2001 Supreme(SC) 1190

2001(6) Supreme 602
Supreme Court of India
(From Calcutta High Court)
B.N. Kirpal, Syed Shah Mohammed Quadri, M.B. Shah, Mrs. Ruma Pal and K.G. Balakrishnan, JJ.
Steel Authority of India Ltd. & Ors. etc. etc. —Appellants
versus
National Union Water Front Workers & Ors. etc. etc. —Respondents
Civil Appeal Nos. 6009-6010 of 2001
(Arising out of SLP (C) Nos. 12657-58/98)
With
C.A. No. 6011/2001 @ SLP (C) No. 20926/1998, C.A. No. 6012/2001 @ SLP (C) No. 9568/2000, T.C. No. 1/2000, T.C. Nos. 5 to 7/2000, T.C. (C) No. 14/2000, T.C. Nos. 17 & 18/2000, C.A.Nos. 719-720/2001, C.A. Nos. 5798-99/98, C.A. Nos. 6013-22/2001 @ SLP (C) Nos. 16122-31/98, C.A. No. 6023/2001 @ SLP (C) No. 19391/99, C.A. Nos. 4188-94/98, C.A. No. 4195/98, C.A. Nos. 6024-25/2001 @ SLP (C) Nos. 8282-83/2000, T.P. (C) No. 169/2000, T.P. (C) Nos. 284-302/2000, C.A. No. 6029/2001 @ SLP (C) No. 16346/2000, C.A. Nos. 6030-34/2001 @ SLP (C) Nos.13146-150/2000, T.P. (C) No. 308-337/2000, C.A. No. 141/2001
Decided on 30-8-2001
Counsel for the Parties :
For the Appearing Parties : Harish N. Salve, Solicitor General, K.N. Raval, Additional Solicitor General, G.L. Sanghi, Ms. Indira Jaisingh, K.K. Venugopal, B. Sen, C.S. Vaidyanathan, Shanti Bhushan, Ranjit Kumar, Jitendra Sharma, K.K. Singhvi, Ramesh, P. Bhatt, T.R. Andhyarujina, P.S. Nair, Bhaskar P. Gupta, R. Venkataramani, Rajinder Sachar, Bhimrao Naik, L. Nageshwara Rao, Sr. Advocates, Sunil Kr. Jain, Vijay Hansaria, A.K. Sahi, M.P. Sharma, Manish Kumar, J.K. Bhatia, K.P.S. Chani, Subra Jyoti Borthakur, Ms. Jaya Tomar, Amitesh Lal, Ms. Sushma Sharma, K. Rajeev, Ajit Pudussery, Rakesh K. Khanna, Ms. Pallavi Chaudhary Ms. Anuradha Joshi, Surya Kant, M.B. Buch, J.K. Bhatia, K.V. Sreekumar, Ms. Asha Jain Madan, Mukesh Jain, Sushil K. Pathak, S. Ravindra Bhat, Bharat Sangal, Sanjay Ghosh, Ms. Manjula Gupta, Ms. Sangeeta Panickar, Ms. Nina Gupta, Uday Gupta, Ms. Jaya Shrivastava, Ms. Aripta Mahajan, Vineet Kumar, Ms. Chama Mookerji, Anupam Mookerji, Pranab Kumar Mullick, Sanjay Kumar Pathak, Tara Chandra Sharma, Ajay Sharma, Rajeev Sharma, Pijush K. Roy, Ranjan Mukherjee, D. Mahesh Babu, Ms. Meenakshi Vij, K.T. Anandaraman, P.N. Jha, Sanjay Kapur, Ms. Shubhra Kapur, P.H. Parekh, E.R. Kumar, Zulfikar Kumar, S.K. Singhvi, Ms. Asha Pathak, Ms. Jane Cox, P.K. Manohar, A.S. Chahil, Ms. S. Janani, Vijayendra Misra, Binay Kumar Das, Anil Kumar Jha, B.K. Satija, K.M. Patel, Ms. Sangeeta Kumar, Anil Nauriya, Ms. Hemantika, Wahi, Arvind Kumar Sharma, Advocate (NP), S.R. Setia, Suresh S. Pakale, Ajay Majithia, Sanjay Singhvi, B.N. Singhvi, Yash Pal Dhingra, Anil Sachthey, Ms. Sandhya Rajpal, Arijit Prasad, Abhijit Sengupta, R.R. Chandrachud, A.N. Singh, Sanjay Parikh, Avijit Bhattacharjee, H. Devarajan, Rajiv Nanda, D.S. Mahra, Y.P. Mahajan, B.V. Balram Das, Rakesh Shukla, C. Radhakrishna, Praveen Kamal, Ms. Anita Shenoy, Swapan Banerjee, Advocates.

