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TMI Blog2011 (8) TMI 1323X X X X Extracts X X X X X X X X Extracts X X X X ..... ce i.e. 3 rd November, 1995. Appeal allowed. - FAO(OS) 674/2010, CM 21169/2010 & CM 1141/2011 with FAO(OS) 33/2011, CM 1147/2011 & CM 4369/2011, FAO(OS) 34/2011 & CM 1150/2011 - - - Dated:- 26-8-2011 - MR. VIKRAMAJIT SEN AND MR. SIDDHARTH MRIDUL JJ. Appellant Through: Mr. Ankur Gupta, Advocate and Mr. Tarun Johri, Advocate. Respondent Through: Mr. Naresh Markanda, Senior Advocate with Mr. V.K. Sharma, Advocate. Mr. George Thomas, Advocate and Mr. Amit George, Advocate. SIDDHARTH MRIDUL, J. 1. The present three Appeals raise a common issue and are, consequently, being disposed of by this common order. 2. The brief facts giving rise to FAO(OS) No.674/2010 are as follows:- (a) A contract was entered into between the parties on 28th December, 2000 for construction of a depot and workshop at Shastri Park, Delhi. (b) The salient features of the said contract dated 28th December, 2000 prescribed ₹ 61,87,53,692/- as the total contract price for execution and completion of the work and for remedying the defects therein. The stipulated date for completion of the work was 1st November, 2002. ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 32,43,172.80 as the total contract price for execution and completion of the work and for remedying the defects therein. The stipulated date for completion of the work was agreed to be 14th January, 2003. (c) Thereafter the work on the said project was finally completed by the Respondent/Claimant on 31 st December, 2003. The final draft bill was submitted by the Respondent/Claimant on 5th November, 2004, pursuant to which a completion certificate was issued by the Appellant/DMRC on 29th March, 2006. (d) Subsequently, disputes arose between the parties for the reason that at the time of clearing the final payment of the Respondent/Claimant an amount of ₹ 74,02,966/- was deducted by the Appellant/DMRC towards labour cess. (e) In response to the protest by the Respondent/Claimant against the deductions, the Appellant/DMRC vide letter dated 14th January, 2009 conveyed to the Respondent/Claimant that the deductions were made in accordance with the statutory guidelines provided by the Cess Act read with the Cess Rules and the BOCW Act which provide for deduction to be made at 1% of the gross amount of work done. (f) The Arbitral Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ider the relevant provisions of the Cess Act, BOCW Act and the Cess Rules. (a) The relevant Sections of the Cess Act read as follows:- 1. Short title, extent and commencement. (1) This Act may be called the Building and Other Construction Workers Welfare Act, 1996. (2) It extends to the whole of India. (3) It shall be deemed to have come into force on the 3rd day of November, 1995. 2. Definitions. In this Act, unless the context otherwise requires, . . (d) words and expressions used herein but not defined and defined in the Building and Other Construction Workers (Regulation of Employment and Conditions of Service) Act, 1996 shall have the meanings respectively assigned to them in that Act. 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 incurred by an employer, as the Central Government may, by notification in the Offici ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent shall be without prejudice to the validity of anything previously done under that rule. (b) The relevant Sections of BOCW Act read as follows: 1. Short title, extent, commencement and application. (1) This Act may be called the Building and Other Construction Workers (Regulation of Employment and Conditions of Service) Act, 1996. (2) It extend to the whole of India. (3) It shall be deemed to have come into force on the 1st day of March, 1996. (4) It applies to every establishment which employs, or had employed on any day of the preceding twelve months, ten or more building workers in any building or other construction work. Explanation . For the purposes of this sub-section, the building workers employed in different relays in a day either by the employer or the contractor shall be taken into account in computing the number of building workers employed in the establishment. 2. Definitions. (1) In this Act, unless the context otherwise requires, (a) appropriate Government means, (i) in relation to an establishment (which employs building workers either directly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to exercise the powers conferred on, and perform the functions assigned to it, under this Act. (2) The Board shall be a body corporate by the name aforesaid, having perpetual succession and a common seal and shall by the said name sue and be sued. (3) The Board shall consist of a Chairperson, a person to be nominated by the Central Government and such number of other members, not exceeding fifteen, as may be appointed to it by the State Government: Provided that the Board shall include an equal number of members representing the State Government, the employers and the building workers and that at least one member of the Board shall be a woman. (4) The terms and conditions of appointment and the salaries and other allowances payable to the chairperson and the other members of the Board, and the manner of filling of casual vacancies of the members of the Board, shall be such as may be prescribed. 