//
you're reading...
legal issues

Air India Ltd. – Hotel Corporations of India Ltd – workmen employed in canteens of Air India are worker of Air India or the workers of Hotel Corporations of India Ltd., – in view of the different opinion between the two judges , the matter was referred to H.L. DATTU, R.K. AGRAWAL, ARUN MISHRA three bench judges – Apex court held that Therefore, in our considered view and in light of the above, the appellants-workmen could not be said to be under the effective and absolute control of Air India. The Air India merely has control of supervision over the working of the given statutory canteen. Issues regarding appointment of the said workmen, their dismissal, payment of their salaries, etc. are within the control of the HCI. It cannot be then said that the appellants are the workmen of Air India and therefore are entitled to regularization of their services. It would be pertinent to mention, at this stage, that there is no parity in the nature of work, mode of appointment, experience, qualifications, etc., between the regular employees of the Air India and the workers of the given canteen. Therefore, the appellants-workmen cannot be placed at the same footing as the Air India’s regular employees, and thereby claim the same benefits as bestowed upon the latter.= CIVIL APPEAL NOS. 10264-10266 OF 2013 |BALWANT RAI SALUJA & ANR. | .. APPELLANT(S) | VERSUS |AIR INDIA LTD. & ORS. | .. RESPONDENT(S) = 2014 Aug.Part – http://judis.nic.in/supremecourt/filename=41843

    Air India Ltd. – Hotel Corporations of India Ltd – workmen employed in canteens of Air India are worker of Air India or the workers of Hotel Corporations of India Ltd., – in view of the different opinion between the two judges , the matter was referred to H.L. DATTU, R.K. AGRAWAL, ARUN MISHRA three bench judges – Apex court held that   Therefore, in our considered view and in  light  of  the  above, the appellants-workmen could not be said  to  be  under  the  effective  and absolute control  of  Air  India.  The  Air  India  merely  has  control  of

supervision  over  the  working  of  the  given  statutory  canteen.  Issues regarding appointment of the  said  workmen,  their  dismissal,  payment  of their salaries, etc. are within the control of the HCI. It  cannot  be  then said that the appellants are the workmen of  Air  India  and  therefore  are entitled to regularization of their services. It would be pertinent to mention, at this stage, that  there  is no  parity  in  the  nature  of  work,  mode  of  appointment,   experience, qualifications, etc., between the regular employees of  the  Air  India  and the workers of the given canteen. 

Therefore, the  appellants-workmen  cannot be placed at the same footing as the  Air  India’s  regular  employees,  and thereby claim the same benefits as bestowed upon the latter.=

 In view of the difference of opinion by two learned Judges,  and

by referral order dated 13.11.2013 of this Court, these  Civil  Appeals  are

placed before us for our consideration and  decision.  The  question  before

this bench is whether the workmen engaged in statutory canteens,  through  a

contractor, could be treated as employees of the principal establishment.

2.          At the outset, it  requires  to  be  noticed  that  the  learned

Judges differed in their opinion regarding the liability  of  the  principal

employer running statutory canteens and further regarding the status of  the

workmen engaged thereof. The  learned  Judges  differed  on  the  aspect  of

supervision and control which was exercised  by  the  Air  India  Ltd.  (for

short, “the Air India”)- respondent No. 1, and  the  Hotel  Corporations  of

India Ltd. (for short, “the HCI”)-respondent No. 2, over  the  said  workmen

employed  in  these  canteens.  The  learned   Judges   also   had   varying

interpretations regarding the status of the HCI as  a  sham  and  camouflage

subsidiary by the  Air  India  created  mainly  to  deprive  the  legitimate

statutory and fundamental rights of the concerned workmen and the  necessity

to pierce the veil to ascertain their relation with the principal employer.

3.          The Two Judge bench has expressed contrasting  opinions  on  the

prevalence  of  an  employer–employee  relationship  between  the  principal

employer and the workers in the  said  canteen  facility,  based  on,  inter

alia, issues surrounding the economic dependence of the subsidiary  role  in

management and  maintenance  of  the  canteen  premises,  representation  of

workers,  modes  of  appointment  and  termination  as  well  as   resolving

disciplinary issues among workmen. The Bench  also  differed  on  the  issue

pertaining to whether such workmen should be treated  as  employees  of  the

principal employer only for the purposes of the  Factories  Act,  1948  (for

short, “the Act, 1948”) or for other purposes as well.=

 In our considered view, and in light of the  principles  applied

in the Haldia case (supra), such control  would  have  nothing  to  do  with

either the appointment, dismissal or removal from service, or the taking  of

disciplinary action against the workmen working in  the  canteen.  

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.

85.         Therefore, in our considered view and in  light  of  the  above,

the appellants-workmen could not be said  to  be  under  the  effective  and

absolute control  of  Air  India.  The  Air  India  merely  has  control  of

supervision  over  the  working  of  the  given  statutory  canteen.  Issues

regarding appointment of the  said  workmen,  their  dismissal,  payment  of

their salaries, etc. are within the control of the HCI. It  cannot  be  then

said that the appellants are the workmen of  Air  India  and  therefore  are

entitled to regularization of their services.

86.         It would be pertinent to mention, at this stage, that  there  is

no  parity  in  the  nature  of  work,  mode  of  appointment,   experience,

qualifications, etc., between the regular employees of  the  Air  India  and

the workers of the given canteen. 

Therefore, the  appellants-workmen  cannot

be placed at the same footing as the  Air  India’s  regular  employees,  and

thereby claim the same benefits as bestowed upon the latter. It  would  also

be gainsaid to note the fact that the appellants-herein  made  no  claim  or

prayer against either of the other respondents, that  is,  the  HCI  or  the

Chefair.

87.         In terms of the above, the reference is answered as follows :

     The workers engaged by a contractor to work in  the  statutory  canteen

of a factory would be the workers of the said  factory,  but  only  for  the

purposes of the Act, 1948, and not for other purposes, and further  for  the

said workers, to be called the employees of the factory  for  all  purposes,

they would need to satisfy the test of  employer-employee  relationship  and

it must be shown that the employer exercises absolute and effective  control

over the said workers.

88.         In view of the above, while answering  the  referral  order,  we

dismiss these appeals.  No order as to costs.

    2014 Aug.Part – http://judis.nic.in/supremecourt/filename=41843

R e p o r t a b l e

IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NOS. 10264-10266 OF 2013

|BALWANT RAI SALUJA & ANR. | .. APPELLANT(S) |

VERSUS

|AIR INDIA LTD. & ORS. | .. RESPONDENT(S) |

J U D G M E N T

H.L. Dattu, J.

1. In view of the difference of opinion by two learned Judges, and
by referral order dated 13.11.2013 of this Court, these Civil Appeals are
placed before us for our consideration and decision. The question before
this bench is whether the workmen engaged in statutory canteens, through a
contractor, could be treated as employees of the principal establishment.
2. At the outset, it requires to be noticed that the learned
Judges differed in their opinion regarding the liability of the principal
employer running statutory canteens and further regarding the status of the
workmen engaged thereof. The learned Judges differed on the aspect of
supervision and control which was exercised by the Air India Ltd. (for
short, “the Air India”)- respondent No. 1, and the Hotel Corporations of
India Ltd. (for short, “the HCI”)-respondent No. 2, over the said workmen
employed in these canteens. The learned Judges also had varying
interpretations regarding the status of the HCI as a sham and camouflage
subsidiary by the Air India created mainly to deprive the legitimate
statutory and fundamental rights of the concerned workmen and the necessity
to pierce the veil to ascertain their relation with the principal employer.

3. The Two Judge bench has expressed contrasting opinions on the
prevalence of an employer–employee relationship between the principal
employer and the workers in the said canteen facility, based on, inter
alia, issues surrounding the economic dependence of the subsidiary role in
management and maintenance of the canteen premises, representation of
workers, modes of appointment and termination as well as resolving
disciplinary issues among workmen. The Bench also differed on the issue
pertaining to whether such workmen should be treated as employees of the
principal employer only for the purposes of the Factories Act, 1948 (for
short, “the Act, 1948”) or for other purposes as well.