Headnote:(i) History of exploitation of labour—Remedial measures—Industrial Disputes Act, 1947—In the direction of attaining fair treatment to labour and industrial peace—Position under Constitution—Articles 23, 38, 39, 43, 43A r/w Articles 14 and 16 —Contract Labour (Regulation and Abolition) Act, 1970—To regulate employment of contract labour suitably and to abolish it in certain circumstances —Ch. III—Section 10—Which prohibits the employment of contract labour (see paras 7 to 9).

       (ii) Contract Labour (Regulation and Abolition) Act, 1970—Section 2(1)(a)—Expression ‘appropriate Government—Industrial Disputes Act, 1947—Section 2(a)—Position before 1986 amendment and after amendment—What is the true and correct import of the expression "appropriate Government" as defined in Section 2(1)(a) of CLRA Act?—Position about any industry carried on by or under the authority of the Central Government and such controlled industries as may be specified in that behalf by the Central Government.

       Held : From the above discussion, it follows that the fact of being instrumentality of a Central/State Govt. or being ‘State’ within the meaning of Article 12 of the Constitution cannot be determinative of the question as to whether an industry carried on by a Company/Corporation or an instrumentality of the Govt. is by or under the authority of the Central Government for the purpose of or within the meaning of the definition of ‘appropriate Government’ in the CLRA Act. Take the case of a State Government corporation/company/undertaking set up and owned by the State Government which is an instrumentality or agency of the State Government and is engaged in carrying on an industry, can it be assumed that the industry is carried on under the authority of the Central Government, and in relation to any industrial dispute concerning the industry can it be said that the appropriate Government is the Central Government? We think the answer must be in the negative. In the above example if, as a fact, any industry is carried on by the State Government undertaking under the authority of the Central Government, then in relation to any industrial dispute concerning that industry, the appropriate Government will be the Central Government. This is so not because it is agency or instrumentality of the Central Government but because the industry is carried on by the State Govt. Company/Corporation/Undertaking under the authority of the Central Government. In our view, the same reasoning applies to a Central Government undertaking as well. Further, the definition of ‘establishment’ in CLRA Act takes in its fold purely private undertakings which cannot be brought within the meaning of Article 12 of the Constitution. In such a case how is ‘appropriate Government’ determined for the purposes of CLRA Act or Industrial Disputes Act? In our view, the test which is determinative is: whether the industry carried on by the establishment in question is under the authority of the Central Govt?. Obviously, there cannot be one test for one part of definition of ‘establishment’ and another test for another part. Thus, it is clear that the criterion is whether an undertaking/instrumentality of Government is carrying on an industry under the authority of the Central Government and not whether the undertaking is instrumentality or agency of the Government for purposes of Article 12 of the Constitution, be it of Central Government or State Government. There cannot be any dispute that all the Central Government companies with which we are dealing here are not and cannot be equated to Central Government though they may be ‘State’ within the meaning of Article 12 of the Constitution. We have held above that being the instrumentality or agency of the Central Government would not by itself amount to having the authority of the Central Government to carry on that particular industry. Therefore, it will be incorrect to say that in relation to any establishment of a Central Government Company/undertaking, the appropriate Government will be the Central Government. To hold that the Central Government is "the appropriate Government" in relation to an establishment, the court must be satisfied that the particular industry in question is carried on by or under the authority of the Central Government. If this aspect is kept in mind it would be clear that the Central Government will be the "appropriate Government" under the CLRA Act and the I.D. Act provided the industry in question is carried on by a Central Government company/an undertaking under the authority of the Central Government. Such an authority may be conferred, either by a Statute or by virtue of relationship of principal and agent or delegation of power. Where the authority, to carry on any industry for or on behalf of the Central Government, is conferred on the Government company/any undertaking by the Statute under which it is created, no further question arises. But, if it is not so, the question that arises is whether there is any conferment of authority on the Government company/any undertaking by the Central Government to carry on the industry in question. This is a question of fact and has to be ascertained on the facts and in the circumstances of each case. (Paras 37 & 38)

