A. The Constitution
A1. The Freedom of Expression and Association at the Workplace (Articles 19(1)(a) and (c))
A2. The Freedom to Unionise (Article 19(1)(c))
A3. The Fundamental Right against Forced Labour (Article 23)
A4. The Directive Principles
B. The Industrial Disputes Act
B1. What is an “Industry”?
B2. What is an “Industrial Dispute”?
B3. Who is a “Workman”?
B3A. Definition of “Workman”
B3B. Burden of Proof
B4. Which is the “appropriate government”?
B5. What constitutes a “change in the conditions of service”?
B6. Strikes and Lock-Outs
B10. Unfair Labour Practices
B10I. Deprivation of Privilege or Status
C. Contract Labour
C1. Camouflage/Sham Contracts and the Employer/Employee Relationship
C2. Prohibition of Contract Labour: Impact
C3. Contract and Permanent Labour: Equal Pay for Equal Work
D. Government Service under Part XIV of the Constitution
D1. Casual Employment and Regularisation of Workers
D2. Who is a holder of a “Civil Post” under Article 311?
E. Minimum Wage
F. Equal Pay for Equal Work
G. Employees’ Provident Funds Act and Employees State Insurance Act
H. Apprentices and Trainees
A. The Constitution
The labour movement played a significant role during India’s freedom struggle. This was recognised in the 1931 Congress Resolution on Fundamental Rights, which laid out both the classic civil/political rights, as well as the rights of labour, including the right to be free from serfdom and conditions bordering on serfdom, the right to unionise, and the right to a living wage (among others). However, during the time of the drafting of the Constitution, civil/political rights became enforceable fundamental rights under Part III of the Constitution, while the rights of labour were shunted into the unenforceable Directive Principles of State Policy (Part IV). This bifurcation was opposed by some members of the Constituent Assembly, but justified by others on grounds of the State’s lack of financial capacity. Consequently, the right to work, the right to a living wage, the right to equal pay for equal work etc. are all “Directive Principles of State Policy”.
There were three exceptions to this pattern. The freedom of association under Article 19(1)(c) of the Constitution also contained an express guarantee of the right to form unions. Article 23 guaranteed freedom from begar and other forms of forced labour, and Article 24 prohibited the use of children in any hazardous employment.
Consequently, when we think about the role of the Constitution in labour relations, two questions are important: how have the Courts interpreted labour’s fundamental rights to form unions (19(1)(c)) and to be free from forced labour (23)? And how have the Courts understood the role of the Directive Principles in labour adjudication?
A1. The Freedom of Expression and Association at the Workplace (Articles 19(1)(a) and (c))
- P. Balakotaiah vs Union of India, AIR 1958 SC 232 (5J Bench)
Certain railway employees were terminated under Section 3 of the Railway Services Rules of 1949. Section 3 stated allowed for termination (in accordance with procedure) of an employee who ” is engaged in or is reasonably suspected to be engaged in subversive activities, or is associated with others in subversive activities in such manner as to raise doubts about his reliability.” There was a further proviso that termination or compulsory retirement could be imposed only if in the view of the authority, retention of the employee was prejudicial towards national security. The case of the government was that the employees in question had been involved with communists, and had carried on agitations resulting in a general strike. The employees challenged both the orders of termination, as well as the Rules, alleging violations of Articles 14, 19 and 311 of the Constitution.
With respect to Article 14, the Court rejected the contention that the phrase “subversive activities” was too vague to provide an intelligible differentium, observing that “subversive activities” in the context of “national security” was precise enough. More importantly, however, the Court rejected the Article 19(1)(c) [freedom of association] argument, in the following terms:
“The argument is that action has been taken against the appellants under the rules, because they are Communists and trade unionists, and the orders terminating their services under R. 3 amount, in substance, to a denial to them of the freedom to form associations, which is guaranteed under Art. 19(1)(c).We have already observed that that is not the true scope of the charges. But apart from that, we do not see how any right of the appellants under Art. 19(1)(c)has been infringed. The orders do not prevent them from continuing to be Communists or trade unionists. Their rights in that behalf remain after the impugned orders precisely what they were before. The real complaint of the appellants is that their services have been terminated; but that involves, apart from Art. 311, no infringement of any of their Constitutional rights. The appellants have no doubt a fundamental right to form associations under Art. 19(1)(c), but they have no fundamental right to be continued in employment by the State, and when their services are terminated by the State they cannot complain of the infringement of any of their Constitutional rights, when no question of violation of Art. 311 arises.”
The reasoning of the Supreme Court can be divided into two prongs. First, the Court holds that since the employees were terminated because of subversive activities (and not because they were associating with communists), Article 19(1)(c) was not attracted. The Court also holds that Article 19(1)(c) would not have been attracted even if the employees had been terminated for associating with communists. The underlying premise (spelt out only partially) is that since there is no antecedent fundamental right to government employment, the government is free to make employment conditional on the requirement that employees do not associate with communists. In this case, therefore, we see that the government qua employer, empowered to determine its own conditions of employment, wins out over the government qua State, which must respect fundamental rights.
2. Kameshwar Prasad vs State of Bihar, AIR 1962 SC 1166 (5J Bench)
Kameshwar Prasad concerned the constitutional validity of Rule 4A of the Bihar Government Servants’ Rules, which stated that “no Government servant shall participate in any demonstration or resort to any form of strike in connection with any matter pertaining to his conditions of service.” The challenge was only to the prohibition of demonstrations, and not to the prohibition of strikes. On the logic of Balakotiah, this should have been a straightforward dismissal. The Court, however, took a radically different approach, and struck down the Rule as unconstitutional. It started by noting that “the mere fact that a person enters Government service, he does not cease to be “a citizen of India”, nor does that disentitle him to claim the freedoms guaranteed to every citizen.” The Court buttressed this argument by making the textual point that Article 33 of the Constitution specifically allowed the Parliament to modify the application of the fundamental rights chapter to the Armed Forces, forces charged with maintaining public order, and persons involved in intelligence. By omission, therefore, other branches of the government were entitled to the full enjoyment of their Part III rights. Therefore, in order for a restriction upon Article 19(1)(a) or (c) to be valid, it would have to meet the tests of reasonableness under Articles 19(2) and (4).
The State attempted to make the exact argument that had found favour in Balakotiah: that when an employee entered government service, she was deemed to have thereby consented to whatever service conditions the government, qua employer, chose to impose. To press this point, American First Amendment judgments were cited. The Court refused to rely on these judgments, noting that the First Amendment, being framed in absolute terms, had required the US Supreme Court to develop implied limitations to the right to free speech and association over the years, one of which was that of police power. The Indian Constitution, however, specifically stated the conditions under which speech and association could be restricted, and therefore did not allow the Court to traverse beyond the specific sub-clauses of Articles 19(2) and (4) [an aside: this is one of those rare cases where the Indian Supreme Court used the text of Articles 19(2) and (4) to evolve a more speech-protective standard than the American]. Then, Balakotiah was cited before the Court, and the Bench dismissed it in a line, stating that in that case, the validity of the rule had not been challenged. While conceding that the “nature” of the job might require some restrictions upon fundamental rights, such as the right to move freely throughout the territory of India (e.g., if a government servant was posted at a particular place), the Court stressed once more that as a general proposition, government employees had as much right to free speech and association as any other citizen.
Coming to the Rule in question, the Court held that in prohibiting all forms of demonstrations, without showing any proximate link with public disorder, the Rule was over-broad and void. The government’s argument that government servants constituted a specific class of people who needed to be disciplined in order that public order be maintained was also rejected on the ground that there was only one wing of government servants charged with maintaining public order – the police. The Rule, therefore, remained over-broad.
3. O.K. Ghosh vs E.X. Joseph, AIR 1963 SC 812 (5J Bench)
The logic of Kameshwar Prasad was then endorsed in O.K. Ghosh. A government employee was proceeded against for participating in demonstrations “in preparation” of a strike. One of the applicable rules was Rule 4A, which had already been struck down in part in Kameshwar Prasad. The other was Rule 4B, which prohibited government servants from joining associations not recognised by the government. Here, the Court struck down Rule 4B as well, on the same logic. It observed that:
“[Rule 4B] virtually compels a Government servant to withdraw his membership of the Service Association of Government Servants as soon as recognition accorded to the said Association is withdrawn or if, after the Association is formed, no recognition is accorded to it within six months… Can this restriction be. said to be in the interests of public order and can it be said, to be a reasonable restriction ? In our opinion, the only answer to these questions would be in the negative. It is difficult to see any direct or proximate or reasonable connection between the recognition by the Government of the Association and the discipline amongst, and the efficiency of, the members of the said Association. Similarly, it is difficult to see any connection between recognition and public order.”
Notice once again how this logic is directly contrary to that of Balakotiah. While Balakotiah held that Article 19(1)(c) is not even attracted in cases where government qua employer sets the terms of service, Kameshwar Prasad and O.K. Ghosh, on the other hand, held that government qua employer cannot evade the obligations of government qua State, and that therefore, any restriction upon an Article 19(1)(a) or (c) right must be tested under Articles 19(2) and (4), just like you would do for any other citizen. While in O.K. Ghosh the Court conceded that at certain times, service rules dealing with the conduct of government employees could be justified under the public order prong, that determination would be made on a case to case basis, and the standard Article 19(2) – (4) test of proximity would apply.
4. M.H. Devendrappa vs Karnataka Small Industries, (1998) 3 SCC 732 (2J Bench)
Here, yet again, the Court changed tack. An employee wrote a letter to the Governor of Karnataka, making various allegations against a state corporation, and also issued a press statement. Disciplinary action was taken against him, and he was dismissed from service. The relevant service rules prohibited employees from doing “anything detrimental to the interests or prestige of the Corporation“, and from assisting “any political movement or activity.” This time, the employee’s invocation of Articles 19(1)(a) and (c) were to no avail. The Supreme Court held:
“Rule 22 of the Service Rules is not meant to curtail freedom of speech or expression or the freedom to form associations or unions. It is clearly meant to maintain discipline within the service, to ensure efficient performance of duty by the employees of the Corporation, and to protect the interests and prestige of the Corporation. A Rule which is not primarily designed to restrict any of the fundamental rights cannot be called in question as violating Article 19(1)(a) or 19(1)(c). In fact, in the present proceedings the constitutional validity of Rule 22 is not under challenge. What is under challenge is the order of dismissal passed for violating Rule 22.”
