2011 (8) TMI 1323 - HC - Indian Laws

High Court sets aside orders & awards, clarifies Cess & BOCW Act applicability in Delhi

The High Court set aside the orders of the Single Judge and the Arbitral Tribunal's awards, directing the refund of amounts deposited by DMRC with accrued ... Levy and collection of cess - deduction at source - definition of 'employer' under the BOCW Act - contractor's liability for cess - commencement and territorial operation of a Central enactment - applicability of Cess Rules to Government and public sector works - patent illegality and public policy under Section 34 of the Arbitration and Conciliation Act, 1996Commencement and territorial operation of a Central enactment - levy and collection of cess - applicability of Cess Rules to Government and public sector works - The Cess Act, the BOCW Act and the Cess Rules came into force nationwide on their statutory commencement dates and the levy and collection provisions were enforceable in Delhi from those dates irrespective of subsequent state-level notifications or constitution of Welfare Boards. - HELD THAT: - The Court examined the statutory commencement provisions and the Cess Rules and concluded that the Cess Act was deemed to have come into force on 3rd November 1995, the BOCW Act on 1st March 1996 and the Cess Rules on 26th March 1998. The Act provided for levy and collection of cess from every employer, including deduction at source in relation to building or other construction works of a Government or public sector undertaking. The obligation to levy and collect cess under the Central enactment was not made dependent on constitution of State Welfare Boards or on later local rules; therefore any circular or administrative pronouncement purporting to postpone the operation of the Central enactments in Delhi was legally irrelevant. The statutory scheme and notifications giving the notified rate rendered the cess leviable from the dates enacted and notified by the Central Government, and the Cess Rules specifically envisaged deduction from bills in respect of Government or PSU works. [Paras 9, 10, 11, 19]The Central enactments operated from their statutory commencement dates and were enforceable in Delhi from those dates; the liability to levy and collect cess did not await constitution of the State Welfare Board or the Delhi Rules of 2002.Definition of 'employer' under the BOCW Act - contractor's liability for cess - deduction at source - A contractor (including subcontractors) who employs or supplies building workers falls within the definition of 'employer' under the BOCW Act and is liable to have cess deducted at source from bills for government or public sector construction works. - HELD THAT: - The Court construed the definitions in the BOCW Act, holding that the term 'contractor' includes a person who undertakes work by employment of building workers and includes sub-contractors, and that 'employer' in relation to work carried on by or through a contractor includes the contractor. Consistent precedents and reasoning in the Builders Association of India decision and other High Court authorities support that contractors are within the statutory definition of employer and that the statutory scheme contemplates deduction of cess at source from contractors' bills for Government or PSU works. The submission that multiple contractors on a project would render only the project owner liable was rejected because the statutory definitions include all contractors and subcontractors engaged in the work. [Paras 12, 14, 15, 19]Contractors and their subcontractors engaged in the construction works are within the definition of 'employer' and are subject to cess deduction at source from their bills for Government/PSU works.Patent illegality and public policy under Section 34 of the Arbitration and Conciliation Act, 1996 - deduction at source - The Arbitral Awards and the Single Judge's orders upholding them were patently illegal for failing to apply the substantive law relating to commencement and operation of the Cess Act/BOCW Act/Cess Rules and therefore were set aside under Section 34 as being contrary to public policy. - HELD THAT: - Applying the principle that an arbitral award must be rendered in accordance with substantive law in force, the Court found that the Arbitral Tribunal and the Single Judge erred in concluding that the enactments came into effect in Delhi only in 2002. That error led to awards inconsistent with the statutory levy and deduction obligations that existed prior to the contracts. As such the awards were patently illegal and contrary to the public policy of India