FACTS :
4. The present set of appeals came before a two-Judge Bench of
this Court against a judgment and order dated 02.05.2011 of a Division
Bench of the High Court of Delhi in LPA Nos. 388, 390 and 391 of 2010. The
present dispute finds origin in an industrial dispute which arose between
the Appellants-workmen herein of the statutory canteen and Respondent No. 1-
herein. The said industrial dispute was referred by the Central Government,
by its order dated 23.10.1996 to the Central Government Industrial Tribunal
cum Labour Court (for short “the CGIT”). The question referred was whether
the workmen as employed by Respondent No. 3-herein, to provide canteen
services at the establishment of Respondent No. 1-herein, could be treated
as deemed employees of the said Respondent No. 1. Vide order dated
05.05.2004, the CGIT held that the workmen were employees of the Respondent
No.1-Air India and therefore their claim was justified. Furthermore, the
termination of services of the workmen during the pendency of the dispute
was held to be illegal.
5. By judgment and order dated 08.04.2010, the learned Single
Judge of the High Court of Delhi set aside and quashed the CGIT’s award and
held that the said workmen would not be entitled to be treated as or deemed
to be the employees of the Air India. The Division Bench of the High Court
of Delhi vide impugned order dated 02.04.2011 found no error in the order
passed by the learned Single Judge of the High Court. The appeal was
dismissed by the Division Bench confirming the order of the learned Single
Judge who observed that the responsibility to run the canteen was
absolutely with the HCI and that the Air India and the HCI shared an
entirely contractual relationship. Therefore, the claim of the appellants
to be treated as employees of the Air India and to be regularized was
rejected by the learned Single Judge.

6. In the present set of appeals, the appellants are workers who
claim to be the deemed employees of the management of Air India on the
grounds, inter alia, that they work in a canteen established on the
premises of the respondent No. 1-Air India and that too, for the benefit of
the employees of the said respondent. It is urged that since the canteen is
maintained as a consequence of a statutory obligation under Section 46 of
the Act, 1948, and that since by virtue of notification dated 21.01.1991,
Rules 65-70 of the Delhi Factory Rules, 1950 (for short, “the Rules, 1950”)
have become applicable to the respondent No. 1, the said workers should be
held to be the employees of the management of the corporation, on which
such statutory obligation is placed, that is, Air India.

7. Respondent No. 1 is a company incorporated under the Companies
Act, 1956 and is owned by the Government of India. The primary object of
the said respondent is to provide international air transport/travel
services. It has Ground Services Department at Indira Gandhi International
Airport, Delhi. The Labour Department vide its notification dated
20.01.1991 under sub-rule (1) of Rule 65 of the Rules, 1950, has enlisted
the said M/s. Air India Ground Services Department, thereby making Rules 65
to 70, of the Rules, 1950 applicable to the same.

8. Respondent No. 2-HCI is also a company incorporated under the
Companies Act, 1956 and is a separate legal entity from the Air India. As
per the Memorandum of Association of Respondent No. 2, the same is a wholly-
owned subsidiary of the Air India. The main objects of the said respondent,
inter alia, are to establish refreshment rooms, canteens, etc. for the sale
of food, beverages, etc.

9. Respondent No. 2 has various units and Respondent No. 3, being
Chefair Flight Catering (for short, “the Chefair”), provides flight
catering services to various airlines, including Air India. It is this
Chefair unit of HCI that operates and runs the canteen. It requires to be
noticed that the appellants-workmen are engaged on a casual or temporary
basis by the respondent Nos. 2 and 3 to render canteen services on the
premises of respondent No.1 – Air India.

ISSUE :

10. The main issue for consideration before this Court in the
present reference is “whether workers, engaged on a casual or temporary
basis by a contractor (HCI) to operate and run a statutory canteen, under
the provisions of the Act, 1948, on the premises of a factory – Air India,
can be said to be the workmen of the said factory or corporation”.

SUBMISSIONS :
11. Shri Jayant Bhushan, learned Senior Counsel for the appellants-
workmen has two alternative submissions; firstly, that in the event of a
statutory requirement to provide for a canteen or any other facility, the
employees of the said facility would automatically become employees of the
principal employer, irrespective of the existence of any intermediary that
may have been employed to run that facility. Secondly, the test of
sufficient control by the principal employer over the operation of the
canteen and consequently over the appellants-workmen, should prevail.
Therefore, the Court should pierce the veil and take note of the fact that
the contractor was a mere camouflage, and the principal employer was in
real control of the canteen and its workmen. Reference is made to the
following cases in support of his submissions- Saraspur Mills Co. Ltd. v.
Ramanlal Chimanlal, (1974) 3 SCC 66; Hussainbhai v. Alath Factory
Thezhilali Union, (1978) 4 SCC 257; M.M.R. Khan v. Union of India, 1990
Supp SCC 191; and Parimal Chandra Raha v. LIC, 1995 Supp (2) SCC 611.

12. Shri Jayant Bhushan also submits that the issue raised in these
appeals is squarely covered by the observations made by the Constitution
Bench in the case of Steel Authority of India Ltd. v. National Union
Waterfront Workers, (2001) 7 SCC 1.

13. While supporting the judgment in the Steel Authority of India’s
case (supra), Shri C.U. Singh, learned Senior Counsel for Respondent No. 1-
Air India would contend that the issue that came up for consideration
before the Constitution Bench is entirely different and, therefore, the
said decision has no bearing on the facts and the question of law raised in
the present set of appeals.
14. Shri C.U. Singh would then refer to the various case laws cited
by the learned counsel for the appellants to show that they are not only
distinguishable on facts, but are inapplicable to the facts of the present
case. He would also refer to the three-Judge Bench decision of this Court
in the case of Indian Petrochemicals Corpn. Ltd. v. Shramik Sena, (1999) 6
SCC 439, and then would submit that the proposition of law enunciated in
the Indian Petrochemicals case (supra) is followed by this Court in Hari
Shankar Sharma v. Artificial Limbs Mfg. Corpn., (2002) 1 SCC 337; Workmen
v. Coates of India Ltd., (2004) 3 SCC 547; Haldia Refinery Canteen
Employees Union v. Indian Oil Corpn. Ltd., (2005) 5 SCC 51; and Karnataka
v. KGSD Canteen Employees’ Welfare Assn., (2006) 1 SCC 567.

15. In so far as the second submission of the learned counsel for
the appellants is concerned, Shri C.U. Singh would submit that it is not
the test of sufficient control, but the test of effective and absolute
control which would be relevant, and that if the said test, in the given
facts is applied, the appellants would fail to establish the employer and
employee relationship. In aid of his submissions, he refers to Bengal
Nagpur Cotton Mills v. Bharat Lal, (2011) 1 SCC 635; International Airport
Authority of India v. International Air Cargo Workers’ Union, (2009) 13 SCC
374; and National Aluminium Co. Ltd. v. Ananta Kishore Rout & Ors., (2014)
6 SCC 756.

RELEVANT PROVISIONS :

16. To appreciate the point of view of the parties to the present
lis, it is necessary to notice the relevant provisions.

17. Section 46 of the Act, 1948 statutorily places an obligation on
the occupier of a factory to provide and maintain a canteen in the factory
where more than two hundred and fifty workers are employed. There is
nothing in the said provision which provides for the mode in which the
factory must set up a canteen. It appears to be left to the discretion of
the concerned factory to either discharge the said obligation of setting up
a canteen either by way of direct involvement or through a contractor or
any other third party. The provision reads as under:

“46. Canteens.-(1) The State Government may make rules requiring that in
any specified factory wherein more than two hundred and fifty workers are
ordinarily employed, a canteen or canteens shall be provided and maintained
by the occupier for the use of the workers.
(2) Without prejudice in the generality of the foregoing power, such rules
may provide for –
(a) the date by which such canteen shall be provided;
(b) the standard in respect of construction, accommodation, furniture and
other equipment of the canteen;
(c) the foodstuffs to be served therein and the charges which may be made
therefor;
(d) the constitution of a managing committee for the canteen and
representation of the workers in the management of the canteen;
(dd) the items of expenditure in the running of the canteen which are not
to be taken into account in fixing the cost of foodstuffs and which shall
be borne by the employer;
(e) the delegation to Chief Inspector subject to such conditions as may be
prescribed, of the power to make rules under clause (c).”

18. By virtue of Notification No. 27(12)89-CIF/Lab/464 dated
21.01.1991, rules 65 to 70 of the Rules, 1950 were made applicable to M/s.
Air India Ground Services Department. The rules impose obligations upon the
occupier of the factory as regards providing for and maintaining the said
canteen.

