BOCW Cess as Subsequent Legislation: Supreme Court Upholds Arbitral Awards Against NHAI

Case Summary

• Case name: Prakash Atlanta (JV) v. National Highways Authority of India and connected appeals (Civil Appeal Nos. 4513, 5301, 5302, 5304, 5412, 5416 of 2025)

• Date of judgment: 20 January 2026

• Bench: Honourable Justice Sanjay Kumar; Honourable Justice Alok Aradhe

• Counsel: Not specified in the supplied judgment summary (parties were represented by senior counsel/counsel; several interlocutory applications and interventions were recorded)

Statutes and provisions considered

• Arbitration and Conciliation Act, 1996:Sections 28(1)(a), 34, 34(2)(b)(ii), 34(2A), 37

• Building and Other Construction Workers (Regulation of Employment and Conditions of Service) Act, 1996 (BOCW Act): Sections 1(3), 2(1)(a), (c), (d), (i), (k), 6, 7, 10, 11, 12, 15–17, 18, 22, 24, 40, 62

• Building and Other Construction Workers’ Welfare Cess Act, 1996 (Cess Act): Sections 2, 3, 14

• BOCW Central Rules, 1998

• Cess Rules, 1998

• NHAI contract clauses: Clause 14.3 (Bid prices) and Clause 70.8 (Subsequent Legislation)

Principal cited authorities

National Campaign Committee for Central Legislation on Construction Labour (NCC-CL) v. Union of India; Dewan Chand Builders v. Union of India; A. Prabhakara Reddy & Co. v. State of Madhya Pradesh; Associate Builders v. DDA; Oil & Natural Gas Corp. v. Saw Pipes; ONGC v. WesternGeco; McDermott International v. Burn Standard; Gayatri Balasamy v. ISG Novasoft; and post-amendment arbitration jurisprudence, including Sumitomo, Dyna Technologies, MMTC v. Vedanta, and OPG.

Introduction and Issues Framed

The six appeals decided on 20 January 2026 raise a focused legal problem with broad commercial and administrative consequences: when, for contractor liability under public works contracts, can the BOCW Act and the Cess Act be treated as “subsequent legislation” entitling contractors to relief under a contractual subsequent-legislation clause?

At stake were arbitral awards directing NHAI to reimburse amounts deducted from interim bills as welfare cess. Honourable Justice Sanjay Kumar (writing) and Honourable Justice Alok Aradhe delivered an opinion engaging statutory construction, contract interpretation, arbitral finality, and administrative failure to operationalise welfare enactments.

Statutory and Factual Matrix

The two enactments were enacted in 1996 (the Cess Act on 3 November 1995 and the BOCW Act effective 1 March 1996 by statutory provision) and supplemented by Central Rules in 1998.

The Cess Act is expressly complementary to the BOCW Act: the cess is levied.

“for augmenting the resources of the Building and Other Construction Workers’ Welfare Boards”.

The statutory scheme, therefore, presupposes the machinery of Welfare Boards and designated assessing and cess-collecting authorities. The practical difficulty central to the litigation was the long delay by the Central and State governments in framing Rules, constituting Welfare Boards, and appointing officers. Earlier supervisory intervention by the Supreme Court in National Campaign Committee matters had documented these implementation lacunae.

NHAI’s Contractual Position and Arbitral Findings

NHAI relied on Clause 14.3, which required bidders to include duties, taxes and levies payable as of 28 days before bid submission in their prices, and Clause 70.8, which provides for price adjustment where a change in law after the critical bid date causes additional cost.

Contractors relied on the absence of operative machinery for the levy and collection of cess at the time of bidding. In several contracts, the BOCW and Cess Acts were not even listed; where listed, the statutory machinery to operationalise the Acts was absent.

Arbitral tribunals held that the Acts, though on the statute book, were dormant until Rules were notified and Welfare Boards constituted. Consequently, later State notifications operationalising the Acts constituted “subsequent legislation” for contractual purposes. These awards were affirmed by the High Court and challenged before the Supreme Court by NHAI.

Legal Principles Applied by the Court

The Court proceeded on settled arbitration law principles:

• Contractual construction is primarily for the arbitrator.

• Interference under Sections 34 and 37 is narrowly confined to perversity, patent illegality, or breach of fundamental policy.

• An arbitral tribunal’s interpretation must be respected if it is a plausible commercial view.

The Court relied on Associate Builders, WesternGeco, Gayatri Balasamy and post-2015 jurisprudence, including the role of Section 34(2A) in domestic arbitrations.

Substance of the Court’s Reasoning

The decisive point combined purposive statutory interpretation with factual reality. The Cess Act seeks to augment Welfare Board resources. Levy and collection cannot operate meaningfully in the absence of Welfare Boards and the machinery prescribed under the Cess Rules, including Assessing Officers, Cess Collectors, and transfer mechanisms.

The Court described the policy incoherence of treating the Cess Act as operative without Boards as:

“putting the cart before the horse”.

The Court held that the constitution of Welfare Boards was a condition precedent to the levy and collection of cess. The absence of such machinery meant the levy could not have been factored into bids submitted earlier. Accordingly, post-bid notifications creating operative machinery amounted to “subsequent legislation” triggering Clause 70.8.

Key Quotations

• “Putting the cart before the horse!”

• “The failure … has to be laid squarely at the door of the authorities.”

• “If an arbitral tribunal’s view is found to be a possible and plausible one, it cannot be substituted merely because an alternate view is possible.”

Practical Implications for Practitioners and Public Authorities

For contractors: The judgment provides a strong defence where operative machinery for welfare levies was absent at the bid stage. Contractors should nevertheless scrutinise contract provisions, contemporaneous notifications and State circulars, and maintain detailed records.

For public authorities and employers: The decision underscores that legislative enactment alone does not always create immediate liability. Authorities must ensure that statutory architecture for levy and collection is in place before passing costs onto contractors, or risk reimbursement claims under subsequent-law clauses.

On Arbitration Jurisprudence

The Court reaffirmed the limited scope of judicial interference under Sections 34 and 37. Interpretation of contracts, including subsequent-legislation clauses, is primarily for arbitrators. Awards based on plausible interpretations must stand. The decision thus consolidates post-amendment arbitration jurisprudence while applying purposive statutory construction to prevent unjust outcomes.

Closing Observations

The judgment balances commercial expectations against statutory reality and administrative inertia. It prevents employers from imposing levies in a legal vacuum while respecting arbitral autonomy. For practitioners in public procurement and dispute resolution, the ruling reinforces two practical axioms:

1. Verify whether statutory machinery to operationalise a levy existed at the bid date; and

2. Recognise that a plausible arbitral interpretation will carry substantial weight.

“Operationalisation of Welfare Legislation and the Logic of ‘Subsequent Legislation’”

“The preamble to the Cess Act categorically states that the said enactment was made to provide for levy and collection of cess … to augment the resources of the Welfare Boards constituted under the BOCW Act… This was clearly a case of putting the cart before the horse! …In the absence of Welfare Boards which could accept such cess once it is collected, the same invariably had to be placed by the State in its consolidated fund… …Though the BOCW Act and the Cess Act remained on the statute book for eons, they were not given actual effect owing to the complete absence of the required machinery… The failure to effectively implement the BOCW Act and the Cess Act has to be laid squarely at the door of the authorities.”