M/S.Sri Sai Investigation And ... vs Secretary4Ministry Of Railways
2022 Latest Caselaw 1837 AP

          *HONOURBLE SRI JUSTICE D.V.S.S. SOMAYAJULU


                       +   W.P.No. 13597 of 2018


% 19.04.2022


#M/s. Sri Sai Investigation & Security Services
 Rep., by its Managing Partner
                                                         ... Petitioner


        Vs.
$ Secretary, Ministry of Railways,
Government of India, New Delhi and 2 others.


                                                      ... Respondents




! Counsel for the petitioner : Sri C.V.Ram Mohan Reddy

! Counsel for the Respondents : Smt. Sasikala, standing counsel for
                                Railways.


< Gist:


> Head Note:


? Cases referred:
1   (2018) III LLJ 362 Bom
2   W.P.No.2702 of 2018
3   AIR 2003 SC 1216
4   2020 II LLJ 235 Mad
5   1996 SCR (5) Supp.447
6
    1994 (3) SCC 521
7   AIR 1960 SC 588
                                     2




            HON'BLE SRI JUSTICE D.V.S.S.SOMAYAJULU


                      W.P.No.13597 of 2018


ORDER :

This writ petition is filed by the petitioner questioning the

termination of two contracts by the respondent-Railways.

This Court has heard Sri C.V.Ram Mohan Reddy, learned

counsel for the petitioner and Smt. Sasikala, learned standing

counsel for the Railways.

Petitioner: Sri C.V.Ram Mohan Reddy, learned counsel for the

petitioner took great pains to argue the matter at length. The

petitioner is a contractor, who was participated in two tenders for

Kakinada and Narsapur for the mechanised cleaning of coaches,

cleaning of depot premises, garbage etc., which was floated by the

respondent-Railways. The date of the tender is 04.07.2016. Tenders

were finalized and letters of acceptance dated 27.12.2016 were issued

for both the works. Formal contracts for both the works were

executed in March 2017. The value of the Kakinada contract was

Rs.3,65,87,811/- and the value of Narsapur contract was

Rs.2,40,19,790/-. Learned counsel for the petitioner points out that

basing on the minimum wages that were prevalent at the time of the

filing of the tender, the petitioner had quoted the rates. However, on

28.04.2017, the minimum wages were revised by 42% with effect from

19.01.2017. Learned counsel submits that the minimum wages

payable to the workers increased from Rs.250/- to Rs.359/- per day

with retrospective effect from 19.01.2017. Learned counsel submits

that this upset the entire planning and the financial basis of the

contract. Learned counsel submits that despite the phenomenal

increase in the rates due to the increase in the minimum wages, the

petitioner did his level best to absorb the loss and also to carry on the

work. He points out that on 09.10.2017, after executing the work for

sometime, the petitioner requested the respondent-Railways to

foreclose the work and also relies upon a letter addressed by the

Deputy Chief Labour Commissioner, Visakhapatnam, who advised the

Railways to enhance the wages or to foreclose the contract since the

wage hike is very high. Learned counsel points out that in reply to

this, the Railways also addressed a letter stating that the foreclosure

of the contract is under process. Learned counsel submits that

despite this assertion, Railways went ahead and terminated the

contract. Questioning the same, the writ petition is filed.

Among other grounds, learned counsel for the petitioner argues

that the responsibility to pay the minimum wages is with the Railways

as the principal employer and that both on grounds of justice and

equity, the contractor should be indemnified and reimbursed for this

extraordinary raise in the wages. He also raises an issue that the

contract was not terminated in accordance with the terms of the

contract. He relies upon a compilation of judgments in support of his

argument which are as follows:

(1) Division Bench judgment of the Bombay High Court in

WP.No.1996 of 2017 in A2Z Infraservices Limited v. Union

of India, Ministry of Railways1.

(2) Judgment of the High Court of Bombay in M/s.

S.K.Enterprises, Through its Proprietor v. The Union of

India, Ministry of Railways2.

1 (2018) III LLJ 362 Bom

(3) Judgment of Supreme Court of India in Government of

Maharashtra v. M/s. Deokar's Distillery3

(4) M/s. Aarthi Enterprises, Rep., by its Partner G.Mythili v.

Southern Railways, rep., by General manager, Senior

Divisional Manager, Divisional Office, Commercial

Branch, southern Railways, Deputy Chief Labour

Commissioner (Central)4.

And also

(5) The order of the Regional Labour Commissioner (Central()

and Authority under Minimum Wages Act, 1948, Hyderabad

in Application No.46/27/2018-E

Learned counsel submits that most of these cases cited relate to

the Railways only. Relying upon the first judgment of the Division

Bench of the Bombay High Court, learned counsel argues that the

Railways are duty bound to neutralize the cost of labour and that the

principle of business efficacy should be pressed into service to

interpret this contract and to grant relief to the petitioner against the

extraordinary wages in the prices.

