2002 JTR(SC) 358
2002 AIR(SC) 1444 ; 2002 AIR(SCW) 1301 ; 2002 1 CLR 1113 ; 2002 101 FJR 5 ; 2002 93 FLR 334 ; 2002 2 GLH 334 ; 2002 3 GLR 2010 ; 2002 3 JT 71 ; 2002 LIC 1440 ; 2002 2 LLJ 262 ; 2002 2 LLN 778 ; 2002 2 Scale 601 ; 2002 3 SCC 433 ; 2002 SCC(L&S) 440 ; 2002 2 SCT 406 ; 2002 1 UJ 756 ; 2002 2 UPLBEC 1178 ; 2002 2 Supreme 406
SUPREME COURT OF INDIA
K.G.Balakrishnan : S.N.Phukan
Nitinkumar Nathalal Joshi
Versus
Oil And Natural Gas Corporation
Case No. : 2078 of 2002
Date of Decision : 3/14/02
Advocates Appeared: Andhyarujina T.R. : Nanavati I.M. : Rohtagi Mukul
A prohibition notification under Section 10(1) of the CLRA Act does not result in automatic absorption of contract labour. Status as a regular employee depends on whether the contract was a sham, which must be determined by an industrial adjudicator.
Act
Referred
:CONSTITUTION OF INDIA
: Art.226
CONTRACT LABOUR REGULATION AND ABOLITION ACT: S.10(1)
(A) The dispute is governed by the Contract Labour (Regulation and Abolition) Act, 1970, read with the Constitution of India, Article 226. The relevant statutory provision is Section 10(1) of the Act, which empowers the appropriate Government to prohibit the employment of contract labour in any process, operation, or other work of an industrial establishment. The notification issued under this section has the effect of prohibiting the use of contract labour in the specified roles and triggers considerations regarding the transformation of the relationship between the principal employer and the workers engaged through a contractor. The proceeding under Article 226 challenges the approach prescribed for implementing this prohibition.
(B) The key legal principles are that the use of contract labour after a prohibition notification must be evaluated on whether the contract was a sham or camouflage to evade beneficial legislation, and if so, the workers must be treated as employees of the principal employer. If the contract is genuine, preference for absorption must be given to erstwhile contract labour, with necessary relaxations. The appropriate forum for conducting an investigation into service conditions and determining absorption is the Industrial Tribunal/Labour Court, and High Court proceedings under Article 226 are not appropriate for such factual inquiries.
Facts of the case:
The appellants were engaged as contract labour (Boiler Operators) by a contractor for the operation of boilers at a facility of the first respondent principal employer. Following a notification under Section 10(1) of the Contract Labour Act prohibiting such employment, the appellants claimed they should be deemed direct employees of the principal employer with corresponding terms of service. While the single High Court held that the contract was a breach warranting direct employment, the Division Bench stayed this direction, finding that factual disputes regarding service conditions required investigation by an Industrial Tribunal through conciliation proceedings, rather than direct issuance of writs.
Findings of Court:
The Division Bench found that there were disputed questions of fact concerning the service conditions of the contract labour, and therefore an investigation by the Industrial Tribunal was the correct procedural avenue. The Court declined to interfere with the Division Bench's directions for conciliation and referral to the Industrial Tribunal, while emphasising that the Tribunal must consider the allegations regarding the end of the contractor's agreement and subsequent re-contracting. The Court reaffirmed the principles from Steel Authority of India Ltd. case regarding the assessment of sham contracts and the prospective application of its holding.
Issues:
Whether the High Court Division was correct in directing that the matter proceed to an Industrial Tribunal instead of issuing writs under Article 226. Whether the appellants are entitled to be treated as employees of the principal employer on the basis of the prohibition notification. Whether the decision in Steel Authority of India Ltd. case applies retrospectively or prospectively to the present case.
Ratio Decidendi:
The prohibition of contract labour under Section 10(1) does not automatically result in absorption; the determination of whether a contractor is a sham or genuine entity is factual and must be made by the Industrial Tribunal. Where a contract is found to be a mere camouflage, the workers are employees of the principal employer. Factual inquiries into service conditions are inappropriate under Article 226 and must be left to the Tribunal constituted under the Industrial Disputes Act.
Result:
The appeal is dismissed, and the impugned judgment of the High Court Division directing the appellants to approach the Conciliation Officer and subsequently the Industrial Tribunal is upheld.
(A) The dispute is governed by the Contract Labour (Regulation and Abolition) Act, 1970, read with the Constitution of India, Article 226. The relevant statutory provision is Section 10(1) of the Act, which empowers the appropriate Government to prohibit the employment of contract labour in any process, operation, or other work of an industrial establishment. The notification issued under this section has the effect of prohibiting the use of contract labour in the specified roles and triggers considerations regarding the transformation of the relationship between the principal employer and the workers engaged through a contractor. The proceeding under Article 226 challenges the approach prescribed for implementing this prohibition.
