Supreme Court clarifies wage calculation for contract laborers: Food Corporation of India vs. Pratap Kundu (29 November 2019)

Date of the Judgment: 29 November 2019

Citation: [Not Available in Source]

Judges: Ashok Bhushan, J., M.R. Shah, J.

Can a contractor claim a percentage above the schedule of rates (ASOR) for the wages of casual laborers when the contract specifies that wages should align with a pending Supreme Court decision? The Supreme Court addressed this question in a dispute between the Food Corporation of India (FCI) and a contractor, Pratap Kundu. The core issue was whether the contractor was entitled to a 471% ASOR on the wages paid to casual laborers, despite a clause in the contract stating that wage rates would be determined by the outcome of a pending Supreme Court case. The Supreme Court bench, comprising Justices Ashok Bhushan and M.R. Shah, delivered the judgment.

Case Background

The dispute arose from a contract between the Food Corporation of India (FCI) and Pratap Kundu, a contractor, for handling and transport services at the Bikna Depot. The contract, initiated on 18 January 2000, included a clause regarding the wages of casual laborers. This clause stated that the “relevant rate of wages is to be paid and such rate shall abide by the decision of pending SLP as filed by FCI in the Hon’ble Supreme Court.” At the time of the contract, a dispute regarding the wages of casual laborers was already pending before the Supreme Court. The contractor quoted 471% above the schedule of rates (ASOR) for the contract. However, the schedule of rates provided in the contract did not specify any rate for the supply of casual labor (Item No. 24). The contractor, after the original contract period, submitted a bill claiming 471% ASOR on the amount paid to the contract casual laborers. This claim was rejected by the FCI, leading to a legal battle.

Timeline:

Course of Proceedings

The legal proceedings began with a writ petition filed by contract casual laborers in the Calcutta High Court, which directed that they be paid wages equivalent to Class IV employees. The High Court’s decision was upheld by the Supreme Court. Subsequently, a contempt petition was filed alleging non-compliance of the High Court order, which led to the conviction of FCI officers. The Supreme Court stayed these proceedings and directed the FCI to pay wages directly to the workers. The contractor then filed a writ petition seeking additional payment for the contract casual laborers at 471% ASOR. The High Court initially ruled in favor of the contractor, but the Division Bench of the High Court modified this decision, leading to cross-appeals before the Supreme Court.

Legal Framework

The core of this case revolves around the interpretation of the contract between the FCI and the contractor, specifically the clause related to the wages of casual laborers (Item No. 24). The contract stated that the wages for casual laborers would be determined by the outcome of a pending Special Leave Petition (SLP) in the Supreme Court. The relevant clause stated:

“relevant rate of wages is to be paid and such rate shall abide by the decision of pending SLP as filed by the FCI in the Hon’ble Supreme Court”.

This clause was crucial in determining whether the contractor was entitled to the 471% ASOR on the wages paid to the laborers. The Supreme Court also considered its own previous order dated 14 January 2010 in Civil Appeal Nos. 9472-9473 of 2003, which directed the FCI to pay wages to the workmen in Scale-II, as revised from time to time, and to make payments directly to the workers without involving any contractor.

Arguments

Arguments by FCI:

• The FCI argued that the High Court correctly found that wages should be paid as per the Supreme Court’s order of 14 January 2010, not on a 471% ASOR basis.
• They contended that the 471% ASOR applied to items other than the supply of casual labor, as Item No. 24 in Appendix VIII of the contract did not have a specified rate and was subject to the pending SLP decision.
• The FCI stated that they had complied with the Supreme Court’s order of 14 January 2010, and a subsequent contempt petition was dismissed by the Supreme Court on 4 July 2011.
• They argued that directing the Chairman to determine the contractor’s profit was incorrect as the Supreme Court’s order of 14 January 2010 did not leave any such issue open.
• The FCI highlighted that accepting the contractor’s claim of 471% ASOR on wages would lead to unjust enrichment, as the contractor would receive an additional amount of Rs. 5,34,41,520, which is almost three times the amount due to him under the contract.

