.
Select items to assess your contract’s strength.
4. Commercial Strategy: Tax & Money
Structuring the deal correctly impacts your GST liability. You have two choices: Supply of Goods or Job Work.
Figure 1: GST Impact on Transaction Models (Job Work vs. Outright Purchase)
Most companies choose the Job Work Model. Under Section 2(68) of the CGST Act, 2017, the chassis remains your property. The contractor provides a service (SAC 9988). This attracts 18% GST on the fabrication cost, compared to 28% + Cess on buying a fully built vehicle.
Required Contract Language
“The Company shall supply the chassis to the Contractor free of cost for the sole purpose of fabrication. The ownership of the chassis shall at all times remain with the Company. The Contractor shall act as a Job Worker as defined under Section 2(68) of the CGST Act, 2017.”
5. Choosing the Chassis
The body design depends entirely on the chassis. Dimensions like Wheelbase (WB) and Front Overhang (FOH) dictate the seating capacity. We have compiled data on the most common chassis used for staff transport in India.
| Model | GVW (kg) | Wheelbase | Typical Seating | Best Use |
|---|
6. The 15% Penal Interest Clause
Clauses 7 and 8 of standard construction agreements typically define the safety net. The contract must mandate a Defects Liability Period (DLP), usually 6 months from the date of handover.
A crucial, often overlooked protection found in robust agreements (like the attached reference) is the 15% Penal Interest on third-party remediation.
The “Right to Remedy” Mechanism
If the contractor fails to fix defects within 7 days of notice:
1. The Company can hire a third party to fix the bus.
2. The cost is deducted from the Security Deposit.
3. If the Deposit is insufficient, the Contractor must pay the deficit plus 15% interest p.a.
The Mechanics of Retention Money:
- Security Deposit: Collected at signing (usually 5-10%).
- Retention Money: Deducted from running bills (usually 5%).
- Release: Both are held until the DLP expires. Do not release full payment upon delivery.
7. Critical Risk Clauses
When the chassis enters the contractor’s gate, your risk spikes. The agreement must cover three specific areas: Bailment, Indemnity, and Fire Safety.
Bailment & Insurance (Clause 9)
Standard burglary insurance is insufficient. As per Clause 9 of the standard draft, the contractor must insure the chassis against “destruction or damage by fire, flood, etc.” at their own expense.
Critically, the policy must cover “Goods Held in Trust.” If the contractor’s factory burns down and their policy only covers their assets, your chassis is not covered unless this specific clause is in the insurance policy.
The “Shower Test” Protocol
Water leakage destroys bus interiors. Your contract’s PDI (Pre-Delivery Inspection) clause must mandate a high-pressure Shower Test.
- Duration: Minimum 15 minutes.
- Pressure: Water jets simulated to mimic monsoon rain intensity.
- Observation: Observers must be inside the bus during the test to spot leaks immediately around window gaskets and roof hatches.
8. Delays & Liquidated Damages
Time is money. Clause 7 typically allows the company to terminate if work is delayed. However, termination is messy. A better route is Liquidated Damages (LD).
Liquidated Damages Calculator
Standard cap is usually 5% of total contract value.
9. Payment & Milestones
Never pay upfront. Use a milestone-based schedule linked to physical progress.
Templates & Downloads
Clause Library
Standard text for Indemnity, Liquidated Damages, and Force Majeure.
Inspection Checklist
The PDI format for Type III buses including the Shower Test protocol.