We can start by noting that this is very obviously an incorrect proposition of law. Ever since Bennett Coleman vs Union of India, the Supreme Court had abandoned the “object and form” test for the violation of fundamental rights, in favour of the “effects” test. Consequently, whether a Rule is “designed” to violate fundamental rights is irrelevant; whether, in effect, it – or executive action taken under its aegis – violates fundamental rights is the necessary enquiry.
The Court was then faced with the conflicting precedents in Balakotiah and Kameshwar Prasad/O.K. Ghosh. It wriggled out of the difficulty by a sleight of hand, quoting the following passage in Kameshwar Prasad:
“… we should not be taken to imply that in relation to this class of citizens the responsibility arising from official position would not be itself impose some limitations on the exercise of their rights as citizens.”
It then held:
“Therefore, in Kameshwar Prasad’s case (supra) this Court made it clear that it was not in any manner affecting by the said Judgment, the Rules of Government service designed for proper discharge of duties and obligations by Government servants, although they may curtail or impose limitations on their rights under Part III of the Constitution.”
What the Court in Devandrappa neglected to do, however, was to quote what came immediately after the cited paragraph in Kameshwar Prasad. There, the Constitution Bench had taken two specific examples: that of an income tax officer mandated to maintain secrecy of documents under the Income Tax Act, and an election officer mandated to do the same under the Representation of the People Act. The very narrowness and specificity of these examples directly contradicted the broad interpretation that Devandrappa placed upon Kameshwar Prasad, namely that a fundamental rights challenge could be avoided on the ground of requiring “proper discharge of duties by government servants”. The Court performed a similar sleight of hand with O.K. Ghosh, focusing upon its observation about how discipline and efficiency needed to be maintained among government servants, but then refusing to engage in a proximity analysis under Articles 19(2) – (4). Instead, the Court did the exact opposite, endorsing a breathtakingly broad proposition of law, completely at odds with the Supreme Court’s public order jurisprudence:
“In the present case, the restraint is against doing anything which is detrimental to the interests or prestige of the employer. The detrimental action may consist of writing a letter or making a speech. It may consist of holding a violent demonstration or it may consist of joining a political organisation contrary to the Service Rules. Any action which is detrimental to the interests or prestige of the employer clearly underlines discipline within the organisation and also the efficient functioning of that organisation. Such a Rule could be construed as falling under “public order” clause as envisaged by O.K. Ghosh (Supra).”
The Court ended by going back to Balakotiah’s original logic:
“In the present case, joining Government service has, implicit in it, if not explicitly so laid down, the observance of a certain code of conduce necessary for the proper discharge of functions as a Government servant. That code cannot be flouted in the name of other freedoms.”
N.B. In sum, therefore, Devendrappa – a two-judge bench – wrongly applied the object-and-form test for fundamental rights violations, and wrongly interpreted Kameshwar Prasad and O.K. Ghosh to uphold far-reaching restrictions upon the free speech of government employees. However, the matter is not so straightforward, because Kameshwar Prasad and O.K. Ghosh themselves changed the law despite being bound by Balakotiah (as a coordinate bench). Kameshwar Prasad – as we have seen – tried to distinguish Balakotiah on the basis that the validity of the rule had not been challenged. However, this was both incorrect and irrelevant. The validity of the relevant rule had been challenged in Balakotiah; and even if it hadn’t, the central logic of Balakotiah – that government qua employer can regulate its terms of service since there is no antecedent fundamental right to government employment – was independent of the vires of any Rule. In other words, therefore, Kameshwar Prasad and O.K. Ghosh incorrectly interpreted Balakotiah, and were then themselves incorrectly interpreted by Devendrappa, giving us, at the end of the day, an initial Constitution Bench decision and a later two-judge bench decision on one side, and two Constitution Bench decisions in the middle on the other.
Here is something, however, that the judgments in Kameshwar Prasad and O.K. Ghosh did not notice. One year after Balakotiah, a seven-judge bench of the Supreme Court decided Re Kerala Education Bill. Re Kerala Education Bill was the first Indian case to lay down the doctrine known elsewhere as the prohibition of “unconstitutional conditions“. The doctrine of unconstitutional conditions prohibits the State from denying citizens a benefit by making access to that benefit conditional upon citizens’ abstaining from exercising any or all of their fundamental rights. This is despite the fact that there is no antecedent right to that benefit in the first place. To take a crude example: the Government cannot require you to access subsidies by taking an Aadhaar Card and thereby sacrificing your private data, even though you have no fundamental right to a subsidy.
The doctrine of unconstitutional conditions clearly knocked the bottom out of Balakotiah’s logic. While there is admittedly no antecedent right to government employment, nor can the government make your employment conditional upon your abstaining from exercising your constitutional rights to free speech and association. And this is exactly what was going on in Balakotiah, in Kameshwar Prasad, in O.K. Ghosh, in Devendrappa and in the proposed social media rules.
As a seven judge bench, Re Kerala Education Bill was well within its rights to impliedly overrule Balakotiah. And as a seven-judge bench, its enunciation of the doctrine of unconstitutional conditions has never been overruled. Consequently, it is my submission that Balakotiah no longer holds the field, that Devendrappa was incorrect in following it, and that Kameshwar Prasad and O.K. Ghosh continue to be good law (although for reasons outside the judgments).
A2. The Freedom to Unionise (Article 19(1)(c))
- Raja Kulkarni vs State of Bombay, AIR 1954 SC 73 (5J Bench).
In this early judgment, the Supreme Court upheld a legal provision that limited “registered unions” only to those that had a membership of at least 15% of the total number of employees in the industry, in that local area. The Court held:
“The statute lays down the minimum qualificAation of 15 per cent. of membership to enable the Union to be called a “representative union” so as to represent the interests of the entire body of workers in their relations with the employers. After laying down the test of not less than 15 per cent. It was perfectly reasonable not to allow any other union such as the appellants to interpose in a dispute on behalf of the textile workers when they did not command the minimum percentage or when their membership fell below the prescribed percentage. It is perfectly open to the appellants to enlist that percentage or even a higher one and claim precedence over the Rashtriya Mill Mazdoor Sangh so as to be able to represent the interests of all the workers. The right to freedom of speech and expression is not denied to the appellants, nor are they prohibited from forming associations or unions. The Act makes no discrimination between textile workers as a class but lays down a reasonable classification to the effect that a certain percentage of membership possessed by a union will be allowed to represent the workers as a class to the exclusion of others, but there is nothing to present the other unions or other workers from forming a fresh union and enrolling a higher percentage so as to acquire the sole right of representation.”
It is unclear, however, how the Court automatically came to the conclusion that there was no impact upon the right to form associations and unions. It seems almost truistic that – unless the right to form unions is entirely formal and illusory – a regulation stipulating a certain extent of membership as a precondition to according rights of representation certainly regulates the right to form unions. It might still be the case that a 15% threshold is merely a regulation, and does not abridge or restrict the right to unionise (as opposed to, say, a 60% threshold, which clearly does), but this is a matter for argument, not a simple assertion.
2. U.P. Shramik Maha Sangh vs State of U.P., AIR 1960 All. 45.
While U.P. Shramik Maha Sangh is a High Court judgment, it is included here because – unlike similar cases before the Supreme Court – the Allahabad High Court did engage in some conceptual analysis of Article 19(1)(c) and the right to unionise. Under Rule 40(1) of the U.P. Industrial Dispute Rules, no officer of a Federation of Unions was entitled to represent the parties in an industrial dispute, unless the Federation was approved by the Labour Commissioner. Furthermore, an application for approval could be made only two years after the formation of the Federation.
In analysing the constitutional validity of these provisions, the Allahabad High Court observed that:
“The right to form associations or unions, guaranteed under Article 19(c) of the Constitution include the right of workmen to form trade unions for a lawful purpose. The purpose of an association is an integral part of the right, and if the purpose is restricted, the right is inevitably restricted. The right to form an association is not a right to be exercised in a vacuum or an empty or a paper right. Citizens do not begin to enjoy this right effectively immediately after forming an association or a union on paper. The enjoyment and fulfillment of the right begins with the fulfillment of the purpose for which the association is formed. The word “form” has been held to refer not only to the initial commencement of the association but also to the continuance of that association. If, however, the State tries to circumvent Article 19(c) by placing restrictions on the objects or purposes or the normal functioning of an association, this would amount to an indirect restriction on the right itself.”
“It is a matter of common knowledge that the primary purpose for forming a fade union is to enable its members to take collective action for safeguarding their own interests… in the peculiar conditions of India, collective bargaining on behalf of workmen is almost the only function of the overwhelming majority of the trade unions, the subsidiary purpose of functioning as friendly societies conferring material benefits on the members being almost unknown in this country. It is therefore obvious that any provision which prevents, permanently or temporarily, a trade union from representing workers in an industrial dispute would have the effect of frustrating its primary purpose and would amount to an indirect restriction on the right of its members guaranteed under Article 19(1)(c).
Consequently, the Court held that when the Labour Commissioner rejected the application of a Federation to represent its members, this amounted to a restriction of the right under Article 19(1)(c).
The Court then went on to examine the reasonableness of the restriction. It held that the Labour Commissioner had been given unrestricted power to approve or reject applications under the Section. In light of the fact that the Labour Commissioner functioned under the Labour Ministry, the Court held that such unguided power violated Article 19(4), and was not a reasonable restriction upon the right under Article 19(1)(c). On similar grounds, the Court also struck down the two-year requirement:
“The acquirement of wisdom or maturity or experience by a trade union is a deceptive and illusory notion; it is the wisdom and experience of the workmen forming the association which matters, The state may impose any reasonable test to ensure that a trade union or federation is genuinely representative of workmen and is not a bogus organisation set up by adventurers or imposters.. but it cannot withhold or delay recognition on the alleged ground of immaturity or lack of experience of the organisation.”
