Welfare Boards For Building And Construction Workers Mandatory Before Levy Of Cess: Supreme Court

The court ruled that in the absence of such Welfare Boards, cess could neither have been validly levied nor collected, as the statutory scheme under both enactments presupposes the existence of a functional welfare mechanism.

“The Cess Act is complementary to the BOCW Act and was enacted for augmenting the resources of the Welfare Boards, constituted under Section 18 of the BOCW Act. Therefore, in the absence of such Welfare Boards, levy and collection of cess under the Cess Act did not arise, given the scheme and structure of the two Acts and the Rules,” the court observed.

A bench of Justices Sanjay Kumar and Alok Aradhe delivered the ruling in a batch of appeals filed by Prakash Atlanta (JV) and five appeals by the National Highways Authority of India (NHAI), challenging arbitral awards passed in favour of contractors.

The issue before the court was whether the BOCW Act and the Cess Act could be treated as “subsequent legislation” for the purposes of contractual clauses, particularly when Welfare Boards had not been constituted at the relevant time.

The disputes arose out of highway construction contracts executed between NHAI and various contractors, including Prakash Atlanta (JV), Gammon-Atlanta (JV), Hindustan Construction Co. Ltd., and others, between 2001 and 2009. In several cases, NHAI deducted one per cent cess from contractors' bills or sought to recover the amount later, relying on contractual clauses requiring compliance with labour laws. Contractors challenged the deductions, contending that cess could not be levied before Welfare Boards were constituted or state rules were notified.

The court noted that although the Cess Act formally came into force on November 3, 1995, and the BOCW Act on March 1, 1996, the machinery required for their enforcement remained largely absent for several years. It said Welfare Boards under Section 18 of the BOCW Act were constituted by states at different points of time, largely following repeated directions by the court.

It said a levy or collection of cess before the constitution of Welfare Boards would have resulted in the amounts being credited to the consolidated fund of the State, undermining the character of the cess as a fee and potentially rendering it vulnerable to challenge.

Rejecting NHAI's contention that cess could be deducted merely because the Acts were on the statute book, the court held that effective implementation, including the constitution of welfare boards and supporting machinery, was indispensable. It said:

“Therefore, the constitution of Welfare Boards is the sine qua non for giving effect to the BOCW Act and the Cess Act and the cess in connection therewith could not have been levied or collected before the constitution of such Welfare Boards.”

While dismissing the appeals, the court found that arbitral tribunals were justified in treating the later State notifications constituting Welfare Boards or framing rules as triggering subsequent legislation clauses under the contracts.

Case Number: Civil Appeal No. 4513 of 2025