IMPACT OF THE SUPREME COURT DECISION ON CONTRACT LABOUR: (Steel Authority

of India Ltd. v. National Union Water Front Workers)

Author(s): Suresh C. Srivastava
Source: Journal of the Indian Law Institute , October-December 2001, Vol. 43, No. 4
(October-December 2001), pp. 531-549
Published by: Indian Law Institute
Stable URL: https://www.jstor.org/stable/43953398

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NOTES AND COMMENTS

IMPACT OF THE SUPREME COURT DECISION ON

CONTRACT LABOUR

(Steel Authority of India Ltd. v. National Union

Water Front Workers)

I Introduction

ON SEPTEMBER 30, 2001 a constitution bench of the Supreme Court in

Steel Authority of India Ltd. v. National Union Water Front Workers 1
delivered a momentous judgment having a bearing on contract labo
system. The court has re-opened several important issues earlier decide
by a three-judge bench in Air India Statutory Corporation v. Labo
Union1 , and overruled the same prospectively, thereby, inter alia , deni
the right of contract labour to be absorbed, on abolition of contract labo
system, a right earlier created by another three-judge bench by judici
legislation. However, the court's ruling, in effect, has succeeded
satisfying the management's desire to give them free hand to empl
contract labour without imposing any liability to absorb them on abolitio
of the contract labour system in order to compete in the internationa
market. Indeed, the decision is in conformity with the recommendatio
of the Fifth Pay Commission that in certain jobs the Government of In
should also engage contract labour besides meeting some of the vie
points of the Finance Minister in his budget speech of the ye
2000-2001, namely, to facilitate outsourcing of activities to contra
labour. However, the principles evolved in the judgment are pregna
with tremendous liability and would bring anomalous results.

II Area of conflict

A reading of the Supreme Court decision reveals the following areas

of conflict:

(a) What is the true and correct import of the expression 'appropriate
government' defined in section 2(1 )(a) of Contract Labour
(Regulation & Abolition) Act, 1970 (hereinafter referred to as
CLRA Act)?

1. 2001 LLR 961.

2. 1997 LLR 288.

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532 JOURNAL OF THE INDIAN LAW INSTITUTE [Vol. 43 : 4

(b) Whether the notification dated December 9, 1976

Central Government under section 10(1) of the CLRA Act is
valid and applies to all Central Government companies?
(c) Whether automatic absorption of contract labour, working in
the establishment of the principal employer as regular employees,
follows on issuance of a valid notification under section 10(1)
of the CLRA Act, prohibiting the contract labour in the concerned
establishment.

(d') Whether the contract labour would become the employee of the
principal employer if he employs such labour in discharge of a
statutory duty such as canteen?
(e) Whether contract labour would become the employee of principal
employer where contract is found to be sham or a camouflage?
(f) Whether the principal employer who intends to employ regular
workmen shall give preference to the erstwhile contract labour:
(i) if otherwise found suitable, and
(ii) if necessary by relaxing the conditions as to maximum age
appropriately taking into consideration the age of the
workers at the time of their initial employment by the
contractor, and

(iii) by relaxing academic qualifications (other than technical

qualification)?
However, the Supreme Court itemized only issue no (a) to (c) but in
the course of judgment it dealt with all the above issues.

Ill Factual background

In order to appreciate the controversy it is necessary to examine the

circumstances, which led to the decision in the present case. In the first
case in Food Corporation of India , Bombay and others v. Transport &
Dock Workers Union and others 3 , a two-judge bench of the court, having
noticed the conflict of opinion between different benches including two
three-judge benches of the Supreme Court on the interpretation of the
expression 'appropriate government' in section 2(1 )(a) of the CLRA Act
and in section 2(a) of the Industrial Disputes Act, 1947 (hereinafter the
ID Act) and having regard to the importance of the question of automatic
absorption of the contract labour in the establishment of the principal
employer as a consequences of an abolition notification issued under
section 10(1) of the CLRA Act, referred these cases to a larger bench.

3. 1997(7) SCC 59.

