In a recent three-judge bench decision (Balwat Rai Saluja & Anr. v. Air India
Ltd. & Ors.; Civil
Appeals No. 10264-10266 of 2013), the Supreme Court of India
(“Supreme Court”) has dealt with an important question under Labour Law
jurisprudence – “whether the workmen engaged in statutory canteens, through a
contractor, could be treated as employees of the principal establishment”? The
question was with respect to the obligation of the occupier of a factory, under
§ 46 of the Factories
Act, 1948 (“Factories Act”), to provide a canteen in case more than
250 workmen are ordinarily employed.
In the appeal, Hotel Corporation
of India (“HCI or Respondent No. 2”), a wholly owned subsidiary of Air
India (“Respondent No.1”) to establish refreshment rooms, canteen etc., had
employed appellants-workmen on a ‘causal or temporary basis’ for rendering canteen
services on Air India’s premises. Both HCI and Air India are companies
registered under Companies Act, 1956 (“Companies Act”). In 1996, the Central
Government referred an industrial dispute between Air India and the appellants-workmen
(“Appellants”) to the Central Government Industrial Tribunal (“CGIT”). It was
Appellants’ contention that by virtue of them being employed in a statutory
canteen established on the premises of Air India, they are its ‘deemed
employees’. The contention was sought to be substantiated by reference to the
applicability of Rules 65-70 of Delhi
Factory Rules, 1950 (“Delhi Rules”) to Air India’s Ground Services
Department. CIGT accepted the plea of the workmen and held that they are Air
India’s employees. However, on appeal, a single-judge bench of the High Court
of Delhi (“High Court”) reversed the CGIT’s order and held that workmen could
not be treated as Air India’s deemed employees. It was held that the responsibility
to run canteen was that of HCI, and its relationship with Air India was
contractual. On second appeal, judgment of the single-judge bench was affirmed by
a division bench of the High Court.
Before the Supreme Court, in addition to the above arguments,
it was further contended on behalf of the Appellants that: (i) the test of ‘sufficient
control’ by Air India over the operation of the canteen and consequently over
the appellants-workmen, should prevail; (ii) the court should pierce the veil
and take note of the fact that the contractor (HCI) was a mere camouflage, and
the principal employer (Air India) was in real control of the canteen and its
workmen; and (iii)the matter at issue is covered by the decision of constitutional
bench in SAIL v. National Union
Waterfront Workers, (2001) 7 SCC 1 (in this case, on the question of
absorption of contract labourers, the cases referred therein were distinguished
on the ground they are relate to the workmen employed in statutory canteens). On behalf of Air India, the
Appellants’ arguments were countered by (i) distinguishing the SAIL case (supra) from the issues in the
present appeal; (ii) relying on the decision in Indian Petrochemicals Corpn. Ltd. v. Shramik Sena, (1999) 6 SCC 439
(employees of the statutory canteens are covered within the definition of
‘workmen’ under the Act, 1948 and not for all other purposes); and (iii)
it is not the test of ‘sufficient control’, but the test of ‘effective an
absolute control’, which is relevant.
In ¶ 106-107 of SAIL
(supra), while deciding the question whether contract labourers would be
absorbed as establishment’s regular employees (on a notification abolishing
contract labour), the Supreme Court had discussed some cases referred therein.
Distinguishing the referred cases on the ground that they relate to the workmen
employed in statutory canteens (and not contract labourers), the Supreme
Court classified them into three categories. In the present appeal, one of
these categories was relied upon by the appellants-workmen. The court opined
that the portion of the SAIL (supra) judgment,
as relied upon by the appellants-workmen, is not the ratio decidendi but is merely obiter
dicta:
“......The
categorisation so made cannot be said the declaration of law made by the Court
which would be binding on all the Courts within the territory of India as
envisaged under Article 141 of the Constitution of India.....”
In SAIL (supra), the
issue was the automatic absorption of the contract labour in the establishment
of the principal employer as a consequence of an abolition notification issued
under Section 10(1) of the Contract Labour (Regulation and Abolition) Act,
1970. This was quite distinct from the issues which had arisen in the present
appeal. The court, in the present appeal, rather followed the decision of a
three-judge bench in Indian
Petrochemicals (supra) wherein it was held that, (i) employees of the
statutory canteens are covered within the definition of ‘workmen’ under the Act,
1948 and not for all other purposes; (ii) rights of employees with respect to
recruitment, promotion etc. are governed by other statutes, rules etc..
Appreciating this line of reasoning in Indian
Petrochemicals (supra) , the court opined as follows:
“38. We
conclude that the question as regards the status of workmen hired by a contractor
to work in a statutory canteen established under the provisions of the Act,
1948 has been well settled by a catena of decisions of this Court. This Court
is in agreement with the principle
laid down in the Indian
Petrochemicals case (supra) wherein
it was held
that the workmen
of a statutory canteen
would be the
workmen of the establishment for the purpose of the Act,
1948 only and not for all other purposes.
