Prakash Atlanta (JV) v. National Highways Authority of India
Civil Appeal No. 4513 of 2025
SANJAY KUMAR and ALOK ARADHE, JJ
Overview
This judgment revolves around the contentious issue pertaining to the liability for the payment of 1% ‘welfare cess’ by infrastructure contractors and the National Highways Authority of India (NHAI) under the ‘Building and Other Construction Workers (Regulation of Employment and Conditions of Service) Act, 1996,’ and the BOCW Welfare Cess Act, 1996. The main question at the crux of this case is whether these acts can be considered ‘subsequent legislations’ and fall within the provisions of the standard NHAI contractual clauses, therefore giving rise to the contractors having a right to claim the deduction amounts for the cess from their bills. The Court also considered the restricted judicial intervention in the arbitral award under the ‘Arbitration and Conciliation Act, 1996.’
Facts
Prakash Atlanta (JV) and other contractors undertook various highway projects for NHAI in different States. Even though the enactment of the BOCW Act and Cess Act dates back to the mid-1990s, the effective implementation of the said enactments was delayed for several years due to the non-constitution of Welfare Boards and lack of administrative machinery at the State level. In most of the States, the framing of rules and collection of cess commenced only after issuance of specific government notifications during the period ranging from 2004 to 2010.
NHAI, thereafter, recovered 1% cess from the running bills of the contractors or demanded the recovery retrospectively. The contractors objected to these deductions, claiming that at the time of tendering, the regime of cess was not in force and hence it was “subsequent legislation” falling under Clause 70.8 of the contract, and thus they were entitled to restitution. Arbitral tribunals, accepting such claims, passed orders directing refund. Appeals by NHAI under Sections 34 and 37 of the Arbitration Act before the High Courts were unsuccessful, which are the subject matter of these appeals.
Legal Issues
- Whether the BOCW Act and the Cess Act, though enacted earlier, could be treated as “subsequent legislation” due to delayed implementation.
- Whether contractors were obliged to factor cess liability into bid prices merely because the statutes existed on paper.
- Whether arbitral awards allowing reimbursement of cess were contrary to statutory law or public policy.
- The permissible scope of judicial interference with arbitral awards under Sections 34 and 37 of the Arbitration Act.
Decision and Reasoning
The SC disposed of the appeals preferred by NHAI but allowed the appeal of the Company, namely, Prakash Atlanta (JV). It was held that though the BOCW Act as well as the Cess Act were in operation, without the implementing mechanism in the shape of Welfare Boards/rules, the law would not be effective in operation. The levy of cess without the facility of depositing the amounts collected in a Welfare Board would lead to the levying of cess running into the aspect of’fee’ vs.’tax’.
The importance of the Court’s observation is highlighted when it is noted that: “The key factor is whether the law is ‘enforced’; if not, the law is not ‘enacted’.”
Thereby, State notifications on implementing the regime of cess constituted ‘subsequent legislation’ in NHAI contracts. The arbitral tribunals’ interpretation of clauses of the contract is plausible and reasonable.