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 200 1 J NOTES AND COMMENTS 533

In the second case, the Central Go

its branch manager are engaged in
types of iron and steel materials in
India. The business of the appella
several products and bye-products through Central Marketing
Organization, a marketing unit of the appellant, having network of branches
in different parts of India. The work of handling the goods in the stockyards
of the appellants was being entrusted to contractors after calling for
tenders in that behalf. The government of West Bengal issued notification
dated July 15, 1989 under section 10(1) of the CLRA Act (herein after
referred to as 'the prohibition notification') prohibiting the employment
of contract labour in four specified stockyards of the appellants at Calcutta.
On the representation^ of the appellants, the government of West Bengal
kept in abeyance the said notification initially for a period of six months
by notification dated August 28, 1989 and thereafter extended that period
from time to time. It appears that the state government did not however
extend the period beyond August 31, 1994. The union (first respondent)
took up the cause of 353 contract labourers by filing a writ petition in the
Calcutta High Court seeking a direction to the appellants to absorb the
contract labour in their regular establishment in view of the prohibition
notification of the state government dated July 15, 1989 and further
praying that the notification dated August 28, 1989, keeping the prohibition
notification in abeyance, be quashed. A single judge of the high court
allowed the writ petition, set aside the notification dated August 28, 1989
and all subsequent notifications extending the period and directed that the
contract labour be absorbed and regularized from the date of prohibition
notification, i.e. July 15, 1989 - within six months from the date of
judgment, i.e. April 25, 1994. The above appeals and other eases as the
same consequences arise in them were heard together before the
constitution bench.

IV Judicial response

Scope of the expression 'appropriate government'

Section 2(1 )(a) of the CLRA Act defines 'appropriate government' to

mean:

(i) in relation to an establishment in respect of which th

government4 under the ID Act, 1947, is the central g
the central government.

4. Section 2 (a) of the industrial Disputes Act, 1947 define

Government' to mean:

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 534 .JOURNAL OF THE INDIAN LAW INSTITUTU [Vol. 43 4

(ii) in relation to any other establishment, the go

state in which that other establishment is situated.

An analysis of the definition of 'appropriate government1 under

section 2(a) of the ID Act, 1947 envisages a scheme of distribution of
powers between the Central Government and state government, which
closely resembles the distribution of legislative powers under the
Constitution. Thus, the power to intervene in industrial dispute concerning
railways5 , banking6 , insurance7 , oilfields8 , and major ports9 , which are
all on the union list, lies with the Central Government. Further, the power
to intervene in industrial disputes concerning mines and minerals, which
though on the state list, is retained with the Central Government10.

(i) in relation to any industrial disputes concerning any industry carried on by or

under the authority of the Central Government or by a railway company [or concerning
any such controlled industry as may be specified in this behalf by the Central
Government] or in relation to an industrial dispute concerning [a Dock Labour Board
established under Section 5-A of the Dock Workers (Regulation of Employment) Act,
1 948 (9 of 1 948), or [the Industrial Finance Corporation of India Limited formed and
registered under the Companies Act, 1956 (1 of 1956)], or the Employees' State
Insurance Corporation established under section 3 of the Employee's States Insurance
Act, 1948 (34 of 1948), or the Board of trustees constituted under Section 3-A of the
Coal Mines Provident Funds and Miscellaneous Provident Act, 1948 (46 of 1948), or
the Central Board of Trustees and the State Boards of Trustees constituted under
Section 5-A and Section 5-B, respectively, of the Employees' Provident Fund and
Miscellaneous Provision Act, 1 952 ( 1 9 of the 1 952), or the Life Insurance Corporation
of India cstablishd under section 3 of the Life Insurance Corporation Act, 1956 (31
of 1965) or [the Oil and Natural Gas Corporation Limited registered under the
Companies Act, 1956 (1 of 1956)], or the Deposit Insurance and Credit Guarantee
Corporation established under section 3 of the Deposit Insurance and Credit Guarantee
Corporation Act, 1961 (47 of 1961), or the Central Warehousing Corporation
established under section 3 of the Warehousing Corporation Act, 1962 (58 of 1962),
or the Unit Trust of India established under section 3 of the Unit Trust of India Act,
1963 (52 of 1963), or the Food Corporation of India established under Section 3, or
a Board of Management established for two or more contiguous States under Section
16 of the Food Corporation Act, 1964 (37 of 1964), or [the Airports Authority of India
constituted under section 3 of the Airports Authority of India Act, 1994 (55 of 1994)],
or a Regional Rural Bank established under Section 3 of the Regional Rural Banks
Act, 1976 (21 of 1976), or the Export Credit and Guarantee Corporation Limited or
the Industrial Reconstruction Corporation of India Limited], or [the Banking Service
Commission established under Section 3 of the Banking Service Commission Act,
1975], or [an air transport service, or a banking or an insurance company, a mine, an
oil field], [a Cantonment Board] or a major port, the Central Government; and
(ii) in relation to any other industrial dispute, the State Government.
5. The Constitution of India, entry 22, union list.
6. The Constitution of India, entrv 45, union list.
7. The Constitution of India, entry 47, union list.
8. The Constitution of India, entry 53, union list.
9. The Constitution of India, entry 23, union list.
10. The Constitution of India, entry 27, state list.