(B) The key legal principles are that the use of contract labour after a prohibition notification must be evaluated on whether the contract was a sham or camouflage to evade beneficial legislation, and if so, the workers must be treated as employees of the principal employer. If the contract is genuine, preference for absorption must be given to erstwhile contract labour, with necessary relaxations. The appropriate forum for conducting an investigation into service conditions and determining absorption is the Industrial Tribunal/Labour Court, and High Court proceedings under Article 226 are not appropriate for such factual inquiries.
Facts of the case:
The appellants were engaged as contract labour (Boiler Operators) by a contractor for the operation of boilers at a facility of the first respondent principal employer. Following a notification under Section 10(1) of the Contract Labour Act prohibiting such employment, the appellants claimed they should be deemed direct employees of the principal employer with corresponding terms of service. While the single High Court held that the contract was a breach warranting direct employment, the Division Bench stayed this direction, finding that factual disputes regarding service conditions required investigation by an Industrial Tribunal through conciliation proceedings, rather than direct issuance of writs.
Findings of Court:
The Division Bench found that there were disputed questions of fact concerning the service conditions of the contract labour, and therefore an investigation by the Industrial Tribunal was the correct procedural avenue. The Court declined to interfere with the Division Bench's directions for conciliation and referral to the Industrial Tribunal, while emphasising that the Tribunal must consider the allegations regarding the end of the contractor's agreement and subsequent re-contracting. The Court reaffirmed the principles from Steel Authority of India Ltd. case regarding the assessment of sham contracts and the prospective application of its holding.
Issues:
Whether the High Court Division was correct in directing that the matter proceed to an Industrial Tribunal instead of issuing writs under Article 226. Whether the appellants are entitled to be treated as employees of the principal employer on the basis of the prohibition notification. Whether the decision in Steel Authority of India Ltd. case applies retrospectively or prospectively to the present case.
Ratio Decidendi:
The prohibition of contract labour under Section 10(1) does not automatically result in absorption; the determination of whether a contractor is a sham or genuine entity is factual and must be made by the Industrial Tribunal. Where a contract is found to be a mere camouflage, the workers are employees of the principal employer. Factual inquiries into service conditions are inappropriate under Article 226 and must be left to the Tribunal constituted under the Industrial Disputes Act.
Result:
The appeal is dismissed, and the impugned judgment of the High Court Division directing the appellants to approach the Conciliation Officer and subsequently the Industrial Tribunal is upheld.
ContractLabour - The judgment discusses the effect of abolition of contract labour by notification under Section 10 of the Industrial Disputes Act and the conditions for absorption of contract labourers as regular employees of the principal employer.
Absorption - A case whose judgment regarding the absorption of contract labour was prospectively overruled by the Steel Authority of India Ltd. case.
K.G.BALAKRISHNAN, J.
(1) LEAVE granted The judgment of the Division Bench of the High Court of Gujarat at Ahmedabad in Letters Patent Appeal No. 395 of 1999 is challenged before us. The appellants alleged that they were workmen employed as contract labourers in the capacity of Boiler Operators through the Contractor, Ahmedabad Electricity Co. Limited. According to these appellant workmen, they were employed as contract labour with the first respondent principal employer, namely. Oil and Natural Gas Corporation Limited (hereinafter being called as "ONGC Limited"). Consequent. upon the notification dated September 8, 1994 under Section 10(1) of the Contract Labour (Regulation and Abolition) Act, 1970 by the Central Government, the contract labour in the post of Boiler Operators, Attendants, Helpers and Peons was prohibited and these appellants claimed that they should be treated as the employees of the first respondent. They filed a Writ Petition before the High Court of Gujarat and learned single Judge held that these appellants were persons engaged for attending different; operations of the boiler in the boiler house of ONGC Ltd. through the contractor, which was clearly in breach of the provisions of the Act It was held that these appellants must be deemed to be performing duties directly under the first respondent ONGC Limited and they must be given the terms of service as applicable to other employees of ONGC Limited with effect from the date of notification.
(2) THE judgment of the learned single Judge was challenged before the Division Bench and the Division Bench was of the view that there were some disputed questions of fact and an investigation into facts regarding service conditions of contract labour was necessary before granting them the relief of direct employment with the principal employer and that the proceedings under Article 226 of the Constitution were not appropriate. It also held that there should be an investigation by the Industrial Tribunal and these appellants were directed to approach the Conciliation Officer of the concerned area and further direction was given to the Conciliation Officer to complete the conciliation proceedings within three months and if the dispute survived, the matter be referred to the Industrial Tribunal under Section 10 of the Industrial Disputes Act and the Industrial Tribunal/Labour Court to take a final decision in the matter within a period of four months thereafter. These directions are challenged before us.
