Arbitration Act). The impugned judgment and order dated
Ltd. [now, Sikkim Urja Limited (appellant)] under section 34
refusing to interfere with the arbitral award dated
01.10.2019 in favour of the respondents herein.
the Arbitration Act are limited. When should a Court
various judgments. On examination of the arbitral award,
fundamental policy of Indian law. We also find that the
the face of the award. The Arbitral Tribunal has also
M/s Sikkim Urja Ltd. (formerly Teesta Urja Limited) vs. M/s Abir Infrastructure Pvt. Ltd. & Ors.
pay it. While determining who is liable to pay the cess, the
imposed the liability upon the appellant instead. The arbitral
judgments of the Hon‟ble Supreme Court in A. Prabhakara
Reddy and Company vs. State of Madhya Pradesh and Others1
and M/s Dewan Chand Builders and Contractors vs. Union of
award requires to be interfered with. We explain our reasons
3. The claimant before the Arbitral Tribunal was the
consortium of M/s Abir Infrastructure Pvt. Ltd. (respondent
no.1 herein), M/s Navayuga Engineering Co. Ltd.
(respondent no.2 herein) and M/s SEW Infrastructure Ltd.
(respondent no.3 herein). The respondent therein was M/s
Teesta Urja Ltd.
M/s Sikkim Urja Ltd. (formerly Teesta Urja Limited) vs. M/s Abir Infrastructure Pvt. Ltd. & Ors.
4. The consortium of the respondents along with
M/s CGGC International Ltd, M/s CKD Hydro Power Pvt.
a successful bid. For the said purpose various agreements
were executed. The contracts were subject to arbitration for
settlement of disputes. The contract was awarded on
18.04.2007 with subsequent amendments dated
26.05.2007. The contract was signed on 12.09.2007 and the
5. According to the Arbitral Tribunal, as stated in its
payment of cess under the Cess Act, 1996. Teesta Urja Ltd.
of Rs.5.88 crores, Rs. 8.12 crores and Rs.27.39 crores from
contract award on 18.04.2007. This was disputed by the
respondents who invoked the arbitration clause.
M/s Sikkim Urja Ltd. (formerly Teesta Urja Limited) vs. M/s Abir Infrastructure Pvt. Ltd. & Ors.
6. The respondents through their statement of
29.08.2016 issued by the appellant set aside. It also sought
the contract price as per the contract between the parties.
legislation. It was also contended that clause 49 of the
notify the contractor accordingly. It was the respondents‟
M/s Sikkim Urja Ltd. (formerly Teesta Urja Limited) vs. M/s Abir Infrastructure Pvt. Ltd. & Ors.
06.09.2010, although the contract was awarded on
7. The appellant filed their statement of defence
contesting the statement of claims of the respondents. It was
contract. Clause 17.4 of the GCC makes it obligatory upon
Government or the local authority. It was also contended
BOCW Act, 1996 and the Cess Act, 1996 were applicable. It
respondents were responsible for payment of all
taxes/duties/levies, etc. It was submitted that the BOCW
execution of the contract agreement dated 12.09.2007.
M/s Sikkim Urja Ltd. (formerly Teesta Urja Limited) vs. M/s Abir Infrastructure Pvt. Ltd. & Ors.
cost of construction incurred by the employer. Thus, both
8. The issue formulated by the Arbitral Tribunal
9. On examination of the BOCW Act, 1996 and the
3. The Claimant is an „employer‟ in relation to the Respondent
being an „establishment‟ within the meaning of this Act as per
Definition section 2(1)(a)(i). Section 7 of BOCW Act provides for
Registration of „establishment‟ within a period of 60 days from
the commencement.
M/s Sikkim Urja Ltd. (formerly Teesta Urja Limited) vs. M/s Abir Infrastructure Pvt. Ltd. & Ors.
4. The Rule 23(1) of BOCW Rules, 1998 prescribed the manner
of making application for registration of establishment.
5. The Cess Act, in its sec. 3(1) provided for the Levy &
Collection of Cess at rate not exceeding 2% but not less than
one percent of the cost of construction incurred by an
employer. The rate or levy of cess was to be specified by
notification of the Central Govt. in the Official Gazette from
time to time.
6. As per sec. 3(2) of this Act, the aforesaid cess was to be
collected from every „employer‟ in such manner and at such
rate as may be prescribed.
7. The Central Govt., vide its S.O. 2899 dt. 26.09.1996
notified that the cess @ 1% of the cost of construction incurred
by the Employer is to be levied and collected.
8. The Time and Manner of Collection of such cess was
prescribed by the Cess Rule (4). The applicable Rule 4(3) in the
present matter is reproduced as below:
Notwithstanding the provisions of sub-rule (1) and sub-rule
(2), where the levy of cess pertains to building and other
construction work of a Government or of a Public Sector
Undertaking, such Government or the Public Sector
Undertaking shall deduct or cause to be deducted the cess
payable at the notified rates from the bills paid for such
works."
10. Even while observing as above, the Arbitral
Tribunal considered the failure of the appellant to take steps
to comply with the provisions of the BOCW Act, 1996 and
the Cess Act, 1996 from 2007 till 2010 until the Labour
Department issued the Circular on 06.09.2010 and directed
that it would be the appellant who would be liable to pay the
cess and further that the respondents or any of the
consortium members shall not be made liable to pay the
cess even in the future. The Arbitral Tribunal held that the
fact that the State of Sikkim formulated Rules in the year
2009 and resorted to implementation of the BOCW Act,
M/s Sikkim Urja Ltd. (formerly Teesta Urja Limited) vs. M/s Abir Infrastructure Pvt. Ltd. & Ors.
1996, the Cess Act, 1996 and the Rules made thereunder
from 06.09.2010 only, the levying of cess would amount to
change in law as envisaged in GCC clause 49.