19. Rules 65 to 70 of the Rules, 1950 are in furtherance of the
duty prescribed on the State Government to run statutory canteens as per
Section 46 of the Act, 1948. Rule 65, inter alia, provides for an official
notification and approval of the occupier canteen facility as well as
additional guidelines regarding the construction, accommodation, hygiene,
ventilation, sanitation and other maintenance works. Rule 66 prescribes for
setting up a dining hall, with adequate space and furniture along with
reservation of dining space for women employees. Rule 67 enumerates the
requisite equipment such as utensils, furniture, uniforms for the canteen
staff and other equipment to be purchased and maintained in a hygienic
manner. Rule 68 prescribes that the prices to be charged on foodstuffs and
other items will be on a non-profit basis, as approved by the Canteen
Managing Committee. Rule 69 illustrates the procedure for handling the
auditing of accounts, under the supervision of the Canteen Managing
Committee as well as Inspector of Factories. Lastly, Rule 70 enumerates the
consultative role of the Managing Committee regarding, inter alia, the
quality and quantity of foodstuffs served, arrangement of menus, duration
for meals, etc. It also prescribes that such a Committee must have equal
representation of persons nominated by the occupier and elected members by
the workers of the factory. The Manager is entrusted with determining and
supervising the procedure for conducting such elections and dissolving the
Committee at the expiry of its two year statutory term.

DISCUSSION :

20. Before we deal with the issue that arises for consideration, it
would be necessary to consider the applicability of the Constitution Bench
decision in the Steel Authority of India case (supra). Learned counsel
refers to paragraphs 106 and 107 of the said judgment to contend that the
observations made therein is the expression of the Court on the question of
law and since it is the decision of the Constitution Bench, the same would
be binding on this Court. To appreciate the submission of the learned
counsel, we notice the aforesaid paragraphs:
“106. We have gone through the decisions of this Court in VST Industries
case (2001) 1 SCC 298, G.B. Pant University case (2000) 7 SCC 109 and M.
Aslam case (2001) 1 SCC 720. All of them relate to statutory liability to
maintain the canteen by the principal employer in the
[pic]factory/establishment. That is why in those cases, as in Saraspur
Mills case (1974) 3 SCC 66 the contract labour working in the canteen were
treated as workers of the principal employer. These cases 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
sub-section (1) of Section 10 of the CLRA Act the contract labour working
in the establishment of the principal employer have to be absorbed as
regular employees of the establishment.
107. 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 labourer 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 a sham and nominal, rather a camouflage, in
which case the contract labour working in the establishment of the
principal employer were 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 a canteen in an establishment the
principal employer availed the services of a contractor the courts have
held that the contract labour would indeed be the employees of the
principal employer.”

21. By placing his fingers on Clause (iii) of paragraph 107, the
learned counsel would contend that the said observation is the ratio of the
Court’s decision and, therefore, it is binding on all other Courts. We do
not agree. The Constitution Bench in Steel Authority of India’s case
(supra) was primarily concerned with the meaning of the expression
“appropriate Government” in Section 2(1)(a) of the Contract Labour
(Regulation and Abolition) Act, 1970 and in Section 2(a) of the Industrial
Disputes Act, 1947 and the other issue was 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. The Court while over-ruling
the judgment in Air India Statutory Corporation vs. United Labour Union
(1997) 9 SCC 377, prospectively, held that neither Section 10 of the
Contract Labour (Regulation and Abolition) Act nor any other provision in
the Act, whether expressly or by necessary implication, provides for
automatic absorption of contract labour on issue of notification under the
said section, prohibiting contract labour and consequently the principal
employer is not required to absorb the contract labour working in the
concerned establishment.

In the aforesaid decision, firstly, the issue whether contract
labourers working in statutory canteen(s) would fall within the meaning of
expression “workmen” under the Act, 1948 and therefore they are employees
of the principal employer and secondly, whether the principal employer to
fulfil its obligation under Section 46 of the Act, 1948 engages a
contractor, the employees of the contractor can claim regularisation and
extension of the service conditions extended to the employees of the
principal employer did not remotely arise for consideration of the Court.
Secondly, in our considered view, the observations made by the
Constitution Bench in paragraph 107 of the Judgment by no stretch of
imagination can be considered ‘the law declared’ by the Court. We say so
for the reason, the Court after noticing several decisions which were
brought to its notice, has summarised the view expressed in those decision
in three categories. 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. This Court in the case of The Commissioner of
Income Tax v. Sun Engineering Works (P) Ltd., (1992) 4 SCC 363, has
observed:
“39. It is neither desirable nor permissible to pick out a word
or a sentence from the judgment of this Court divorced from the context of
the question under consideration and treat it to be complete ‘law’ declared
by this Court. The Judgment must be read as a whole and the observations
from the judgment have to be considered in the light of the questions which
were before this Court. A decision of this Court takes its colour from the
questions involved in the case in which it was rendered and while applying
the decision to the later case, the Courts must carefully try to ascertain
the true principle laid down by the decision of this Court and not pick out
words or sentences from the judgment, divorced from the context of the
questions under consideration by this Court, to support their reasonings”

22. Further, this Court in Punjab Land Development and Reclamation
Corporation Ltd., Chandigarh v. Presiding Officer, Labour Court, Chandigarh
and Ors., (1990) 3 SCC 682, observed as follows:
“44. An analysis of judicial precedent, ratio decidendi and the ambit of
earlier and later decisions is to be found in the House of Lords’ decision
in F.A. & A.B. Ltd. v. Lupton (Inspector of Taxes), Lord Simon concerned
with the decisions in Griffiths v. J.P. Harrison (Watford) Ltd. and
Finsbury Securities Ltd. v. Inland Revenue Commissioner with their
interrelationship and with the question whether Lupton’s case fell with-in
the precedent established by the one or the other case, said: (AC p. 658)
‘…what constitutes binding precedent is the ratio decidendi of a case,
and this is almost always to be ascertained by an analysis of the material
facts of the case—that is, generally, those facts which the tribunal whose
decision is in question itself holds, expressly or implicitly, to be
material.’ ”

23. It is stated therein that a judicial decision is the
abstraction of the principle from the facts and arguments of the case. It
was further observed in the Punjab Land Development case (supra), that:
“53. Lord Halsbury’s dicta in Quinn v. Leatham, 1901 AC 495: (AC p. 506)
“…every judgment must be read as applicable to the particular facts
proved, or assumed to be proved, since the generality of the expressions
which may be found there are not intended to be expositions of the whole
law, but governed and qualified by the particular facts of the case in
which such expressions are to be found. The other is that a case is only an
authority for what it actually decides.”
This Court held in State of Orissa v. Sudhansu Sekhar Misra (1968) 2 SCR
154, that a decision is only an authority for what it actually decides.
What is of the essence in a decision is its ratio and not other observation
found therein nor what logically follows from the various observations made
in it. …”

24. A Constitution Bench of this Court in the case of State of
Punjab v. Baladev Singh, (1999) 6 SCC 172, held that a judgment has to be
considered in the context in which it was rendered and that a decision is
an authority for what it decides and it is not everything said therein
constitutes a precedent.

25. In our view, the binding nature of a decision would extend to
only observations on points raised and decided by the Court and neither on
aspects which it has not decided nor had occasion to express its opinion
upon. The observation made in a prior decision on a legal question which
arose in a manner not requiring any decision and which was to an extent
unnecessary, ought to be considered merely as an obiter dictum. We are
further of the view that a ratio of the judgment or the principle upon
which the question before the Court is decided must be considered as
binding to be applied as an appropriate precedent.

26. The Constitution Bench in Steel Authority of India’s case
(supra), decided on the limited issue surrounding the absorption of
contract workers into the principal establishment pursuant to a
notification issued by the appropriate Government under Section 10 of the
Contract Labour (Abolition and Regulation) Act, 1970. The conclusion in
paragraph 125 of Steel Authority of India’s case (supra), inter alia,
states that on issuance of a notification under Section 10(1) of Contract
Labour (Abolition and Regulation) Act, 1970 passed by the appropriate
Government would not entail the automatic absorption of contract workers
operating in the establishment and the principal employer will not be
burdened with any liability thereof. The issue surrounding workmen employed
in statutory canteens and the liability of principal employer was neither
argued nor subject of dispute in the Steel Authority of India’s case
(supra). Therefore, in our considered view the decision on which reliance
was placed by learned counsel does not assist him in the facts of the
present case.

27. The Act, 1948 is a social legislation and it provides for the
health, safety, welfare, working hours, leave and other benefits for
workers employed in factories and it also provides for the improvement of
working conditions within the factory premises. Section 2 of the Act, 1948
is the interpretation clause. Apart from others, it provides the definition
of worker under Section 2(l) of the Act, 1948, to mean a person employed,
directly or through any other agency, whether for wages or not, in any
manufacturing or cleaning process. Section 46 of the Act, 1948 requires the
establishment of canteens in factories employing more than two hundred and
fifty workers. The State Government have been given power under the Section
to make Rules requiring that such canteens to be provided in the factory
under Sub Section (2), the items for which rules are to be framed have been
specified. The Sub Section also contemplates the delegation by the State
Government the power to the Chief Inspector to make rules in respect of the
food to be served in such canteens and their charges. In exercise of rules
making power, the Delhi State has framed and notified the Rules, 1950, in
which rules 65 to 70 are incorporated to give effect to the purpose of
Section 46 of the Act, 1948.

