Apex court rules cess on builders constitutionally valid

In a relief to millions of workers in the building and construction sectors, the Supreme Court has upheld the finding of the Delhi High Court that certain legislations and rules – which allowed the levy of a cess on builders and contractors to create a fund for welfare of these employees, were Constitutionally valid. The court turned down the contention of the appellants – Dewan Chand Builders and Contractors – that the cess was a “tax” and that there was no nexus between the levy and the intended purpose.

The court said, “The inevitable conclusion is that in the instant case there does exist a reasonable nexus between the payer of the Cess and the services rendered for that industry and therefore, the said levy cannot be assailed on the ground that being in the nature of a ‘tax’, it was beyond the legislative competence of Parliament.”

The principal ground for challenge to the validity of The Building and Other Construction Workers Welfare Cess Act (or the Cess Act), 1996 by the appellants was the lack of legislative competence of Parliament. The core issue arising for consideration was whether the cess levied under the scheme of the Cess Act is a ‘fee’ or a ‘tax’.

The apex court said, “There is no doubt in our mind that the Statement of Objects and Reasons of the Cess Act, clearly spells out the essential purpose (of what) the enactment seeks to achieve, that is to augment the Welfare Fund under The Building and Other Construction Workers (Regulation of Employment and Conditions of Service) Act, 1996 (or the BOCW Act).”

“It is clear from the scheme of the BOCW Act that its sole aim is the welfare of building and construction workers, directly relatable to their constitutionally recognised right to live with basic human dignity, enshrined in Article 21 of the Constitution of India,” it said. “The levy of Cess on the cost of construction incurred by the employers on the building and other construction works is for ensuring sufficient funds for the Welfare Boards to undertake social security schemes and welfare measures for building and other construction workers. The fund, so collected, is directed to specific ends spelt out in the BOCW Act. Therefore, applying the principle laid down in the aforesaid decisions of this Court, it is clear that the said levy is a ‘fee’ and not ‘tax’,” the court said.

Earlier, the Delhi High Court had rejected the builders’ plea challenging the cess levied under the BOCW Act. The Statement of Objects and Reasons of the BOCW Act says, “It is estimated that about 8.5 million workers in the country are engaged in building and other construction works. Building and other construction workers are one of the most numerous and vulnerable segments of the unorganized labour in India. The building and other construction works are characterized by their inherent risk to the life and limb of the workers.”

Its preamble says that it is “An Act to regulate the employment and conditions of service of building and other construction workers and to provide for their safety, health and welfare measures and for other matters connected therewith or incidental thereto.”



‘Follow the money’



From the order of the same two judges, July 4, appointing a Special Investigation Team to probe the stashing of money in foreign banks

Money trail

“Follow the money” was the short and simple advice given by the secret informant within the American government to Bob Woodward, journalist with The Washington Post, in aid of his investigations of the Watergate break-in. As a medium of exchange, money is vital. However, increasing monetisation of most social transactions has been viewed as potentially problematic for the social order… The scrutiny and control of activities by the state in the public interest, as posited by modern constitutionalism, is substantially effected by the state “following the money.” In modern societies very little gets accomplished without transfer of money.


Large amounts of unaccounted monies, stashed away in banks located in jurisdictions that thrive on strong privacy laws protecting bearers of those accounts (from) scrutiny, raise worries. First and foremost, such large monies, stashed abroad and unaccounted, would suggest the necessity of suspecting that they have been generated in activities deemed unlawful. In addition, it would also lead to a natural suspicion that they have been transferred out of the country in order to evade payment of taxes, thereby depleting the capacity of the nation to undertake many tasks that are in public interest.

 Soft state

The quantum of such monies may be rough indicators of the weakness of the state, in terms of crime prevention and tax collection. The softer the state, the greater the likelihood that there is a nexus between the lawmaker, the lawkeeper, and the lawbreaker.

With globalisation, nation states are also confronted by the dark worlds of international arms dealers, drug peddlers, and various kinds of criminal networks, including networks of terror. They work in the interstices of the microstructures of financial transfers across the globe, and thrive in the lacunae, the gaps in law and of effort.

Increasingly, on account of a “greed is good” culture promoted by neoliberal ideologues, many countries face the situation where the model of capitalism that the state is compelled to institute, and the markets it spawns, are predatory in nature. The paradigm of governance that has emerged over the past three decades prioritises the market over any degree of control of it by the state. The role for the state is visualised by votaries of the neoliberal paradigm as that of a night-watchman…

 Slow probe

The amount of unaccounted monies, as alleged by the Government of India itself, is massive. The showcause notices were issued a substantial length of time ago. The named individuals were very much present in the country. Yet, for unknown, and possibly unknowable though easily surmisable, reasons, investigations proceeded at a laggardly pace. Even the named individuals had not yet been questioned with any seriousness.

