BOCW Cess Dispute Not Arbitrable, Must Be Decided Under Statutory Mechanism: Chhattisgarh High Court

The Chhattisgarh High Court on 13 May, refused to appoint an arbitrator in a dispute between SK Samanta and Co. (P) Ltd. and South Eastern Coalfields Ltd. (SECL), holding that issues relating to statutory cess under the Building and Other Construction Workers' Welfare Cess Act, 1996 (BOCW Cess Act) are non-arbitrable.

Chief Justice Ramesh Sinha held that the dispute arose from statutory levy and not a purely contractual arrangement, and therefore did not fall within the scope of arbitration under Section 11 of the Arbitration and Conciliation Act, 1996. He held:

“The principal issue raised by the applicant is with regard to the applicability or otherwise of the BOCW Act and the consequential liability towards deduction of cess. Such determination necessarily involves examination of statutory provisions, the scope of exclusion contained in Section 2(1)(d) of the BOCW Act, and the authority of the State machinery under the enactment… In the considered opinion of this Court, the dispute in question falls within the domain of the statutory framework governing levy and collection of cess and cannot be said to be a pure contractual dispute amenable to arbitration.”

SECL had awarded SK Samanta and Co. a contract for the design, construction and commissioning of a project. It recorded that Clauses 31 and 32 of the Instructions to Bidders forming part of the contract mandated deduction of 1% from running bills towards cess under the BOCW Cess Act. It deducted the cess from the contractor's bills and deposited it with the State authorities in accordance with statutory requirements.

The contractor challenged the applicability of the BOCW Act to the project and invoked arbitration by filing a petition under Section 11 of the Arbitration and Conciliation Act, seeking appointment of an arbitrator.

SK Samanta and Co. contended that the BOCW Act did not apply because the construction took place within coal mine premises, which brought the work under the Mines Act. It argued that SECL wrongly deducted cess and that the dispute arose from interpretation of contractual clauses, making it arbitrable.

SECL argued that it deducted the amount under statutory mandate and State Government notifications under the BOCW Cess Act. It submitted that it acted only as a collecting agency for the State and that the statutory framework provided its own mechanism for adjudication of cess-related disputes.

The Court held that SK Samanta and Co. knew from the beginning that SECL would deduct cess from running bills as part of the contractual arrangement backed by statute. It found that the dispute did not arise purely from contract interpretation but primarily from the applicability of the BOCW statutory scheme.

The Bench further held that SECL acted only as a collecting agency under the statutory framework and that the levy, collection and adjudication of cess fell within a complete statutory mechanism. It ruled that such disputes cannot be treated as contractual disputes capable of arbitration.

Accordingly, the High Court held that the dispute must be raised before the appropriate statutory forum and refused to appoint an arbitrator under Section 11 of the Arbitration and Conciliation Act, 1996.