11. The Arbitral Tribunal set aside the respondent‟s
letters dated 16.10.2010, 19.05.2014, 12.06.2014,
07.06.2016, 04.08.2016 and 29.08.2016. The Arbitral
Tribunal also held that the entire cost of cess as and when
assessed by the competent authority for any period with
regard to the contract shall be borne by Teesta Urja Ltd. It
was also held that as no recovery of cess has yet been made
from the respondents the same shall not be made
hereinafter from the respondent and other consortium
members either from their due payments or through
encashment of bank guarantees.
Section 34 petition by M/s Teesta Urja Ltd.
12. Teesta Urja Ltd. filed a petition under section 34
of the Arbitration Act against the arbitral award. The
appellant pleaded that:- the BOCW Act, 1996 came into
effect from 01.03.1996 and the Cess Act, 1996 with effect
from 03.11.1995; On 26.09.1996, the Government of India
notified the rate of cess at 1% of the cost of construction and
all these were notified much prior to the execution of the
M/s Sikkim Urja Ltd. (formerly Teesta Urja Limited) vs. M/s Abir Infrastructure Pvt. Ltd. & Ors.
contract agreement dated 12.09.2007; The appellant pointed
out clause 17.4 of the GCC provided that the respondent
shall abide by all existing labour enactments, rules,
regulations, notifications, etc.; On 06.09.2010, the
Department of Labour, Government of Sikkim (GOS) had
issued a Circular for implementation of the BOCW Act, 1996
and the Cess Act, 1996; On 13.02.2010, the respondents
being the contractors under the contract agreement got
themselves registered with the office of the Registering
Officer, Government of Sikkim under section 3 of the BOCW
Act, 1996; On 06.04.2011, the Department of Labour
directed the appellant to deposit the labour welfare cess
from the cost of construction employed by the employer; On
28.06.2011, the Department of Labour directed the
appellant to submit details of cost of construction incurred
by the employer; On 01.05.2014, the Department of Labour
directed the appellant to deposit the cess to the Sikkim
Building & Other Construction Welfare Board; The appellant
had requested the respondents by its letters dated
20.05.2014, 12.06.2014, 07.06.2016 and 04.08.2016 to
report compliance of the provisions of the BOCW Act, 1996
and the Cess Act, 1996; On 29.08.2016, the appellant once
again requested the respondents to report compliance and if
they failed to do so, deduction of 1% cess of the cost of
M/s Sikkim Urja Ltd. (formerly Teesta Urja Limited) vs. M/s Abir Infrastructure Pvt. Ltd. & Ors.
construction to be done from the bills raised by the
respondents; On 08.09.2016, the respondents denied their
liability stating that it would constitute a change in law and
invoked the provisions of clause 38 of the contract
agreement for settlement of dispute under the contract.
Ultimately, the Arbitral Tribunal constituted, rendered its
award which was challenged on various grounds including
failure to understand the BOCW Act, 1996 and the Cess Act,
1996 and interpret the judgment of the Hon‟ble Supreme
Court in A. Prabhakara Reddy and the Delhi High Court in
Delhi Metro Rail Corporation Limited vs. Simplex Infrastructure
ltd.3
The impugned judgment of the learned Commercial Court
13. The learned Commercial Court vide judgment
dated 14.08.2023 declined to interfere with the arbitral
award by holding that the arbitral award did not contravene
the fundamental policy of Indian law as claimed by Teesta
Urja Ltd. The learned Commercial Court upheld the
reasoning and interpretation of the Arbitral Tribunal and
concluded that even though the BOCW Act, 1996 and the
Cess Act, 1996 had been enforced from 1996 and 1995
respectively, it had not been made operational in Sikkim till
the issuance of the Circular dated 06.09.2010. The learned
(2011) 3 Arb LR 307
M/s Sikkim Urja Ltd. (formerly Teesta Urja Limited) vs. M/s Abir Infrastructure Pvt. Ltd. & Ors.
Commercial Court did not examine who was liable to pay
cess under the Cess Act, 1996 and whether the Arbitral
Tribunal could have reversed the liability of the respondents
as contractor to the appellant.
The appeal under section 37 by the appellant
14. The appellant has preferred the present appeal
under section 37 of the Arbitration Act challenging the
judgment dated 14.08.2023 passed by the learned
Commercial Court. The appellant states that the name of
Teesta Urja Ltd. changed to Sikkim Urja Ltd., w.e.f.,
21.03.2023.
15. Heard learned counsel - Mr. Anubhav Sinha, for
the appellant, Mr. R.S. Sravan Kumar for the respondents
no.1 and 3 and Mr. Biswabrata Basu Mallick for respondent
no.2.
The moot question
16. The moot question that arises for consideration is
whether the respondents were liable to pay the 1% of the
cost of construction as cess under the Cess Act, 1996 and
whether the respondents could have taken advantage of
clause 49 of the GCC as the appellant had failed to deduct
cess from the bills of the respondents till the issuance of the
Circular dated 06.09.2010 by the Labour Department?
M/s Sikkim Urja Ltd. (formerly Teesta Urja Limited) vs. M/s Abir Infrastructure Pvt. Ltd. & Ors.
Consideration
The Building and Other Construction Workers' (Regulation of
Employment and Conditions of Service) Act, 1996 (the BOCW Act,
1996)
17. The BOCW Act, 1996 dated 19.08.1996 came into
force with retrospective effect from 01.03.1996 throughout
the territory of India. The BOCW Act, 1996 was enacted to
regulate the employment and conditions of service of
buildings and other construction workers and to provide for
their safety, health and welfare measures and for other
matters connected therewith or incidental thereto.
18. Section 2(g), 2(i) and 2 (j) of the BOCW Act, 1996
defines the words „contractor‟, „employer‟ and
„establishment‟, thus:
"2. Definitions.-- .....................................................
(g) "contractor" means a person who undertakes to produce a
given result for any establishment, other than a mere supply
of goods or articles of manufacture, by the employment of
building workers or who supplies building workers for any
work of the establishment, and includes a sub-contractor;"
...................................................................
(i) "employer", in relation to an establishment, means the
owner thereof, and includes, -
(i) ....
(ii) ....