“… in India the primary, and in most cases, almost the sole function of a trade union is to represent them in collected bargaining with employers that is, to lead them in case of a strike and represent them in proceedings before industrial tribunals. Now, the right to strike has been severely regulated and curtailed by the Industrial Disputes Act. The only other function left is to represent the workmen before the Industrial Courts. But it permission to represent is withheld, the effect must be to paralyses the Union and turn it into a purposeless, lifeless and virtually non-existent association; Indirectly, therefore the right of workmen to form an association for the primary purpose of representing them before industrial tribunals would be effectively restricted if their trade union or federation is refused permission to represent them.”
3. All India Bank Employees’ Association vs National Industrial Tribunal, AIR 1962 SC 171 (5J Bench).
In All India Bank Employees’ Association, the Supreme Court proceeded on reasoning that was almost exactly opposite to U.P. Shramik Maha Sangh, and without engaging with the logic of that judgment. This case involved the constitutional validity of S. 34A of the Banking Companies Act of 1949. Effectively, Section 34A allowed banks to refuse to disclose information about their reserves, or about bad and doubtful debts, that were not shown in their official balance sheets. The Section acknowledged – and gave its imprimatur to – a banking practice borrowed from the United Kingdom. Its stated logic – in the words of the Court – was that “the credit of the institution would not be affected while its financial stability would remain unimpaired.”
Soon after independence, disputes arose between bank employees and banks all over India, with respect to wages, conditions of work etc. When the dispute came before the Tribunal, the banks’ main defence was that they did not have the financial capacity to pay above a certain amount. The Tribunal noted that this claim was impossible to assess, because of the fact of undisclosed or secret reserves, which were not shown in the balance sheet.
The matter eventually reached the Supreme Court, with the Bank Employee’s Association challenging S. 34A, which allowed for reserves to be kept secret. The Association argued that the fundamental right under Article 19(1)(c) – to form unions – was not merely a formal right protecting unions from (for e.g.) State bans, but also included “a right to effectively function as an instrument for agitating and negotiating and by collective bargaining secure, uphold or enforce the demands of workmen in respect of their wages, prospects or conditions of work.” In particular, the Association pointed to the historic necessity for including a specific right to unionise in the Constitution, which was an “incapacity stemming from the handicap of poverty and consequent lack of bargaining power in workmen.” What S. 34A did, however, was to restore this incapacity by denying both the union and the industrial adjudicator a vital piece of information: the financial capacity of the Bank, something that was crucial to know in cases involving wage disputes, bonuses etc. Consequently, in effect, S. 34A violated Article 19(1)(c) of the Constitution.
Rejecting this argument, the Court held that:
“When sub-clause (c) of clause (1) of Article 19 guarantees the right to form associations, is a guarantee also implied that the fulfilment of every object of an association so formed is also a protected right, with the result that there is a constitutional guarantee that every association shall effectively achieve the purpose for which it was formed without interference by law except on grounds relevant to the preservation of public order or morality set out in clause (4) of Article 19 ? Putting aside for the moment the case of Labour Unions to which we shall refer later, if an association were formed, let us say for carrying on a lawful business such as a joint stock company or a partnership, does the guarantee by sub-clause (c) of the freedom to form the association, carry with it a further guaranteed right to the company or the partnership to pursue its trade and achieve its profit-making object and that the only limitations which the law could impose on the activity of the association or in the way of regulating its business activity would be those based on public order and morality under clause (4) of Article 19? We are clearly of the opinion that this has to be answered in the negative.”
“An affirmative answer would be contradictory of the scheme underlying the text and the frame of the several fundamental rights which are guaranteed by Part III and particularly by the scheme of the seven freedoms or groups of freedoms guaranteed by sub-clauses (a) to (g) of clause (1) of Article 19. The acceptance of any such argument would mean that while in the case of an individual citizen to whom a right to carry on a trade or business or pursue an occupation is guaranteed by sub-clause (g) of clause (1) of Article 19, the validity of a law which imposes any restriction on this guaranteed right would have to be tested by the criteria laid down by clause (6) of Article 19., if however he associated with another and carried on the same activity – say as a partnership, or as a company etc., he obtains larger rights of a different content and with different characteristics which include the right to have the validity of legislation restricting his activities tested by different standards, viz., those laid down in clause (4) of Article 19.”
Unfortunately, it is evident that what the Court did here was to construct a straw-man, and then demolish it. It was nobody’s case that the freedom to associate involved a guarantee of the fulfilment of “every object” of the association. Rather, the argument was that the freedom to associate – and more specifically, the freedom to form unions was not simply a formal right protecting against prohibition, but involved a more extensive guarantee against rendering that right illusory through means other than an express prohibition (a very high membership threshold limit for registering a union – discussed above – is an example). And in this case, counsel had made a very specific argument that the Court failed to engage with: in light of the historical reasons for having a constitutional right to unionise – i.e., imbalance of power in the industrial setting – a legal provision that entrenched that imbalance (in this case by legislatively sanctioning information asymmetry) was defeating the very raison d’etre of the fundamental right in the first place. Furthermore, there was also the detailed analysis carried out by the Allahabad High Court in its judgment two years before, which explained precisely why effective collective bargaining was the life-blood of a trade union, and the basis of its existence.
In fact, only a couple of years before, the Court had employed this precise reasoning in the context of Articles 29 and 30 of the Constitution. In In Re: Kerala Education Bill (which the Allahabad High Court had relied upon in U.P. Shramik Maha Sangh, it had held that the right to “establish and administer” educational institutions under Article 30 of the Constitution prohibited the State from making its aid conditional upon taking away school autonomy. The Court held:
“… the real point is that no educational institution can in modern times, afford to subsist and efficiently function without some State aid and, therefore, to continue their institutions they will have to seek aid and will virtually have to surrender their constitutional right of administering educational institutions of their choice.”
In other words – and despite subsequent protestations to the contrary – the Court virtually read into Article 30’s freedom to establish and administer educational institutions, a concomitant right to receive State aid without surrendering autonomy, based entirely upon the practicalities about how schools functioned. The logic of In Re Kerala Education Bill was squarely applicable to All India Bank Employees’ Association, and indeed, that case was cited before the Court. Instead of engaging with the reasoning -and with the proposition that rights under Part III had to be interpreted not merely in a formal manner, but in their historical context – the Court simply dismissed the relevance of In Re Kerala Education Bill on the basis that it was decided under a different provision of the Constitution. For obvious reasons – as discussed above – this was not a correct view to take.
N.B. Despite the question not being before it, the Court also held that there was no guaranteed right to strike under the Constitution. Quite apart from the arguments advanced above, in light of the fact that the right to strike is a quintessentially expressive act (under Article 19(1)(a)), the Court’s conclusion here as well seems incorrect.
4. Raghubar Dayal Jai Prakash vs Union of India, AIR 1962 SC 263 (5J Bench)
While this case did not involve a trade union, it proceeded in a somewhat similar fashion: the Forward Contracts Regulation Act imposed certain conditions for “recognition” by the Government, without which associations could not deal in forward trading. A constitutional challenge to this was rejected by the Supreme Court; once again, instead of engaging with the merits of the law, the Court simply held that no associational concerns were raised at all, since:
“An application for the recognition of the association for the purpose of functioning under the enactment is a voluntary act on the part of the association and if the statute imposes conditions subject to which alone recognition could be accorded or continued, it is a little difficult to see how the freedom to form the association is affected unless, of course, that freedom implies or involves a guaranteed right to recognition also. Could it be contended that there is a right in the association guaranteed by the Constitution to obtain recognition ?”
A3. The Fundamental Right against Forced Labour (Article 23)
1. People’s Union for Democratic Rights vs Union of India, AIR 1982 SC 1473 (2J Bench).
PUDR vs Union of India is perhaps the only judgment in the history of the Supreme Court to have attempted an in-depth conceptual analysis of the constitutional guarantee against forced labour (Article 23). PUDR arose out of a public interest litigation, dealing with the non-observance of labour laws by construction contractors on building projects for the Asian Games. It was alleged that minimum wages were not being paid, the Equal Remuneration Act was being violated, and even the provisions of the CLRA were not being complied with. Furthermore, Article 24 of the Constitution, as well as the 1938 Employment of Children Act were being violated, by employing children below the age of 14 years.
A number of arguments were raised by the Respondents (DDA, the union territory of Delhi, and the Union of India). The argument that is of specific relevance here, however, was based on maintainability: the Respondents argued that a petition under Article 32 of the Constitution (for the enforcement of fundamental rights) was not maintainable, because all that was being alleged was a violation of labour legislation (i.e., statutes), and not provisions of Part III of the Constitution (fundamental rights). The Court accepted the premise of this argument, but went on to hold that violations of the Equal Remuneration Act raised an Article 14 issue, violations of the Employment of Children Act raised an Article 24 issue, and violations of the CLRA also violated Article 21. Lastly, with respect to non-payment of the minimum wage, the Court held that this violated Article 23 of the Constitution.
Article 23 stipulated that “traffic in human beings and begar and other similar forms of forced labour are prohibited.” What is the connection between non-payment of the minimum wage, and Article 23’s prohibition against “forced labour”? The Court’s fascinating analysis turned upon the meaning of the word “forced”. It understood “force” to mean not just physical compulsion, but that “compulsion arising from hunger and poverty, want and destitution… under the compulsion of economic circumstances… the labour or service provided… would be clearly ‘forced labour’.” Writing for the Court, Justice Bhagwati attributed moral agency to market structures under capitalism of a kind equivalent to intentional human action, observing that “it is not unoften that in capitalist society economic circumstance[s] exert much greater pressure on an individual in driving him to a particular course of action than physical compulsion or force of legislative provision.”
Textually, the Court justified this interpretation by pointing to the use of the phrase “other similar forms of forced labour“, which was fairly wide in its ambit. However, it also grounded its decision in constitutional purpose, noting that:
“… in a country like India where there is so much poverty and unemployment and there is no equality of bargaining power, a contract of service may appear on its face voluntary but it may, in reality, be involuntary, because while entering into the contract, the employee, by reason of his economically helpless condition, may have been faced with Hobson’s choice, either to starve or to submit to the exploitative terms dictated by the powerful employer. It would be a travesty of justice to hold the employee in such a case to the terms of the contract and to compel him to serve the employer even though he may not wish to do so. That would aggravate the inequality and injustice from which the employee even otherwise suffers on account of his economically disadvantaged position and lend the authority of law to the exploitation of the poor helpless employee by the economically powerful employer.”