For respondents: In reply to this, Smt. Sasikala, learned

standing counsel also argues at length. She points out that under the

terms of the agreements, the primary responsibility rests upon the

petitioner to pay the minimum wages. She relies upon clauses 15, 16

and 17 of the letter of intent in both the contracts and also the

clauses 46 to 53 of Chapter III of the agreement to argue that it is the

primary responsibility of the contractor to comply with the statutory

requirements including the payment of minimum wages. Therefore,

3 AIR 2003 SC 1216 4 2020 II LLJ 235 Mad

the learned standing counsel submits that the petitioner cannot avoid

his responsibility of paying the minimum wages. With regard to pre-

closure, learned counsel submits that even the Railways were

interested in pre-closing the agreement, but the same was not an

unconditional agreement. It is pointed out that the petitioner

company was put on notice that the contract would be closed by

mutual agreement, provided the petitioner pays all the statutory

dues to the labour etc. Wages were also to be paid by the

contractor till the pre-closure. However, learned counsel points

out that the petitioner did not pay the said wages leading to

action according to the contract. She relies upon the letters

dated 20.12.2017 issued to the petitioner by the Railways,

wherein four conditions were stipulated. Learned counsel points

out that even thereafter, the petitioner did not pay the wages

and the Labour Enforcement Officer noticed the shortfall in

payment. Ultimately, the learned counsel points out that on

15.02.2018, the Railways address a combined letter in both the

contracts pointing out that as the petitioner failed to pay the

wages, remit the EPF and ESI, the Railways have no other

choice, but to initiate the procedure for termination. She points

out that in both the agreements, seven day notice was issued on

12.02.2018 followed by a 48 hour notice in terms of clause 62

and ultimately the termination orders dated 10.03.2018 and

28.03.2018 were issued terminating the contracts. Therefore,

learned standing counsel argues that as there is a clear breach

of the terms of the contract and violation of the conditions, the

Railways had no option but to terminate the contracts. She

relies upon a judgment of the Hon'ble Supreme Court of India in

the case of Hindustan Steel Works v. The Commissioner of

Labour5 to argue that the employer is not liable to pay the

additional amount and that ultimately, even if the same is paid,

they will have to recover it from the contractor.

COURT: This Court after hearing both the learned counsel,

who took great pains to argue the matter realizes that there is

no dispute essentially on the facts of the case.

The petitioner is a successful tenderer, who was awarded

two works. Letters of acceptance was issued on 27.12.2016 for

Kakinada and on 29.12.2016 for Narsapur. Formal contracts

were concluded on 07.03.2017. In the interim period, the

Government of India has revised the minimum wages with effect

from 19.01.2017.

The first question that arises for the determination is, who

is responsible for the payment of the minimum wages?. The

letters of acceptance issued in the both the contracts are

identical. They resulted in the formation of the contract.

Clauses 15, 16 and 17 of this letters of acceptance, clearly

states that the petitioner is liable for complying with the labour

laws. Of significance, is clause 16, which clearly states that the

petitioner is responsible for payment of minimum wages to the

staff engaged by him. The proof of payment of minimum wages

as witnessed by the Railway Officials should be submitted with

every bill. It is made clear that bill will not be processed unless

5 1996 SCR (5) Supp.447

the proof is submitted for wage payment. The contract

agreement entered into between both the parties is also similar.

Clause 46 of this agreement deals with the "wages to labour". It

clearly states that the contractor shall be responsible to ensure

compliance with the provisions of Minimum Wages Act, 1948.

Even if the Railways is called upon to make the payment to the

workers by virtue of any claim or application made by them, the

Railways have a right to claim the same from the contractor

within 7 days. Railways are also entitled to recover the sum

from any money due or accruing to the contractor under this or

any other contract with the Railways.

Therefore, from a plain language interpretation of the

contract, it is clear that the primary obligation to pay the wages

as per the Minimum Wages Act always rests with the contractor

only. The Railways, as a principal employer, even if they are

called upon to pay any amount by virtue of a claim made by the

workers, can recover the money within 7 days and from any

money due under this contract or other contracts. This clause

also strengthens this Court's conclusions. Therefore, in the

opinion of this Court, there is no doubt that it is the 'contractor'

alone who is liable to pay the minimum wages.

The view that the Railways can recover the money is also

supported by the High Court of Madras judgment reported in

M/s. Aarthi Enterprises case, wherein it was held that in case

the minimum wages are enhanced, the principal employer is

bound to reimburse the same on the petitioner making such

payment to employees. Therefore, if the petitioner proves that

he had in fact paid the enhanced minimum wages and submits

documents as per the contract, the petitioner would be entitled

for reimbursement. In a judgment reported in Tarapore and

Co. v. State of M.P.6, the Hon'ble Supreme Court of India also

held that as the contractor was bound to pay the minimum

wages and to follow the labour laws, there was an 'implied

contract' to reimburse the increased payment made by the

contractor on account of the raise in wages.