(iii) in relation to a building or other construction work
carried on by or through a contractor, or by the employment of
building workers supplied by a contractor, the contractor;
.................................................................................
(j) "establishment‟ means any establishment belonging to, or
under the control of, Government, any body corporate or firm,
an individual or association or other body of individuals
which or who employs building workers in any building or
M/s Sikkim Urja Ltd. (formerly Teesta Urja Limited) vs. M/s Abir Infrastructure Pvt. Ltd. & Ors.
other construction work; and includes an establishment
belonging to a contractor, but does not include an individual
who employs such workers in any building or construction
work not being more than rupees ten lakhs;"
The Building and Other Construction Workers' Welfare Cess Act,
1996 (the Cess Act, 1996)
19. The Cess Act, 1996 dated 19.08.1996 came into
force with retrospective effect from 03.11.1995. The Cess
Act, 1996 was enacted to provide for the levy and collection
of a cess on the cost of construction incurred by employers
with a view to augmenting the resources of the Building and
Other Construction Workers‟ Welfare Boards constituted
under the BOCW Act, 1996.
20. Section 2(d) provides that words and expressions
used in the Cess Act, 1996 but not defined and defined in
the BOCW Act, 1996 shall have the meanings respectively
assigned to them in the BOCW Act, 1996.
21. Section 3 of the Cess Act, 1996 provided for levy
and collection of cess. It reads:
"3. Levy and collection of cess.--(1) There shall be levied
and collected a cess for the purposes of the Building and
Other Construction Workers (Regulation of Employment and
Conditions of Service) Act, 1996, at such rate not exceeding
two per cent. but not less than one per cent. of the cost of
construction employed by an employer, as the Central
Government may, by notification in the Official Gazette from
time to time specify.
(2) The cess levied under sub-section (1) shall be collected
from every employer in such manner and at such time,
including deduction at source in relation to a building or other
construction work of a Government or of a public sector
M/s Sikkim Urja Ltd. (formerly Teesta Urja Limited) vs. M/s Abir Infrastructure Pvt. Ltd. & Ors.
undertaking or advance collection through a local authority
where an approval of such building or other construction work
by such local authority is required, as may be prescribed.
(3) The proceeds of the cess collected under sub-section (2)
shall be paid by the local authority or the State Government
collecting the cess to the Board after deducting the cost of
collection of such cess not exceeding one per cent. of the
amount collected.
(4) Notwithstanding anything contained in sub-section (1) or
sub-section (2), the cess leviable under this Act including
payment of such cess in advance may subject to final
assessment to be made, be collected at a uniform rate or rates
as may be prescribed on the basis of the quantum of the
building or other construction work involved."
22. As section 3 of the Cess Act, 1996 provides for
levying and collection of cess from "employer", it would be
relevant to consider who the "employer" is. The word
"employer" is not defined in the Cess Act, 1996. In terms of
section 2(d) of the Cess Act, 1996 when we peruse the
BOCW Act, 1996, section 2(i) defines the word "employer", in
relation to a building or other construction work carried on
by or through a contractor, or by the employment of building
workers supplied by a contractor, the contractor.
GOI Notification dated 26.09.1996 stipulating rate of cess at 1%
23. On 26.09.1996, the Government of India, Ministry
of Labour, notified the rate of cess @ 1% of the cost of
construction incurred by an employer under the Cess Act,
1996.
M/s Sikkim Urja Ltd. (formerly Teesta Urja Limited) vs. M/s Abir Infrastructure Pvt. Ltd. & Ors.
GOS Notification dated 12.09.1997 notifying BOCW Act, 1996 &
Cess Act, 1996
24. On 12.09.1997, Gazette Notification was issued
by the Law Department, Government of Sikkim, thereby
notifying the BOCW Act, 1996 and the Cess Act, 1996 in
Sikkim Gazette.
The Building and Other Construction Workers' (Regulation of
Employment and Conditions of Service) Central Rules, 1998
25. The Building and Other Construction Workers‟
(Regulation of Employment and Conditions of Service) Central
Rules, 1998 dated 19.11.1998 (for short, the BOCW Central
Rules, 1998) came into force on 19.11.1998. The BOCW
Central Rules, 1998 was made in exercise of the power
conferred under section 62 and section 40 of the BOCW Act,
1996.
The Building and Other Construction Workers' Welfare Cess
Rules, 1998
26. The Building and Other Construction Workers‟
Welfare Cess Rules, 1998 (for short, the BOCW Cess Rules,
1998) came into force on 26.03.1998. It was made in
exercise of the power conferred by sub-section (1) of section
14 of the Cess Act, 1996. Rule 4 of the BOCW Cess Rules,
1998 is relevant and quoted below:
"4. Time and manner of collection--(1) The cess levied
under sub-section (1) of section 3 of the Act shall be paid by
an employer, within thirty days of completion of the
M/s Sikkim Urja Ltd. (formerly Teesta Urja Limited) vs. M/s Abir Infrastructure Pvt. Ltd. & Ors.
construction project or within thirty days of the date on which
assessment of cess payable is finalised, whichever is earlier,
to the cess collector.
(2) Notwithstanding the provisions of sub-rule (1), where the
duration of the project or construction work exceeds one year,
cess shall be paid within thirty days of completion of one year
from the date of commencement of work and every year
thereafter at the notified rates on the cost of construction
incurred during the relevant period.
(3) Notwithstanding the provisions of sub-rule (1) and sub-rule
(2), where the levy of cess pertains to building and other
construction work of a Government or of a Public Sector
Undertaking, such Government or the Public Sector
undertaking shall deduct or cause to be deducted the cess
payable at the notified rates from the bills paid for such
works.
(4) Notwithstanding the provisions of sub-rule (1) and sub-rule
(2), where the approval of a construction work by a local
authority is required, every application for such approval shall
be accompanied by a crossed demand draft in favour of the
Board and payable at the station at which the Board is
located for an amount of cess payable at the notified rates on
the estimated cost of construction:
Provided that if the duration of the project is likely to exceed
one year, the demand draft may be for the amount of cess
payable on cost of construction estimated to be incurred
during one year from the date of commencement and further
payments of cess due shall be made as per the provisions of
sub-rule (2).