The Court then linked this up with work for less than a minimum wage, observing that:
“It may therefore be legitimately presumed that when a person provides labour or service to another against receipt of remuneration which is less than the minimum wage, he is acting under the force of some compulsion which drives him to work though he is paid less than what he is entitled under law to receive.”
This, the Court held, amounted to “forced labour”, because:
“Any factor which deprives a person of a choice of alternatives and compels him to adopt one particular course of action may properly be regarded as ‘force’ and if labour or service is compelled as a result of such ‘force’, it would be ‘forced labour’… There is no reason why the word ‘forced’ should be read in a narrow and restricted manner so as to be confined only to physical or legal ‘force.”
In PUDR, therefore, the Court went beyond the classical (Hayekian) understanding of force and coercion, which was limited to being compelled by law, or being “forced” to do something at gunpoint (or its equivalent), and held instead that any factor (whether through intentional human agency or otherwise) that deprived a person of a meaningful choice of alternatives amounted to “force” within the meaning of Article 23. This – as we have pointed out above – was justified in the context of the text of the provision, as well as the transformative purposes of the Constitution. And so, from the prohibition of forced labour, the Court derived a constitutionally enforceable fundamental right to a minimum wage.
PUDR, therefore, is probably the most categorical expression of the “constitutionalisation of labour law”. However, it remains an outlier, and its interpretive methodology has not been adopted in subsequent cases.
A4. The Directive Principles
B. The Industrial Disputes Act
Since labour rights did not find a place under Part III of the Constitution, it was left to the Parliament to enact laws dealing with the relevant issues. The colonial government had passed a number of laws dealing with trade unions and trade disputes. The years immediately after independence saw a flurry of lawmaking, on issues of wages, insurance, bonuses, regulation of factories etc.
There are two defining characteristics of the statutory regime that emerged. The first is that it enacted a philosophy that placed the government as the arbiter of disputes between employers and employees, and between capital and labour. Scholars have identified two broad philosophies of industrial law. According to the first philosophy, the purpose of industrial law is to rectify the inequality of bargaining power between workers and employers by creating a legal regime that strengthens trade unions, and encourages collective bargaining from a position of relative equality, while refraining from intervening too much in the outcomes of the bargaining process. This is not the philosophy of Indian Industrial law.
According to the second philosophy, the mainstays of industrial law are not the trade union and collective bargaining, but providing a “floor” of basic legal rights to individual workers, and setting up a dispute redressal mechanism. As pointed out at the beginning of this paragraph – and as we shall see – the labour law regime that Parliament enacted adopted the second philosophy. The Industrial Disputes Act of 1947 severely curtails the right to strike (and in this, it has been assisted by the courts), but vests a number of rights in workers, and also requires that the enforcement of rights be mediated through the government. For instance, if there is an industrial dispute, it is for the government to make a reference to a labour tribunal; if an employer wants to lay-off his workers, it is the government that he must approach for permission; and so on. Therefore, as we go through judicial interpretations of various provisions of the Industrial Disputes Act, we must keep in mind the background philosophy – i.e., the peaceful resolution of disputes between capital and labour through the government acting as a disinterested adjudicator – that is at the base of the Act.
The second defining characteristic of the statutory regime was that it partitioned labour into regulated spheres and unregulated spheres. In other words, labour laws governing aspects of employment relations did not cover all workers, but only covered certain kinds of workers doing certain kinds of jobs in certain kinds of establishments. Consequently, as a worker, in order to be entitled to labour rights, you had to first show that you met the qualifications prescribed by the statutes. Therefore – and unsurprisingly – the most important labour litigation was about the scope and meaning of the words and phrases that defined which workmen qualified as rights-bearers and which did not.
For example, India’s omnibus labour legislation – mentioned above – is the Industrial Disputes Act of 1947. The Industrial Disputes Act contains both substantive labour rights (including regulating changes in service conditions, retrenchments, closures, unfair labour practices etc), and also sets up a detailed procedure for the resolution of disputes between employers and employees (including conciliation, reference to industrial tribunals etc). However, for the Industrial Disputes Act to apply to a labour dispute, the disputants must be part of an “industry”, and the rights are guaranteed to “workmen”. Section 2 of the Industrial Disputes Act defines “industry” and “workmen” in terms that are open to interpretation. Consequently, some of the heaviest – and most important – labour litigation in the Supreme Court has involved these definitional questions.
B1. What is an “industry”?
The 1947 Industrial Disputes Act defines an industry as “any business, trade, undertaking, manufacture, or calling of employers and includes any calling, service, employment, handicraft or industrial occupation or avocation of workmen.” Evidently, this raises a lot of interpretive questions about the scope of the words “calling”, “manufacturing”, “undertaking”, “avocation” etc. Whether an establishment or an enterprise qualifies as an industry is the first hurdle that labour must clear if it is to make a claim for rights under the Industrial Disputes Act. And through the course of its history, the Supreme Court has repeatedly struggled to find a satisfactory definition of the word “industry”.
- B.N. Banerjee vs R.P. Mukherjee, (1954) S.C.R. 302 (5J Bench)
The question before the Supreme Court in this case was whether a dispute between the Budge Budge Municipality and two of its employees amounted to an “industrial dispute” within the meaning of the ID Act. It was contended by the Municipality that “in discharging its normal duties connected with local self-government is not engaged in any industry as defined in the Act.”
Because this is the first case in which the Supreme Court considered the scope of the word “industry”, and because it remains good law even today, it is worthwhile to consider the reasoning closely. The Court began by observing that “in the ordinary or non-technical sense, according to what is understood by the man in the street, industry or business means an undertaking where capital and labour co-operate with each other for the purpose of producing wealth in the shape of goods, machines, tools etc:, and for making profits.” However, “there is nothing… to prevent a statute from giving the word industry ” and the words ” industrial dispute ” a wider and more comprehensive import in order to meet the requirements of rapid industrial progress and to bring about in the interests of industrial peace and economy, a fair and satisfactory adjustment of relations between employers and workmen in a variety of fields of activity.”
What, precisely, were the “requirements of rapid industrial progress”? The Court noted that “the limited concept of what an industry meant in early times must now yield place to an enormously wider concept so as to take in various and varied forms of industry, so that disputes arising in connection with them might be settled quickly without much dislocation and disorganisation of the needs of society and in a manner more adapted to conciliation and settlement than a determination of the respective rights and liabilities according to strict legal procedure and principles.”
Consequently, the Court held that “the words ” industrial dispute ” convey the meaning to the ordinary mind that the dispute must be such as would affect large groups of workmen and employers ranged on opposite sides on some general questions on which each group is bound together by a community of interests-such as wages, bonuses, allowances, pensions, provident fund, number of working hours per week, holidays and so on.” In particular, the Court stressed that the Industrial Disputes Act was enacted at a time when clashed between labour and capital had assumed harmful proportions; the purpose of the Act was to ensure that these differences were resolved peacefully, and through institutional machinery. Consequently, when examining the text of the Act, the Court was to give the terms in the definition of “industry” as wide an import as reasonably permitted by the language used. In particular, the Court rejected a strict noscitur a sociis reading of the definitional clause, observing instead:
“Though the word ” undertaking ” in the definition of ” industry ” is wedged in between business and trade on the one hand and manufacture on the other, and though therefore it might mean only a business or( trade undertaking, still it must be remembered that if that were so, there was no need to use the word separately from business or trade. The wider import is attracted even more clearly when we look at the latter part of the definition which refers to ” calling, service, employment, or industrial occupation or a vocation of workmen.” ” Undertaking ” in the first part of the definition and ” industrial occupation or avocation ” in the second part obviously mean much more than what is ordinarily understood by trade or business. The definition was apparently intended to include within its scope what might not strictly be called a trade or business venture.”
Applying this conceptual framework, the Court held that public utilities could be run by either government departments (or municipalities), or by private parties. In the former case, there would be no investment of capital, or a profit motive, but neither of these conditions was a sine qua non for an “industry” to exist. Therefore, the Court finished by holding:
“Having regard to the definitions found in our Act, the aim or objective that the Legislature had in view and the nature, variety and range of disputes that occur between employers and employees, we are forced to the conclusion that the definitions in our Act include also disputes that might arise between municipalities and their employees in branches of work that can be said to be analogous to the carrying out of a trade or business.”
A close reading of Bannerjee reveals a number of constituent elements of the term “industry”. First, the Court stressed upon a historical and contextual reading of the Act, taking into account theA fact that it was passed to resolve disputes between capital and labour (and, although the Court didn’t stress upon this, to prevent the kind of exploitation of one by the other that resulted in conflict), and that consequently, the term “industry” was to be given a wide meaning. Secondly, an “industry” was to be understood as an enterprise that was “analogous to the carrying out of a trade or business“. What did this mean? It meant that investment of capital, or a profit motive, were not relevant for drawing the analogy; what was relevant was a “community of interest” between capital and labour, in the context of production of goods or services; and of course, where such a “community of interest” existed, there was also the potential of disputes about material issues such as wages, working hours etc. If these conditions were satisfied, an industry existed.
What is crucial to note about Bannerjee is that it took an approach that was to become a consistent feature of the Court’s jurisprudence: it refused to rule out any enterprise from the ambit of industry, simply by virtue of the nature or character of that enterprise (as we have seen, the Court in fact began by noting that, for instance, while medical professionals may not be thought to constitute an industry in the “ordinary sense”, it was perfectly acceptable for a statute to give the word “industry” a broader meaning – and then proceeded to explain how the Industrial Disputes Act did so). Rather, the Court adopted a constitutive approach – as long as certain constitutive elements existed, an industry was also an existence, regardless of whether the enterprise was “traditionally” considered to be an industry or not.
2. Baroda Borough Municipality vs Its Workmen, AIR 1957 SC 110 (4J Bench).
The dispute was regarding bonuses, and between the workers and the management of the Baroda Municipality’s electricity department. The question was whether this constituted an industry or not.
While the right to bonuses was denied on other grounds, on the issue of whether an industrial dispute existed, the Court held: “It is now finally settled by the decision of this Court in D. N. Banerji v. P. R. Mukherjee (supra) that a municipal undertaking of the nature we have under consideration here is an ‘industry’ within the meaning of the definition of that word in s. 2(j) of the Industrial Disputes Act, 1947, and that the expression ‘industrial dispute’ in that Act includes disputes between municipalities and their employees in branches of work that can be regarded as analogous to the carrying on of a trade or business.”