28. The question before us is “when the company is admittedly
required to run the canteen in compliance of the statutory obligation under
Section 46 of the Act, 1948, whether the canteen employees employed by the
contractor are to be treated as the employees of the company only for the
purpose of Act 1948 or for all the other purposes.”

29. Before we advert to the aforesaid issue raised and canvassed,
we intend to notice some of the decisions of this Court where a similar
issue was raised and answered. In Indian Petrochemicals case (supra), a
three Judge Bench of this Court has stated the law on the point by holding
that the employees of the statutory canteens are covered within the
definition of ‘workmen’ under the Act, 1948 and not for all other purposes.
The Court went on to observe that the Act, 1948 does not govern the rights
of employees with reference to recruitment, seniority, promotion,
retirement benefits etc. They are governed by other statutes, rules,
contracts or policies.
30. The aforesaid viewpoint is reiterated by this Court in the case
of Haldia Refinery Canteen Employees Union and others v. Indian Oil
Corporation Ltd. and ors., (2005) 5 SCC 51 and in Hari Shankar Sharma v.
Artificial Limbs Manufacturing Corporation, (2002) 1 SCC 337. As observed
by the Constitution Bench of this Court in the case of Union of India v.
Raghubir Singh, 178 ITR 548 (SC), the pronouncement of law by a Division
Bench of the Supreme Court is binding on a Division Bench of the same or a
smaller number of Judges and in order that such decision is binding, it is
not necessary that it should be a decision rendered by a Full Court or a
Constitution Bench of the Supreme Court. The Indian Petrochemical’s case
(supra) is decided by a three-Judge Bench of this Court and the facts and
the legal issues raised in the present appeals are the same or similar as
in Indian Petrochemicals case (supra), and since we are not persuaded to
take a different view in the matter, the observations made therein is
binding on us.

31. This Court in the Indian Petrochemical case (supra), while
explaining the decision in Parimal Chandra Raha’s case (supra), has stated
that in Raha’s case, the Supreme Court did not specifically hold that the
deemed employment of the workers is for all purposes nor did it
specifically hold that it is only for the purposes of the Act, 1948.
However, a reading of the judgment in its entirety makes it clear that the
deemed employment is only for the purpose of the Act, 1948. Therefore, it
has to be 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. To arrive at this conclusion, the Court has followed the
view expressed by this Court in M.M.R Khan’s case (supra) and Reserve Bank
of India v. Workmen, (1996) 3 SCC 267.

32. The proposition of law in the Indian Petrochemicals case
(supra) has been reiterated in the Hari Shankar Sharma’s case (supra). This
Court stated that:
“6. The observations in Parimal Chandra Raha case relied on by the
appellants which might have supported the submission of the appellants have
been explained by a larger Bench in Indian Petrochemicals Corpn. Ltd. v.
Shramik Sena where it was held, after considering the provisions of the
Factories Act and the previous decisions on the issue, that the workmen of
a statutory canteen would be the workmen of the establishment only for the
purpose of the Factories Act and not for all other purposes unless it was
otherwise proved that the establishment exercised complete administrative
control over the employees serving in the canteen.”
33. The aforesaid principle has also been applied in Haldia’s case
(supra); KGSD Canteen case (supra); Indian Overseas Bank v. I.O.B. Staff
Canteen Workers’ Union & Anr., (2000) 4 SCC 245; and Barat Fritz Werner
Ltd. v. State of Karnataka, 2001 (4) SCC 498.

34. The Coates of India Ltd.’s case (supra) was regarding a dispute
over the status of the appellant-workmen therein who were hired by a
contractor to work in a canteen run on the premises of the respondent
company. This Court observed that merely some requirement under the Act,
1948 of providing a canteen in the industrial establishment is by itself
not conclusive of the question or sufficient to determine the status of the
persons employed in the canteen. The Industrial Court and the learned
Single Judge of the High Court held in favour of the workmen. However, the
Division Bench of the High Court held in favour of the respondent-company
therein. This Court took note of the relevant finding of fact by the
learned Single Judge therein and upheld the conclusion of the Division
Bench of the High Court, that the workmen were employed only by the
contractor to run the canteen, and they were not employees of the
respondent Company. The Court went on to observe that since the canteen
employees were not directly appointed by the Company nor had they ever
moved the Company for leave or other benefits enjoyed by the regular
employees of the Company, and further that the canteen employees got their
wages from the respective contractors and, therefore, they are not
employees of the Company.

35. The Haldia case (supra) was similar to the facts of the present
case. In that case, the appellant-workmen were working in the statutory
canteen run by the respondent through a contractor in its factory. It was
contended therein that the factory of the respondent where the workmen were
employed was governed by the provisions of the Act, 1948 and the canteen
where the said workmen were employed would be a statutory canteen and the
same was maintained for the benefit of the workmen employed in the factory.
It was alleged therein that the respondent had direct control over the said
workmen and the contractor had no control over the management,
administration and functioning of the said canteen. Therefore, writ
applications were filed seeking issuance of mandamus to the respondent to
absorb the appellants in the service of the respondent therein and to
regularize them as such. This Court then made a detailed reference to the
Parimal Chandra Raha case (supra), the MMR Khan case (supra) and the Indian
Petrochemicals case (supra). The Court then extensively referred to the
terms and conditions of the contract between the canteen contractor and the
respondent to ascertain whether there was any control of the respondent
company therein over the workers in the canteen, and if so what was the
nature of the said control. It was observed as follows:
“14. No doubt, the respondent management does exercise effective control
over the contractor on certain matters in regard to the running of the
canteen but such control is being exercised to ensure that the canteen is
run in an efficient manner and to provide wholesome and healthy food to the
workmen of the establishment. This, however, does not mean that the
employees working in the canteen have become the employees of the
management.
15. A free hand has been given to the contractor with regard to the
engagement of the employees working in the canteen. There is no clause in
the agreement stipulating that the canteen contractor unlike in the case of
Indian Petrochemicals Corpn. Ltd. shall retain and engage compulsorily the
employees who were already working in the canteen under the previous
contractor. There is no stipulation of the contract that the employees
working in the canteen at the time of the commencement of the contract must
be retained by the contractor. The management unlike in Indian
Petrochemicals Corpn. Ltd. case is not reimbursing the wages of the workmen
engaged in the canteen. Rather the contractor has been made liable to pay
provident fund contribution, leave salary, medical benefits to his
employees and to observe statutory working hours. The contractor has also
been made responsible for the proper maintenance of registers, records and
accounts so far as compliance with any statutory provisions/obligations is
concerned. A duty has been cast on the contractor to keep proper records
pertaining to payment of wages, etc. and also for depositing the provident
fund contributions with the authorities concerned. The contractor has been
made liable to defend, indemnify and hold harmless the employer from any
liability or penalty which may be imposed by the Central, State or local
authorities by reason of any violation by the contractor of such laws,
regulations and also from all claims, suits or proceedings that may be
brought against the management arising under or incidental to or by reason
of the work provided/assigned [pic]under the contract brought by the
employees of the contractor, third party or by the Central or State
Government authorities.”

36. As regards the nature of control exercised by the management
over the workmen employed by the contractor to work in the said canteen, it
was observed by this Court in the Haldia case (supra) that the control was
of a supervisory nature and that there was no control over disciplinary
action or dismissal. Such control was held not to be determinative of the
alleged fact that the workmen were under the control of the management.
This Court observed as follows:
“16. The management has kept with it the right to test, interview or
otherwise assess or determine the quality of the employees/workers with
regard to their level of skills, knowledge, proficiency, capability, etc.
so as to ensure that the employees/workers are competent and qualified and
suitable for efficient performance of the work covered under the contract.
This control has been kept by the management to keep a check over the
quality of service provided to its employees. It has nothing to do with
either the appointment or taking disciplinary action or dismissal or
removal from service of the workmen working in the canteen. Only because
the management exercises such control does not mean that the employees
working in the canteen are the employees of the management. Such
supervisory control is being exercised by the management to ensure that the
workers employed are well qualified and capable of rendering proper service
to the employees of the management.”