(5) An employer may pay in advance an amount of cess
calculated on the basis of the estimated cost of construction
along with the notice of commencement of work under section
46 of the Main Act by a crossed demand draft in favour of the
Board and payable at the station at which the Board is
located.
Provided that if the duration of the project is likely to exceed
one year, the demand draft may be for the amount of cess
payable on cost of construction estimated to be incurred
during one year from the date of such commencement and
further payment of cess due shall be made as per the
provisions of sub-rule (2).
(6) Advance cess paid under sub-rules (3), (4) and (5), shall be
adjusted in the final assessment made by the Assessing
Officer."
M/s Sikkim Urja Ltd. (formerly Teesta Urja Limited) vs. M/s Abir Infrastructure Pvt. Ltd. & Ors.
Contract Agreement dated 12.09.2007
27. On 12.09.2007, the contract agreement was
executed between M/s Teesta Urja Ltd. on the one part and
M/s Abir Constructions Pvt. Ltd. and M/s Sabir Dam &
Water Works Construction Company on the other part, who
were collectively referred to as the Contractor.
28. Clause 2 of the covenant stated that the contract
consisted of the following documents which are deemed to
be an integral part of the agreement as if herein set out
verbatim and/or if hereto annexed, viz.,
"A. Volume-I
1. Contract Agreement
2. Notification of Award (letter of acceptance)
3. General Conditions of Contract (GCC)
4. Special Conditions of Contract (SCC)
B. Volume-II
Owner‟s Requirements/Technical Specifications for Civil Works
consisting of:
1. General Technical Specifications
2. Particular Technical Specifications
C. Volume-III
1. Project Profile
2. Tender Drawings
D. Volume-IV
Contractor‟s Proposal and any other document forming part of the
Contract"
General Conditions of Contract (GCC)
29. Two clauses in the GCC which forms an integral
part of the contract agreement as noted above are important
to examine. The appellant contends that under clause 17.4
M/s Sikkim Urja Ltd. (formerly Teesta Urja Limited) vs. M/s Abir Infrastructure Pvt. Ltd. & Ors.
of the GCC, the Contractor was required to abide by the
BOCW Act, 1996 as well as the Cess Act, 1996. The
respondents on the other hand contend that as per clause
49 of the GCC they were not bound by any change in law
which was effected subsequent to the contract agreement.
These clauses read as under:-
"17.4 During continuance of the Contract, the Contractor and his
sub-contractors shall abide at all times by all existing
labour enactments and rules made thereunder, regulations,
notifications and bye laws of State or Central Government
or local authority and any other labour law (including rules),
regulations, bye laws that may be passed or notification
that may be issued under any labour law in future either by
the State or the Central Government or the local authority.
The Contractor shall keep the Owner indemnified in cases
any action is taken against the Owner by the competent
authority on account of contravention by the Contractor of
any of the provisions of any Act or rules made thereunder,
regulations or notifications including amendments. It the
Owner is caused to pay or reimburse, such amounts as may
be necessary to cause or observe, or for non-observance of
the provisions stipulated in the
notifications/byelaws/acts/rules/ regulations including
amendments, if any, on the part of the Contractor, the
Engineer/Owner shall also have right to recover from the
Contractor‟s any bill or security available with the Owner
either under this Contract or any other Contract any sum
required or estimated to be required for making good the
loss or damage suffered by the Owner.
........................................................................................
Salient features of some of the major labour laws that are
applicable to construction industry are given below.
..........................................................................................
(xv) The Building and Other Construction Workers
(Regulation of Employment and Conditions of Service) Act
1996 and the Cess Act of 1996
All the establishments who carry on any building or other
construction work and employees 10 or more workers are
covered under this Act. All such establishments are
required to pay cess at rate not exceeding 2% but not less
than 1% of the cost of construction as may be notified by
the Government. The Employer (Contractor) to whom the
Act applies has to obtain a registration certificate from the
Registering Officer appointed by the Government.
........................................................................................."
M/s Sikkim Urja Ltd. (formerly Teesta Urja Limited) vs. M/s Abir Infrastructure Pvt. Ltd. & Ors.
49. EFFECT OF CHANGES IN LAW
If, after the date 30 days prior to the latest date for
submission of Price Bids for the Contract, i.e. 13.02.2007
there occur in India, changes to any Central or State
Statute, Ordinance, Decree, or other Law or any regulation
or by-law of any local or other duly constituted authority, or
the introduction of any such Central State Statute,
Ordinance, Decree, Law, regulation or by-law which causes
additional or reduced cost to the Contractor, other than
those already covered under „Article 32 -- Price Adjustment
and Escalation‟, in the execution of the Contract, such
additional or reduced cost shall be determined by the
Engineer-in-charge and shall be added to or deducted from
the Contract Price and the Engineer shall notify the
Contractor accordingly. Notwithstanding the foregoing, such
additional or reduced cost shall not be separately paid or
credited if the same shall already have been taken into
account in the indexing or any inputs to the Price
Adjustment Formulae in accordance with the provisions of
Article 32 of these conditions and further, adjustment of
such additional or reduced cost shall be determined based
on the actual, considering the difference of the taxes and
duties prevailing as on the date 30 days prior to submission
of price bid and as on the date of incurrence. The
adjustment will be further subject to the condition that in
case the benefits in duties and taxes under EXIM policy or
any other policy of the Government are available, the
adjustments will be made considering such benefits
irrespective of whether the Contractor avails such benefits
or not."