Arguments by the Contractor:

• The contractor argued that the Division Bench of the High Court erred in referring the matter back to the Chairman of the FCI, who had already rejected the contractor’s claim.
• They contended that the learned Single Judge of the High Court was correct in holding that Clause 24 of the agreement, regarding wages of casual laborers, was covered by the 471% ASOR.
• The contractor claimed that both parties were bound by the terms of the agreement, and as the tender with 471% ASOR was accepted, the contractor was entitled to this rate on all items, including the supply of casual laborers.
• The contractor argued that they had to pay provident fund and other charges over and above the wages and were required to be compensated by the FCI.
• The contractor asserted that the FCI was obligated to pay 471% ASOR for the supply of casual laborers, as per the agreement.
• The contractor also pointed out that the FCI admitted to paying 471% ASOR for other items (Nos. 1 to 23 and 25) and therefore, there was no reason to deny the same for the supply of casual laborers.

Submissions by Parties

Issues Framed by the Supreme Court:

The Supreme Court framed the central issue as follows:

1. Whether the contractor is entitled to 471% ASOR in respect of all items, including Item No. 24 for the supply of casual laborers?

Treatment of the Issue by the Court:

The following table demonstrates as to how the Court decided the issues

Authorities

The Supreme Court considered the following authorities:

Cases:

• Order dated 14.01.2010 passed by the Supreme Court in Civil Appeal Nos. 9472-9473 of 2003: The Court relied on this order which directed the FCI to pay wages to the workmen in Scale-II, as revised from time to time, and to make payments directly to the workers without involving any contractor.

Legal Provisions:

• Clause 24 of the agreement: The Court interpreted this clause, which stated that the wages for casual laborers would be determined by the outcome of a pending SLP in the Supreme Court.

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

• The Supreme Court followed its own order dated 14.01.2010 in Civil Appeal Nos. 9472-9473 of 2003, stating that the wages of the casual laborers should be in accordance with that order and not on a 471% ASOR basis.
• The Court interpreted Clause 24 of the agreement to mean that the wages for casual laborers were to be determined by the outcome of the pending SLP, which was decided by the Supreme Court’s order dated 14.01.2010.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the specific terms of the contract and the previous orders of the Court. The Court emphasized that the contract explicitly stated that the wages for casual laborers would be determined by the outcome of the pending SLP. The Court also noted that the schedule of rates in the contract did not specify any rate for Item No. 24 (supply of casual labor), further supporting the view that the 471% ASOR was not applicable to this item. The Court aimed to prevent unjust enrichment of the contractor by ensuring that wages were paid according to the established legal precedent. The sentiment of the Court was to ensure that the wages of the casual workers are protected and paid as per the directions of the Supreme Court.

Logical Reasoning:

The Court considered the alternative interpretation that the 471% ASOR applied to all items, including the supply of casual laborers, as argued by the contractor. However, this interpretation was rejected because it contradicted the specific clause in the contract that tied the wages of casual laborers to the outcome of the pending SLP. The Court reasoned that the contract should be interpreted in a manner that gives effect to all its clauses, and the clause related to the pending SLP would be rendered meaningless if the 471% ASOR was applied to casual labor wages. The final decision was reached by prioritizing the specific clause related to casual labor wages and aligning it with the Supreme Court’s previous order.

The Supreme Court held that the contractor was not entitled to the 471% ASOR on the wages paid to casual laborers. The Court reasoned that the contract explicitly stated that the wages for casual laborers would be determined by the outcome of the pending SLP, which was decided by the Supreme Court on 14 January 2010. The Court also noted that the schedule of rates in the contract did not specify any rate for Item No. 24 (supply of casual labor), further supporting the view that the 471% ASOR was not applicable to this item. The Court directed that the wages for casual laborers should be paid as per the rates specified in the Supreme Court order dated 14 January 2010. The Court also quashed the High Court’s direction to the Chairman of the FCI to determine the profit earned by the contractor, stating that the Supreme Court’s order of 14 January 2010 did not leave any such issue open.