3. State of Bombay vs Hospital Mazdoor Sabha, AIR 1960 SC 610 (3J Bench)
The question in this case was whether the J.J. Group of Hospitals was an industry or not. In other words, the hypothetical proposed in Bannerjee – of medical professionals – became the real question in Hospital Mazdoor Sabha. The Supreme Court answered the question as Bannerjee would have done: focusing once more on the wide import of the terms “undertaking” and “calling”, it held that “prima facie, if the definition has deliberately used words of such wide import, it would be necessary to read those words in their wide denotation; and so read, Hospitals cannot be excluded from the definition.” In other words, the Court followed the Bannerjee approach of refusing to exclude anything a priori from the ambit of “industry”, and focusing, instead, on the scope of the definition. In fact, the Court hammered the point home while dealing with the argument that the terms of the definition were to be read noscitur a sociis, observing that:
“The argument is that certain essential features or attributes are invariably associated with the words ” business and trade ” as understood in the popular and conventional sense, and it is the colour of these attributes which is taken by the other words used in the definition though their normal import may be much wider. We are not impressed by this argument. It must be borne in mind that noscitur a sociis is merely a rule of construction and it cannot prevail in cases where it is clear that the wider words have been deliberately used in order to make the scope of the defined word correspondingly wider. It is only where the intention of the Legislature in associating wider words with words of narrow significance is doubtful, or otherwise not clear that the present rule of construction can be usefully applied.”
“… it would be relevant to point out that too much reliance cannot be placed on what are described as the essential attributes or features of trade or business as conventionally understood. The conventional meaning attributed to the words “trade and business” has lost some of it validity for the purpose of industrial adjudication. Industrial adjudication has necessarily to be aware of the current of socioeconomic thought around; it must recognise that in the modern welfare State healthy industrial relations are a matter of paramount importance and its essential function is to assist the State by helping a solution of industrial disputes which constitute a distinct and persistent phenomenon of modern industrialised States. In attempting to solve industrial disputes industrial adjudication does not and should not adopt a doctrinnaire approach. It must evolve some working principles and should generally avoid formulating or adopting abstract generalisations. Nevertheless it cannot harp back to old-age notions about the relations between employer and employee or to the doctrine of laissez faire which then governed the regulation of the said relations. That is why, we think, in construing the wide words used in s. 2(j) it would be erroneous to attach undue importance to attributes associated with business or trade in the popular mind in days gone by.”
While the Court refined the Bannerjee dictum by conceding that certain activities, by their very nature, could not be considered to be an industry, it categorically limited this class of activities to the “regal or sovereign activities” of the government (or, in other words, “primary and inalienable functions“) such as, presumably, defence, diplomacy etc. The argument that, in light of the DPSPs, all welfare functions of the government were to be placed outside the bounds of “industry” was expressly rejected, and it is easy to see why: given that the DPSPs contained provisions for the protection of workers and the social rights associated with work, it would be counter-intuitive and self-defeating to exclude workers from industrial protection in those activities that were contemplated by the DPSPs.
Lastly, the Court added one further gloss on the Bannerjee judgment: Bannerjee had used the term “analogous to a trade or business” in defining industry, but had not parsed it out. Here, the Court did, observing that:
“… as a working principle it may be stated that an activity systematically or habitually undertaken for the production or distribution of goods or for the rendering of material services to the community at large or a part of such community with the help of employees -is an. undertaking. Such an activity generally involves the co- operation of the employer and the employees; and its object is the satisfaction of material human needs. It must be organised or arranged in a manner in which trade or business is generally organised or arranged. It must not be casual nor must it be for oneself nor for pleasure. Thus the manner in which the activity in question is organised or arranged, the condition of the co-operation between employer and the employee necessary for its success and its object to render material service to the community can be regarded as some of the features which are distinctive of activities to which s. 2(j) applies. Judged by this test there would be no difficulty in holding that the State is carrying on an undertaking when it runs the group of Hospitals in question.”
The gloss is particularly important: what the Court effectively held was that the word “analogous” referred to an analogy of scale, or organisation/systematisation. An activity was “analogous” to a trade or business if, like a trade or business, it was a systematic activity involving employers and employees, producing goods or services.
4. Corporation of the City of Nagpur vs Its Employees, AIR 1960 SC 675 (3J Bench):
The question in this case was whether and to what extent the activities of the Nagpur municipality fell within the scope of the term “industry” [The relevant Act – the C.P. and Berar Industrial Disputes Act – was slightly differently worded from the ID Act, but the difference played no role in the Court’s reasoning].
The Court further refined Bannerjee, and historically contextualised the “analogous” argument of Hospital Mazdoor Sabha by noting that “the history of labour legislation both in England and India also shows that it was aimed more to ameliorate the conditions of service of the labour in organized activities than to anything else. The Act was not intended to reach the personal services which do not depend upon the employment of a labour force.” The Court made itself even clearer while considering the ratio of Bannerjee, holding that the words “analogous to a trade or business” “emphasize more the nature of the organised activity implicit in a trade or business than to equate the other activities with trade or business.”
The Court also refined Hospital Mazdoor Sabha‘s exclusion of governmental “regal” functions by providing examples of legislation and judicial adjudication as instances of “regal” functions. On this basis, it held that the tax department, public conveyance, fire brigade department, lighting department, water works department, city engineers department, enforcement, sewage, health department, market department, public gardens department, public works department, assessment department, estate department, education department, printing press department, building department, general administration department – all were industries, because those jobs could be performed by a private individual or a firm; in other words, they were not “inalienable” functions of government.
5. Ahmedabad Textile Industry Research Association v. State of Bombay,  2 S.C.R. 480 (3J Bench)
The Ahmedabad Textile Industry Research Association was founded for the purpose of carrying on research and other scientific work in connection with the textile trade or industry. The question was whether this institute was an industry.
The Court found that “though the object of the association was research, that research was directed with the idea of helping the member mills to improve methods of production in order to secure greater efficiency, rationalisation and reduction of costs… the basis therefore of the research carried on by the appellant was to help the textile industry and particularly the member mills in making larger profits and this was to be done primarily by the employment of technical personnel on payment of remuneration.”
Consequently, and applying the ratio of the previous cases, the Court held that what the Institute did was “an activity systematically undertaken; its object is to render material services to a part of the community (namely, member-mills)-the material services being the discovery of processes of manufacture etc. with a view to secure greater efficiency, rationalisation and reduction of costs of the member-mills; it is being carried on with the help of employees (namely, technical personnel) who have no rights in the results of the research carried on by them as employees of the association; it is organised or arranged in a manner in which a trade or business is generally organised; it postulates co-operation between employers (namely, the association) and the employees (namely, the technical personnel and others) which is necessary for its success.”
In this case, we see how the disparate elements laid down in previous cases come together: (a) systematisation, (b) rendering of material services to (a part of) the community, and (c) cooperation between employer and employees in production (of goods or services).
Interestingly, the Court also anticipated an issue that was to become very controversial in future cases. The dispute in this case was raised by employees who were not technical personnel; consequently, they were not directly involved in what the Institute was “producing” – i.e., knowledge (in a manner of speaking). An analogy would be with sweepers or gardeners in a university (as opposed to faculty). The Court held that this made no difference:
“It is true that the employees who have raised the present industrial dispute do not actually contribute to the research, which is carried on under the appellant-association; but the manner in which the association is organised and the fact that the technical personnel who carry on the research are also employees who have no rights in the results of their research, clearly show that the undertaking as a whole is in the nature of business and trade organised with the object of discovering ways and means by which the member-mills may obtain larger profits in connection with their industries.”
N.B. After the consistent approach followed in these initial five cases by the Supreme Court, its jurisprudence was to diverge significantly over the next eighteen years, until the decision in Bangalore Water Supply. Consequently, it is important, at this stage, to take a brief pause, and consider the principles laid down by fifteen judges over five cases. It was, at this stage, settled law that:
(a) The word “industry” is not to be given a common-sense or “traditional” meaning, but rather, a broader meaning based upon the text of the statute, and its historical purpose.
(b) Textually, the statute included broad terms such as “undertaking” and “calling”.
(c) Historically, the statute was enacted to resolve differences between capital and organised labour.
(d) Consequently, a wide interpretation was to be given to the term “industry”, going beyond its “common meaning”. The elements of “industry” were:
(d1) A systematic or organised activity (the “analogy with trade or business requirement),
(d2) for producing material goods or services,
(d3) carried on in cooperation between capital and labour.
If these three elements were satisfied, then the enterprise in question would be an “industry”, whether or not that result was counter-intuitive, or against settled notions of the scope of the word “industry”.
6. National Union of Commercial Employees vs M.R. Meher, AIR 1964 SC 903
M.R. Meher represents the first significant departure of the Supreme Court from the consistent jurisprudence that had characterised its previous judgments on the meaning of “industry”. The question in this case was whether a firm of solicitors constituted an “industry” for the purposes of the Industrial Disputes Act. The claim was brought by the firm’s employees, on a question regarding the payment of bonuses.
On an application of existing doctrine, the answer had to be yes: the solicitors’ firm was engaged in an organized activity, producing a material service for the community, through the cooperation of employers and employees.
However, the Court managed to get around this by introducing a twist to the third aspect of the definition of “industry”: the requirement of cooperation between employers and employees. It held that this cooperation couldn’t be any old cooperation, but had to be “direct”, “essential” and “necessary” for the production of whichever good or service was being produced. In other words, the Court introduced a requirement of proximate causation between employer-employee cooperation, and the product.
Of course, words such as “direct”, “essential” and “necessary” are vague and open-ended. To clarify their scope, the Court had to resort to examples. It cited three instances. The first was that of a textile mill. In a textile mill, the Court held, “the employer contributes capital and installs the machinery requisite for the mills and the employees contribute their labour and by their cooperation assist the employer in producing the textile goods. When we refer to textile labour in relation to industrial disputes under the Act, we refer to workmen who are engaged in the work of producing textile goods. It is obvious that in regard to textile- mills, a large majority of workmen concerned in carrying out the activities of most of the departments of the textile mills contribute directly in one form or another to the production of textile goods. It may be that even in a textile mill a very small minority of workmen may not be directly concerned with the production of textile goods ; but even so, their work is so integrally connected with the work carried on by the majority of workmen employed that they are treated as forming part of the same labour force.”