24. Building and Other Construction Workers Welfare Fund and its application. (1) There shall be constituted by a Board a fund to be called the Building and Other Construction Workers' Welfare Fund and there shall be credited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 (20, 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 exc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and welfare measures and for other matters connected therewith or incidental thereto. The BOCW Act came into force throughout India on the 1st day of March, 1996. Under this Act a contractor was defined as a person who inter alia undertook the employment of building workers or supplied building workers for any work and included a sub-contractor. The Act further defined an employer as including the contractor 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 Act further provided that every State Government may by notification appoint and constitute a board known as the Welfare Board to exercise the powers conferred on it. The Board was in turn to constitute a fund to be called the Building and Other Construction Workers Welfare Fund which was to receive inter alia all sums from such other sources as may be decided by the Central Government. (e) The Cess Rules under the Cess Act came into force vide their publication in the Official Gazette on the 26th March, 1998. The Cess Rules provided that where the levy of cess pertains to building and other construction wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent Appeals. In Builders Association of India (supra) the Division Bench observed: 17. The principal contentions on behalf of the petitioners were as follows: a) The definition of the word employer in the BOCW Act is too wide and can lead to confusion since it mentions both the owner as well as the contractor. There is no certainty whether it is owner or the contractor who is required to pay the cess in a particular situation. This needlessly leaves it to the Assessing Officer to pick and choose depending on who he wants to proceed against. Therefore, the BOCW Act is bad for vagueness. (b) The impost levied by the Cess Act is a compulsory and involuntary exaction, made for a public purpose without reference to any special benefit for the payer of the cess. Therefore, it is in effect a tax. In this context, reliance is placed on the decisions in Kewal Kishan Puri v. State of Punjab, (1979) 3 SCR 1217 (Paras 7, 8 and 23), Om Prakash Aggarwal v. Giri Raj Kishori (1987) 164 ITR 376(SC) and State of Uttar Pradesh v. Vam Organic Chemicals Limited, AIR 2003 SC 4650. (c) The Cess Act in fact provides for the levy of a tax although it is terme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (1981)131 ITR 597(SC). (h) The cost of construction on which the 1% cess is levied, invariably would include the profit element. There cannot be a tax on profits in the garb of imposition of a cess. That would render the impugned statutes vulnerable to invalidation on account of their being 'colourable' pieces of legislation. (i) Independent of the above grounds of attack, the demand for cess is attacked on the ground that there can never be a demand and collection of tax without a prior assessment preceded by a show cause notice and a quasi judicial inquiry. Reliance on this issue is Bharti Kala Bhandar Limited v. Municipal Committee, Dhaman Gaon, (1966) 59 ITR 73(SC) and Municipal Council, Khurai v. Kamal Kumar, (1965) 2 SCR 653. (j) Since the very nature of most employment in the construction industry is casual and temporary, and since the regulatory mechanism envisaged is wholly inadequate to make it workable, the BOCW Act is a bad law. It is pointed out that, in the context of migrant labour, there is no centralized system of registration whereby a labourer could carry his or her registration irrespective of the State in which he or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cy or the DMRC. (vi) While the criticism of the absence of an effective centralized mechanism to reach the benefits of the cess collected to the building and construction worker may be justified, that does not impinge on the validity of the levy of the cess itself. 12. The above decision, which was canvassed strongly on behalf of the Respondent and was the basis for the decision of the Arbitral Tribunal as well as the learned Single Judge, decided the constitutional validity of the BOCW Act, the Cess Act, the Cess Rules as well as the Delhi Building and Other Construction Workers (Regulation of Employment and Conditions of Service) Rules, 2002 (in short Delhi Rules ). The challenge in this decision to the statute was by the contractors, who had entered into construction contracts with public sector undertakings. From a conspectus of the submissions made on behalf of the contractors and the summary of conclusions in that case, it is abundantly clear that issue regarding the coming into operation of the Cess Act, the BOCW Act and the Cess Rules did not come up for consideration and was not determined in the said decision. The mention by the Division Bench of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the submissions made on behalf of the Respondents, which found support from the Arbitral Tribunal and the learned Single Judge that the liability to pay cess was of the Appellant and not of the Respondents. 