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 200 1 j NOTES AND COMMENTS 535

Moreover, to meet the requirements o

entry 52 of the union list empowers
in respect of industries which are
'controlled industries' 1 1 and the Cen
the ID Act to intervene, if necessary
these 'controlled industries'. Of cours
'appropriate government' in respect o
its authority.
The scope of the expression 'ap
the ID Act, 1947 has been debated
Mazdoor Union v. State of Bihar12
ernment' was interpreted as follow
When the undertaking is run by an
directly by the Central Governmen
then the company cannot be said to
under the authority of the Central
company is separated from its shar
that the entire share capital was
Government and the shares are hel
officers of the Government does
President or the Central Governmen
can appoint the Directors and ca
immaterial.

The aforesaid view was reiterated in Food Corporation of India

Workers' Union v. Food Corporation of India1 ^ , and Rashtriya Mill
Mazdoor Sangh v. Model Mills, . Nagpur14 . In Air India Statutory
Corporation v. United Labour Union^ , however, the three judge bench
of the Supreme Court held that the bench in Heavy Engineering case
narrowly construed the meaning of phrase 'appropriate government'
placing reliance on the concession and common law doctrine of 'principal
and agent' which no longer bears any relevance when it is tested on the
anvil of article 14 of the Constitution. The Supreme Court accordingly
overruled its earlier decision in Heavy Engineering case and observed
that the public law interpretation is appropriate principle of construction
of the phrase 'appropriate government'.
In Steel Authority of India case the constitution bench of Supreme
Court was invited to redetermine the scope of the expression 'appropriate

I I. The Constitution of India, entry 52, state list.

1 2 .1996 II LLJ 549.
13. AIR 1985 SC 488.
14. 1984 (49) FLR 401.
15. 1997 LLR 288.

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536 JOURNAL OF THE INDIAN LA W INSTITUTE [Vol. 43 : 4

government'. The following questions arose for determination

(1) Is the Central Government appropriate government i
Central Government undertakings?
(ii) Can an industry carried on by a company/corporation o
under the authority of the Central Government wi
meaning of 4 appropriate government' under sectio
CLRA Act?

(iii) Can the state government corporation/company/undertaking fa

under the authority of the Central Government if it is owned b
the state government or is an instrumentality or agency of stat
government?
The court analyzed the definition under section 2(a), which is as
follows:

The Central Government will be the appropriate government in relation

to an industrial concerning:
( 1 ) any industry carried on by or under the authority of the Central
Government, or by a railway company; or
(2) any such controlled industry as may be specified in this behalf
by the Central Government; or
(3) the enumerated industries (which form part of the definition
quoted in foot note 4.
The court referred to the meaning given in Concise Oxford Dictionary
and Black Law Dictionary and observed:
1. The phrase "any industry carried on under the authority of the
Central Government" implies an industry which is carried on
(a) by virtue of,
(b) pursuant to,
(c) conferment of,
(d) grant of,
(e) delegation of power, or
(f) permission
by the central government to a central government company or other
government company/undertaking.
In other words if there is lack of conferment of power or permission
by the Central Government to the government company or undertaking,
it would disable such a company/undertaking to carry on the industry in
question16.

16. Supra note 1 at 971.

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200 1 ] NOTES AND COMMENTS 537

2. Where the authority, to carry o

the Central Government is conferred
undertaking under the statute under w
arises. But if it is not so, the questio
of authority on the government com
Government to carry on the industry
and has to be ascertained on the fact
3 . The Supreme Court ruled that the
the Central Government is appro
undertaking or company under CLR
carried only by or under the authorit
that the company/undertaking is an
Central Government for purpose of
It is submitted that the Supreme C
case by holding that "where the auth
on behalf of the central government,
said to be run under the authority
rendered 316 out of the 404 words u
Indeed the court misread the intent
2(a) and on the whole threw the legi
We believe that both Air India case
for different reasons, have failed to
inclusion of twenty five establishmen
2(a) of the ID Act, 1947. Quite apart
to appreciate the implications of the de
Thus, the Central Government is t
relation to an establishment in r
government' under the ID Act, 1947
government in relation to other esta
establishment is situated. Thus the s
government in most of the establish
view of this, there is no uniformity
for enforcement of the Act. There i
coverage of establishment or process,
purview of prohibition under sect
prohibited in one state but the same
state. This poses a problem in the enf
is a variation not only amongst state
in regards to the prohibition and
hurdles in the enforcement of the A

