Kiran Raj

The Supreme Court Division Bench of Justices Sanjay Kumar and Alok Aradhe on Tuesday (January 20, 2026) dismissed a national highways authority’s appeals and upheld the Delhi High Court’s view affirming arbitral awards that directed reimbursement of welfare cess deducted from contractors’ bills for road projects. In relief to infrastructure developers, the Court held that cess under the Building and Other Construction Workers’ Welfare Cess Act, 1996 cannot be levied or collected until Welfare Boards are constituted under the Building and Other Construction Workers (Regulation of Employment and Conditions of Service) Act, 1996, as the statutory collection-and-transfer framework presupposes an existing Board.

The dispute arose from arbitral awards passed in favour of multiple contractors executing national highway projects, concerning deductions made towards Building and Other Construction Workers (BOCW) welfare cess. The contractors contended that at the time of submission of their bids and execution of contracts, the statutory framework under the BOCW Act, 1996 and the BOCW Welfare Cess Act, 1996 was not operational in the concerned States due to non-constitution of Welfare Boards and absence of implementation machinery.

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The National Highways Authority of India contended that both enactments had come into force in the mid-1990s and therefore could not be treated as subsequent legislation. It argued that contractors were liable to bear cess liability, either under contractual clauses requiring compliance with labour laws or under provisions permitting deduction at source.

The arbitral tribunals held that the statutory regime remained dormant until Welfare Boards were constituted and Rules notified by State Governments, and therefore cess liability could not have been factored into bid prices. These findings were upheld by High Courts under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996, leading to the present appeals.

The Court observed that “both the BOCW Act and the Cess Act remained on the statute book without being given actual effect owing to the complete absence of the required machinery for levy, collection, deposit and utilisation of the cess.”

It recorded that “the Cess Act was enacted for augmenting the resources of Welfare Boards constituted under the BOCW Act, and in the absence of such Boards, levy and collection of cess did not logically arise.” and “the failure to effectively implement the BOCW Act and the Cess Act has to be laid squarely at the door of the authorities, i.e., the Central Government and the Governments of the States/UTs concerned.”

Referring to earlier precedent, the Court stated that “constitution of Welfare Boards is the sine qua non for giving effect to the BOCW Act and the Cess Act.” It clarified that while registration of workers was not a precondition, “the levy itself presupposes the existence of a functional Welfare Board.”

On contractual interpretation, the Court noted that “construction and interpretation of a contract is primarily for the arbitral tribunal,” and that interference was impermissible where the tribunal’s view was “a possible and plausible one.”

The Court further observed that “contractors could not have factored the cess component into their bid prices when no mechanism for collection existed, as doing so would have resulted in unjust enrichment.” It rejected the argument that mere statutory enforcement dates were determinative, stating that “notwithstanding the dates of enforcement, the Acts remained dormant in fact until activated by State action.”

On judicial review, the Court recorded that “neither perversity nor patent illegality is established merely because an alternative interpretation is possible.”

The Court ordered that “the appeals filed by the National Highways Authority of India against the orders of the High Court affirming the arbitral awards pertaining to Gammon-Atlanta (JV), PCL Suncon (JV), NKG Infrastructure Limited, Hindustan Construction Co. Ltd. and DIC-NCC (JV) are dismissed. We find no merit in the appeals filed by NHAI” and that the arbitral awards, as affirmed under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996, did not warrant interference.

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Insofar as the appeal filed by Prakash Atlanta (JV) was concerned, the “Civil Appeal No. 4513 of 2025 is allowed setting aside the orders of the executing Court and the appellate Court. NHAI shall, in consequence, release the amount that has been adjusted from out of the amounts payable by it in relation to Prakash Atlanta (JV)’s arbitral award dated 26.06.2004 along with interest payable thereon as per the said award.”

“IA Nos. 77056 of 2013 and 2 of 2013 are allowed, permitting additional facts, documents and annexures to be placed on record,” and “other pending applications shall stand disposed of.”

Case Title: Prakash Atlanta (JV) v. National Highways Authority of India & Connected Appeals
Neutral Citation: 2026 INSC 76
Case Numbers: Civil Appeal Nos. 4513, 5301, 5302, 5304, 5412, 5416 of 2025
Bench: Justice Sanjay Kumar, Justice Alok Aradhe