37. The last case that we intend to refer on this point is that of
KGSD Canteen case (supra), wherein this Court was required to answer the
question as to whether the employees of the canteen are employees of the
State or whether their services should be directed to be regularized or
not. However, in the said case, the State had no statutory compulsion to
run and maintain any canteen for its employees. This Court made reference
to numerous cases on this issue, inter alia, the Saraspur Mills case
(supra), the Parimal Chandra Raha case (supra), the MMR Khan case (supra),
the Indian Petrochemicals case (supra), the Constitution Bench decision in
the Steel Authority of India case (supra), the Hari Shankar Sharma case
(supra), and the Haldia case (supra).

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. Therefore, we cannot accept the
submission of Shri Jayant Bhushan, learned counsel that the employees of
the statutory Canteen ipso-facto become the employees of the principal
employer.

39. We may now refer to the various decisions, cited by learned
counsel, Shri Jayant Bhushan.

40. The Saraspur Mills case (supra) came before this Court as a
result of a dispute under the Bombay Industrial Relations Act, 1946. In
that case, the appellant-Company was responsible for maintaining the
canteen under the provisions of Section 46 of the Act, 1948 and the rules
made thereunder. The appellant-therein had handed over the task of running
the said canteen to a cooperative society. The society employed the
respondent-workmen in the canteen. One of the issues that came up for
consideration before this Court was that, whether the employees of the said
cooperative society could be said to be the employees of the appellant-
company. The case of the workmen was that the appellant-company was running
the canteen to fulfill its statutory obligations and thus the running of
the said canteen would be part of the undertaking of the appellant although
the appellant did not run itself the canteen but handed over the premises
to the co-operative society to run it for the use and welfare of the
Company’s employees and to discharge its legal obligation. The appellant-
company had resisted the claim by contending that the workmen had never
been employed by it but by the co-operative society which was its licensee.
This Court after referring to the amended definition of employee and
employer in Section 3(13) and 3(14) of Bombay Industrial Relation Act, 1946
and the definition of `Worker’ under the Act, 1948, and also referring to
earlier decision in Basti Sugar Mills Ltd. v. Ram Ujagar and Ors., (1964) 2
SCR 838, held that since under Act, 1948, it was the duty of the appellant-
company to run and maintain the canteen for use of its employees, the ratio
of the decision in Ahmedabad Mfg. and Calico Printing Co. Ltd., v. Their
Workmen (1953) II LLJ 647 would be fully applicable in which the very same
provision of the Act, 1948 were considered and confirmed the finding of the
Industrial Court.

41. It would be relevant to note that the primary reasoning of the
Court in the Saraspur Mills case (supra) to hold that the workers of the
canteen run by a cooperative society to be the employees of the appellant-
company therein, was in view of the amended definition of “employer” and
“employee” as found under the Bombay Industrial Relations Act, 1946 and
definition of `Workmen’ under the Act, 1948. Since no such expansive
definition finds mention neither in the Act, 1948 nor in the facts of the
present case, it would not be proper to place reliance on the given case as
a precedent herein.

42. In the Hussainbhai case (supra), the dispute arose between
workmen hired by a contractor to make ropes within the factory premises on
one hand, and the petitioner who was the factory owner manufacturing ropes
who had engaged such contractor, on the other hand. The issue therein
pertained to whether such workmen would be that of the contactor or the
petitioner. In the said case, the Court went into the concept of employer-
employee relationship from the point of view of economic realities. It was
observed, by a three-Judge Bench, that:
“5. The true test may, with brevity, be indicated once again. Where a
worker or group of workers labours to produce goods or services and these
goods or services are for the business of another, that other is, in fact,
the employer. He has economic control over the workers’ subsistence, skill,
and continued employment. If he, for any reason, chokes off, the worker is,
virtually, laid off. The presence of intermediate contractors with whom
alone the workers have immediate or direct relationship ex contractu is of
no consequence when, on lifting the veil or looking at the conspectus of
factors governing employment, we discern the naked truth, though draped in
different perfect paper arrangement, that the real employer is the
Management, not the immediate contractor. …”

43. The Hussainbhai case (supra) did not deal with the Act, 1948,
much less any statutory obligation thereunder. The case proceeded on the
test of employer-employee relationship to ascertain the actual employer.
The Court gave due weight and consideration to the concept of ‘economic
control’ in this regard. It may only be appropriate for the Court in the
present case to refer to this judgment as regards determining the employer-
employee relationship.

44. The case of M.M.R. Khan (supra), also came up for consideration
before a three-Judge Bench of this Court. It related to the workers
employed in canteens run in the different railway establishments. The
relief claimed was that the workers concerned should be treated as railway
employees and should be extended all service benefits which are available
to the said railway employees. The Court was concerned, in the said case,
with three types of canteens:- (i) Statutory Canteens; (ii) Non-
Statutory, Recognized Canteens; and (iii) Non-Statutory, Non-Recognized
Canteens. As regards statutory canteens, the Court noticed that under
Section 46 of the Act, 1948, the occupier of a factory was not only obliged
to provide for and maintain a canteen where more than 250 workers are
employed, but was also obliged to abide by the rules which the concerned
Government may make, including the rules for constitution of a managing
committee for running the canteen and for representation of the workers in
the management of the canteen. In other words, the whole working and
functioning of the canteen has to conform to the statutory rules made in
that behalf.

45. It would be relevant to notice the facts noted by this Court in
the MMR Khan’s case (supra). This Court had made an explicit reference to
the relevant provisions of the Railway Establishment Manual and the
Administrative Instructions on Departmental Canteens in Offices and
Industrial Establishments of the Government as issued by the Department of
Personnel and Training, Ministry of Personnel, Public Grievances and
Pensions of the Government of India, which dealt with the canteens and had
express provisions thereunder that were integral to the final decision of
this Court. The issue that arose before the Court was whether the employees
of the statutory canteen could be said to be the employees of the railway
administration as well. This Court observed that:
“25. Since in terms of the Rules made by the State Governments under
Section 46 of the Act, it is obligatory on the railway administration to
provide a canteen, and the canteens in question have been established
pursuant to the said provision there is no difficulty in holding that the
canteens are incidental to or connected with the manufacturing process or
the subject of the manufacturing process. The provision of the canteen is
deemed by the statute as a necessary concomitant of the manufacturing
activity. Paragraph 2829 of the Railway Establishment Manual recognizes the
obligation on the railway Administration created by the Act and as pointed
out earlier paragraph 2834 makes provision for meeting the cost of the
canteens. Paragraph 2832 acknowledges that although the railway
administration may employ anyone such as a staff committee or a co-
operative society for the management of the canteens, the legal
responsibility for the proper management rests not with such agency but
solely with the railway administration. If the management of the canteen is
handed over to a consumer cooperative society the bye-laws of such society
have to be amended suitably to provide for an overall control by the
railway administration.

26. In fact as has been pointed out earlier the Administrative Instructions
on departmental canteens in terms state that even those canteens which are
not governed by the said Act have to be under a complete administrative
control of the concerned department and the recruitment, service conditions
and the disciplinary proceedings to be taken against the employees have to
be taken according to the rules made in that behalf by the said department.
In the circumstances, even where the employees are appointed by the staff
committee/cooperative society it will have to be held that their
appointment is made by the department through the agency of the
committee/society as the case may be. …”

46. We are in agreement with the view expressed in MMR Khan case
(supra). We further observe that the reasoning of the Court, as noticed
hereinabove, was based on the Railway Establishment Rules and the relevant
Administrative instructions issued by the Government of India. By virtue of
the aforesaid Rules and Administrative instructions, it was made mandatory
that the complete administrative control of the canteen be given to the
Railway Administration. Such mandatory obligations are not present in the
instant case. In light of the same, the given case cannot be said to be a
precedent on the general proposition as regards the status of employees of
a statutory canteen established under the Act, 1948.
47. We have already referred to the decision of this Court in
Parimal Chandra Raha case (supra), and, therefore, we are not referring to
the said decision once over again. However, we add that in the Parimal
Chandra Raha case (supra), this Court made a general observation that under
the provisions of the Act, 1948, it is statutorily obligatory on the
employer to provide and maintain a canteen for the use of his employees. As
a consequence, the Court stated that, the canteen would become a part of
the principal establishment and, therefore, the workers employed in such
canteen would be the employees of the said establishment. This Court went
on to observe that the canteen was a part of the establishment of the
Corporation, that the contractors engaged were only a veil between the
Corporation and the canteen workers and therefore, the canteen workers were
the employees of the Corporation. This Court, while arriving at the said
conclusion laid emphasis on the contract between the corporation and the
contractor, whereby it was shown that the terms of the said contract were
in the nature of directions to the contractor about the manner in which the
canteen should be run and the canteen services should be rendered to the
employees. Furthermore, it was found that majority of the workers had been
working in the said canteen continuously for a long time, whereas the
intermediaries were changed on numerous occasions.