17. Id. at 973.

18. Id. at 972.

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538 JOURNAL OF THE INDIAN LA W INSTITUTE [Vol. 43 : 4

The definition of 'appropriate government' under the Co

(Regulation and Abolition) Act, 1970 has brought departme
Government^ which is not an industry under the Industrial
1947) within the domain of state government. This again r
in enforcement of the Act. Indeed it creates anomaly.
A difficulty also arises where the dispute is of establishm
question of national importance or involves more than one
a situation it would be anomalous if state government is h
appropriate government.

Legality of notification of 9.12.1976

The notification issued by the Central Government on D

1976 reads:
In exercise of the power conferred by section 10(1 ) of CLRA Act
the Central Government after consultation with the Central
Advisory Board hereby prohibits employment of contract labour
on and from 1.3.1997 for Sweeping, Cleaning, Dusting and
Watching of building owned or occupied by establishment in
respect of which the appropriate government under CLRA Act is
the Central Government.

Provided this notification shall not apply to the outside cleaning

and other maintenance operations of multi-storied buildings where
such cleaning or maintenance operation cannot be carried out
except with specialized experiences.
The Supreme Court in Air India Statutory Corporation v. United
Labour Union , upheld the above notification issued by the Central
Government prohibiting employment of contract labour for sweeping,
cleaning, dusting and watching of buildings owned and occupied by
establishments in which Central Government is the appropriate
government. However, in Steel Authority of India the constitution bench
of the Supreme Court declared the abQve 1976 - notification to be invalid
and illegal because it: (i) only fulfils the requirement of consultation with
the Central Advisory Boards, (ii) is an omnibus notification, (iii) does not
reveal compliance of clauses (a) to (d) of section 10(2), and (iv) exhibits
non-application of mind by the Central Government.
The aforesaid judgment requires a careful examination. Section 10
empowers the appropriate government to prohibit, by notification in the
official gazette, employment of contract labour in any (i) process, (ii)
operation or (iii) other work in any establishment. But before issuing the
notification prohibiting contract labour the appropriate government is
required to consult the central or state board, as the case may be. Further
before issuing any notification under section 10 in relation to an

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 200 1 J NOTES AND COMMENTS 539

establishment, the appropriate gove

the conditions of work and benefits
that establishment and other relevant factors such as:

(a) Whether the process, operation or other work is incidental to, or

necessary for the industry, trade, business, manufacture or
occupation that is carried on in the establishment.
(b) Whether it is of perennial nature, that is to say, it is of sufficient
duration having regard to the nature of industry, trade, business,
manufacture or occupation carried on in that establishment.
(c) Whether it is done ordinarily through regular workmen in that
establishment or an establishment similar thereto.

(d) Whether it is sufficient to employ considerable number of whole

time workmen.

In L&T McNeil Ltd. Etc. v. Government of Tamil Nadu19 , the

government of Tamil Nadu issued notification under section 10(1) of the
Act prohibiting the employment of contract labour in process of sweeping
and scavenging in establishments / factories employing 50 or more
workmen. On a writ petition the high court dismissed the same for want
of effective consultation by Tamil Nadu State Contract Labour Advisory
Board. On appeal, the Supreme Court held that: "it is not clear as to how
the government could have reached the conclusion in the absence of the
advice by the Board. Decision is liable to be vitiated". It added, that the
government ought to take into consideration the relevant factors contained
in section 10(l)(a) to (d) of the CLRA Act.
From the above it is evident that a notification must be preceded by
the effective consultation. All that is required is that the government
should consult the Advisory Board. It does not mean that the government
is bound by the advice given by the Advisory Board20 .

Role of the appropriate government on receipt of advice of the Board

On receipt of the advice of the Contract Advisory Board, the

government is required to consider the relevant factors contained in
clause (a) to (d) of section 10(2), of the CLRA Act such as:
( 1 ) The report of the Advisory Board.
(2) The various conditions of the work.
(3) The benefits of the contract labour in the establishment.
(4) Need of such activity.