15. It was then argued on behalf of the Respondents that the contractor referred to in Section 2(1)(g) of the BOCW Act was contractor in singular and in the present case since there were number of contractors, therefore only the owner of the project, in this case the Appellant, was responsible for payment of the cess under the subject contract. There is no substance in this submission for the reason that the definition of contractor in the BOCW Act includes a sub contractor. Consequently, all the contractors or their sub contractors, as may be, who employ or supply building workers for any building or other construction work carried on on behalf of the public sector undertakings, are covered within the definition of employer within the meaning as ascribed to it under the BOCW Act. 16. In Oil and Natural Gas Corporation Limited vs- SAW Pipes Limited, AIR 2003(SC) 2629, the Supreme Court had occasion to consider whether a Court would have jurisdiction un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . In M.V. Elisabeth and others v. Harwan Investment Trading Pvt. Ltd., 1993 Supp(2) SCC 433, this Court observed that where substantive law demands justice for the party aggrieved and the statute has not provided the remedy, it is the duty of the Court to devise procedure by drawing analogy from other systems of law and practice. Similarly, in Dhanna Lal v. Kalawatibai and others, (2002) 6 SCC 16, this Court observed that wrong must not be left unredeemed and right not left unenforced. 14. Result is if the award is contrary to the substantive provisions of law or the provisions of the Act or against the terms of the contract, it would be patently illegal, which could be interfered under Section 34. However, such failure of procedure should be patent affecting the rights of the parties. WHAT MEANING COULD BE ASSIGNED TO THE PHRASE 'PUBLIC POLICY OF INDIA'? 15. The next clause which requires interpretation is Clause (ii) of Sub-section 2(b) of Section 34 which inter alia provides that the Court may set aside arbitral award if it is in conflict with the 'Public Policy of India'. The phrase 'Public Policy of India' is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the contract and thereby against the provision of Section 28(3) of the Act which specifically provides that arbitral tribunal shall decide in accordance with the terms of the contract . Further, where there is a specific usage of the trade that if the payment this made beyond a period of one month, then the party would be required to pay the said amount with interest at the rate of 15 per cent. Despite the evidence being produced on record for such usage, if the arbitrator refuses to grant such interest on the ground of equity, such award would also be in violation of sub-sections (2) and (3) of Section 28. Section 28(2) specifically provides that arbitrator shall decide ex aequo et bono [according to what is just and good] only if the parties have expressly authorised him to do so. Similarly, if the award is patently against the statutory provisions of substantive law which is in force in India or is passed without giving an opportunity of hearing to the parties as provided under Section 24 or without giving any reason in a case where parties have not agreed that no reasons are to be recorded, it would be against the statutory provisions. In all such cases, the award is required ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Inc. vs- Burn Standard Co. Ltd., (2006) 11 SCC 181; Centrotrade Minerals Metals Inc. vs- Hindustan Copper Ltd., (2006) 11 SCC 245; Hindustan Zinc Ltd. vs- Friends Coal Carbonisation, (2006) 4 SCC 445; Delhi Development Authority vs- R.S. Sharma Company, (2008) 13 SCC 80; and Steel Authority of India Limited vs- Gupta Brother Steel Tubes Limited, (2009) 10 SCC 63. 19. From the above discussion, we observe that the Arbitral Tribunal as well as the learned Single Judge erred in law while allowing the claims of the Respondents and dismissing the Objections respectively filed by the Appellant, and failed to appreciate that the BOCW Act, the Cess Act and the Cess Rules had come into operation on 1st March, 1996, 3rd November, 1995 26th March, 1998 respectively. Therefore, the finding of the Arbitral Tribunal as well as the learned Single Judge to the effect that they came into effect on 10th January 2002 in the State of Delhi is contrary to the specific provisions of the above enactments themselves. Consequently, the decision arrived at by the Arbitral Tribunal was patently illegal and contrary to the public policy of India and deserved to be interfered with in the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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