48. In light of the above discussion, in our view, the case laws on
which the reliance is placed by learned counsel would not assist him to
drive home the point canvassed.

49. To ascertain whether the workers of the Contractor can be
treated as the employees of the factory or company on whose premises they
run the said statutory canteen, this Court must apply the test of complete
administrative control. Furthermore, it would be necessary to show that
there exists an employer-employee relationship between the factory and the
workmen working in the canteen. In this regard, the following cases would
be relevant to be noticed.

50. This Court would first refer to the relevant pronouncements by
various English Courts in order to analyze their approach regarding
employer-employee relationship. In the case of Ready Mix Concrete (South
East) Ltd v. Minister of Pensions and National Insurance, [1968] 2 QB 497,
McKenna J. laid down three conditions for the existence of a contract of
service. As provided at p.515 in the Ready Mix Concrete case (supra), the
conditions are as follows:

“(i) The servant agrees that, in consideration of a wage or other
remuneration, he will provide his own work and skill in the performance of
some service for his master; (ii) he agrees, expressly or impliedly, that
in the performance of that service he will be subject to the other’s
control in a sufficient degree to make that other master; (iii) the other
provisions of the contract are consistent with its being a contract of
service.”

51. In the Ready Mix Concrete case (supra), McKenna J. further
elaborated upon the above-quoted conditions. As regards the first, he
stated that there must be wages or remuneration; else there is no
consideration and therefore no contract of any kind. As regards the second
condition, he stated that control would include the power of deciding the
thing to be done, the way in which it shall be done, the means to be
employed in doing it, the time when and the place where it shall be done.
Furthermore, to establish a master-servant relationship, such control must
be existent in a sufficient degree.

52. McKenna J. further referred to Lord Thankerton’s “four indicia”
of a contract of service said in Short v. J. and W. Henderson Ltd. (1946)
62 TLR 427. The J. and W. Henderson case (supra) at p.429, observes as
follows:

“(a) The master’s power of selection of his servant; (b) the payment of
wages or other remuneration; (c) the master’s right to control the method
of doing the work; and (d) the master’s right of suspension or dismissal.”

53. A recent decision by the Queen’s Bench, in JGE v. The Trustees
of Portsmouth Roman Catholic Diocesan Trust, [2012] EWCA Civ 938, Lord
Justice Ward, while discussing the hallmarks of the employer-employee
relationship, observed that an employee works under the supervision and
direction of his employer, whereas an independent contractor is his own
master bound by his contract but not by his employer’s orders. Lord Justice
Ward followed the observations made by McKenna J. in the Ready Mix Concrete
case (supra) as mentioned above. The JGE case (supra), further noted that
‘control’ was an important factor in determining an employer-employee
relationship. It was held, after referring to numerous judicial decisions,
that there was no single test to determine such a relationship. Therefore
what would be needed to be done is to marshal various tests, which should
cumulatively point either towards an employer-employee relationship or away
from one.

54. The case of Short v. J. and W. Henderson Ltd., as cited in the
Ready Mix Concrete case (supra) and in the JGE case (supra), was also
referred to in the four-Judge Bench decision of this Court in Dhrangadhra
Chemical Works Ltd. v. State of Saurashtra, AIR 1957 SC 274. In the
Dhrangadhra Chemical Works case (supra), it was observed that the prima
facie test for the determination of the relationship between master and
servant is the existence of the right in the master to supervise and
control the work done by the servant not only in the matter of directing
what work the servant is to do but also the manner in which he shall do his
work.

55. In Ram Singh v. Union Territory, Chandigarh, (2004) 1 SCC 126,
as regards the concept of control in an employer-employee relationship,
observed as follows:
“15. In determining the relationship of employer and employee, no doubt,
“control” is one of the important tests but is not to be taken as the sole
test. In determining the relationship of employer and employee, all other
relevant facts and circumstances are required to be considered including
the terms and conditions of the contract. It is necessary to take a
multiple pragmatic approach weighing up all the factors for and against an
employment instead of going by the sole “test of control”. An integrated
approach is needed. “Integration” test is one of the relevant tests. It is
applied by examining whether the person was fully integrated into the
employer’s concern or remained apart from and independent of it. The other
factors which may be relevant are — who has the power to select and
dismiss, to pay remuneration, deduct insurance contributions, organize the
work, supply tools and materials and what are the “mutual obligations”
between them. (See Industrial Law, 3rd Edn., by I.T. Smith and J.C. Wood,
at pp. 8 to 10.)”

56. In the case of Bengal Nagpur Cotton Mills case (supra), this
Court observed that:
“9. In this case, the industrial adjudicator has granted relief to the
first respondent in view of its finding that he should be deemed to be a
direct employee of the appellant. The question for consideration is whether
the said finding was justified.
10. It is now well settled that if the industrial adjudicator finds that
the contract between the principal employer and the contractor to be a
sham, nominal or merely a camouflage to deny employment benefits to the
employee and that there was in fact a direct employment, it can grant
relief to the employee by holding that the workman is the direct employee
of the principal employer. Two of the well-recognized tests to find out
whether the contract labourers are the direct employees of the principal
employer are: (i) whether the principal employer pays the salary instead of
the contractor; and (ii) whether the principal employer controls and
supervises the work of the employee. In this case, the Industrial Court
answered both questions in the affirmative and as a consequence held that
the first respondent is a direct employee of the appellant.”

57. Further, the above case made reference to the case of the
International Airport Authority of India case (supra) wherein the
expression “control and supervision” in the context of contract labour was
explained by this Court. The relevant part of the International Airport
Authority of India case (supra), as quoted in Bengal Nagpur Cotton Mills
case (supra) is as follows:
“38. … if the contract is for supply of labour, necessarily, the labour
supplied by the contractor will work under the directions, supervision and
control of the principal employer but that would not make the worker a
direct employee of the principal employer, if the salary is paid by a
[pic]contractor, if the right to regulate the employment is with the
contractor, and the ultimate supervision and control lies with the
contractor.

39. The principal employer only controls and directs the work to be done by
a contract labour, when such labour is assigned/allotted/sent to him. But
it is the contractor as employer, who chooses whether the worker is to be
assigned/ allotted to the principal employer or used otherwise. In short,
worker being the employee of the contractor, the ultimate supervision and
control lies with the contractor as he decides where the employee will work
and how long he will work and subject to what conditions. Only when the
contractor assigns/sends the worker to work under the principal employer,
the worker works under the supervision and control of the principal
employer but that is secondary control. The primary control is with the
contractor.”

58. A recent decision concerned with the employer-employee
relationship was that of the NALCO case (supra). In this case, the
appellant had established two schools for the benefit of the wards of its
employees. The Writ Petitions were filed by the employees of each school
for a declaration that they be treated as the employees of the appellant-
company on grounds of, inter alia, real control and supervision by the
latter. This Court, while answering the issue canvassed was of the opinion
that the proper approach would be to ascertain whether there was complete
control and supervision by the appellant-therein. In this regard, reference
was made to the case of Dhrangadhra Chemical Works case (supra) wherein
this Court had observed that:
“14. The principle which emerges from these authorities is that the prima
facie test for the determination of the relationship between master and
servant is the existence of the right in the master to supervise and
control the work done by the servant not only in the matter of directing
what work the servant is to do but also the manner in which he shall do his
work, or to borrow the words of Lord Uthwatt at p.23 in Mersey Docks and
Harbour Board v. Coggins & Griffith (Liverpool) Ltd., (1952) SCR 696 “The
proper test is whether or not the hirer had authority to control the manner
of execution of the act in question”.”
59. The NALCO case (supra) further made reference to the case of
Workmen of Nilgiri Coop. Mkt. Society Ltd. v. State of T.N., (2004) 3 SCC
514, wherein this Court had observed as follows:
“37. The control test and the organization test, therefore, are not the
only factors which can be said to be decisive. With a view to elicit the
answer, the Court is required to consider several factors which would have
a bearing on the result: (a) who is the appointing authority; (b) who is
the paymaster; (c) who can dismiss; (d) how long alternative service lasts;
(e) the extent of control and supervision; (f) the nature of the job e.g.
whether it is professional or skilled work; (g) nature of establishment;
(h) the right to reject.

38. With a view to find out reasonable solution in a problematic case of
this nature, what is needed is an integrated approach meaning thereby
integration of the relevant tests wherefor it may be necessary to examine
as to whether the workman concerned was fully integrated into the
employer’s concern meaning thereby independent of the concern although
attached therewith to some extent.”