       After referring case law held : Thus, distinguishing the aforementioned decisions, it was held therein (Air India’s case) that from the inception of the CLRA Act the appropriate Government was the Central Government. We have held above that in the case of a Central Government company/undertaking, an instrumentality of the Government, carrying on an industry, the criteria to determine whether the Central Government is the appropriate Government within the meaning of the CLRA Act, is that the industry must be carried on by or under the authority of the Central Government and not that the company-undertaking is an instrumentality or an agency of the Central Government for purposes of Article 12 of the Constitution; such an authority may be conferred either by a statute or by virtue of relationship of principal and agent or delegation of power and this fact has to be ascertained on the facts and in the circumstances of each case. In view of this conclusion, with due respect, we are unable to agree with the view expressed by the learned Judges on interpretation of the expression "appropriate Government" in Air India’s case (supra). Point No. 1 is answered accordingly. (Paras 43 and 44)

       (iii) Contract Labour (Regulation & Abolition Act, 1970—Sections 10(1) r/w 2(e)—Notification under Section 10(1) prohibition of employment of contract labour—Whether Notification dated 9.12.1976 issued by Central Government under Section 10(1) of CLRA Act is valid and applies to all Central Government Companies?—Main contention against the validity of said notification is that an omnibus notification like the impugned notification would be contrary to requirement of Section 10 of the CLRA Act and is illustrative of non-application of mind—Whether correct ? (Yes).

       Held : Now, reading the definition of ‘establishment’ in Section 10, the position that emerges is that before issuing notification under sub-section (1) an appropriate Government is required to: (i) consult the Central Board/State Board: (ii) consider the conditions of work and benefits provided for the contract labour and (iii) take not those factors such as mentioned in clauses (a) to (d) of sub-section (2) of Section 10, referred to above, with reference to any office or department of the Government or local authority or any place where any industry, trade, business, manufacture or occupation is carried on. These being the requirement of Section 10 of the Act, we shall examine whether the impugned notification fulfils these essentials. The impugned notification issued by the Central Government on December 9, 1976, reads as under :

       "S.O. No. 779(E) 8/9.12.76 in exercise of the power conferred by Sub-section (1) of Section 10 of the Contract Labour (Regulation and Abolition) Act, 1970 (37 of 1970) the Central Government after consultation with the Central Advisory Contract Labour Board hereby prohibits employment of contract labour on an from the 1st March, 1977, for sweeping, cleaning, dusting and watching of buildings owned or occupied by the establishments in respect of which the appropriate Government under the said Act is the Central Government.

       Provided that this notification shall not only apply to the outside cleaning and other maintenance operations of multi-storeyed buildings where such cleaning or maintenance operations cannot be carried out except with specialised experience."

       A glance through the said notification, makes it manifest that with effect from March 1, 1977, it prohibits employment of contract labour for sweeping, cleaning, dusting and watching of buildings owned or occupied by establishment in respect of which the appropriate Government under the said Act is the Central Government. This clearly indicates that the Central Government had not adverted to any of the essentials, referred to above, except the requirement of consultation with the Central Advisory Board. Consideration of the factors mentioned above has to be in respect of each establishment, whether individually or collectively, in respect of which notification under sub-section 1 of Section 10 is proposed to be issued. The impugned notification apart from being an omnibus notification does not reveal compliance of sub-section (2) of Section 10. This is ex facie contrary to the postulates of Section 10 of the Act. Besides it also exhibits non-application of mind by the Central Government. We are, therefore, unable to sustain the said impugned notification dated December 9, 1976 issued by the Central Government. (Paras 50 and 51)