(3) WE heard Mr. T.R. Andhyarujina, learned senior counsel on behalf of the appellants and Mr. Mukul Rohtagi, learned ASG on behalf of the respondents What is the effect of abolition of contract labour by virtue of the notification issued by Central Government under Section 10 of the Industrial Disputes Act was considered in detail in Steel Authority of India Ltd. and Others v National Union Waterfront Workers and Others, AIR 2001 SC 3527 2001 (7) SCC 1 : 2001-II-LLJ-1087 The main question that arose for consideration in that case was whether there should be an automaticabsorption of contract labourers working in the establishment of principal employer as regular employees consequent upon the notification under Section 10(1) of the Act. This Court held m Clauses (5) and (6) of paragraph 119 at 1132 of LLJ:
"ON issuance of prohibition notification under Section 10(1) of the CLRA Act prohibiting employment of contract labour or otherwise, in an industrial dispute: brought before it by any contract labour in regard to conditions of service, the industrial adjudicator will have to consider the question whether the contractor has been interposed either on the ground of having undertaken to produce any given result for the establishment or for supply of contract labour for work of the establishment under a genuine contract or is a mere ruse / camouflage to evade compliance with. various beneficial legislations so as to deprive the workers of the benefit thereunder. If the contract is found to be not genuine but a mere camouflage, the so-called contract labour will have to be treated as employees of the principal employer who shall be directed to regularise the services of the contract labour in the establishment concerned subject to the conditions as may be specified by it for that purpose in the light of para 6 hereunder. If the contract is found to be genuine and prohibition notification under Section 10(1) of the CLRA Act in respect of the establishment concerned has been issued by the appropriate Government, prohibiting employment of contract labour in any process, operation or other work of any establishment and where in such process, operation or other work of the establishment the principal employer intends, to employ regular workmen, he shall give preference to the erstwhile contract labour, if otherwise found suitable and, if necessary, by relaxing the condition as to maximum age appropriately, taking into consideration the age of the workers at the time of their initial employment by the contractor and also relaxing the condition as to academic qualifications other than technical qualifications."
(4) IN the present case, the appellants have alleged that after filing of the said appeal, the contract between first respondent ONGC Limited and the second respondent Ahmedabad Electricity Co. Limited came to an end on November 30, 2000 for operation of boilers and first respondent ONGC Limited entered into a contract with S. S. Construction, Mumbai and Essel Engineering Services, Mumbal for operation of the boilers at ONGC Limited with effect from December 1, 2000. They have also alleged that some of the appellants were given employment with a lesser payment but these facts have been denied by the first respondent. As these are disputed questions of fact, we do not propose to go into these questions and do not interfere with the directions given in the impugned judgment. However, we make it clear that the Industrial Tribunal/Labour Court shall also consider these allegations and shall give appropriate direction. We may also emphasise that the Constitution Bench of this Court in Steel Authority of India Ltd case (supra), in paragraph 101 observed as under 2001-II-LLJ-1087 at 1127:
"AN analysis of the cases, discussed above, shows that they fall in three classes, (i) where contract labour is engaged in or in connection with the work of an establishment and employment of contract labour is prohibited either because the Industrial Adjudicator/ Court ordered abolition of contract labour or because the appropriate Government issued notification under Section 10(1) of the CLRA Act, no automatic absorption of the contract labour working in the establishment was ordered, (ii) where the contract was found to be a sham and nominal, rather 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 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, (in) 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 "
(5) THESE matters are also to be considered by the Industrial Court/Labour Court if reference ultimately reaches before that Forum.
(6) THE learned counsel for the appellants contended that the decision in Steel Authority of India Ltd case (supra), is prospective, in, operation, therefore, these appellants should have been given the benefit of employment under the principal employer, the first-respondent ONGC Limited It is true that in Steel Authority of India Ltd. case (supra), it was specifically made clear in Clause (4) of paragraph 119, 2001-II-LLJ-1087 at 1131-
"WE overrule the judgment of this Court in Air India case prospectively and declare that any direction issued by any Industrial Adjudicator/any Court including the High Court, for absorption of contract labour following the judgment in Air India case shall hold good and that the same shall not be set aside, altered or modified on the basis of this judgment in cases where such a direction has been given effect to and it has become final "
(7) IN the present case, the appellants were not absorbed by the principal employer Therefore, it cannot be said that the decision in Steel Authority of India Ltd. case (supra) cannot be applied The directions issued by the learned single Judge were modified by the Division Bench of the High Court and never given effect to Therefore, the directions issued by this Court in the Steel Authority of India Ltd. case (supra) are applicable on all force
(8) WE do not find any reason to interfere with the directions given in the impugned judgment They are to be complied with subject to the observations made above and also having due regard to the decision rendered by this Court in Steel Authority of India Ltd. case (supra). The appeal is disposed of accordingly