In the case on hand, the stand of the Railways is that the

petitioner has failed to pay the wages and this has lead to the

cancellation of the contract. The letters of contemporaneous

period dealing with the issue are filed by both the parties. The

petitioner addressed a letter dated 09.10.2017, wherein he

assured the Railways that in view of the heavy burden, the

contract should be foreclosed and they would be paying all the

pending statutory dues till the date of pre-closure. On

12.12.2017, the Railways addressed a letter to the Labour

Enforcement Officer stating that in his inspection report he

noticed that the present petitioner failed to comply with the

payment of minimum wages. With the counter affidavit, the

respondents are also filed letter dated 20.10.2017 addressed to

the petitioner in both the works. It was clarified that the

petitioner had failed to pay the wages as per the latest revision,

did not remit the PF and ESI and also pointed out about the

1994 (3) SCC 521

non-issuance of pay slips etc. It is agreed to pre-close the

agreement with four conditions of which, the most important in

this case is that the contractor shall in fact pay arrears of wages.

On 29.12.2017, Railways in fact addressed a letter to the Labour

Enforcement Officer pointing out that they are withholding a

sum of Rs.6.10 lacks on account of the failure of petitioner to

pay wages at Kakinada. This was followed by letter dated

05.02.2018 wherein the Railways clearly informed the petitioner

that pre-closure is only possible on mutually agreed terms and

that the request of increase in wages is not possible as per the

agreement. Thereafter, it was categorically informed that in view

of the failure of the petitioner to pay minimum wages, the

Railways had no option, but to terminate the contracts. Thus, it

is clear that there is no consensus on the aspect of pre-closure.

Any variation in the terms of the contract can only be by mutual

consent. If the Railways imposed certain conditions for the pre-

closure and requested the petitioner to pay minimum wages till

the closure, the petitioner could demand for pre-closure if he

adheres to the conditions. Since he did not do so, in the opinion

of this Court, the petitioner cannot rely on the issue of pre-

closure of agreement.

As decided in the leading judgment of Alopi Parshad and

Sons Ltd. vs. Union of India7, contractors are often faced with

a rise in prices or changed circumstances during the course of

the execution of the work. This by itself will not give them an

7 AIR 1960 SC 588

option to walk out the contract and will not also permit the

Court to ignore the settled terms of contract. This leading

judgment, in the opinion of this Court, is squarely applicable to

the facts and circumstances of this case. Merely because the

performance becomes more onerous the petitioner cannot avoid

the same. The terms of the agreement are crystal clear and the

petitioner is under an obligation to pay the wages. If the

principal employer-Railways is called upon to pay the wages,

they will recover it from the money due to the petitioner. There

is no escalation clause in this contract also for the petitioner to

claim the increase of wages. Therefore, in the opinion of this

Court, the petitioner was duty bound to pay the minimum wages

and thereafter seek reimbursement by submitting clear proper

and adequate proof in terms of the agreement. Without doing

so, he cannot absolve himself of his responsibility.

The next question that survives for consideration is about

termination of the contract. As mentioned earlier, there is no

consensus on the terms for the pre-closure. The letters

addressed by the respondents clearly show that the wages were

not being paid to the labour-workmen. Certain amounts and

details are also highlighted in the counter affidavit filed which

are not controverted. Thereafter, this Court notices that the

respondents have given the seven day notice followed by a 48

hour notice as per clause 55 and then ultimately terminated the

contract. The procedure stipulated under the contract was

followed in the opinion of this Court.

Lastly, the submission of the learned counsel about the

interpretation of the contract to give business efficacy needs to

be answered. The learned counsel relied upon the Division

Bench judgment in A2Z Infraservices Limited (1 supra). This

judgment also clearly states that the terms of contract are

always final. It was held in para 26 that the business efficacy

test can only be applied in cases where the term that is sought

to be read as a term intended by the parties. The Bombay High

Court found that the Railways in that case also followed the

same principle and granted price variation to the contractor till

18.01.2017 and thereafter the Railways refused to give the

benefit to the contractor when the wages were escalated. There

was also a price variation clause. In these circumstances, the

Bombay High Court held that by applying the principle of

business efficacy, the minimum wages are to be increased. It

was held that as long as the contract is subsisting, the Railways

are bound to reimburse the contract.

In the opinion of this Court, the terms of the present

contract are crystal clear. Relevant clauses in the letters of

acceptance and the general conditions are extracted earlier. By

a process of interpretation, this Court cannot make out a new

contract for the parties. Once the terms of the agreed contract

are clear, and the contract does not suffer from any infirmity or

ambiguity, this Court cannot rely on the 'business efficacy' test

to bring in an implied term. This would amount to doing

violence to the clear written terms of the contract. Besides, this

is a matter of clear pleading which is lacking in this case.

Primary responsibility rests with the petitioner. He failed to

discharge his statutory obligation. This led to the termination.

Therefore, in the opinion of this Court, the petitioner is not

entitled to any relief.

The writ petition is therefore dismissed. No order as to

costs. As a sequel, the miscellaneous petitions, pending if any,

shall stand closed.

________________________ D.V.S.S.SOMAYAJULU,J

Date : 19.04.2022 Note: L.R. copy be marked.

KLP