The Supreme Court in its recent judgement of 'Uttar Pradesh Power Transmission Corporation Ltd. v. CG Power and Industrial Solutions Ltd. & Anr.'1 held that the courts can entertain writ petitions in contractual disputes, despite existence of arbitration clauses. The Supreme Court enunciated the said point of law in the factual matrix detailed below.

Background

Uttar Pradesh Power Transmission Corporation Ltd. ("Petitioner") approached the Supreme Court by way of a special leave petition against judgement of the High Court of judicature at Allahabad (Lucknow Bench), allowing the writ petition filed by CG Power and Industrial Solutions Ltd. ("Respondent") and setting aside letters dated 2 September 2016 and 29 December 2018 issued by the Petitioner ("Letters").

By way of the Letters, the Respondent was directed to remit labour cess amounting to INR 2,60,68,814/- (Rupees Two Crore Sixty Lakh Sixty-Eight Thousand Eight Hundred Fourteen), computed on the contract value under provisions of the Building and Other Construction Workers' Welfare Cess Act, 1996 ("Cess Act"), read with provisions of the Building and Other Construction Workers Welfare Cess Rules, 1998, ("Cess Rules") and the Building and Other Construction Workers (Regulation of Employment and Condition of Service) Act, 1996 ("BOCW Act")

The High Court vide its order found that the framework agreement between the parties was split, covered by four separate contracts, namely:

  1. design, engineering, manufacture, testing at works and supply of all required equipment and materials with accessories and auxiliaries; ("First Contract")
  2. erection, testing and commissioning at site including unloading, handling etc.;
  3. civil works including materials for commissioning and handing over of the substations;
  4. operations and maintenance for three years

The primary dispute arose upon an audit report conducted by the audit officer under the senior accountant general, wherein a lapse on part of the Petitioner was highlighted in not deducting labour cess from the bills of the Respondent under the First Contract.

The Respondent rightly denied applicability of labour cess upon the First Contract, being a purely a supply contract, rendering it beyond the ambit of Cess Act or the BOCW Act. Despite such objection, the Petitioner instructed the bank which issued bank guarantees for the Respondent to partially discharge such bank guarantees, except to the extent of covering cess on the First Contract. The Letters issued by the Petitioner were on the basis of the above understanding, seeking recovery of labour cess.

The High Court by an interim order restrained the Petitioner from encashing the bank guarantees. By the impugned order, the High Court set aside the Letters and accepted the submissions of the Respondent on the inapplicability of provisions of the Cess Act and BOCW Act to the First Contract.

The High Court observed that if cess were leviable under the Cess Act, it would be necessary for the concerned authorities to undertake the exercise of assessment and levy of cess under the Cess Act, before the same could be realized from the Respondent. In absence of such assessment or order of levy the said recovery pursuant to an audit objection was in essence, unlawful.

Discussion and Findings

The Supreme Court undertook an examination into the provisions of the Cess Act and the BOCW Act to arrive at the same conclusions as that of the High Court, that the First Contract being a supply contract was beyond the purview of labour cess under the above statutes.

The Supreme Court noted the fact that even though the contract between the parties contained an arbitration clause, the Petitioner had not opposed the maintainability of the writ petition on this ground. The counter affidavit filed by the Petitioner before the High Court also failed to make any reference to the arbitration agreement between the parties.

The Supreme Court held that the High Court is not prevented from entertaining a writ petition despite existence of an arbitration agreement. The judgement went on to record that it is a well settled proposition of law that the availability of an alternate remedy does not prohibit the High Court from entertaining a writ petition, particularly in the following contingencies:

  1. Where the writ petition seeks enforcement of a fundamental right
  2. Where there is failure of principles of natural justice
  3. Where the impugned orders are wholly without jurisdiction
  4. Where the vires of an act is under challenge

The Supreme Court placed reliance on a number of precedents2 on the issue of law with special emphasis on its judgement in Harbanslal Sahnia & Ors. v. Indian Oil Corporation Ltd.3, wherein the impugned order of Indian Oil Corporation terminating the dealership of the appellant therein was set aside, while entertaining a challenge to a judgement passed in exercise of writ jurisdiction by the high court, despite existence of an arbitration clause.

As per its findings on facts of the case at hand, the Supreme Court found that the act of the Petitioner was in fact in excess of its power, especially in the absence of an assessment or levy of cess under the Cess Act by the authorities. Thus, the Petitioner could not have taken recourse to the methods adopted by it.

The Supreme Court recorded that relief under Article 226 of the Constitution can be granted in contractual disputes. However, given the discretionary nature of writ jurisdiction, it should not be exercised in matters involving adjudication of disputed questions of fact which may require detailed analysis of evidence.

Footnotes

1 2021 SCC OnLine SC 383

2 Whirlpool Corporation v. Registrar of Trade Marks, Mumbai & Ors. [AIR 1999 SC 22];

Pimpri Chinchwad Municipal Corporation & Ors. v. Gayatri Construction Company & Ors. [(2008) 8 SCC 172]

3 (2003) 2 SCC 107

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