State can’t deny extra payment to contractor citing terms of contract when it increases minimum wages: Karnataka High Court

The High Court of Karnataka held that the State cannot deny payment of the differential amount to a contractor who incurred higher wage costs due to revised minimum wages during a subsisting contract, merely because the contract was based on earlier rates, and directed the Karnataka Legislative Assembly (KLA) secretariat to pay ₹3.5 crore with 12% interest to a manpower-supplying firm.

“A contract entered into by the State cannot override statutory obligation. Any clause in the contract which has the effect of defending a statutory mandate is unenforceable in law. The doctrine is well settled that there can be no estoppel against the Statute,” the court observed.

Model employer

Therefore, the Court made it clear that “even assuming that the contract did not provide for escalation and there is a clause indicating that any escalation revision shall be borne by the contractor, the State being an instrumentality under Article 12 of the Constitution, is expected to act as a model employer and cannot take advantage of contractual rigidity to indirectly compel violation of labour welfare statutes”.

Justice Sachin Shankar Magadum passed the order while allowing a petition filed by M/s Asian Security and Personnel Arrangements, Bengaluru. The petitioner had challenged the action of the KLA, which in 2024 had rejected the petitioner’s bill for payment of ₹3.5 crore in addition to the contractual amount in view of the State government’s 2016 notification of increasing minimum wages.

Rejecting the State’s stand that the petitioner is bound by the terms of the contract, which was as per the then existing minimum wage rates, the Court said that the stand taken by the State is “irrational, unreasonable, and contrary to public policy”.

Constitutional obligation

“The obligation to pay minimum wages is not merely a contractual stipulation but a statutory and constitutional obligation,” Justice Magadum observed, noting that any payment below notified minimum wages would amount to forced labour under Article 23 of the Constitution, while upholding the right of the contractor to seek enhanced amount for payment of hiked minimum wage.

The court also declined the State’s plea to relegate the petitioner to arbitration in terms of clauses of the contract, noting that the grievance stemmed from the government’s own statutory notification on minimum wages, making the matter amenable to judicial review.