60. It was concluded by this Court in the NALCO case (supra) that
there may have been some element of control with NALCO because its
officials were nominated to the Managing Committee of the said schools.
However, it was observed that the above-said fact was only to ensure that
the schools run smoothly and properly. In this regard, the Court observed
as follows:
“30. … However, this kind of “remote control” would not make NALCO the
employer of these workers. This only shows that since NALCO is shouldering
and meeting financial deficits, it wants to ensure that the money is spent
for the rightful purposes.”

61. Thus, it can be concluded that the relevant factors to be taken
into consideration to establish an employer-employee relationship would
include, inter alia, (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. As regards, extent of control and supervision, we
have already taken note of the observations in Bengal Nagpur Cotton Mills
case (supra), the International Airport Authority of India case (supra) and
the NALCO case (supra).

62. In the present set of appeals, it is an admitted fact that the
HCI is a wholly owned subsidiary of the Air India. It has been urged by the
learned counsel for the appellants that this Court should pierce the veil
and declare that the HCI is a sham and a camouflage. Therefore, the
liability regarding the appellants herein would fall upon the Air India,
not the HCI. In this regard, it would be pertinent to elaborate upon the
concept of a subsidiary company and the principle of lifting the corporate
veil.

63. The Companies Act in India and all over the world have
statutorily recognized subsidiary company as a separate legal entity.
Section 2(47) of the Companies Act, 1956 (for short “the Act, 1956”)
defines ‘subsidiary company’ or ‘subsidiary’, to mean a subsidiary company
within the meaning of Section 4 of the Act, 1956. For the purpose of the
Act, 1956, a company shall be, subject to the provisions of sub-section (3)
of Section 4, of the Act, 1956, deemed to be subsidiary of another. Clause
(1) of Section 4 of the Act, 1956 further imposes certain preconditions for
a company to be a subsidiary of another. The other such company must
exercise control over the composition of the Board of Directors of the
subsidiary company, and have a controlling interest of over 50% of the
equity shares and voting rights of the given subsidiary company.

64. In a concurring judgment by K.S.P. Radhakrishnan, J., in the
case of Vodafone International Holdings BV v. Union of India, (2012) 6 SCC
613, the following was observed:
“Holding company and subsidiary company
….
257. The legal relationship between a holding company and WOS is that they
are two distinct legal persons and the holding company does not own the
assets of the subsidiary and, in law, the management of the business of the
subsidiary also vests in its Board of Directors. …
258. Holding company, of course, if the subsidiary is a WOS, may appoint or
remove any Director if it so desires by a resolution in the general
[pic]body meeting of the subsidiary. Holding companies and subsidiaries can
be considered as single economic entity and consolidated balance sheet is
the accounting relationship between the holding company and subsidiary
company, which shows the status of the entire business enterprises. Shares
of stock in the subsidiary company are held as assets on the books of the
parent company and can be issued as collateral for additional debt
financing. Holding company and subsidiary company are, however, considered
as separate legal entities, and subsidiary is allowed decentralized
management. Each subsidiary can reform its own management personnel and
holding company may also provide expert, efficient and competent services
for the benefit of the subsidiaries.”

65. The Vodafone case (supra), further made reference to a decision
of the US Supreme Court in United States v. Bestfoods [141 L Ed 2d 43: 524
US 51 (1998)]. In that case, the US Supreme Court explained that as a
general principle of corporate law a parent corporation is not liable for
the acts of its subsidiary. The US Supreme Court went on to explain that
corporate veil can be pierced and the parent company can be held liable for
the conduct of its subsidiary, only if it is shown that the corporal form
is misused to accomplish certain wrongful purposes, and further that the
parent company is directly a participant in the wrong complained of. Mere
ownership, parental control, management, etc. of a subsidiary was held not
to be sufficient to pierce the status of their relationship and, to hold
parent company liable.

66. The doctrine of ‘piercing the corporate veil’ stands as an
exception to the principle that a company is a legal entity separate and
distinct from its shareholders with its own legal rights and obligations.
It seeks to disregard the separate personality of the company and attribute
the acts of the company to those who are allegedly in direct control of its
operation. The starting point of this doctrine was discussed in the
celebrated case of Salomon v. A Salomon & Co Ltd., [1897] AC 22. Lord
Halsbury LC (paragraphs 31–33), negating the applicability of this doctrine
to the facts of the case, stated that:
“…a company must be treated like any other independent person with its
rights and liabilities legally appropriate to itself …, whatever may have
been the ideas or schemes of those who brought it into existence.”

67. Most of the cases subsequent to the Salomon case (supra),
attributed the doctrine of piercing the veil to the fact that the company
was a ‘sham’ or a ‘façade’. However, there was yet to be any clarity on
applicability of the said doctrine.

68. In recent times, the law has been crystallized around the six
principles formulated by Munby J. in Ben Hashem v. Ali Shayif, [2008] EWHC
2380 (Fam). The six principles, as found at paragraphs 159– 164 of the case
are as follows- (i) ownership and control of a company were not enough
to justify piercing the corporate veil; (ii) the Court cannot pierce the
corporate veil, even in the absence of third party interests in the
company, merely because it is thought to be necessary in the interests of
justice; (iii) the corporate veil can be pierced only if there is some
impropriety; (iv) the impropriety in question must be linked to the use of
the company structure to avoid or conceal liability; (v) to justify
piercing the corporate veil, there must be both control of the company by
the wrongdoer(s) and impropriety, that is use or misuse of the company by
them as a device or facade to conceal their wrongdoing; and (vi) the
company may be a ‘façade’ even though it was not originally incorporated
with any deceptive intent, provided that it is being used for the purpose
of deception at the time of the relevant transactions. The Court would,
however, pierce the corporate veil only so far as it was necessary in order
to provide a remedy for the particular wrong which those controlling the
company had done.

69. The principles laid down by the Ben Hashem case (supra) have
been reiterated by UK Supreme Court by Lord Neuberger in Prest v. Petrodel
Resources Limited and others, [2013] UKSC 34, at paragraph 64. Lord
Sumption, in the Prest case (supra), finally observed as follows:
“35. I conclude that there is a limited principle of English law which
applies when a person is under an existing legal obligation or liability or
subject to an existing legal restriction which he deliberately evades or
whose enforcement he deliberately frustrates by interposing a company under
his control. The Court may then pierce the corporate veil for the purpose,
and only for the purpose, of depriving the company or its controller of the
advantage that they would otherwise have obtained by the company’s separate
legal personality. The principle is properly described as a limited one,
because in almost every case where the test is satisfied, the facts will in
practice disclose a legal relationship between the company and its
controller which will make it unnecessary to pierce the corporate veil.”

70. The position of law regarding this principle in India has been
enumerated in various decisions. A Constitution Bench of this Court in Life
Insurance Corporation of India v. Escorts Ltd. & Ors., (1986) 1 SCC 264,
while discussing the doctrine of corporate veil, held that:
“90. … Generally and broadly speaking, we may say that the corporate veil
may be lifted where a statute itself contemplates lifting the veil, or
fraud or improper conduct is intended to be prevented, or a taxing statute
or a beneficent statute is sought to be evaded or where associated
companies are inextricably connected as to be, in reality, part of one
concern. It is neither necessary nor desirable to enumerate the classes of
cases where lifting the veil is permissible, since that must necessarily
depend on the relevant statutory or other provisions, the object sought to
be achieved, the impugned conduct, the involvement of the element of the
public interest, the effect on parties who may be affected etc.”

71. Thus, on relying upon the aforesaid decisions, the doctrine of
piercing the veil allows the Court to disregard the separate legal
personality of a company and impose liability upon the persons exercising
real control over the said company. However, this principle has been and
should be applied in a restrictive manner, that is, only in scenarios
wherein it is evident that the company was a mere camouflage or sham
deliberately created by the persons exercising control over the said
company for the purpose of avoiding liability. The intent of piercing the
veil must be such that would seek to remedy a wrong done by the persons
controlling the company. The application would thus depend upon the
peculiar facts and circumstances of each case.

72. Having considered the relevant judicial decisions and the well
established and settled principles, it would be appropriate to revert back
to the controversy as found in the present factual matrix.

73. In the present reference, this Court is required to ascertain
whether workmen, engaged on a casual or temporary basis by a contractor to
operate and run a statutory canteen on the premises of a factory or
corporation, can be said to be the workmen of the said factory or
corporation.

