Summary
| Category | Data |
|---|---|
| Court | Supreme Court of India |
| Case Number | C.A. No.-004513-004513 – 2025 |
| Diary Number | 17730/2013 |
| Judge Name | HON’BLE MR. JUSTICE SANJAY KUMAR |
| Bench | HON’BLE MR. JUSTICE SANJAY KUMAR and HON’BLE MR. JUSTICE K. VINOD CHANDRAN |
| Precedent Value | Binding on subordinate courts and arbitration tribunals; clarifies interplay between contract clauses and welfare‐legislation operability |
| Overrules / Affirms | Affirms Dewan Chand Builders (2012), A. Prabhakara Reddy (2016) and arbitration‐law precedents (Associate Builders, ONGC v. Saw Pipes, Western Geco) |
| Type of Law | Arbitration law; contract interpretation; labour‐welfare legislation (BOCW Act, Cess Act) |
| Questions of Law |
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| Ratio Decidendi | The BOCW Act and Cess Act, though notified in 1995–96, remained inoperative until welfare boards were constituted under Section 18 of the BOCW Act. Constitution of these boards is a condition precedent to give effect to both Acts and to treat them as “subsequent legislation” under contractual Clause 70.8. Contractors who bid before board constitution could not factor in an unleviable cess into their prices, engaging the subsequent‐legislation mechanism. The arbitral tribunals’ awards directing reimbursement of cess deductions were plausible interpretations of the contract and did not violate public policy or Section 28(1)(a) of the Arbitration Act. Courts under Sections 34/37 of the Arbitration Act must respect such plausible views and refrain from re-assessing merits. |
| Judgments Relied Upon |
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| Logic / Jurisprudence / Authorities Relied Upon |
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| Facts as Summarised by the Court | NHAI entered into multiple works contracts with various joint ventures between 2000–2009. BOCW & Cess Acts were notified in 1995–96, but welfare boards and implementing machinery were constituted in different states only years later. NHAI began deducting 1% cess from contractors’ bills post‐board constitution (2002–2010). Contractors invoked Clause 70.8 (“subsequent legislation”) to seek reimbursement; arbitral tribunals and High Courts confirmed awards in their favour. NHAI’s Section 34/37 challenges were dismissed. |
Practical Impact
| Category | Impact |
|---|---|
| Binding On | All subordinate courts, arbitration tribunals interpreting “subsequent legislation” clauses in public‐works contracts |
| Persuasive For | Other High Courts, Supreme Court benches in contract‐arbitration and labour‐welfare disputes; practitioners advising on bid pricing and statute operability |
| Follows | Dewan Chand Builders & Contractors v. Union of India (2012) 1 SCC 101; A. Prabhakara Reddy v. State of MP (2016) 1 SCC 600; Associate Builders v. DDA (2015) 3 SCC 49 |
What’s New / What Lawyers Should Note
- Constitution of welfare boards under Section 18 of the BOCW Act is a condition precedent for bringing the BOCW Act and Cess Act into effect.
- Mere central notification of the Cess Act and its rules does not suffice for levy or collection of cess; implementing machinery must exist.
- Clause 70.8’s “subsequent legislation” provision covers enactments that become operative after the 28-day cutoff before bid submission.
- Arbitration awards resting on plausible contract interpretations (not perverse or patently illegal) must be upheld.
- Courts under Sections 34/37 of the Arbitration Act and under Article 136 will not re-assess merits once an interpretation is credible.
- Practitioners drafting contracts may cite this judgment when negotiating or litigating “subsequent legislation” clauses.
Summary of Legal Reasoning
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Statutory Scheme and Operability
BOCW Act and Cess Act notified in 1995–96; both require constitution of welfare boards (Section 18) and rules (Section 62) to become operational.
Cess Rules (1998): Rule 4 on collection timing, Rule 5 on transfer to boards—no board, no lawful cess deposit.
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Contractual Clauses
Clause 14.3: duties/taxes in bid prices as of 28 days pre-bid deadline.
Clause 70.8 (“Subsequent Legislation”): changes or new laws after that cutoff entitle contractors to price adjustments.
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Arbitral Awards
Contractors bid before board constitution; no machinery to levy/collect cess existed.
Awards applied Clause 70.8 to reimburse cess deducted post-board constitution; plausible contract interpretation.
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Arbitration Jurisprudence
Courts may only set aside awards for manifest/arbitrary errors or public‐policy breaches (Sections 34/37).
No merits‐based appeal; plausible view on contract terms must stand (Associate Builders, McDermott, ITD Cementation, Ssangyong).
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Precedents Applied
Dewan Chand: Act operative only from rule notification date (Delhi, 2002).
A Prabhakara Reddy: Board constitution is not a condition for levy but prerequisite for collection and transfer.
Public‐policy test: narrow, requiring contravention of fundamental policy or patent illegality.
Arguments by the Parties
Petitioner (National Highways Authority of India):
- BOCW Act and Cess Act were enacted in 1995–96 and legally operative from those dates nationwide.
- Notification of cess rate (26.09.1996) and Rule 4(3) deduction‐at‐source power meant cess was always leviable on Government/PSU works.
- Respondents should have factored 1% cess into their price bids.
- Reimbursement awards conflict with contractual obligation under Clause 34.2 to comply with all labour laws in force at bid stage.
Respondents (Contractors / Joint Ventures):
- No welfare boards or rules existed at bid submission; no machinery to levy or collect cess.
- Cannot price an unleviable charge; deduction post-hoc amounts to unjust enrichment.
- Clause 70.8 “subsequent legislation” applies when statutes become operative after the 28-day cutoff.
- Arbitration awards are plausible interpretations of contract and not in conflict with public policy.
Factual Background
Between 2000 and 2009, NHAI awarded road‐construction contracts to various joint ventures. The Building and Other Construction Workers Act and the Cess Act were notified in 1995–96, but states framed rules and constituted welfare boards only years later (2002–2010). NHAI began deducting 1% cess from contractors’ interim payments once boards were in place. Contractors invoked Clause 70.8 to claim reimbursement, securing favourable arbitral awards later upheld by High Courts. NHAI’s challenges under Sections 34 and 37 of the Arbitration Act were dismissed, leading to these Supreme Court appeals.
Statutory Analysis
- BOCW Act, 1996: Regulates employment and welfare of building workers; defines “Board,” “employer,” welfare fund; Sections 18 (constitution of boards), 24 (welfare fund), 62 (rulemaking).
- Cess Act, 1996: Levies cess (1–2%) on construction cost to augment board funds; Section 3(1)–(3) on levy, collection, payment to boards; Section 14 rulemaking power.
- Cess Rules, 1998: Rule 3 (levy inclusions/exclusions), Rule 4 (time/manner of collection; Rule 4(3) deduction‐at‐source by Government/PSU), Rule 5 (transfer of cess to boards), Rule 6–7 (employer information, assessment).
Dissenting / Concurring Opinion Summary
No separate or dissenting opinions were recorded.
Procedural Innovations
No new procedural norms or guidelines were issued in this judgment.
Alert Indicators
- ✔ Precedent Followed – Affirms constitutional principles for arbitrations and prior rulings on BOCW/Cess Acts’ operability under contract.