       (iv) Contract Labour (Regulation & Abolition) Act, 1970—Section 10—Prohibition of employment of contract labour—Section 2(e)—Definition of establishments—Whether automatic absorption of contract labour, working in the establishment of principal employer as regular employees, follows on issuance of a valid notification under Section 10(1) of CLRA Act prohibiting the contract labour in the concerned establishment? Rival contentions—Two issues—Decisions in the light of Rule in Hydon’s case—Section 2(h)—Definition of ‘contract labour’—Section 2(c)—Definition of contractor—Section 2(g)—Definition of ‘principal employer’—Section 2(i)—Definition of workman—Conclusions—‘Industrial adjudicator’—Result in individual cases—(see Paras 125 to 144).

       Held : The contentions of the learned counsel for the parties, exhaustively set out above, can conveniently be dealt with under the following two issues:

       A. Whether the concept of automatic absorption of contract labour in the establishment of the principal employer on issuance of the abolition notification, is implied in Section 10 of the CLRA Act, and

       B. Whether on a contractor engaging contract labour in connection with the work entrusted to him by a principal employer, the relationship of master and servant between him (the principal employer) and the contract labour, emerges.

       For a proper examination of these issues, a reference to Section 10 which provides for prohibition of employment of contract labour and Clauses (b), (c), (e), (g), and (i) of Section 2 of CLRA Act which define the terms ‘contract labour’, ‘contractor’, ‘establishment’, ‘principal employer’ and ‘workman’ respectively will be apposite. To interpret these and other relevant provisions of the CLRA Act, to which reference will be made presently, we may, with advantage, refer to "CRAIES on Statute Law" (6th Edition by S.G.G. Edgar page 96) quoting the following observation of Lindley M.R. in Re. Mayfair Property Co. [1898 (2) Ch. 28, 35] in regard to Rule in Heydon’s case [1584(3) Co. Rep. 7a].

       "in order properly to interpret any statute it is as necessary now as it was when Lord Coke reported Heydon’s case, to consider how the law stood when the statute to be construed was passed, what the mischief was for which the old law did not provide, and the remedy provided by the statute to cure that mischief."

       What the learned Master of the Rolls observed in 1898 holds good even in 2001, so we proceed in the light of Rule in Heydon’s case. (Paras 63, 64 and 65)

       In the light of the above discussion we are unable to perceive in Section 10 any implicit requirement of automatic absorption of contract labour by the principal employer in the concerned establishment on issuance of notification by the appropriate Government under Section 10(1) prohibiting employment of contract labour in a given establishment. (Para 87)

       Held further : While this was the state of law in regard to the contract labour, the issue of automatic absorption of the contract labour came up before a Bench of three learned Judges of this Court in Air India’s case (supra). The Court held: (1) though there is no express provision in the CLRA Act for absorption of the contract labour when engagement of contract labour stood prohibited on publication of the notification under Section 10(1) of the Act, from that moment the principal employer cannot continue contract labour and direct relationship gets established between the workmen and the principal employer; (2) the Act did not intend to denude the contract labour of their source of livelihood and means of development throwing them out from employment; and (3) in a proper case the Court as sentinel on the qui vive is required to direct the appropriate authority to submit a report and if the finding is that the workmen were engaged in violation of the provisions of the Act or were continued as contract labour despite prohibition of the contract labour under Section 10(1), the High Court has a constitutional duty to enforce the law and grant them appropriate relief of absorption in the employment of the principal employer. Justice Majmudar, in his concurring judgment, put it on the ground that when on the fulfilment of the requisite conditions, the contract labour is abolished under Section 10(1), the intermediary contractor vanishes and along with him vanishes the term "principal employer" and once the intermediary contractor goes the term "principal" also goes with it; out of the tripartite contractual scenario only two parties remain, the beneficiaries of the abolition of the erstwhile contract labour system, i.e. the workmen on the one hand and the employer on the other, who is no longer their principal employer but necessarily becomes a direct employer for erstwhile contract labourers. The learned Judge also held that in the provision of Section 10 there is implicit legislative intent that on abolition of contract labour system, the erstwhile contract workmen would become direct employees of the employer on whose establishment they were earlier working and were enjoying all the regulatory facilities under Chapter V in that very establishment. In regard to the judgment in Gujarat Electricity Board’s case (supra), to which he was a party, the learned Judge observed that he wholly agreed with Justice Ramaswamy’s view that the scheme envisaged by Gujarat Electricity Board case was not workable and to that extent the said judgment could not be given effect to. For reasons we have given above, with due respect to the learned Judges, we are unable to agree with their reasoning or conclusions. (Paras 101 & 102)