GOS Circular dated 06.09.2010
30. On 06.09.2010, the Department of Labour,
Government of Sikkim addressed a Circular to all
Secretaries/Heads of Department of Government of Sikkim
regarding implementation of the BOCW Act, 1996, the Cess
Act, 1996 and their respective Rules. It stated that the State
Government is required to implement the provisions of the
BOCW Act, 1996, the Cess Act, 1996 and their respective
Rules in view of the direction of the Hon‟ble Supreme Court
passed in Writ Petition No. 318 of 2006, as already notified
M/s Sikkim Urja Ltd. (formerly Teesta Urja Limited) vs. M/s Abir Infrastructure Pvt. Ltd. & Ors.
in Sikkim Herald. It also specified that the cess was to be
collected @ of 1% of the cost of construction incurred by an
employer or any executing agency as the case may be. It
clarified that as per Rule 5 of the BOCW Cess Rules, 1998,
the proceeds of the cess collected under Rule 4 shall be
transferred by such Government Office/Establishment as
the case may be to the Building and Other Construction
Welfare Board which has been constituted vide Notification
No.13/DL dated 26.02.2010 and published in the
Extraordinary Gazette No.64 dated 27.02.2010. All
concerned were required to implement the said provision by
deducting the cess from the cost of construction and
forwarded to the Building and Other Construction Welfare
Board. For the purpose of implementation of these Acts, list
of all contractors/establishments registered with the
concerned department including list of
contractors/establishment executing different building and
construction works were required to be forwarded to the
Labour Department indicating the cost of construction of the
work. The Circular further notified that in the event any
contractor/establishment having submitted bill for payment
in connection with execution of building and other
construction work, 1% of the cost of construction is required
to be deducted by the Department before the bills are
M/s Sikkim Urja Ltd. (formerly Teesta Urja Limited) vs. M/s Abir Infrastructure Pvt. Ltd. & Ors.
cleared, being the amount payable as cess in terms of the
provision of Section 3 of the Cess Act, 1996 read with Rule 4
of the BOCW Cess Rules, 1998. It notified that henceforth
all Works Department or any other
Department/Establishment as the case may be while
entering into any agreement with any
Contractor/Establishment for execution of any building and
other construction works including works being executed
departmentally shall in compliance of the provisions of the
BOCW Act, 1996 and the Cess Act, 1996 ensure deduction
@ 1% of the cost of construction as cess.
The Sikkim Building & Other Construction Welfare Board
31. In exercise of the powers conferred by sub-section
(1) and sub-section (3) of section 18 of the BOCW Act, 1996,
the State Government constituted the Sikkim Building &
Other Construction Welfare Board for the purposes of BOCW
Act, 1996 vide Notification dated 26.02.2010 published in
the Sikkim Government Gazette on 27.02.2010.
The Sikkim Building & Other Construction Workers' (Regulation
of Employment and Conditions of Service) Rules, 2010
32. The Labour Department, Government of Sikkim,
in exercise of the powers conferred by section 40 and sub-
section (1) of section 62 of the BOCW Act, 1996 issued
M/s Sikkim Urja Ltd. (formerly Teesta Urja Limited) vs. M/s Abir Infrastructure Pvt. Ltd. & Ors.
Notification dated 31.08.2010 published in the Sikkim
Government Gazette on 01.09.2010 making the Sikkim
Building & Other Construction Workers‟ (Regulation of
Employment and Conditions of Service) Rules, 2010 (the
Sikkim Rules, 2010) with effect from 27.02.2009.
33. The learned Commercial Court came to a finding
that the BOCW Act, 1996, the Cess Act, 1996 and the rate of
cess @ 1% of the cost of construction had already been
notified by the Central Government when the contract
agreement was signed by the parties on 12.09.2007. The
respondents do not contest this fact obviously because it is
factually correct. However, the learned Commercial Court
seemed to have been persuaded to take cognizance of the
fact that in spite of the enforcement as above for almost
three years since the execution of the contract agreement
there was no whisper between the parties to implement
those provisions and the appellant was roused to the
situation only when the Labour Department issued the
Circular dated 06.09.2010. The learned Commercial Court
therefore came to the conclusion that although the BOCW
Act, 1996 and the Cess Act, 1996 were already notified as on
12.09.2007, it came to be implemented in the State of
Sikkim only after 06.09.2010 in compliance to the Order of
M/s Sikkim Urja Ltd. (formerly Teesta Urja Limited) vs. M/s Abir Infrastructure Pvt. Ltd. & Ors.
the Hon‟ble Supreme Court, thus, the learned Commercial
Court did not find any flaw in the reasoning of the Arbitral
Tribunal that the concerned provisions came to be
implemented in Sikkim after 06.09.2010. The learned
Commercial Court was of the view that the Arbitral Tribunal
has been supported by the judgment of the Hon‟ble Supreme
Court in Dewan Chand Builders (supra).
34. In Dewan Chand Builders (supra), the Hon‟ble
Supreme Court examined the judgment rendered by the
High Court of Delhi in which it was held that the BOCW Act,
1996, the BOCW Rules, 1998, the Cess Act, 1996 and the
BOCW Cess Rules, 1998 were constitutionally valid and
within the competence of the Parliament as the levy was a
fee referable to Schedule VII List 1 Entry 97 of the
Constitution of India. While doing so, the Hon‟ble Supreme
Court surveyed the relevant provisions of both the Acts and
the Rules. The Hon‟ble Supreme Court was of the view that
from the scheme of the BOCW Act, 1996 its sole aim is the
welfare of building and construction workers, directly
relatable to their constitutionally recognized right to live
with basic human dignity, enshrined in Article 21 of the
Constitution of India. It was held that it envisages a network
of authorities at the Central and State Levels to ensure that
M/s Sikkim Urja Ltd. (formerly Teesta Urja Limited) vs. M/s Abir Infrastructure Pvt. Ltd. & Ors.
the benefit of the legislation is made available to every
building and construction worker, by constituting welfare
boards and clothing them with sufficient powers to ensure
enforcement of the primary purpose of the BOCW Act, 1996.
