Supreme Court: While deciding 2 appeals arising out of Sikkim High Court’s judgment dated 30 May 2025 wherein arbitral award passed in favour of a appellants, which held that levy of Building and Other Construction Workers’ Welfare cess (BOCW cess) was contractually attributable to Sikkim Urja Limited, was set aside, the Division Bench of Sanjay Kumar and K. Vinod Chandran, JJ., set aside the impugned judgment insofar as it affected the appellants and restored the arbitral award, holding that the controversy was squarely covered by its earlier judgment in Prakash Atlanta (JV) v. NHAI, 2026 SCC OnLine SC 1998, wherein it was held that BOCW cess could not be leviable until constitution of Welfare Boards under the Building and Other Construction Workers’ (Regulation of Employment and Conditions of Service) Act, 1996 (BOCW Act).
Brief Facts
In the instant matter, the dispute arose out of contracts executed in connection with the 1200 MW Teesta Stage III Hydro Electric Project situated in the State of Sikkim. The consortium undertaking the project consisted of 3 entities:
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Navayuga Engineering Company Limited (appellant in SLP (C) No. 26807 of 2025).
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SEW Infrastructure Limited (appellant in SLP (C) No. 27163 of 2025).
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Abir Infrastructure Private Limited.
The employer in the project was Sikkim Urja Limited, formerly known as Teesta Urja Limited. A controversy emerged regarding the liability to bear BOCW cess. According to the contractors, the State Government of Sikkim implemented the provisions relating to the BOCW Act and BOCW cess only with effect from 6 September 2010. Since the contracts had originated earlier, the contractors contended that the imposition of such cess constituted a “change in law” within the meaning of Clause 49 of the contract and that the contractual burden of such levy was to be borne by the employer.
The Arbitral Tribunal, by award dated 1 October 2019, accepted the contractors’ case and held that the levy after implementation of the statutory regime in Sikkim amounted to a change in law and that the incidence of labour welfare cess was contractually attributable to Sikkim Urja Limited.
The award was challenged under Section 34, Arbitration and Conciliation Act, 1996 before the Commercial Court. The challenge failed and the award was upheld. Thereafter, the matter was challenged in appeal under Section 37 before the Sikkim High Court. By judgment dated 30 May 2025, the High Court set aside the arbitral award.
Aggrieved thereby, Navayuga Engineering Company Limited and SEW Infrastructure Limited approached the Supreme Court through special leave petitions.
Analysis
The Court recorded that controversy arising in the appeals was no longer res integra as the same was “squarely covered” by the earlier judgment in Prakash Atlanta, wherein it was held that:
“(ii) The BOCW Act and the Cess Act were brought into force on the dates notified therein but could not have been given effect to till Welfare Boards were constituted under Section 18, BOCW Act. Notwithstanding the dates from which these two enactments were brought into force, the BOCW Act and the Cess Act remained dormant, in fact, owing to the failure of the appropriate Governments in taking necessary measures to bring the provisions thereof into actual effect.
(iii) The Cess Act is complementary to the BOCW Act and was enacted for augmenting the resources of the Welfare Boards, constituted under Section 18, 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.
(iv) As pointed out in A. Prabhakara Reddy & Co. v. State of M.P., (2016) 1 SCC 600, constitution of Welfare Boards was essential and was a condition precedent for levy and collection of the cess in relation to the BOCW Act and the Building and Other Construction Workers’ Welfare Cess Act, 1996 (Cess Act). The registration of workers or providing of welfare measures to them, however, are not preconditions for the levy and collection of such cess.”
The Court noted that though the arbitral award had been passed in favour of all 3 consortium entities, only Navayuga Engineering Company Limited and SEW Infrastructure Limited had chosen to challenge the High Court’s judgment. The third consortium member, Abir Infrastructure Private Limited, had not preferred any appeal before the Supreme Court.
The Court further noted that corporate insolvency resolution process (CIRP) had been initiated against Abir Infrastructure Private Limited under the provisions of the Insolvency and Bankruptcy Code, 2016 (IBC). Nevertheless, the Court made it clear that since the said company had not challenged the judgment dated 30 May 2025, no relief could be granted to it.
Decision
The Court allowed the appeals and set aside the impugned judgment dated 30 May 2025 passed insofar as it related to these 2 entities. Consequently, it restored the arbitral award dated 1 October 2019 in appellants’ favour.
The Court also vacated the interim order dated 14 October 2025 and directed that the amounts lying in fixed deposits be released to the appellants. However, no relief was granted to Abir Infrastructure Private Limited, as it had not filed an appeal challenging the High Court judgment.
Also Read: Inclusive by Design: Building an Inclusive Workforce Through Labour Codes
[Navayuga Engg. Co. Ltd. v. Sikkim Urja Ltd., Arising out of SLP (C) No. 26807 of 2025 with connected SLP (C) No. 27163 of 2025, decided on 22-5-2026]
Advocates who appeared in this case:
Mr. Saurav Agrawal, Mr. Shantanu Agarwal, Mr. Saurabh Seth, Mr. Dheeraj P. Deo, Mr. Sumer Dev Seth, Ms. Allaka Malikayi, Mr. Abhinav Tyagi, Mr. Manas Arora, Mr. Anshuman Chowdhury, Ms. Prachi Dubey, Mr. Aarya Bhat and Mr. Kabir Dev, Advs. Counsel for the Appellant
Mr. S.S. Ray, Sr. Adv. With Mr. Vaibhav Gulia, Mr. Shubhaankar Ray, Mr. Shankar Kumar Jha, Ms. Rakhi Ray, Advs., Counsel for the Appellant/ SEW Infrastructure Limited
Mr. Sunil Kumar Sharma, AOR with Mr. Shyam Divan, Sr. Adv., Mr. Rana S Biswas, Mr. N.K. Rahete, Mr. Kartik Chettiar, and Mr. Yash Tripathi, Advs., Counsel for the Respondents