19. 2001 LLR 261.

20. Barat Fritz Ltd. v. State of Karnataka , 2001 LLR 285.

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540 JOURNAL OF THE INDIAN LA W INSTITUTE [Vol. 43 : 4

(5) Whether it is a perennial in nature or otherwise.

(6) Whether such activity is done ordinarily throu
workmen in that establishment or an establishment similar
thereto.

(7) Whether it is sufficient to employ considerable number of whole

time workmen.

It is required to prepare a detailed noting before issuing the notification.

However, where there is no material as to how the government could have
reached the conclusion one way or the other, the court has quashed the
notification issued by the government. However, it is open to the
government to issue a fresh notification after consultation with the
appropriate government and due consideration of the matter in accordance
with the Act21 .
It is submitted that:

(i) The ruling of the Supreme Court that notification need not be
omnibus is open to debate. It raises a question whether single
notification be not issued under section 10 of the CLRA Act for
establishments doing similar work or employing similar
categories of workers. We believe that the answer can only be
in affirmative.

(ii) Too much emphasis on non-application of mind by the

appropriate government before issuance of notification raises
an issue whether the requirement of satisfaction of appropriate
government be substituted by the satisfaction of court.
(iii) We believe that what is required under section 10 is that before
issuance of a notification there should be effective consultation
of Contract Labour Board. Once this is done by the appropriate
government the court may examine whether there is a substantial
compliance of section 10(2) as evident from the records.

Automatic absorption of contract labour on abolition of contract

labour system

In Air India Statutory Corp. v. United Labour Union 22 the court

noted that there is no express provision under section 10 of the CLRA Act
for absorption of contract labour on abolition of the contract labour
system. In the absence of such a provision the Supreme Court has played
a creative role by bridging the gap left open by the legislature. Thus, in
Air India Statutory Corp. v. United Labour Union case in the majority

21. L& T Mc Neil v. Govt, of Tamil Nadu , 2000 LLR 261 (SC).
22. 1997 LLR 288.

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 200 1 ļ NOTES AND COMMENTS 54 1

judgment Ramaswamy, J. observed:

( 1 ) Though there is no express pro
absorption of the contract labour w
labour stood prohibited on publicatio
Section 10(1) of the Act, from that m
cannot continue contract labour a
established between the workmen an
(2) The Act did not intend to denude
source of livelihood and means of de
out from employment; and
(3) In a proper case the Court as s
required to direct the appropriate aut
if the finding is that the workmen
the provisions of the Act or were co
despite prohibition of the contract la
High Court has constitutional duty t
them appropriate relief of absorptio
principal employer.
In a separate concurring Judgment, M
If it is held that on abolition of c
erstwhile contract labourers are to be thrown out of that
establishment lock stock and barrel, it would amount to throwing
the baby out with the bath water.
He added:

Implicit in the provision of Section 10 is the 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 on that very establishment under
Chapter V prior to the abolition of such contract labour system.
Though the legislature has expressly not mentioned the
consequences of such abolition, but the very scheme and ambit of
section 10 of the Act clearly indicates the inherent legislative
intent of making the erstwhile contract labourers direct employees
of the employer on abolition of the intermediatory contractor.
The constitution bench of the Supreme Court in Steel Authority
of India 's case ruled:
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,

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542 JOURNAL OF THE INDIAN LA W INSTITUTE (Vol. 43 : 4

operation or other work in any establishment. Consequ

principal employer cannot be required to order absorpti
contract labour working in the concerned establishmen

Consequences on issuance of notification under section 10

The constitution bench of the Supreme Court held that issuance of

notification would have the following effect:
( 1 ) Contract labour working in the concerned establishment at the
time of issue of notification will cease to function.

(2) The contract of principal employer with the contractor in

regard to the contract labour comes to an end.
(3) No contract labour can be employed by the principal employer
in any: (i) process (ii) operation or (iii) other work in the
establishment to which the notification relates.

(4) The contract labour is not rendered unemployed but continues

in the employment of the contractor as notification does not sever
the relationship of master and servant between the contractor and
the contract labour.