The real point of controversy is as to whether there is a need to constitute a Special Investigation Team to be headed by a judge or two of this court to supervise the investigation. It was submitted to us that the Union of India has recently formed a High Level Committee under the aegis of the Department of Revenue in the Ministry of Finance… While it would appear, from the status reports submitted to this court, that the Enforcement Directorate has moved in some small measure, the actual facts are not comforting… In fact we are not convinced that the situation has changed to the extent that it ought to so as to accept that the investigation would now be conducted with the degree of seriousness that is warranted.

The fact remains that the Union of India has struggled in conducting a proper investigation into the affairs of Hassan Ali Khan and the Tapurias. While some individuals have been interrogated, many more are yet to be investigated. The formation of the HLC was a necessary step, and may even be characterised as a welcome step. Nevertheless, it is an insufficient step.

 We order:

(i) That the High Level Committee constituted by the Union of India be appointed with immediate effect as a Special Investigation Team;

(ii) That the SIT also include director, R&AW;

(iii) That it be headed by and include the following former judges of this court: Justice B P Jeevan Reddy as chairman and Justice M B Shah as vice-chairman…


Apparently, a former employee of a bank or banks in Liechtenstein secured the names of some 1,400 account holders, along with the particulars, and offered the information to various entities. The same was secured by Germany, which in turn offered the information regarding nationals and citizens of other countries to such countries. It is the contention of the petitioners that even though the Union of India was informed about the presence of the names of a large number of Indian citizens, it never made a serious attempt to secure such information and proceed to investigate such individuals.

We need to examine the claims of the Union of India as to whether it is proscribed by the double taxation agreement with Germany from disclosing such information. Further, we would also have to examine whether the Union of India can claim exemption from providing such information to the petitioners… We have perused the agreement with Germany. We are convinced that the agreement, by itself, does not proscribe the disclosure of the relevant documents and details…

The state has the duty, generally, to reveal all the facts and information in its possession to the court, and also provide the same to the petitioners.

One major constitutional issue and concern remains. The revelation of details of bank acounts of individuals, without establishment of prima facie grounds to accuse them of wrongdoing, would be a violation of their rights to privacy. Only after the state has been able to arrive at a prima facie conclusion of wrongdoing, would the rights of others in the nation to be informed enter the picture.

 We order that:

(i) The Union of India disclose to the petitioners all documents and information they have secured from Germany, in connection with the matters discussed above, subject to the conditions in (ii) below;

(ii) That the Union of India is exempted from revealing the names of those individuals… in respect of whom investigations are still in progress and no information or evidence of wrongdoing is yet available…

(iii) That the names of those individuals, in respect of whom investigations have been concluded and proceedings initiated, may be disclosed;

(iv) That the SIT constituted by this court shall take over the matter.


Dr. Moily Addresses Round Table in St. Petersburg on ‘Legal Security of Business Transactions, Investments and Financial Instruments-New Challenges of the Global Crisis’

Following is the text of the Speech of Dr. M.Veerappa Moily, Union Minster for Law and Justice, while addressing the Round Table on “Legal security of business transactions, investments and financial instruments-New Challenges of the Global Crisis” in St.Petersburg today :-

‘Globalization’ refers to the process of integration and convergence of economic financial, cultural and political systems and interests across the world by adopting a holistic approach. From an economic or commercial perspective, so as to understand international business, globalization may be defined as the increasing economic integration and interdependence of national economies across the world through a rapid rise in the cross-border movement of goods, services, technology and capital.

Since the global financial crisis disturbed the nations and turtled their financial position, the global financial crisis has become a ‘credit tsunami’.


(i) Subprime crisis in the US and Euro zone debt crisis along with the global financial slowdown.
(ii) Collapse of Lehman brothers in September 2008 and thereafter the fall of entire wall-street.
(iii) Commodity-dependent economies are exposed to considerable external shocks stemming from price booms and busts in international commodity markets.
(iv) Many Asian countries have seen their stock markets suffer and currency value going on a downward trend. Asian products and services are also global, and slowdown in wealthy countries means increased chances of a slowdown in Asia and the risk of job losses and associated problems such as social unrest.
(v) A number of developed countries have seen several sectors struggling and asking for bailouts. We know even some countries have not been an exception to the bailout syndrome.


Fortunately, India is the least hit by recession as far as internal financial disturbances are concerned and probably most important reason for this is that India’s 95% of debt is financed internally. Because of global recession, Indian economy which was projected to grow at approximately 9% is now expected to see a little slow down. However, now it has been projected to grow approximately at the rate of 9% by 2012. One of the reasons for this lowering of growth projections has reduced foreign direct investment inflows pursuant to global financial crisis.