The Supreme Court’s decision was based on the following reasons:

• The contract explicitly stated that the wages for casual laborers would be determined by the outcome of the pending SLP.
• The schedule of rates in the contract did not specify any rate for Item No. 24 (supply of casual labor).
• The Supreme Court’s order dated 14 January 2010, in Civil Appeal Nos. 9472-9473 of 2003, specified the wage rates for casual laborers.
• Allowing the contractor to claim 471% ASOR on wages would lead to unjust enrichment.

The Court quoted the following from the judgment:

“relevant rate of wages is to be paid and such rate shall abide by the decision of pending SLP as filed by the FCI in the Hon’ble Supreme Court”

“the casual labourers were entitled to the wages as per the final order passed by this Court dated 14.01.2010 in Civil Appeal Nos. 9472-9473 of 2003, and as per the terms and conditions of the contract, more particularly with respect to Item No. 24 the wages were required to be paid as per the determination in the pending SLP”

“the contractor shall not be entitled to the wages to be paid to the casual labourers on 471% ASOR basis and the wages to be paid to the labourers would be at the rate specified in the order dated 14.01.2010 in Civil Appeal Nos. 9472-9473/2003”

There were no dissenting opinions in this case.

The Supreme Court’s reasoning was based on a strict interpretation of the contract and adherence to its previous orders. The Court emphasized the importance of giving effect to all clauses of the contract and preventing unjust enrichment. The Court’s application of the law to the facts of the case was straightforward, as the contract clearly stipulated that the wages for casual laborers would be determined by the outcome of the pending SLP.

The decision has implications for future cases involving similar contractual disputes. It reinforces the principle that specific clauses in a contract must be given precedence over general clauses, and that parties are bound by the terms they agree to. The decision also highlights the importance of adhering to previous court orders and preventing unjust enrichment.

No new doctrines or legal principles were introduced in this case. The Court applied established principles of contract interpretation and adherence to judicial precedent.

Key Takeaways

• Specific clauses in a contract take precedence over general clauses.
• Parties are bound by the terms of the contract they agree to.
• Previous court orders must be adhered to.
• Unjust enrichment should be prevented.
• In contracts where wage rates are tied to the outcome of pending litigation, the final judgment in that litigation will determine the wage rates.

This decision will likely impact future contracts where wage rates are tied to pending legal decisions. It emphasizes the need for clear and specific language in contracts to avoid disputes. The decision also reinforces the importance of following the directions of the Supreme Court in cases involving labor rights and contractual obligations.

Directions

The Supreme Court directed that the remand to the Chairman of the FCI shall be restricted to the determination of the wages as per the judgment and order dated 14.01.2010 passed by the Court in Civil Appeal Nos. 9472-9473/2003, specifically as contained in paragraphs (a) and (b) of the operative portion of the impugned order. The Court quashed the direction to the Chairman to determine the profit earned by the contractor.

Development of Law

The ratio decidendi of the case is that when a contract specifies that wage rates for casual laborers will abide by the decision of a pending legal case, the wage rates will be determined by the final judgment in that case, and not by a general percentage above schedule of rates (ASOR). This case clarifies the interpretation of contractual clauses related to wage determination and reinforces the principle that specific clauses take precedence over general clauses. There is no change in the previous positions of law, but the case reinforces the importance of adhering to previous court orders and preventing unjust enrichment.

Conclusion

In conclusion, the Supreme Court partly allowed the appeal filed by the Food Corporation of India (FCI) and dismissed the appeal filed by the contractor, Pratap Kundu. The Court held that the contractor was not entitled to 471% ASOR on the wages paid to casual laborers, and the wages should be paid as per the rates specified in the Supreme Court order dated 14 January 2010. The Court also quashed the High Court’s direction to the Chairman of the FCI to determine the profit earned by the contractor. The judgment emphasizes the importance of specific clauses in contracts and adherence to previous court orders, ensuring that wage rates are determined by the outcome of pending legal cases and preventing unjust enrichment.