       After reviewing case law held on point A : An analysis of the cases, discussed above, shows that they fall in three classes; (i) where contract labour is engaged in or in connection with the work of an establishment and employment of contract labour is prohibited either because the Industrial adjudicator/Court ordered abolition of contract labour or because the appropriate Government issued notification under Section 10(1) of the CLRA Act, no automatic absorption of the contract labour working in the establishment was ordered; (ii) where the contract was found to be sham and nominal rather a camouflage in which case the contract labour working in the establishment of the principal employer was held, in fact and in reality, the employees of the principal employer himself. Indeed, such cases do not relate to abolition of contract labour but present instances wherein the Court pierced the veil and declared the correct position as a fact at the stage after employment of contract labour stood prohibited; (iii) where in discharge of a statutory obligation of maintaining canteen in an establishment the principal employer availed the services of a contractor and the courts have held that the contract labour would indeed be the employees of the principal employer. (Para 105)

       Held on point B : Mr. Shanti Bhushan alone has taken this extreme stand that by virtue of engagement of contract labour by the contractor in any work of or in connection with the work of an establishment, the relationship of master and servant is created between the principal employer and the contract labour. We are afraid, we are unable to accept this contention of the learned counsel. A careful survey of the cases relied upon by him shows that they do not support his proposition. (Para 107)

       We have also perused all the Rule and Forms prescribed thereunder. It is clear that at various stages there is involvement of the principal employer. On exhaustive consideration of the provisions of the CLRA Act we have held above that neither they contemplate creation of direct relationship of master and servant between the principal employer and the contract labour nor can such relationship be implied from the provisions of the Act on issuing notification under Section 10(1) of the CLRA Act, a fortiorari much less can such a relationship be found to exist from the Rules and the Forms made thereunder. The leftover contention of Ms. Indira Jaisingh may be dealt with here. The contention of Ms. Indira Jaisingh that the principles of contract law sticto sensu do not apply to the labour and management is too broad to merit acceptance. (Paras 118 & 119)

       Held further : In the case of Uptron India (supra), the controversy related to the termination of the services of the workmen for unauthorised absence. The Industrial Employment (Standing Orders) Act, 1946 provided that a workman is liable to automatic termination on the ground of unauthorised absence. It is in that context that this Court has observed that the general principles of the Contract Act, 1872 applicable to an agreement between two persons having capacity to contract, are also applicable to a contract of industrial employment but relationship so created is partly contractual and partly non-contractual as the States have already, by legislation, prescribed positive obligations for the employer towards his workmen, as for example, terms, conditions and obligations prescribed by the Payment of Wages Act, 1936; Industrial Employment (Standing Orders) Act, 1946; Minimum Wages Act, 1948; Payment of Bonus Act, 1965; Payment of Gratuity Act, 1972 etc. In our view, the law has been correctly laid down therein. The judgment in that case cannot be read as laying down a principle of law that the provisions of the Contract Act are not applicable to relation between the labour and the management.

       The upshot of the above discussion is outlined thus:–

       (1) (a) Before January 28, 1986, the determination of the question whether Central Government or the State Government, is the appropriate Government in relation to an establishment, will depend, in view of the definition of the expression "appropriate Government" as stood in the CLRA Act, on the answer to a further question, is the industry under consideration carried on by or under the authority of the Central Government or does it pertain to any specified controlled industry; or the establishment of any railway, cantonment board, major port, mine or oilfield or the establishment or banking or insurance company? If the answer is in the affirmative, the Central Government will be the appropriate Government; otherwise in relation to any other establishment the Government of the State in which the establishment was situated, would be the appropriate Government.