India is the 7th largest and 2nd most populous and 4th largest economy in the world. A series of ambitious economic reforms aimed at deregulating the economy and stimulating foreign investment has moved India firmly in to the front runners of the rapidly growing Asia Pacific Region and unleashed the latent strength of a complex and rapidly changing nation. India’s time tested institutions offer foreign investors a transparent environment that guarantees the security of their long term investment. These include a free and vibrant press, an independent judiciary, a sophisticated state of art legal and accounting system and a user friendly intellectual infrastructure.

The Parliament has enacted the foreign Exchange Management Act, 1999 to replace the Foreign exchange Regulation Act, 1973. This Act came into force on the 1st day of June 2000. The object of the Act is to consolidate and amend the law relating to foreign exchange with the objective of facilitating external trade and payments and for promoting the orderly development and maintenance of foreign exchange market in India.


India realizing the need of a credit information system in order to enable informed credit decisions and aid fact based risk management on the basis of the recommendations of the Working Group a Credit Information Bureau (India) Ltd., (CIBIL) was set up in January 2000 under the Companies Act, 1956 with equity participation from commercial banks, Financial Institutions (FIs) and Non Banking Finance Companies (NBFCs) registered with the Reserve Bank, making it a functional PPP initiative.


Since the onset of liberalization in India, tax structure of the country is also being rationalized keeping in view the national priorities and practices followed in other countries. A Foreign national working in India is generally taxed only on their Indian income and income received from sources outside India is not taxable unless it is received in India. Further, foreign national have the option of being taxed under the tax treaties that India may have signed with their country of residence and India has so far signed and notified 70 Bilateral Agreements for Avoidance of Double Taxation (DTAA) with 70 different countries. In order to have a comprehensive tax law to regulate the tax regime further “the Direct Tax Code” and the “Goods and service Tax law” have been proposed.

Today we have the system of investment treaties between member States governing multifarious foreign investment transactions taking place to and fro between the nationals of member states. Much before the investment treaty system in 1959, there was another system of investment protection which MNCs had virtually devised themselves for the protection of their investments, i.e. the contract system. Every foreign investment entry was accomplished through a contract, except where entry is made through a merger or acquisition.

Arbitration as a method of settling disputes was the greatest innovation of this system of foreign investment transactions. Arbitration under contract continues to be significant despite being overtaken in volume by arbitration of investment disputes under the treaties. It is interesting to note that MNCs, through private actors, are denied personality under international law.

There is an important pre-emptory norm of international law ‘Pacta Sunt Servanda’,i.e agreements and stipulations of the parties to a contract must be observed. The question has been debated numerous times whether this principle which applies to agreements between foreign states be extended to foreign investment agreements between a foreign state and a multinational corporation. Although many foreign scholars suggest that it should be extended but the suggestion has some theoretical defects. The principle is premised on the mutual surrender of sovereignty by member states entering into a treaty transaction which is missing in case of MNC. However, a cursory look at the long line of international jurisprudence demonstrates that State promises to foreign investors have been strongly presumptively enforceable as a matter of consistent international law and practice.


The capital-importing States assert control over process of foreign investment as a potential strategy to contest norms at the international level by enacting legislation which exerts national control over the entry, establishment and operation of foreign investments. The aim of such legislation is to attract foreign investment into the State while ensuring that the investment is geared to the economic goals of the state and that the potential harmful effects on such goals are eliminated. Every state tries to do it at three levels namely Domestic, Bilateral and Multilateral. But the state sovereignty over natural resources and economic activities is subject to the principles of customary and treaty based international law.


At the outset, let me state that India has been a signatory to MIGA for several decades now. The Indian BIT/BIPA was initiated as part of Economic Reforms Programme started in 1991, with a view to increase the integration of Indian economy with the global economy by fostering inward and outward investment flows. The main objective of Indian (Bilateral Investment Treaty) BIT/(Bilateral Investment Promotion and Protection Agreement) BIPA is to promote and protect the interest of investors of either country in the Territory of the other country and such Agreements increase the comfort level and boost the confidence of investors by assuring a minimum standard of treatment on a non-discriminatory basis in all matters while providing for justifiability of disputes with the host country. The Government of India so far has signed BIPA’s with 75 countries till 31st March, 2009. In addition, the Government has also begun to conclude CECA (Comprehensive Economic Cooperation Agreements) that include both trade and investments.

Conflict of laws (or private international law) is a set of procedural rules which determine which legal system, and the law of which jurisdiction, applies to a given dispute. The rules typically apply when a legal dispute has a “foreign” element such as a contract agreed by parties’ located in different countries such as United Kingdom and the United States. These rules determine the place or jurisdiction where a dispute may be filed and the applicability of law i.e. law of which state would govern the transaction.