The second was that of a hospital. Here, the Court observed that “in the hospitals, the service to the patients begins with proper diagnosis followed by treatment, either medical or surgical, according to the requirements of the case. In the case of medical treatment, the patients receive medical treatment according to the prescription and are kept in the hospital for further treatment. In surgical cases the patients receive surgical treatment by way of operation and then are kept in the hospital for further treatment until they are discharged. During the period of such treatment, all their needs have to be attended to, food has to be supplied to them, nursing assistance has to be given to them, medical help from time to time has to be rendered and ail incidental services required for their recovery have also to be rendered... after medical treatment is determined or a surgical operation is performed, the patient coming to a hospital as an indoor patient needs all kinds of medical assistance until he is discharged and the services rendered to him both initially and thereafter until his discharge are all services which the hospital has been established to render and it is in the rendering of the said services that the employees of the hospital co-operate and play their part.”
In the case of solicitors, however:
“… the service rendered by it solicitor functioning either individually or working together with partners is service which is essentially individual ; it depends upon the professional equipment, knowledge and efficiency of the,- solicitor concerned. Subsidiary work which is purely of an incidental type and which in intended to assist, the solicitor in doing his job has no direct relation to the professional service ultimately rendered by the solicitor. For his own convenience, a solicitor may employ a clerk because a. clerk would type his opinion ; for his convenience., a solicitor may employ menial servant to keep his chamber clean and in order… but the work done either by the typist or the stenographer or by the menial servant or other employees in a solicitor’s firm is not directly concerned with the service which the solicitor renders to his client and cannot, therefore, be said to satisfy the test of co-operation between the employer and the employees which is relevant to the purpose.”
But this analysis obscures more than it reveals. The court attempts to draw a distinction between a textile firm and a hospital on the one hand, and a solicitors’ firm on the other, but in clarifying this distinction, it takes recourse to precisely the term that it was supposed to clarify: “directness”. A patient being treated at a hospital is availing of “all the services” offered by the hospital (including, presumably, clean wards maintained by cleaning personnel), but a client at a solicitors’ firm is not availing of the services of the typist who is responsible for giving the legal opinion its final form. Why? Because there is no “direct concern” between the typist and the solicitor. This reasoning is entirely circular.
If we dig a little deeper, however, the basis for Meher becomes clear: it is an ideological distinction between manual work (which, in the mind of the court, depends upon cooperating employers and employees working together) and “intellectual professions”, which the Court believes are purely a function of the skill, knowledge, or “professional equipment” (?) of the professional. This is what allows the Court to blithely dismiss the contributions of the typist, the cleaner, and the accountant, to the solicitor’s work, while endorsing the contribution of the nurse and the cook to the hospital.
The fact that ideology is doing the work here, cloaked in the supposed neutrality of the “direct and necessary connection” test, is evident from the simple fact that, as a purely descriptive matter, for his business to function, the solicitor is as reliant on the contributions of the accountant, the typist, and the cleaner as the hospital is on nurses and cooks – and the Court acknowledges as much when it observes that “there can be no doubt that for carrying on the work of a solicitor efficiently, accounts have to be kept and correspondence carried on and this work would need the employment of clerks and accountants.” However, immediately afterwards it returns to emphasizing that nonetheless, this is not a “direct” connection with the solicitor’s work – thus making it clear that “direct” is not simply a test of causation, but carries heavy ideological freight.
7. Harinagar Cane Farm v. The State of Bihar,  2 S.C.R. 458 (3J Bench)
One of the appellants was a private limited company producing wheat, sugarcane etc for sale, as well as undertaking infrastructural contract work. The other was part of a mill, and producing sugarcane. The question was whether these constituted industries. It was argued that2, based on Article 43 of the Constitution as well as Schedule VII, a sharp delineation was drawn between “agriculture” and “industry”, and that consequently, any entity engaged in agricultural work could not be classified as an industry.
While this judgment is largely unremarkable, since it followed existing precedent to hold that the appellants did fall within the meaning of “industry”, one aspect of the Court’s reasoning is of particular importance. The Court observed:
“In dealing with the present appeals, we do not propose to decide the large question as to whether all agriculture and operations connected with it are included within the definition of s. 2 (j). As we have repeatedly emphasised, in dealing with industrial matters, industrial adjudication should refrain from enunciating any general principles or adopting any doctrinaire considerations. It is desirable that industrial adjudication should deal with problems as and when they arise and confine its decisions to the points which strictly arise on the pleadings between the parties.”
In other words, the Court re-emphasised the proposition, laid down earlier, that there can be no a priori exclusion of enterprises based simply upon some conceptual limitation upon the word “industry”. Rather, in each specific case, the Court would apply the three-part test to determine whether or not a particular enterprise was an industry. In this case:
“The appellants have invested a large amount of capital, and it is not disputed that the appellants have invested capital for carrying on their agricultural operations for the purpose of making profits. It is also common ground that the workmen employed by the appellants in their respective operations contribute to the production of agricultural commodities which bring in profit to the appellants. Therefore, even the narrow traditional requirements of the concept of trade or business are, in that sense, satisfied by the agricultural operations of the appellants.”
8. University of Delhi vs A.R. Ramnath,  2 S.C.R. 703 (3J Bench)
A.R. Ramnath represents the second departure from the three-part test. In this case, the question before the Court was whether a dispute for retrenchment benefits between a bus driver and the Delhi University qualified as an industrial dispute – which could happen only if the Delhi University was an “industry”.
The Court held that the Delhi University was not an “industry”. It started by observing that under S. 2(s) of the Industrial Disputes Act, teachers were not “workmen” (the existence of “workmen” was another essential aspect of the definition of “industry”). Consequently:
“… if imparting education is an industry under s. 2(j), the bulk of the employees being outside the purview of the Act, the only disputes which can fall within the scope of the Act are those which arise between such institutions and their subordinate staff, the members of which may fall under s. 2(s). In our opinion, having regard to the fact that the work of education is primarily and exclusively carried on with the assistance of the labour and co-operation of’ teachers, the omission of the whole class of teachers from the definition prescribed by s. 2(s) has an important bearing and significance in relation to the problem which we are considering. It could not have been the policy of the Act that education should be treated as industry for the benefit of a very minor and insignificant number of persons who may be employed by educational institutions to carry on the duties of the subordinate staff.”
In other words, the Court used the definition of “workman” to cut down the definition of “industry”. If – according to the Court – a numerically significant number of the employees in any enterprise were not “workmen” within the meaning of the Industrial Disputes Act, then the enterprise would be taken out of the scope of the I.D. Act, and the “minor and insignificant number of persons” who were not workmen – would also lose their protection under the statute. Or – to put it yet another way – if a majority of the employees of an enterprise belonged to a category that the Industrial Disputes Act deemed not in need of statutory protection, then for that reason, “legislative policy” was understood to also exclude from protection the minority of employees who did belong to the category which, according to legislative policy, was in need of statutory protection.
Apart from being counter-intuitive, A.R. Ramnath also misread precedent: none of the previous cases had held that an industry is a cooperative enterprise between capital and “workmen as defined under the ID Act”. Rather, the cases had said that industry is a cooperative enterprise between capital and labour (or employers and employees); now, some classes of labour were specifically taken out of the purview of the Industrial Disputes Act; but surely that could not be a reason to cut down the meaning of “industry” itself, especially when the categories of labour excluded from the I.D. Act were exceptions to the general rule.
After introducing this new gloss upon the three-part test, by holding that a majority of employees must be classified as “workmen” under the I.D. Act for the enterprise to qualify as an industry, the Court then addressed the issue of those University employees who did qualify as workmen. Here, its reasoning replicated the “direct effect” argument of Meher, which we have criticised above:
“It is true that like all educational institutions the University of Delhi employs subordinate staff and this subordinate staff does the work assigned to it; but in the main scheme of imparting education, this subordinate staff plays such a minor, subsidiary and insignificant part that it would be unreasonable to allow this work to lend its industrial colour to the principal activity of the University which is imparting education. The work of promoting education is carried on by the University and its teachers and if the teachers are excluded from the purview of the Act, it would be unreasonable to regard the work of imparting education as industry only because its minor, subsidiary and incidental work may seem to partake of the character of service which may fall under s . 2(j).”
9. Secretary, Madras Gymkhana Club Employees’ Union vs Management of the Gymkhana Club, (1968) 1 SCR 742
Madras Gymkhana Club represents a third departure from the three-part test, but one that contradicted the first departure (in Meher). In this case, the question was whether the Madras Gymkhana Club, which had around 800 members and 194 employees, and whose income and expenditure was around 4 lakh and a quarter rupees, was an industry or not.
The Court held that it was not. In doing so, it – correctly – rejected Meher’s test of “direct connection” as incoherent, but substituted it with a test that was equally so. The Court observed:
“… what must be established is the existence of an industry viewed from the angle of what the employer is doing and if the definition from the angle of the employer’s occupation is satisfied, all who render service and fall within the definition of workman come within the fold of industry irrespective of what they do. There is then no need to establish a partnership as such in the production of material goods or material services. Each person doing his appointed task in an Organisation will be a part of the industry whether he, attends to a loom or merely polishes door handles. The fact of employment as envisaged in the second part is enough provided there is an industry and the employee is a workman. The learned professions are not industry not because there is absence of such partnership but because viewed from the angle of the employer’s occupation, they do not satisfy the test. A solicitor earns his livelihood by his own efforts. If his work requires him to take help from menials and other employees who carry out certain assigned duties, the character of the solicitor’s work is not altered. What matters is not the nexus between the employee and the product of the employer’s efforts but the nature of the employer’s occupation. If his work cannot be described as an industry his workmen are not industrial workmen and the disputes arising between them are not industrial disputes. The cardinal test is thus to find out whether there is an industry according to the denotation of the word in the first part. The second part will then show what will be included from the angle of employees.”