       (b) After the said date in view of the new definition of that expression, the answer, to the question referred to above, has to be found in clause (a) of Section 2 of the Industrial Disputes Act; if (i) the concerned Central Government company/undertaking or any undertaking is included therein eo nomine, or (ii) any industry is carried on (a) by or under the authority of the Central Government, or (b) by railway company; or (c) by specified controlled industry, then the Central Government will be the appropriate Government otherwise in relation to any other establishment, the Government of the State in which that other establishment is situated, will be the appropriate Government.

       (2) (a) A notification under Section 10(1) of the CLRA Act prohibiting employment of contract labour in any process, operation or other work in any establishment has to be issued by the appropriate Government:

       (1) after consulting with the Central Advisory Board or the State Advisory Board, as the case may be, and;

       (2) having regard to

       (i) conditions of work and benefits provided for the contract labour in the establishment in question; and

       (ii) other relevant factors including those mentioned in sub-section (2) of Section 10;

       (b) inasmuch as the impugned notification issued by the Central Government on December 9, 1976 does not satisfy the aforesaid requirements of Section 10, it is quashed but we do so prospectively i.e. from the date of this judgment and subject to the clarification that on the basis of this judgment no order passed or no action taken giving effect to the said notification on or before the date of this judgment, shall be called in question in any tribunal or court including a High Court if it has otherwise attained finality and/or it has been implemented.

       (3) Neither Section 10 of the CLRA Act nor any other provision in the Act, whether expressly or by necessary implication, provides for automatic absorption of contract labour on issuing a notification by appropriate Government under sub-section (1) of Section 10, prohibiting employment of contract labour, in any process, operation or other work in any establishment. Consequently the principal employer cannot be required to order absorption of the contract labour working in the concerned establishment;

       (4) We over-rule the judgment of this court in Air India’s case (supra) prospectively and declare that any direction issued by any industrial adjudicator/any court including High Court, for absorption of contract labour following the judgment in Air India’s case (supra), shall hold good and that the same shall not be set aside, altered or modified on the basis of this judgment in cases where such a direction has been given effect to and it has become final.

       (5) On issuance of prohibition notification under Section 10(1) of the CLRA Act prohibiting employment of contract labour or otherwise, in an industrial dispute brought before it by any contract labour in regard to conditions of service, the industrial adjudicator will have to consider the question whether the contractor has been interposed either on the ground of having undertaken to produce any given result for the establishment or for supply of contract labour for work of the establishment under a genuine contract or is a mere ruse/camouflage to evade compliance of various beneficial legislations so as to deprive the workers of the benefit thereunder. If the contract is found to be not genuine but a mere camouflage, the so-called contract labour will have to be treated as employees of the principal employer who shall be directed to regularise the services of the contract labour in the concerned establishment subject to the conditions as may be specified by it for that purpose in the light of para 6 hereunder.

       (6) If the contract is found to be genuine and prohibition notification under Section 10(1) of the CLRA Act in respect of the concerned establishment has been issued by the appropriate Government, prohibiting employment of contract labour in any process, operation or other work of any establishment and where in such process, operation or other work of the establishment the principal employer intends to employ regular workmen he shall give preference to the erstwhile contract labour, if otherwise found suitable and, if necessary, by relaxing the condition as to maximum age appropriately taking into consideration the age of the workers at the time of their initial employment by the contractor and also relaxing the condition as to academic qualifications other than technical qualifications.

       We have used the expression "industrial adjudicator" by design as determination of the questions afore-mentioned requires inquiry into disputed questions of facts which cannot conveniently be made by High Courts in exercise of jurisdiction under Article 226 of the Constitution. Therefore, in such cases the appropriate authority to go into those issues will be industrial tribunal/court whose determination will be amenable to judicial review. (Paras 122, 123 and 124)