We add that the statutory obligation
created under Section
46 of the
Act, 1948, although establishes certain liability of
the principal employer towards the
workers employed in the
given canteen facility, this
must be restricted
only to the Act, 1948 and it does not govern the
rights of employees with reference to
appointment, seniority, promotion, dismissal, disciplinary
actions, retirement benefits, etc., which are
the subject matter
of various other legislations, policies, etc........”
§ 46 of the Factories Act places an obligation on the
occupier of a factory, with more than 250 workers, to establish a canteen but does
not provide the mode through which this obligation needs to be discharged.
In the opinion of the court, the same is left to the occupier’s decision and Delhi
Rules were prescribed only in furtherance of the duty prescribed in the
provision. As a consequence, requirement of canteen under § 46 of the Factories
Act is not sufficient to determine the status of persons employed [see: Workmen v. Coates of
India Ltd., (2004) 3 SCC 547].
Reference was also made to the decision in Haldia Refinery Canteen Employees Union v. Indian
Oil Corpn. Ltd., (2005) 5 SCC 51. In this case also, the issue was with
respect to status of workmen employed in a statutory canteen – it was contended that the factory had a ‘direct control’ over the workmen. The contention
was rejected on the ground that mere ‘supervision’, for ensuring that
canteen runs in an efficient manner, would not lead to the conclusion that the
factory exercises control over workmen. In fact, disciplinary and dismissal
powers, along with obligations with respect to leave salary, provident fund
etc., were with the contractor. This is an important observation for cases where
demand to classify oneself as an employee is made on the basis of principal
employer’s supervision.
The court emphasised that it is ‘complete administrative
control’ test which should be applied for determining if workers of contractor
can be treated as employees of the company. For determining such a relationship
of employer-employee, following factors are to be taken into account:
“....(i) who
appoints the workers;
(ii) who pays
the salary/remuneration; (iii) who
has the authority
to dismiss; (iv) who
can take disciplinary
action; (v) whether there is
continuity of service; and (vi) extent of
control and supervision,
i.e. whether there exists complete control and supervision........”
In the appeal, the decisions relied upon by the
appellants-workmen were also distinguished viz. Saraspur Mills Co. Ltd. v. Ramanlal Chimanlal, (1974) 3 SCC 66
(court considered in favour of workmen employed in statutory canteen because of
amended definition of ‘employer’ and ‘employee’ as found under the Bombay
Industrial Relations Act, 1946 and definition of ‘workmen’ under the Factories
Act), Hussainbhai v.
Alath Factory Thezhilali
Union, (1978) 4 SCC
257 (case was not concerned with Factories Act and had proceeded on the
test of employer-employee relationship to ascertain the actual employer), M.M.R.
Khan v. Union
of India, 1990 Supp SCC 191 (explicit reference to the
relevant provisions of the Railway Establishment
Manual and the Administrative Instructions
on Departmental Canteens), and Parimal Chandra Raha v. LIC, 1995 Supp (2) SCC
611 (terms of the said contract were in the nature of directions to the
contractor).
With respect to the Appellants’ contention that veil should
be pierced since HCI is mere camouflage, court emphasised that a subsidiary is
a separate legal entity and nothing has been shown to prove there has been a
misuse of such structure. Moreover, under the general principles of corporate
law, a parent company is not liable for the acts of its subsidiary [see: concurring opinion of K.S.P.
Radhakrishnan, J., in Vodafone International Holdings BV v. Union of India, (2012)
6 SCC 613]. The Memorandum of Association (“MoA”) and Articles of
Association (“AoA”) of HCI indicated that its primary objective (to
establish refreshment rooms, canteen etc.) had no direct relation with Air
India. Further, it has not been shown that contents of MoA and AoA are bad
in law. Neither of them gave control to Air India in the affairs of running the
canteen(s). As the doctrine of piercing veil is an exception to the general
principles of corporate law, the court did not find any justification to apply the
same in the appeal. Dismissing the appeal, the court held
“........The
mere fact that the Air India has a certain
degree of control
over the HCI,
does not mean that
the employees working
in the canteen
are the Air India’s employees. The Air India
exercises control that is in the nature of supervision. Being the primary shareholder in the HCI and
shouldering certain financial burdens such as providing with the subsidies as
required by law, the
Air India would
be entitled to
have an opinion or
a say in
ensuring effective utilization
of resources, monetary or otherwise. The said supervision or control
would appear to be merely to ensure due maintenance of standards and quality in
the said canteen....”
In addition to the above grounds, it was pointed out that there
was no parity in the nature of work, mode of appointment etc. between regular
employees of Air India and workers of the canteen. For instance, while
appellants-workmen were appointed by contractor, appointment of Air India’s
employees is in accordance with different procedure. The appeal was thus dismissed by the court.
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