within the meaning of Section 34 of the A&C Act. The Court accordingly set aside the impugned orders and awards and directed refund of amounts deposited pursuant to the earlier orders, with any interest accrued. [Paras 17, 19, 20]The awards were set aside as patently illegal and contrary to public policy for disregarding the statutory commencement and deduction obligations; the impugned orders and awards are quashed and refunds ordered.Final Conclusion: Appeals allowed. The High Court set aside the Arbitral Awards and the Single Judge's orders to the extent they held that the Cess Act/BOCW Act/Cess Rules were not in force in Delhi before 2002, held that contractors fall within the definition of 'employer' and are liable to cess deduction at source, and directed refund of amounts deposited pursuant to the impugned orders with interest. No costs. Issues Involved:1. Validity and applicability of the Building and Other Construction Workers' Welfare Cess Act, 1996 (Cess Act) and the Building and Other Construction Workers' (Regulation of Employment and Conditions of Service) Act, 1996 (BOCW Act) in Delhi.2. Whether the contractor or the owner (DMRC) is liable to pay the labour cess.3. Interpretation of the term 'employer' under the BOCW Act.4. Whether the Arbitral Tribunal's award was in contravention of the substantive law and public policy of India.5. Jurisdiction of the Court under Section 34 of the Arbitration and Conciliation Act, 1996 (A&C Act) to set aside the Arbitral Tribunal's award.Detailed Analysis:1. Validity and Applicability of the Cess Act and BOCW Act in Delhi:The Cess Act and BOCW Act were enacted to regulate and ensure the welfare of construction workers. The Cess Act came into force on 3rd November 1995, and the BOCW Act on 1st March 1996, throughout India. The Cess Rules were effective from 26th March 1998. The contention that these Acts were applicable in Delhi only from 2002 was erroneous. The High Court clarified that the Acts were operational in Delhi from their respective dates of enactment and not from the date of the Delhi Rules' enactment in 2002. The Madras High Court's decision in M.E.S. Builders' Association of India v. Union of India supported this view, stating that non-constitution of the Welfare Board by the State does not exempt the payment of cess.2. Liability for Payment of Labour Cess:The core issue was whether the contractor or the owner (DMRC) was liable for the cess. The Arbitral Tribunal and the Single Judge had ruled in favor of the contractors, stating that the liability was on the owner. However, the High Court found this interpretation incorrect, emphasizing that the Acts clearly mandated the contractor to be responsible for the payment of the cess, as the contractor falls within the definition of 'employer' under the BOCW Act.3. Interpretation of 'Employer' under the BOCW Act:The term 'employer' under the BOCW Act includes the contractor in relation to a building or other construction work carried on by or through a contractor. The High Court highlighted that the definition is broad enough to include subcontractors. The decision in Gannon Dunkerley and Co. Ltd. v. State of Madhya Pradesh supported this view, confirming that contractors are liable for the cess.4. Contravention of Substantive Law and Public Policy:The High Court found that the Arbitral Tribunal's award was contrary to the substantive provisions of law and public policy of India. The Supreme Court in Oil and Natural Gas Corporation Limited v. SAW Pipes Limited held that an award could be set aside if it is patently illegal or in contravention of the substantive law. The High Court concluded that the Arbitral Tribunal and the Single Judge erred in concluding that the Cess Act and BOCW Act came into force in Delhi in 2002, and their decisions were patently illegal.5. Jurisdiction under Section 34 of the A&C Act:The High Court reiterated that under Section 34 of the A&C Act, an award that is patently illegal or contrary to the substantive law can be set aside. The Arbitral Tribunal's award was found to be in violation of the statutory provisions of the Cess Act and BOCW Act, thus falling within the ambit of Section 34 for being set aside.Conclusion:The High Court allowed the appeals, setting aside the orders of the Single Judge and the Arbitral Tribunal's awards. The Court directed the refund of the amounts deposited by DMRC, with any accrued interest. The judgment clarified the applicability of the Cess Act and BOCW Act in Delhi and affirmed the contractor's liability for the payment of labour cess, reinforcing the interpretation of 'employer' under the BOCW Act.