This, however, does precisely what precedent had firmly established could not be done: i.e., take a common-sense, intuitive, a priori idea of “industry”, and ask whether what the employer was doing fell within that understanding or not. There is some fig-leaf of a reasoning, where the Court says that whatever “help” the solicitor might take from his employees, the “character” of his work is not altered; however, this is vague to the point of emptiness – what is this essential “character” that remains unaltered, and if there is such a “character”, why is its alteration (or lack thereof) legally significant? The Court does not explain.
10. Cricket Club of India vs Bombay Labour Union, AIR 1969 SC 276
The Cricket Club of India had a membership of about 4800 and was employing around 397 employees. It’s tasks were to promote cricket, lay out grounds, and finance and assist in holding sporting matches. It had extensive facilities of its own, as well as residential accommodation. It owned immovable properties worth Rs. 67 lakhs. A question arose whether it amounted to an “industry”. The Court held that it did not, on the basis that the second prong – that of providing material goods or services – was not satisfied:
“The activity of promotion of sports and games by a set of people combining together to form a Club cannot be said to be an undertaking in the nature of a trade or business in which material goods or material services are provided with the aid of the employees.”
With respect to the residential buildings owned by the club, the Court held that this did “not amount to an activity of the nature of an industry is that this residential accommodation is provided exclusively for the Members of the Club.” This is slightly confusing, however, since previous cases had held that the goods or services could be provided to the public or a section of the public.
11. Management of Safdarjung Hospital vs Kuldip Singh Sethi, AIR 1970 SC 1407
The appellants were three hospitals – Safdarjung Hospital, Tuberculosis Hospital, and Kurji Holy Family Hospital. The question was whether these hospitals could be regarded as ‘industries’. The main argument raised by the appellants was that in light of the decision in Gymkhana Club, the reasoning in Hospital Mazdoor Sabha was at least implicitly overruled.
Safdarjung Hospital represented a fourth line of departure from the original three-part test, this one focused on the meaning of “material goods and services”. The Court observed:
“Why professions must be held outside the ambit of industry may be explained. A profession ordinarily is an occupation requiring intellectual skill, often coupled with manual skill. Thus a teacher uses purely intellectual skill while a painter uses both. In any event, they are not engaged in an occupation in which employers and employees co-operate in the production or sale of commodities or arrangement for their production or sale or distribution and their services cannot be described as material services… What is meant by ‘material services’ needs some explanation too. Material services are not services which depend wholly or largely upon the contribution of professional knowledge, skill or dexterity for the production of a result. Such services being given individually and by individuals are services no doubt but not material services. Even an establishment where many such operate cannot be said to convert their professional services into material services. Material services involve an activity carried on through co-operation between employers and employees to provide the community with the use of something such as electric power, water, transportation, mail delivery, telephones and the like. In providing these services there may be employment of trained men and even professional men, but the emphasis is not on what these men do but upon the productivity of a service organised as an industry and commercially valuable. Thus the services of professional men involving benefit to individuals according to their needs, such as doctors, teachers, lawyers, solicitors etc. are easily distinguishable from an activity such as transport service.”
This is a very problematic paragraph, which needs to be excavated with some care. At the heart of it is an assumption about the meaning of the word “material”: that services resulting out of the application of purely “intellectual skill” do not qualify as “material services”. However, the Court proceeds on pure intuition – it provides no reasoning at all for this linguistic leap between “intellectual” and “non-material”, or even a dictionary definition. Confusion is worse confounded when it goes on to provide the examples of electric power, water, transportation, mail delivery, and telephones – because this sentence is entirely unclear about what makes these services “material”. In the first part of the sentence, the Court seems to suggest that it is because they directly result out of the cooperation of employers and employees (and we have seen above the problem with any test of “directness”), whereas in the second part of the sentence, the Court seems to suggest that there is something about these categories that is “material” – perhaps that they require both intellectual and manual labour? However, there are two serious problems with this analysis: first, the assumption – which we have criticised above – that a doctor or a teacher or a lawyer work in splendid intellectual isolation, removed from and above the very tangible, material services rendered to them by “non-intellectual” workers; and secondly, that the manner in which electricity is a “material” service and education is not, bears any relevance to the statutory definition under the Industrial Disputes Act, or to the purpose of the Industrial Disputes Act. Once again, we seem to be in the realm of pure intuition: electricity feels material, tangible, earthy; education feels intangible, abstract, “non-material”. But, as we have seen above, this kind of intuitive reasoning was not the Court’s approach towards interpreting the terms of the Industrial Disputes Act – in fact, the Court, on more than one occasion, expressly warned against this kind of interpretive approach.
The problem is accentuated further with the introduction of the term “commercially valuable” in the next sentence. There are, again, two problems here: first, the relevance of commercial value to the meaning of “industry” was expressly rejected consistently by the Court; and secondly, by what logic does the Court hold that electricity production is commercially valuable, but education is not?
The Court then went on to consider Hospital Mazdoor Sabha:
“We may now consider closely the Hospital Mazdoor Sabha case and the reasons for which it was held that the workmen employed in a hospital were entitled to raise an industrial dispute. We may say at once that if a hospital, nursing home or dispensary is run as a business in a commercial way there may be found elements of an industry there. Then the hospital is more than a place where persons can get treated for their ailment. It becomes a business… in the Hospital Mazdoor Sabha case, hospitals run by Government and even by a private association, not on commercial lines but on charitable lines or as part of the functions of Government Department of Health were held included in the definition of industry. The reason given was that the second part of the definition of industry contained an extension of the first part by including other items of industry. As we have pointed out the first and the second parts of the definition are not to be read in isolation as if they were different industries but only as aspects of the occupation of employers and employees in an industry. They are two counterparts in one industry. The case proceeds on the assumption that there need not be an economic activity since employment of capital and profit motive were considered unessential. It is an erroneous assumption that an economic activity must be related to capital and profit-making alone. An economic activity can exist without the presence of both. Having rejected the true test applied in other cases before, the test applied was ‘can such activity be carried on by private individuals or group of individuals’ ? Holding that a hospital could be run as a business proposition and for profit, it was held that a hospital run by Government without profit must bear the same character. With respect, we do not consider this to be the right test. That test was employed to distinguish between the administrative functions of Government and local authorities and their functions analogous to business but it cannot be used in this context. When it was emphasised in the same case that the activity must be analogous to business and trade and that it must be productive of goods or their distribution or for producing material services to the community at large or a part of it, there was no room for the other proposition that privately run hospitals may in certain circumstances be regarded as industries. The expression ‘satisfying material human needs’ was evolved which bore a different meaning.”
This is a rather confusing paragraph, but at its base, once again, seems to be a distinction between commercial and non-commercial, emphasised by the fact that in this case, ultimately, the reason for the Court’s holding the appellant hospitals not to be “industries” were because they were non-commercial (and at the end of its judgment, the Court stressed once again that a hospital run on commercial lines would fall within the definition of “industry”). I have highlighted, above, that the commercial/non-commercial distinction marked a significant break from precedent, which the Court did not explain. More importantly, though, the commercial/non-commercial distinction seems to be at odds with the purpose of the statute. If – as the early cases pointed out – the purpose of the Industrial Disputes Act was to provide a path to a peaceful resolution of disputes between capital and labour, the kinds of disputes that occurred in enterprises of a certain scale, then whether the enterprises were charitable or commercial should not matter; or, to put the matter more bluntly, to a workman who is not being paid his wages, or is arbitrarily retrenched, or is summarily dismissed, it hardly matters whether his employer is in the business for profit, or for charity – that is, the nature of the disputes that the Industrial Disputes Act was designed to resolve have nothing to do with the profit-making or charitable character of the enterprise.
12. Bombay Pinjrapole, Bhuleshwar vs The Workmen, AIR 1971 SC 2422
The Pinjrapole began in 1834 as an association to look after stray animals and especially cows. Over time, it evolved into a much larger institution employing many workers. The question before the Court was whether it was an “industry”. On behalf of the Pinjrapole, it was argued that it was a purely charitable institution. One particular point of dispute was that the Pinjrapole used the milk it got from the cows to sell on the market.
The Court held that the Pinjrapole was an industry, reasoning that:
“The main heads of the income of the institution were income from immovable properties, donation from charitably disposed members of the public and the sale of milk. No doubt the immovable property had been acquired many years back from the surplus funds in the hands of the trustees. These were old houses and buildings but the Panjrapole was maintaining them in tenantable condition by incurring considerable expenses every year over the repairs. The more significant factor was the steadily growing income from the sale of milk derived from milch cows and buffaloes, the number of which though not steady was always considerable. Regard must also be had to the written statement of the institution itself before the Tribunal showing that the Managing Committee of the trustees had decided some time back to upgrade the infirm cattle and rear them into good animals so as to get good and pure milk for the inmates of Panjrapole. In fact however the upgrading was to such an extent that the milk yielded always was far in excess of the needs of the inmates of the Panjrapole. Although the sale proceeds of the milk was never utilised nor was ever meant for the benefit or profits of the donors or trustees, the very production of it in such large bulk wholly unrelated to the needs of the sick cattle showed that the institution was pursuing an activity with the central idea of obtaining a steady income therefrom. In our view, the facts justifiably lead to the conclusion that the institution deliberately diversified its objects from only tending to the sick, infirm or unwanted cattle by adopting the policy of keeping cattle not merely -for their own sake but for the sake of improving the cattle population committed to its care with an eye to serve human beings by making large quantities of good milk available to them and thereby getting an income which would augment its resources.”
13. Dhanrajgirji Hospital vs The Workmen, AIR 1975 SC 2032.
Following the principles laid down in Safdarjung Hospital, the Supreme Court held that a hospital established by a charitable trust was not an “industry”.
14. Workmen vs Indian Standards Institute, AIR 1976 SC 145 (3J Bench)
The Indian Standards Institute was a society registered under the Societies Registration Act. The question was whether it was an “industry”. The Court attempted to reconcile Hospital Mazdoor Sabha and Safdarjung Hospital by making the following observation:
“This Court pointed out in the Hospital Mazdoor Sabha case (supra) that in order that an undertaking should be analogous to trade or business, it is not necessary that it should possess the two essential features associated with the conventional notion of trade or business namely, profit motive and investment of capital. Gajendragadkar, J., (as he then was), speaking on behalf of the Court observed: “It is not disputed that under s. 2(j) an activity can and must be regarded as an industry even though in carrying it out profit motive may be absent. It is also common ground that the absence of investment of any capital would not make a material difference to the applicability of s. 2(j). Thus, two of the important attributes conventionally associated with trade or business are not necessarily predicated in interpreting s. 2(j)”. This view was neither overruled nor departed from in the Safdarjung Hospital case (supra). On the contrary, the decision 1 in Safdarjung Hospital case reaffirmed this view and gave it the seal of approval of a bench of six judges of this Court.”