It was held that the means of generating revenues for
making effective the welfare provisions of the BOCW Act,
1996 is through the Cess Act, 1996. The Hon‟ble Supreme
Court held that it is manifest from the overarching schemes
of the BOCW Act, 1996, the Cess Act, 1996 and the Rules
made thereunder that the sole object is to regulate the
employment and conditions of service of building and other
construction workers, traditionally exploited section in the
society and to provide for their safety, health and other
welfare measures. It was held that the BOCW Act, 1996 and
the Cess Act, 1996 break new ground in that, the liability to
pay cess falls not only on the owner of the building or
establishment, but under Section 2(1)(i)(iii) of the BOCW Act,
1996, the contractor as well. The extension of the liability on
to the contractor is with a view to ensure that, if for any
reason it is not possible to collect cess from the owner of the
building at a stage subsequent to the completion of the
construction, it can be recovered from the contractor. It was
held that the Cess Act, 1996 and the BOCW Cess Rules,
1998 ensure that the cess is collected at source from the
M/s Sikkim Urja Ltd. (formerly Teesta Urja Limited) vs. M/s Abir Infrastructure Pvt. Ltd. & Ors.
bills of the contractors to whom payments are made by the
owner. The Hon‟ble Supreme Court opined that the burden
of cess is passed on from the owner to the contractor.
35. Both the Arbitral Tribunal as well as the learned
Commercial Court referred to the decision of the Hon‟ble
Supreme Court in A. Prabhakara Reddy (supra). The Arbitral
Tribunal concluded that the appellant was duty bound to
collect the cess from the respective running account bills of
the contractor after (a) the Cess Act 1996 and the Rules
came into effect and (b) the Board was constituted. The
Arbitral Tribunal was also of the view that similar view had
been taken by the Hon‟ble Supreme Court in Dewan Chand
Builders (supra). This was not correct as would be clear from
a reading of both the judgments.
36. In A. Prabhakara Reddy (supra), the appellants
therein who were engaged in the business of construction of
buildings, etc. raised a grievance against demand of cess
under the Cess Act, 1996. The agreements of contracts for
construction of projects were finalised and work order
issued to contractors between December 2002 to March
2003. However, Madhya Pradesh Building & Other
Construction Workers Welfare Board (in short, the MP
M/s Sikkim Urja Ltd. (formerly Teesta Urja Limited) vs. M/s Abir Infrastructure Pvt. Ltd. & Ors.
Welfare Board) came to be constructed on 09.04.2003
followed by Gazette Notification on 10.04.2003. Therefore, it
was contended that there could be no provision in the
contracts as to who shall bear the burden of paying cess
under the Cess Act, 1996. It was contended that the
Assistant Labour Commissioner in his letter to the Chief
Engineer of the Project concerned in Jabalpur had
communicated that cess is to be recovered w.e.f.,
01.04.2003. It was therefore contended that no cess could
be levied for the tenders, contracts and work orders for
construction that came into existence before the MP Welfare
Board was constituted on 09.04.2003/10.04.2003. It was
also contended that if demand of cess is made on
construction works undertaken or even contemplated on
account of issue of work order before the constitution of the
MP Welfare Board, then such demand would amount to
making the Cess Act, 1996 operate retrospectively and that
would be unwarranted, illegal and unjust. Repelling this
contention, the Hon‟ble Supreme Court held:
"12. Although the learned Senior Counsel for the
appellants had taken us through the entire scheme of the
main Act as well as the Cess Act and also the Rules framed
thereunder, but nothing helps the appellants' case and in view
of the limited issues arising for determination, we do not feel
persuaded to go into details of the Cess Act and the Rules
unnecessarily. We are of the considered view that after the
Cess Act and the Rules came into effect and the Board was
constituted, with the notification specifying the rate of cess to
be levied upon the cost of construction incurred by the
M/s Sikkim Urja Ltd. (formerly Teesta Urja Limited) vs. M/s Abir Infrastructure Pvt. Ltd. & Ors.
employer already in place, the respondents were duty-bound
to collect the cess by raising the demands in respect of the
ongoing construction works if the workers in such construction
activities were eligible for the benefits under the BOCW Act.
13. The fact that the task of registering the workers and
providing them the benefit may take sometime, would not
affect the liability to pay the levy as per the Cess Act. Any
other interpretation would defeat the rights of the workers
whose protection is the principal aim or primary concern and
objective of the BOCW Act as well as the Cess Act. Cess is a
fee for service and hence, its calculation, as per settled law is
not to be strictly in accordance with quid pro quo rule and
does not require any mathematical exactitude. The scheme of
the BOCW Act, the Cess Act and the Rules warrant that the
lawfully imposable cess should be imposed, collected and put
in the statutory welfare fund without delay so that the
benefits may flow to the eligible workers at the earliest. The
scheme of the BOCW Act or the Cess Act does not warrant
that unless all the workers are already registered or the
welfare fund is duly credited or the welfare measures are
made available, no cess can be levied. In other words the
service to the workers is not required to be a condition
precedent for the levy of the cess. The rendering of welfare
services can reasonably be undertaken only after the cess is
levied, collected and credited to the welfare fund.
14. We also find no merit in other submission advanced on
behalf of the appellants that there is a legal impediment in
charging levy on the cost of construction incurred by the
employer from a particular period on account of constitution of
the Board from a particular date or for any other reason. This
argument is fallacious. Such beneficial measures for the
welfare of the workers are applicable even to the construction
activity which may have commenced before coming into force
of the BOCW Act and the Cess Act, if they are subsequently
covered by the provisions of these Acts. There can be no legal
obstacle in ignoring the construction cost incurred before the
cess became leviable by distinguishing it from the cost of
construction incurred later, from a date when the Board is
available to render service to the building and other
construction workers. The levy of cess in these facts and
circumstances cannot be faulted for any reason. The demand
of cess in the given facts cannot amount to retrospective
application of the Cess Act. Hence the appeals must fail."
37. The Hon‟ble Supreme Court in A. Prabhakara
Reddy (supra) also opined that in Dewan Chand Builders
(supra) it had dismissed the challenge to the
M/s Sikkim Urja Ltd. (formerly Teesta Urja Limited) vs. M/s Abir Infrastructure Pvt. Ltd. & Ors.
constitutionality of the Cess Act, 1996 and the Rules framed
thereunder and held that the levy is in fact "fee" and not a
tax.
