SIKKIM HIGH COURT ISSUES JUDGEMENT ON SIKKIM URJA LIMITED V/S ABIR INFRASTRUCTURE PVT. LTD

GANGTOK, India, June 5 -- Sikkim High Court issued the following judgment/order on May 30:

This is an appeal preferred under section 37 of the Arbitration and Conciliation Act, 1996 (for short, the Arbitration Act). The impugned judgment and order dated 14.08.2023 dismissed the petition filed by M/s Teesta Urja Ltd. [now, Sikkim Urja Limited (appellant)] under section 34 refusing to interfere with the arbitral award dated 01.10.2019 in favour of the respondents herein.

2. The grounds for interference under section 34 of the Arbitration Act are limited. When should a Court interfere under section 34 is clearly defined in the provision and amply clarified by the Honble Supreme Court in its various judgments. On examination of the arbitral award, we find that the arbitral award is in conflict with the public policy of India, in that it is in contravention with the fundamental policy of Indian law. We also find that the arbitral award is vitiated by patent illegality appearing on the face of the award. The Arbitral Tribunal has also imposed the liability of payment of cess upon the appellant although section 3 of the Building and Other Construction Workers Welfare Cess Act, 1996 (for short, the Cess Act, 1996) mandates that it is the respondent who are liable to pay it. While determining who is liable to pay the cess, the Arbitral Tribunal reversed the mandate of the law and imposed the liability upon the appellant instead. The arbitral award suffers from the vice of disregarding the two judgments of the Honble Supreme Court in A. Prabhakara Reddy and Company vs. State of Madhya Pradesh and Others1 and M/s Dewan Chand Builders and Contractors vs. Union of India & Ors. 2 Thus, the impugned judgment passed by the learned Commercial Court while exercising the powers under section 34 refusing to set aside such an arbitral award requires to be interfered with. We explain our reasons hereunder.

3. The claimant before the Arbitral Tribunal was the consortium of M/s Abir Infrastructure Pvt. Ltd. (respondent no.1 herein), M/s Navayuga Engineering Co. Ltd. (respondent no.2 herein) and M/s SEW Infrastructure Ltd. (respondent no.3 herein). The respondent therein was M/s

4. The consortium of the respondents along with M/s CGGC International Ltd, M/s CKD Hydro Power Pvt. Ltd, M/s SABIR Dam & Water Works Construction Co., was awarded the work for Turnkey execution of 1200 MW Teesta Stage-III of Hydroelectric Project in the State of Sikkim after a successful bid. For the said purpose various agreements were executed. The contracts were subject to arbitration for settlement of disputes. The contract was awarded on 18.04.2007 with subsequent amendments dated 26.05.2007. The contract was signed on 12.09.2007 and the project completed on 28.02.2017.

5. According to the Arbitral Tribunal, as stated in its award, the dispute arose with respect to the liability for the payment of cess under the Cess Act, 1996. Teesta Urja Ltd. addressed a letter on 29.08.2016 to the respondent no.2 with copies to the respondents no.1 and 3 making demands of Rs.5.88 crores, Rs. 8.12 crores and Rs.27.39 crores from the consortium members totalling to Rs.41.39 crores for cess @1% and required them to pay it from the date of the contract award on 18.04.2007. This was disputed by the respondents who invoked the arbitration clause.

6. The respondents through their statement of claims sought to have the letters dated 16.10.2010, 19.05.2014, 12.06.2014, 07.06.2016 and 04.08.2016 and 29.08.2016 issued by the appellant set aside. It also sought a declaration that 1% cess is not recoverable from the respondents and in the alternative the 1% cess be added in the contract price as per the contract between the parties. The respondents contended that the 1% cess was not recoverable because the Building and Other Construction Workers (Regulation of Employment and Conditions of Service) Act, 1996 (for short, the BOCW Act 1996) and the Cess Act, 1996 were not operative in Sikkim at the time of submission of the bid and, therefore, is a subsequent legislation. It was also contended that clause 49 of the General Conditions of Contract (for short, the GCC) clearly showed that any change in the cost to the contractor (deduction or addition) because of any subsequent change in law after execution of the contract between the parties, shall be determined by the engineer in-charge and shall be added or deducted from the contract price and the engineer shall notify the contractor accordingly. It was the respondents case that the BOCW Act, 1996 and the Cess Act, 1996 was implemented in the State of Sikkim only with effect from 06.09.2010, although the contract was awarded on 18.04.2007.

7. The appellant filed their statement of defence contesting the statement of claims of the respondents. It was submitted that there was no change in law under the contract. Clause 17.4 of the GCC makes it obligatory upon the respondent and sub-contractors to abide at all times with all existing labour enactments and the rules made thereunder, regulations, notifications and bye laws of the State or Central Government or local authority and any other labour law (including rules), regulations, bye laws that may be passed or notification that may be issued under any labour law in future either by the State or the Central Government or the local authority. It was also contended that clause 17.4 of the GCC clearly stipulated that the BOCW Act, 1996 and the Cess Act, 1996 were applicable. It was contended that under clause 33 of the GCC, the respondents were responsible for payment of all taxes/duties/levies, etc. It was submitted that the BOCW Act, 1996 had come into force on 01.03.1996 prior to the execution of the contract agreement dated 12.09.2007. Further, the Cess Act, 1996 came into effect in the whole of India on 03.11.1995 and the Government of India (GOI) had on 26.09.1996 notified the rate of cess to the extent of 1% of cost of construction incurred by the employer. Thus, both the BOCW Act, 1996 and the Cess Act, 1996 have come into effect on 01.03.1996 and 03.11.1995 respectively, much prior to the date of submission of the price bids, i.e., 13.02.2007 by the respondents and the execution of the contract agreement dated 12.09.2007.

The rest of the document can be viewed at https://hcs.gov.in/hcs/hg_orders/201600000012024_15.pdf

Disclaimer: Curated by HT Syndication.