(5) The contractor can utilize the services of the contract labour
in another establishment in respect of which no notification under
section 10(1) has been issued where all the benefits under the
CLRA Act which were being enjoyed by it, will be available.
(6) If a contractor intends to retrench his contract labour he can
do so only in conformity with the provisions of the ID Act.
The constitution bench also held that (i) a workman, who is not an
out-worker must be treated as a regular employee of the principal employer;
(ii) an out worker connotes a person to whom any article or materials are
given out by or on behalf of the principal employer to be made up,
cleaned, washed, altered, ornamented, finished, repaired, adapted, or
otherwise processed for the purposes of trade or business of the principal
employer either at his home or in some other premises but not under the
control of management of principal employer; (iii) a person who is not an
out worker but is employed in or in connection with the work of any
establishment to do any skilled, semi- skilled or unskilled manual,
supervisory, technical or clerical work for hire or reward whether the
terms of employment be express or implied would be 'workman', (iv)
Even so, if such a workman is within the ambit of the contract labour,
unless he falls within the aforesaid clause, he cannot be treated as a
regular employee of the principal employer.
The Constitution Bench accordingly overruled the judgement in Air
India 's case prospectively. It also declared that any direction issued by
the Industrial Court ( Labour Court , Tribunal Court including high court

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 200 1 I NOTES AND COMMENTS 543

for absorption of contract labour

India's, case shall hold good, (a) the same shall not be set aside.
( b ) altered or modified on the basis of this judgement and (c) where such
direction has been given effect to and it has become final.
The aforesaid decision raises various issues:

( 1 ) What would happen if contractor has utilized the services of

contract labour in the establishment in respect of which
notification has been issued but does not have work in any other
establishment? In such a situation as per the decision "contract
labour working in the concerned establishment at the time of
notification would cease to function".

(2) What would happen if the contractor terminates the services of

contract labour as a consequence of notification and refuses to
pay retrenchment compensation or does not follow the other
relevant provisions of the ID Act, 1947? In such a situation such
retrenchment would be said illegal and he would continue to be
the employee of the contractor who has no other work to employ
contract labour in any other establishment. In this situation
unlike section 21 which specifically provides that "a contractor
shall be responsible for payment of wages to workers employed
by him as contract labour and such wages have to be paid before
the expiry of such period as may be prescribed; and the principal
employer is enjoined to have his representative present at the
time of payment of wages", there exists no such provision in the
CLRA Act. This would not only cause great hardship to contract
labour but they would become a legal orphan.
(3) Whether an out worker would become 'workman' if he works in
the premises of the principal employer? Can a presumption be
drawn that such an 'out worker' is working under his control?

When contract is found sham or not genuine

In Steel Authority of India Ltd. v. National Union Water Front

Workers and Others , the constitution bench laid down the following
principles:
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.

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544 JOURNAL OF THE INDIAN LA W INSTITUTE [Vol. 43 : 4

In the aforesaid situation difficulty arises as pointed out

Electricity Board, Thermal Power Station, Ukai, Gujarat v. H
Sabha and Others , by the Supreme Court:23
If the contract is sham or not genuine, the workmen of
called contractor can raise an industrial dispute for declari
they were always the employees of the principal employe
for claiming the appropriate service conditions. When such
is raised, it is not a dispute for abolition of the labour cont
hence the provisions of sec. 10 of the Act will not bar eith
raising or the adjudication of the dispute. When such disp
raised, the industrial adjudicator has to decide whether the
is sham or genuine. It is only when the adjudicator comes
conclusion that the contract is sham, that he will have juri
to adjudicate the dispute. If, however, he comes to the con
that the contract is genuine he may refer the workmen
appropriate government for abolition of the contract labou
sec. 10 of the Act and keep the dispute pending. However,
do so if the dispute is espoused by the direct workmen
principal employer. If the workmen of the principle emp
have not espoused the dispute, the adjudicator, after com
the conclusion that the contract is genuine, has to rej
reference, the dispute being not an industrial dispute wit
meaning of sec. 2(k) of the ID Act.

Preferential treatment to contract labour in employmen

vacancy of regular workmen arises

The constitution bench in Steel Authority of India case ru

(i) if the contract is found to be genuine,
(ii) the prohibition notification under section 10(2) of CLR
in respect of concerned establishment has been issued
appropriate government prohibiting employment of contract l
in any process, operation or other work of the establishme
(iii)where in such process, operation or other work o
establishment the principal employer intends to employ r
workmen, he shall give preference to the erstwhile contract la

a) if otherwise found suitable, and

b) if necessary, by relaxing the conditions as to maxim
by taking into account age of workers at the time of
initial employment by the contactor

23. 1995(5) SCC 27 (emphasis added).

