Rise In Minimum Wages: Bombay HC Rules In Favour Of Cleaning Services Against Indian Railways [Read Judgment]

In a writ petition filed by A2Z Cleaning Services seeking a revision in reimbursement given by the Indian Railways with regard to cleaning and housekeeping services provided by them, the Bombay High Court has ruled in favour of the petitioners.

A bench of Justice BR Gavai and Justice Bharati Dangre directed the respondents i.e., Union of India through Ministry of Railways and Ministry of Labour and Employment to reimburse A2Z for an increase in the cost of labour due to an increase in minimum wages notified by the Union of India.

Case Background

It was the case of the petitioner company that they entered into a contract agreement with the Railways, Mumbai Division, for a period of three years starting in February 2016 for mechanized cleaning of coaches, watering of rakes, cleaning of depot premises and provision of On Board Housekeeping Services (OBHS).

Based on the said contract agreement signed by the petitioner, they received consideration for an increase in the cost of the services in terms of the Price Variation Clause (PVC) contained in the contract agreement. On January 19, 2017, the minimum wages applicable to the employees working in the scheduled employment of sweeping and cleaning have been increased by 40% and resultantly, petitioner is required to pay an amount of Rs.523 per day as against the amount of Rs.374 per day, which it was paying till January 18, 2017.

As per the estimation of the petitioner in view of the said increase in the cost of labour, they are required to incur an additional expenditure of Rs.9 crore 79 lakhs for a period commencing from January 2017 till May 2017.

After repeated representations by the petitioner, Railways constituted a four-member committee to recommend a suitable solution for compensating the petitioner for the increase in the cost of labour. The committee recommended the price variation be frozen till January 19 and subsequent increase to be adopted by minimum wages paid on an actual basis as per new notification.

Submissions and Judgment

Senior Advocate Navroz Seervai appeared for the petitioner and Senior Advocate Rajni Iyer appeared for the respondent Railways.

Seervai submitted that the respondents had arbitrarily rejected the recommendations of the committee and placed reliance on a judgment of the apex court in Nabha Power Limited (NPL) Vs. Punjab State Power Corporation Limited (PSPCL) & Anr, to advance his submission that while construing the terms of the commercial contract, “the principles of business efficacy to the transaction” must be intended at all events by both the parties.

While Rajani Iyer argued that the petition was not maintainable as terms of a contract cannot be re-written by the court and according to the terms, petitioners were bound to adhere to clause (14) of the “Specification of Work of Provision of Onboard Housekeeping Services”, which mandates the contractor to adhere to the Labour Rules, Workmen Compensation Act, and Payment of Minimum Wages Act and other labour legislation.

According to her, the petitioner as a contractor was liable for payment of wages to the labour workforce and the railways had been indemnified of any such claims under provisions of Contract Labour (Regulation and Abolition Act), 1970 and Rules 1971.

After examining the terms of the contract and submissions of both parties, the court noted-

“The petitioner is aggrieved by 40% hike in the rates of minimum wages which was not anticipated. On one hand, Respondent railway expects the petitioner contractor to discharge the statutory obligation by paying the minimum wages to its employees, which according to the railway, he is duty-bound to comply. 

However, the railway does not want to rope out the petitioner who has been left in a financial lurch on account of the sudden hike in the rate of minimum wages which the contractor is duty bound to abide by in the light of the statutory obligations cast on him. This court would therefore, not be a mute spectator when it is dealing with the Railway, who has accepted that the contract is of essential services and if the said contract is intervened, the functioning of railway would come to a standstill.”

The court further noted –

“By applying the principle of “business efficacy” as laid down by the Hon'ble Apex Court, the irresistible conclusion that can be drawn is that the PVC cannot be restricted only to the formula prescribed in clause (12) of the agreement, but it also must cover within its ambit the escalated minimum rate of wages. Clause 14 of the agreement mandates the contractor to abide by the statute like the Minimum Wages Act, Workmen Compensation Act etc which are instances of beneficial legislation in the larger interest of the labour class and it is rather a bounden duty of the Railway in ensuring that such statutory mandates are strictly adhered to.

In such circumstances, we are of the considered view that the respondent railways though are at liberty to put an end of the existing contract of the petitioner by following the prescribed mode, but as along as the said contract continues, the petitioner company cannot be deprived of the neutralization for the increase in cost of labour due to notification revising the minimum wages.”

Thus, the court held that petitioners were liable to be compensated the increased difference in cost of labour and allowed the petition.