38. The clear and unequivocal pronouncement of the
Hon‟ble Supreme Court in A. Prabhakara Reddy (supra) as
seen in paragraphs 12, 13 and 14 quoted above and in
Dewan Chand Builders (supra) was unfortunately
misinterpreted by the Arbitral Tribunal in favour of the
respondents who were contractors. The Arbitral Tribunal‟s
conclusion that it would not be proper to charge the
respondents for the cess which had become applicable in the
State of Sikkim in the year 2009-2010 and therefore the
amount of cess should directly be borne by the appellant is
contrary to public policy as the award is contrary to the
fundamental policy of Indian law. It also suffers from patent
illegality which goes to the root of the matter and appears on
the face of the award, is so unfair and unreasonable that it
shocks the conscience of the Court. It was not within the
jurisdiction of the Arbitral Tribunal to give directions for
payment of the cess to the appellant contrary to the liability
imposed by section 3 of the Cess Act, 1996 upon the
respondents and what was not even prayed for by the
respondents. The Arbitral Tribunal travelled beyond the
M/s Sikkim Urja Ltd. (formerly Teesta Urja Limited) vs. M/s Abir Infrastructure Pvt. Ltd. & Ors.
confines of its jurisdiction to arbitrate upon the dispute
raised by the respondents and gave directions contrary to
the Cess Act, 1996. It also suffers from the vice of
disregarding the judgment of the Hon‟ble Supreme Court in
A. Prabhakara Reddy (supra) and Dewan Chand Builders
(supra) which were binding upon the Arbitral Tribunal. The
direction of the Arbitral Tribunal for the appellant to bear
the entire cost of cess and further as no recovery of cess had
been made, the same shall not be made hereinafter from the
respondents and other consortium members either from
their due payments or through encashment of bank
guarantees is contrary to section 3 of the Cess Act, 1996
which mandates that it is to be paid by the respondents as
„contractors‟. This is clear not only from the reading of
section 3 of the Cess Act, 1996 but also from paragraph 17
of the judgment of the Hon‟ble Supreme Court in Dewan
Chand Builders (supra) which unfortunately was ignored by
both the Arbitral Tribunal and the learned Commercial
Court. The said paragraph 17 of Dewan Chand Builders
(supra) reads thus,
"17. It is manifest from the overarching schemes of the BOCW
Act, the Cess Act and the Rules made thereunder that their
sole object is to regulate the employment and conditions of
service of building and other construction workers,
traditionally exploited sections in the society and to provide for
their safety, health and other welfare measures. The BOCW
Act and the Cess Act break new ground in that, the liability to
M/s Sikkim Urja Ltd. (formerly Teesta Urja Limited) vs. M/s Abir Infrastructure Pvt. Ltd. & Ors.
pay cess falls not only on the owner of a building or
establishment, but under Section 2(1)(i)(iii) of the BOCW Act
"in relation to a building or other construction work carried on
by or through a contractor, or by the employment of building
workers supplied by a contractor, the contractor";
The extension of the liability on to the contractor is with a view
to ensure that, if for any reason it is not possible to collect cess
from the owner of the building at a stage subsequent to the
completion of the construction, it can be recovered from the
contractor. The Cess Act and the Cess Rules ensure that the
cess is collected at source from the bills of the contractors to
whom payments are made by the owner. In short, the burden
of cess is passed on from the owner to the contractor."
39. The learned Commercial Court instead of
appreciating what was the issue before the Hon‟ble Supreme
Court and the ratio thereof, was swayed by the analogy of a
statement made in the judgment of the Hon‟ble Supreme
Court in Dewan Chand Builders (supra) in paragraph 18
thereof with the present case to come to the conclusion that
even in Sikkim, the State Government implemented the
BOCW Act, 1996 and the Cess Act, 1996 only from
06.09.2010, i.e., the date of issuance of the Circular by the
Labour Department, GOS. For convenience, paragraph 18 of
Dewan Chand Builders (supra) is reproduced below:-
"18. Although both the statutes were enacted in 1996, the
Central Government in exercise of its powers under
Section 62 of the BOCW Act notified the Delhi
Building and Other Construction Workers' (Regulation
of Employment and Conditions of Service) Rules,
2002 (for short "the Delhi Rules") vide Notification No.
DLC/CLA/BCW/01/19 dated 10-1-2002.
Accordingly, the Government of NCT of Delhi
constituted the Delhi Building and Other Construction
Workers' Welfare Board vide Notification No.
DLC/CLA/BCW/02/596 dated 2-9-2002. Thus, the
M/s Sikkim Urja Ltd. (formerly Teesta Urja Limited) vs. M/s Abir Infrastructure Pvt. Ltd. & Ors.
Cess Act and the Cess Rules are operative in the
whole of NCT of Delhi w.e.f. January 2002."
40. As noted earlier, the BOCW Act, 1996 and the
Cess Act, 1996 has come into effect on 01.03.1996 and
03.11.1995 respectively, much prior to the date of
submission of the price bids, i.e., 13.02.2007, by the
respondents and the execution of the contract agreement
dated 12.09.2007. Clause 17.4 including sub-clause (xv)
thereof of the GCC clearly mandated that the respondents as
the contractors shall abide at all times the labour laws
including the BOCW Act, 1996 and the Cess Act, 1996. A
reading of the definition of the words „contractor‟, „employer‟
and „establishment‟ as defined in section 2(g), 2(i) and 2(j)
respectively in the BOCW Act, 1996, along with the Cess
Act, 1996 and the Rules framed thereunder, it becomes
clear that the respondents as contractors were liable to pay
the cess. Section 3 of the Cess Act, 1996 imposed a liability
upon the contractors to pay the cess. Therefore, the
contractors were liable under section 3 of the Cess Act, 1996
from the date of enforcement. On 26.09.1996, the
Government of India, Ministry of Labour notified the rate of
cess @ 1% of the cost of construction incurred by an
employer under the Cess Act, 1996. Thus, the respondents
were liable to pay 1% of the cost of construction, w.e.f., from
M/s Sikkim Urja Ltd. (formerly Teesta Urja Limited) vs. M/s Abir Infrastructure Pvt. Ltd. & Ors.
the date of the contract agreement, i.e., 12.09.2007, as by
then the BOCW Act, 1996, the Cess Act, 1996 as well as the
rate of cess Notification dated 26.09.1996 had already been
enforced. Rule 4 of the BOCW Cess Rules, 1998 which
provides for time and manner of collection of cess when
applied to the facts of this case, it is apparent that the
respondents were liable to pay the cess within thirty days of
completion of one year from the date of commencement of
work and every year thereafter at the notified rates on the
cost of construction incurred during the relevant period till
the completion of the project in 2017.