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 200 1 ļ NOTES AND COMMENTS 54 5

c) relaxing the academic qualifi

qualification.
The aforesaid judgment is likely
between section 25 H of the ID A
preference in employment to retren
by the aforesaid judgment for givin
is an anomalous situation which needs to be resolved.

Canteen employees

The constitution bench of the Supreme Court appears to have retained

the position well settled in decided cases, namely, in case where the
principal employer is to comply with statutory obligation to maintain
canteen in a factory/establishment, on abolition of such contract labour
system the contract workers are to be absorbed as regular employees.
Thus, where the contractor is required to discharge statutory obligation of
the principal employer, it would stand on a different footing and it is not
possible to deduce from them the broad principle of law that on the
contract labour system being abolished under section 10(1 ) of the CLRA
Act the contract labour working in the establishment of the principal
employer need not absorb as regular employees of the establishment.
Let us turn to examine as to how the courts have dealt with the issue,
namely, whether the workers employed by the contractor in canteen may
be treated as employees of the principal employer?
In Saraspur Mills Co. Ltd. v. Ramanlal CJiimanlal24 , the Supreme
Court held that workers employed in a canteen even if run by a co-
operative society were 'workers' as the occupier of the factory is under
a mandatory obligation to maintain and run a canteen under section 46 of
the Factories Act, 1948.
This question was more elaborately dealt with in M. M.R.Khan v.
Union of India 25 . In this case, the Supreme Court was concerned with
canteen run by Railway Establishments falling under three different
categories: Firstly, statutory canteens - these canteens are provided
compulsorily in view of the provisions of section 467 of the Factories
Act, 1 948. Since the Act admittedly applies to the establishments concerned
and the employees working in the said establishment exceed 250. Secondly,
non-statutory recognized canteens - these canteens are run in an
establishment which may or may not be governed by the Act but which
admittedly employ 250 or less employees and hence, it is not obligatory
on the employer to maintain. However, they are set up as a staff welfare
measure where the employee exceeds 100. These canteens are established

24. (1973) 3 SCR 967

25. 1990 (Supp) SCC 191.

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54(> JOURNAL OF THE INDIAN LA W INSTITUTE [Vol. 43 : 4

with the prior approval and recognition of the employ

procedure contemplated under the Rules and Regu
Establishment; and thirdly, non-statutory and non-recog
these canteens are run at establishments under the second
employ 100 or less than 100 employees and are established
prior approval of or recognition of the employer.
Again in All India Railway Institute of Employees A
Union of India20 , the Supreme Court dealt with this que
held that the employees in the Railway Institute or cl
employees of the Railway establishment.
Parimal Chandra Raha v. Life Insurance Corporation
a leading case on the subject. Here the Supreme Court
(a) Where there is a statutory obligation (e.g. under
1948) to provide and maintain a canteen for the
employees, the canteen becomes the part of the est
and the workers employed in such canteen are the e
the management.
(b) Where there is no statutory obligation but ther
obligation on employer to provide a canteen such
service condition, the canteen becomes the p
establishment and the workers employed in such can
employees of the management.
(c) Where there is a no obligation to provide a canteen
an obligation to provide facilities to run canteen, th
does not become a part of the establishment.
As regards the nature of the obligation the Court a
(i) The obligation to provide canteen may either
or implicit.

(ii) Where the obligation is not explicitly accepted by or cast

upon the employer either by an agreement or an award,
etc., it may be inferred from the circumstances, and the
provision of the canteen may be held to have become a
part of the service conditions of the employees.
(iii) Whether the provision for canteen services has become a
part of the service condition or not, is a question of fact
to be determined on the facts and the circumstances in
each case.

26. (1991) 2 Lab LJ 265.

27. 1995 Supp (2) SCC 611.