74. It has been noticed above that workmen hired by a contractor
to work in a statutory canteen established under the provisions of the Act,
1948 would be the said workmen of the given factory or corporation, but for
the purpose of the Act, 1948 only and not for all other purposes.
Therefore, the appellants-workmen, in the present case, in light of the
settled principle of law, would be workmen of the Air India, but only for
the purposes of the Act, 1948. Solely by virtue of this deemed status
under the Act, 1948, the said workers would not be able to claim
regularization in their employment from the Air India. As has been observed
in the Indian Petrochemicals case (supra), the Act, 1948 does not govern
the rights of employees with reference to recruitment, seniority,
promotion, retirement benefits, etc. These are governed by other statutes,
rules, contracts or policies.

75. To ascertain whether the appellants-herein would be entitled to
other benefits and rights such as regularization, this Court would have to
apply the test of employer-employee relationship as noticed hereinabove.
For the said purpose, it would be necessary to refer to the Memorandum of
Association and the Articles of Association of the HCI to look into the
nature of the activities it undertakes. The objects of the HCI, as provided
under its Memorandum of Association, inter alia, include the following:
(i) To carry on the business of hotel, motel, restaurant, café, tavern,
flight kitchen, refreshment room and boarding and lodging, house-keepers,
licensed victuallers, etc.;
(ii) To provide lodging and boarding and other facilities to the public;
(iii) To purchase, erect, take on lease or otherwise acquire, equip and
manage hotels;
(iv) To establish shops, kitchens, refreshment rooms, canteens and depots
for the sale of various food and beverages.

76. The objects incidental or ancillary to the main objects
include, inter alia:
“…
(5) To carry on any business by means of operating hotels etc. or other
activity which would tend to promote or assist Air-India’s business as an
international air carrier.
…”

77. It can be noticed from the above, that the primary objects of
the HCI have no direct relation with the Air India. It is only one of the
many incidental or ancillary objects of the HCI that make a direct
reference to assisting Air India. The argument that the HCI runs the
canteen solely for Air India’s purpose and benefit could not succeed in
this light. The HCI has several primary objects, which include the running
of hotels, motels, etc., in addition to establishing shops, kitchens,
canteens and refreshment rooms. The Air India only finds mention under
HCI’s ancillary objects. It cannot be said that the Memorandum of
Association of the HCI provides that HCI functions only for Air India. Nor
can it be said that the fundamental activity of the HCI is to run and
operate the said statutory canteen for the Air India.

78. As regards HCI’s Articles of Association, it is stated therein
that the HCI shall be a wholly-owned subsidiary of the Air India and that
its share capital shall be held by the Air India and/or its nominees.
Furthermore, the said Articles included provisions whereby Air India
controls the composition of the Board of Directors of the HCI, including
the power to remove any such director or even the Chairman of the Board.
Further, Air India has the right to issue directions to the HCI, which the
latter is bound to comply with. In this regard, it may be contended that
the Air India has effective and absolute control over the HCI and that
therefore latter is merely a veil between the appellants-workmen and Air
India. We do not agree with this contention.

79. In support of the above we find that nothing has been brought
before this Court to show that such provisions in the Articles of
Association are either bad in law or would impose some liability upon the
Air India, in terms of calling the appellants to be its own workers. In our
view, the said Articles are not impermissible in law. It is our considered
opinion that the doctrine of piercing the veil cannot be applied in the
given factual scenario. Despite being a wholly owned subsidiary of the Air
India, Respondent No. 1 and Respondent No. 2 are distinct legal entities.
The management of business of the HCI is under its own Board of Directors.
The issue relating to the appointment of the Board of Directors of the HCI
by the Air India would be a consequence of statutory obligations of a
wholly owned subsidiary under the Act, 1956.

80. The present facts would not be a fit case to pierce the veil,
which as enumerated above, must be exercised sparingly by the Courts.
Further, for piercing the veil of incorporation, mere ownership and control
is not a sufficient ground. It should be established that the control and
impropriety by the Air India resulted in depriving the Appellants-workmen
herein of their legal rights. As regards the question of impropriety, the
Division Bench of the High Court of Delhi in the impugned order dated
02.05.2011, noted that there has been no advertence on merit, in respect of
the workmen’s rights qua HCI, and the claim to the said right may still be
open to the workmen as per law against the HCI. Thus, it cannot be
concluded that the controller ‘Air India’ has avoided any obligation which
the workmen may be legally entitled to. Further, on perusal of the
Memorandum of Association and Articles of Association of the HCI, it cannot
be said that the Air India intended to create HCI as a mere façade for the
purpose of avoiding liability towards the Appellants-workmen herein.

81. Therefore, the only consideration before this Court is the
nature of control that the Air India may have over the HCI, and whether
such control may be called effective and absolute control. Such control
over the HCI would be required to be established to show that the
appellants-workmen were in fact the employees of the Air India.

82. It may be noticed again that the NALCO case (supra) dealt with
a similar issue. In that case, the Court had observed that the day-to-day
functioning of the school as setup by the appellant therein was not under
NALCO, but under a managing committee therein. Further, the said Managing
Committee was a separate and distinct legal entity from NALCO, and was
solely responsible for recruitment, disciplinary action, termination, etc.
of its staff. The Court therefore had held that the respondents therein
could not be said to be employed by NALCO. In the present case, HCI is a
separate legal entity incorporated under the Act, 1956 and is carrying out
the activity of operating and running of the given canteen. The said
Articles of Association of the HCI, in no way give control of running the
said canteen to the Air India. The functions of appointment, dismissal,
disciplinary action, etc. of the canteen staff, are retained with the HCI.
Thus, the exercise of control by the HCI clearly indicated that the said
respondent No. 2 is not a sham or camouflage created by respondent No. 1 to
avoid certain statutory liabilities.

83. Reference was also made by the learned counsel for the
Appellants to certain documents such as minutes of meetings, etc. to show
that the Air India was exercising control over the HCI in matters relating
to transfer of workmen in the canteen, rates of subsidies, items on the
menu, uniforms of the canteen staff, etc. On a perusal of the said
documents, it is found that the said matters were, again, in the nature of
supervision. In fact, most of these were as a consequence of the
obligations imposed under the Rules, 1950. Air India, being the entity
bearing the financial burden, would give suggestions on the running of the
canteen. Furthermore, in light of complaints, issues or even suggestions
raised by its own employees who would avail the said canteen services, Air
India would put forth recommendations or requests to ensure the redressal
of said complaints or grievances. As regards discussions over uniforms,
prices, subsidies, etc., it may be noted that the same are obligations
under the Rules, 1950 as applicable to Air India.

84. In our considered view, and in light of the principles applied
in the Haldia case (supra), such control would have nothing to do with
either the appointment, dismissal or removal from service, or the taking of
disciplinary action against the workmen working in the canteen. 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.

85. Therefore, in our considered view and in light of the above,
the appellants-workmen could not be said to be under the effective and
absolute control of Air India. The Air India merely has control of
supervision over the working of the given statutory canteen. Issues
regarding appointment of the said workmen, their dismissal, payment of
their salaries, etc. are within the control of the HCI. It cannot be then
said that the appellants are the workmen of Air India and therefore are
entitled to regularization of their services.

86. It would be pertinent to mention, at this stage, that there is
no parity in the nature of work, mode of appointment, experience,
qualifications, etc., between the regular employees of the Air India and
the workers of the given canteen. Therefore, the appellants-workmen cannot
be placed at the same footing as the Air India’s regular employees, and
thereby claim the same benefits as bestowed upon the latter. It would also
be gainsaid to note the fact that the appellants-herein made no claim or
prayer against either of the other respondents, that is, the HCI or the
Chefair.

87. In terms of the above, the reference is answered as follows :
The workers engaged by a contractor to work in the statutory canteen
of a factory would be the workers of the said factory, but only for the
purposes of the Act, 1948, and not for other purposes, and further for the
said workers, to be called the employees of the factory for all purposes,
they would need to satisfy the test of employer-employee relationship and
it must be shown that the employer exercises absolute and effective control
over the said workers.

88. In view of the above, while answering the referral order, we
dismiss these appeals. No order as to costs.

Ordered accordingly.

………………..J.
[ H.L. DATTU ]

………………..J.
[ R.K. AGRAWAL ]

………………..J.
[ ARUN MISHRA ]
NEW DELHI,
AUGUST 25, 2014.

Advertisements

About advocatemmmohan

ADVOCATE

Discussion

Comments are closed.

Blog Stats

  • 1,658,606 hits

ADVOCATE MMMOHAN

archieves

Enter your email address to subscribe to this blog and receive notifications of new posts by email.

Join 1,846 other followers

Follow advocatemmmohan on WordPress.com