The policies of the Government of India have changed radically from 1991, the year in which or economy was opened up to foreign investment in a big way. Privatization, liberalization and globalization have resulted in a big boost to our economy.

The Commercial Division in each of 21 High Courts shall follow Fast Track procedure for the disposal of cases. The said procedure is prescribed in the Bill itself. Power of execution of decree and orders passed by the Commercial Division are also proposed to be vested in the Commercial Division. Fast Track procedure would definitely curtail the time taken in disposal of such cases.

The commercial Division shall, within thirty days of the conclusion of argument, pronounce judgment and copies thereof shall be issued to all the parties to the dispute through electronic mail or otherwise. A single judge sitting in the Commercial Division may hold one or more case management conferences.

There has been increasing trend in the commercial litigation which is taking most of the time of the existing court resulting in delays in justice to the common man whose cases are not taken up for years together. To ease the situation, other Government proposes to set up Commercial Courts within the High Courts.


In order to ensure prompt payments of money by buyers statutory and to regulate assignment of receivables by making provision for registration therefore and rights and obligations of parties to contract for assignment of receivable and for matters connected therewith or incidental thereto the “Regulation of Factor (Assignment of Receivables) Bill, 2011 has been introduced in the Parliament and is under process for consideration.


The Arbitration and Conciliation Act, 1996 deals with law relating to domestic arbitration, international commercial arbitration and enforcement of foreign arbitral awards. The Ministry of Law and Justice has initiated steps to bring comprehensive amendments in the Arbitration and Conciliation act, 1996 in order to make arbitration more popular, make India as a hub of international arbitration and overcome problems due to certain judgments of Supreme Court and High Courts.


Private International law has a dualistic character that ensures the following functions:

(i). balancing international consensus with domestic recognition and implementation,
(ii). Balancing sovereign actions with those of the private sector.

With globalization, commercial transactions are becoming more and more international. Subject such as the appropriate degree of harmonization of domestic laws, choice of law in commercial transactions, the proper scope of international arbitration and litigation, etc will inevitably increase its importance in the immediate future.


The International institutions can guarantee the security of the investments:

– by assuring legal certainty and protecting the legitimate expectations of the foreign investors.
-by ensuring protection against unlawful expropriation.
-by observance of international minimum standards of treatment and ensuring fair and equitable treatment.


The globalization of business is causing companies to become more reliant on markets around the world. As such, if all multinational companies apply the same set of accounting standards while creating their financial statements, the statements will be more transparent and will save costs for both investors and companies themselves. Cost saving and transparency are two goals of the process of harmonization of international accounting standards. The harmonization process has been successful so far, but there is one major flaw there is no global enforcement mechanism, which would provide more legitimacy to the process. Without an international agency, enforcement is left to each individual nation. Not only has this led to skepticism about the uniformity of enforcement, but it has also led to actual enforcement discrepancies.


Although in the last four decades, national and international legal polices and rules concerning trade and investments have repeatedly changed, the investment and its varieties have also undergone substantial transformation in its magnitude and content. In the national laws and policies, the trends towards liberalization and increased protection have gathered strength and the controls and restriction have been relaxed in many countries. Non-discriminatory treatment after admission of investment either way of FDI or portfolio is becoming the rule rather than an exception. However so far no international investment related dispute has been raised against India and this glaringly speaks the effectiveness of the investment agreements concluded by India. But Law being a living organ has to grow in order to satisfy the needs of the fast changing society and to keep abreast with the economic developments taking place in the country. As new situations arise the law has to be evolved in order to meet the challenge of such new situations. Law cannot afford to remain static. We have to evolve new principles and lay down new norms, which would adequately deal with the new problems, which arise, in a highly industrialized economy. The rule of law is the foundation for success of democracy. Hence capacity building for evolving challenges of emerging areas in the legal world coupled with capacity building for enforcement, will have to get highest priority.

It is an admitted fact that Global Financial Crisis had an impact on majority of the States. Studies also reveal that in addition to the above discussed the other factors responsible for the severe financial crisis are attributable to lack of:

-uniform accounting standards
-stringent securities protection law
-stringent legal provisions controlling the dealings of real-estate-transactions
-proper collateral security system
-uniformity in the BITs

Therefore the question today is not about the global financial crisis but is about making suitable enforcing legal mechanism both at the domestic level as well as at international level and to institutionalize the same to avoid any further credit tsunami. I hope and wish this platform will pave a way for that and each and every one who is present here will contribute for the same. I hope and wish this Regional Conference will highlight the pros and cons of the issue and will stimulate innovative ideas to boost cross border trade. I am confident that this entire initiative will also enable India to emerge as a preferred destination for international investments. The Government of India is now on a trajectory of fastest and inclusive growth and justice with a focus on quality. With these words I conclude and once again thank the organizers and each one of you for giving me this opportunity.