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 200 1 I NOTES AND COMMENTS 547

(iv) Whether a particular faci

implicitly a part of the service
or not, will depend, among oth
or facility.
(v) The service or facility of canteen increases the efficiency
of the employees and the establishment, whether the same
is available as a matter of right to all employees in their
capacity as employees or not. The advantage of such
facility may be measured in terms of ( i ) the number of
employees employed in the establishment and the number
of employees who avail the service, (ii) the length of time
for which the service has been continuously available,
(iii) the hours during which it is available, (iv) the nature
and character of management, (v) the interest taken by the
employer in providing, maintaining, supervising and
controlling the service, and (vi) the contribution made by
the management in the form of infrastructure and funds
for making then service available, etc.
However, in Indian Petrochemicals Corp. Ltd. and another v. Shramic
Sena and Others 28 a new gloss was given to this decision by stating that
the presumption arising under the Factories Act in relation to such workers
is available for the purpose of the Act and no further. The Supreme Court
held that the Factories Act, 1948 does not govern the rights of employees
with respect to (i) recruitment (ii) seniority (iii) promotion (iv) retirement
benefits, etc. These are governed by other statutes, rules, contracts or
policies. Therefore, employees of the statutory canteen cannot ipso facto
become the employees of the establishment for all-purpose. The court
added that (i) It should be borne in mind that the initial appointments of
these workmen are not in accordance with the rules governing
appointments; (ii) Rules governing establishments; (iii) Rules governing
policy of recruitment of the management; (iv) The aforesaid recruitments
could also be in contravention of the various statutory orders including
reservation policy; (v) Further as an instrumentality of the state has an
obligation to conform to the requirements of Article 14 and 16 of the
constitution; (vi) In spite of the same, the services of the workmen are
being regularized by the Supreme Court not as a matter of right of
workmen but with a view to eradicate unfair labour practices and bring
equity to undo social injustice.
The Supreme Court again in Indian Overseas Bank v. I.O.B Staff
Canteen Workers ' Union and another29 , while considering the effect of

28. 1999(6) SCC 439.

29. 2000(4) SCC 245.

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548 JOURNAL OF THE INDIAN LA W INSTITUTE | Vol. 43 : 4

Parimeli Chandra Raha and Others v. L.I.C. of India and Others and
Indian Petrochemicals Corp. Ltd. and another v. Shramic Sena and
Others ruled that "the workers of a particular canteen statutorily obliged
to he run a canteen render no more than to deem them to be workers for
limited purpose of the Factories Act and not for all purposes and in cases
where it is a non-statutory recognized canteen the court should find out
whether the obligation to run was implicit or explicit on the facts proved
in that case and the ordinary test of control, supervision and the nature of
facilities provided were taken note of to find out whether the employees
therein are those of the main establishment.
In Barat Fritz Werner Limited v. State of KamatakaM' the Supreme
Court ruled that the workers working in canteens even if employed
through the contractor have to be treated as "workers" and no restricted
meaning can be given even where the Factories Act, 1948, is not applicable
to an establishment but canteen facility is provided as a condition of
service.

In Cipla Ltd. v. Maharashtra General Kamgar Union 31 , the Supreme

Court ruled that when the contractor obtained a license under the Act to
engage workers for sweeping and cleaning the company's premises -
abolition of the contract labour system can be only under the provisions
of the Contract Labour (Regulation & Abolition) Act and not by filing a
complaint for unfair labour practice."

V Conclusions

To sum up it may be observed that the decision of the constitutio

bench has re-opened its earlier judgment in Air India Statutory Corpora
case and not only rendered 316 out of 404 words occurring in t
definition of 'appropriate government' a useless appendage and threw t
legislative scheme of the Contract Labour (Regulation and Aboliti
Act, 1970 out of gears but has created more uncertainty about t
determination of 'appropriate government'. Further too much empha
has been laid on compliance of the provisions of section 10(2) of the A
It is submitted that what is required is the substantial compliance of
section which may be seen from the record or from the advice receiv
from the Contract Labour Board. Moreover, the holding of the court t
the principal employer is not liable to absorb contract labour in the ev
ot abolition of contract labour system and consequent imposition of du
upon the contract or to provide job for contract labour 'raises var
issues which are likely to cause great hardship to contract labour
create anomalies.

30. 2001 LLR 285

31. 2001 LLR 305.

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 200 1 I NOTES AND COMMENTS 549

The ruling of the Supreme Cour

sham or not genuine requires clar
more detail the situation which m
The decision of the Supreme Co
labour in employment when vaca
conflict between section 25H of th
judicial legislation created by the
Coming to canteen employees em
Supreme Court has not resolve
conflicting judgment made in t
Indian Petro Chemicals Corpora
It is hoped that the Supreme Cou

Suresh C. Srivastavci*

" Research Professor, Indian Law Institute, New Delhi. Formerly, Professor, Head
& Dean, Faculty of Law, Kurukshetra University and University of Calabar (Nigeria).

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