41. Clause 49 of the GCC clearly stipulates that it is
only changes to any law or the introduction of any such law
which causes additional or reduced cost to the contractor
that would be considered as change in law. In the facts of
the present case, we find that there has been no change in
either the BOCW Act, 1996 or the Cess Act, 1996 or the
Rules framed thereunder. The respondents were fully aware
that under clause 17.4 they were liable to pay the cess.
Section 3 of the Cess Act, 1996 also fixed the liability upon
the respondent as contractors. The rate of cess had also
been fixed in the year 1996 itself and therefore, the
respondents were aware of that too. The coming into force of
M/s Sikkim Urja Ltd. (formerly Teesta Urja Limited) vs. M/s Abir Infrastructure Pvt. Ltd. & Ors.
the Sikkim Rules, 2010, w.e.f., 27.02.2009, would not
change the liability of the respondents to pay the cess. The
constitution of the Sikkim Building & Other Construction
Workers‟ Welfare Board in 2010 also would not change the
situation for the respondents‟ liability under section 3 of the
Cess Act, 1996. The liability under the Cess Act, 1996 to pay
the cess upon the respondents as contractors is not
consequent to the constitution of the Sikkim Building and
other Construction Workers‟ Welfare Board. The failure of
the State Government to take effective steps under the
BOCW Act, 1996, the Cess Act, 1996 and constitute the
Sikkim Building and Other Construction Workers‟ Welfare
Board cannot reverse the liability of the respondents to pay
the cess and impose it upon the appellant.
42. We are of the view that the BOCW Act, 1996, the
Cess Act, 1996 and the Rules framed thereunder constitute
the fundamental policy of Indian law. The objects and
reasons of these enactments make it abundantly clear that
it was a policy of the Government of India to regulate the
services of the building and other construction workers. The
BOCW Act, 1996 was enacted to regulate the employment
and conditions of service of millions of building and other
construction workers and to provide for their safety, health
M/s Sikkim Urja Ltd. (formerly Teesta Urja Limited) vs. M/s Abir Infrastructure Pvt. Ltd. & Ors.
and welfare which was hitherto before one of the most
vulnerable segments of the unorganised labour in our
country. These building and other construction workers‟
work is characterised by their inherent risk to the life and
limb of the workers. The work is also characterised by
casual nature, temporary relationship between employer
and employee, uncertain working hours, lack of basic
amenities and inadequacy of welfare facilities. Similarly, the
Cess Act, 1996 was enacted for the levy and collection of a
cess on the cost of construction incurred by the employers
with a view to augmenting the resources of the Building and
Other Construction Workers‟ Welfare Boards. The Building
and Other Construction Workers‟ Welfare Boards are
constituted under section 18 of the BOCW Act, 1996. The
functions of the Building and Other Construction Workers‟
Welfare Boards are enumerated in section 22 and quite
evidently it is to provide financial and other assistance to the
building and other construction workers. The BOCW Cess
Rules, 1998 provides in rule 3 thereof that for the purpose of
the levy of cess under sub-section (1) of section 3 of the Cess
Act, 1996, the cost of construction shall include expenditure
incurred by an employer in connection with building and
other construction work but shall not include the cost of
land, any compensation paid or payable to a worker or his
M/s Sikkim Urja Ltd. (formerly Teesta Urja Limited) vs. M/s Abir Infrastructure Pvt. Ltd. & Ors.
kin under the Workmen‟s Compensation Act, 1923. Rule 4
thereof is relevant and already reproduced hereinabove. Rule
4 makes the time and manner of collection of cess amply
clear. Therefore, the arbitral award passed by the arbitral
tribunal nullifying the respondents‟ liability to pay cess
under the Cess Act, 1996 violated the fundamental policy of
India by depriving the building and other construction
workers of their benefits under the welfare schemes.
43. The learned Commercial Court failed to examine
the perversity of the award rendered by the Arbitral
Tribunal. The Arbitral Tribunal conclusion to the issue
framed by it is perverse and against the law. The date of
enforcement or coming into force of the BOCW Act, 1996 is
clearly spelt out in section 1(3) thereof, which states that it
shall be deemed to have "come into force on 1st day of March
1996". Thus, the respondents‟ submission that it came into
force after the period of 30 days of opening of the
respondents bid was a non-issue. This Court is of the
opinion that the learned Commercial Court ought to have
set aside the award on the grounds of patent illegality,
contravention with the fundamental policy of Indian law,
and disregarding the judgments of the Hon‟ble Supreme
Court which were all available to it under section 34 of the
M/s Sikkim Urja Ltd. (formerly Teesta Urja Limited) vs. M/s Abir Infrastructure Pvt. Ltd. & Ors.
Arbitration Act. The failure has resulted in perpetuating the
perversity which shocks the conscience of this Court. This
Court, therefore, in exercise of the powers conferred upon it
under section 37 of the Arbitration Act, sets aside the
impugned judgment dated 14.08.2023, passed by the
learned Commercial Court as well as the award passed by
the Arbitral Tribunal.
44. Accordingly, the appeal is allowed and stands
disposed of.
45. In the facts of the present case, we are also of the
considered view that the cost of arbitration including the
present appeal shall be borne by the respondents. It is
accordingly ordered.
(Bhaskar Raj Pradhan) (Biswanath Somadder)
Judge Chief Justice
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