In fact, according to the Court, the only point on which Safdarjung Hospital disagreed with Hospital Mazdoor Sabha was on the relevance of the claim that the activity in question could be carried out privately as well (Hospital Mazdoor Sabha had held that was relevant while considering acts of municipalities; Safdarjung Hospital held that it did not). Consequently, the Court ended up reiterating the original three-part test:
“In order that an activity may be regarded as an undertaking analogous to trade or business, it must be “organised or arranged in a manner in which trade or business is generally organised or arranged”. It must not be casual nor must it be for oneself nor for pleasure. And it must rest on co-operation between employer and employees who associate together with a view to production, sale or distribution of material goods or material services.”
In the present case, ISI was clearly an industry on an application of this test, because:
“The activities of the Institution arc carried on in a systematic manner and are organised or arranged in a manner in which trade or business is ordinarily organised or arranged. The Institution derives large income from its activities, which was about Rs. 4.5 million in 1967-68 and rose to about Rs. 10.2 million in 1973-74, a bulk of the income being accounted for by sale proceeds of Indian Standards and Certification Marking Fees. The object of the activities of the Institution is to render material services to a part of the community, namely, manufacturers, distributors and consumers. Standards set the recognised level of good quality, corner stone for building domestic and export markets and developing good will and prestige for the manufacturer: they provide the framework for mass production, increase in productivity simplification in production process and enhancement in labour efficiency the make for dimensional interchangeability by setting national and also international patterns of interrelated sizes: they incorporate results of the latest developments in research and technology: they increase consumer confidence and goodwill bringing wide markets and quick turn over with savings for the buyer and they bring more profits and lower costs by optimum utilization of scarce resource.”
N.B. It is important to note that in 1978, the state of the law concerning the meaning of “industry” was in considerable disarray. As we have seen, in the first fourteen years of its existence, through the course of five judgments, the Supreme Court had laid out the three-part test of “industry” with clarity and consistency. In the next fourteen years, however, the Court began to carve out various exceptions and departures from this test, some of which were mutually inconsistent, and others that went against the grain of the statute itself (and apart from Hospital Mazdoor Sabha, which was partially overruled in Safdarjung Hospital, the Court did not expressly overrule any aspect of the three-part test.
For instance, in Meher, the Supreme Court held that the cooperation between employers and employees must be “direct” in nature; however, in Madras Gymkhana, the Court abandoned that test, calling it incoherent. In A.R. Ramnath, the Court held that if a majority of employees in an enterprise were not “workmen”, an industry did not exist. In Madras Gymkhana, the Court – a priori – excluded “intellectual professions” from “industry” because they were the result of the professional’s “own efforts”; however, in Safdarjung Hospital, the Court gave an entirely different reason for the same conclusion, holding that the result of intellectual labour was a “service”, but not a “material service”. And during the period that these cases were being decided, there were other cases such as Bombay Pinjrapole and Indian Standards Institute, which continued to apply the original three-part test, as though no departure had taken place at all.
Consequently, the law was in need of clarification. This clarification was provided by a seven-judge bench in Bangalore Water Supply and Sewerage Board vs Rajappa [“BWSSB”].
15. Bangalore Water Supply and Sewerage Board vs Rajappa, AIR 1978 SC 548.
In BWSSB, by a five-two majority, a seven-judge bench restored the original three-part test for “industry”, and eschewed the numerous departures from that test that had taken place between 1964 and 1978. In doing so, the Court made the important clarification that no enterprise – whether a solicitors’ firm, a club, a university, or a hospital – could be exempted a priori from the definition of “industry” simply by virtue of the nature of what it was doing; the three-part test would be applied rigorously to every enterprise, and those to whom it was found applicable, would be classed as “industries”. Consequently, while not every club, or university, or lawyers’ firm would be “industries”, lawyers, universities and clubs were as much subject to the three-part test as electricity-producing factories, or coal mines.
The majority judgment was written by Justice Krishna Iyer. Justices Beg and Chandrachud concurred, but went even further in broadening the definition of “industry” than Justice Krishna Iyer did. Justices Tulzapurkar and Jaswant Singh dissented.
Krishna Iyer J. began by noting, first, that “an industry is a continuity, is an organized activity, is a purposeful pursuit – not an isolated adventure, desultory excursion or casual, fleeting engagement motivelessly undertaken”; secondly, an “industry’ cannot exist without co-operative endeavour between employer and employee“; and thirdly, “an industry… is geared to utilities in which the community has concern… [that is] economic utilities – material goods and services…“. This, then, was the three-part test set out in full, under the overarching rubric of “analogous to a trade or business.”
Krishna Iyer J. then went back to the first judgment – Banerji, observing that:
“All the indicia of ‘industry’ are packed into the judgment which condenses the conclusion tersely to hold that ‘industries’ will cover ‘branches of work that can be said to be analogous to the carrying out of a trade or business‘. The case, read as a whole, contributes to industrial jurisprudence, with special reference to the Act, a few positive facets and knocks down a few negative fixations. Governments and municipal and statutory bodies may run enterprises which do not for that reason cease to be industries. Charitable activities may also be industries. Undertakings, sans profit motive, may well be industries. Professions and not ipso facto out of the pale of industries. Any operation carried on in a manner analogous to trade or business may legitimately be statutory ‘industry. The popular limitations on the concept of industry do not amputate the ambit of legislative generosity in Sec.2(j). Industrial peace and the smooth supply to the community are among the aims and objects the Legislature had in view, as also the nature, variety range and areas of disputes between employers and employees. These factors must inform the construction of the provision… the limiting role of Banerji must also be noticed so that a total view is gained. For instance, ‘analogous to trade or business’ cuts ,down ‘undertaking, a word of fantastic sweep. Spiritual undertakings, casual undertakings, domestic undertakings, war waging, policing, justicing, legislating, tax collecting and the like are, prima facie, pushed out. Wars are not merchantable, nor justice, saleable, nor divine grace marketable. So, the problem shifts to what Is ‘analogous to trade or business’.”
In his view, therefore, Banerji had provided both a positive definition of industry, as well as a negative, limiting one. Within the confines of the phrase “analogous to a trade or business“, the terms of “industry” were to be given their full construction. As we have seen, the three-part test was an expression of both the scope of “industry”, as well as its limits. At the heart of this, as Krishna Iyer J. understood, was the insight in Corporation of the City of Nagpur, which had drawn attention to the “the structural, organisational engineering aspect” of industries (or, what he have called the necessity of systematisation, the existence of a certain scale).
Consequently, Krishna Iyer J. held that Meher – in its blanket exemption of solicitors from the scope of industry – had laid down far too broad a proposition, and needed to be overruled to that extent. However:
“We must hasten, however, to repeat that a small category, perhaps large in numbers in the muffasil, may not squarely fall within the definition of industry. A single lawyer, a rural medical practitioner or urban doctor with a little assistant and/or menial servant may ply a profession but may not be said to run an industry. That is not because the employee does not make a contribution nor because the profession is too high to be classified as a trade or industry with its commercial connotations but because there is nothing like organised labour in such employment. The image of industry or even quasi-industry is one of a plurality of workmen, not an isolated or single little assistant or attendant. The latter category is more or less like personal avocation for livelihood taking some paid or part-time from another. The whole purpose of the Industrial Disputes Act is to focus on resolution of industrial disputes and regulation of industrial relations and not to meddle with every little carpenter in a village or blacksmith in a town who sits with his son or assistant to work for the customers who trek in. The ordinary spectacle of a cobbler and his assistant or a cycle repairer with a helper, we come across in the payments of cities and towns, repels the idea of industry and industrial dispute.”
Once again, the focus, therefore was on the element of “organised labour” – going back to Banerji’s original formulation of capital and labour being arrayed on opposite sides of a contentious issue such as wages, bonuses, retrenchment etc. On a similar basis, A.R. Ramnath was also overruled. Krishna Iyer J. correctly pointed out that the two assumptions upon which that judgment rested were, first, that the teachers were expressly excluded by the Act, and that the remaining workers formed a minuscule fraction; and secondly, that the “character” of education was such that it could not be called an industry. Rejecting (1), he held that “the test is not the predominant number of employees entitled to enjoy the benefits of the Act. The true test is the predominant nature of the activity.” With respect to (2), he held that this reasoning rested upon a pejorative understanding of “industry” as something low or vulgar (or, what we have called an ideological approach to “industry), and was therefore without basis.
He then applied the same logic to “charitable institutions”, agreeing with the judgment in Pinjrapole, and endorsing the earlier judgments in holding that the employer’s motivation (profit-making or charitable) was irrelevant in determining whether the character of the enterprise was industrial. And lastly, he applied the logic to clubs:
“If productive cooperation between employer and employee is necessary, conflict between them is on the cards, be it a social club, mutual benefit society, pinjarapole, public service or professional office. Tested on this touchstone, most clubs will fail to qualify for exemption. For clubs gentlemen clubs proprietary clubs service clubs investment clubs, sports clubs, art clubs military clubs or other brands of recreational associations- when x-rayed from the industrial angle project a picture on the screen typical of employers hirings employees for wages for rendering services and/or supplying goods on a systematic basis at specified hours. There is a co-operation the club management providing the capital, the raw material the appliances and auxiliaries and the cooks, waiters, bell boys, pickers bar maids or other servants making available enjoyable eats, pleasures and other permissible services for price paid by way of subscriptions or bills charged. The club life, the warm company, the enrichment of the spirits and freshening of the mind are there But these blessings do not contradict the co-existence of an ‘industry’ in the technical sense.”
Madras Gymkhana, consequently, was overruled, since in that case, the sole argument had been that the Club existed for its members – which, as Krishna Iyer J. pointed out, was an irrelevant consideration, since it was well-established that “material services” need not be to the public as a whole, but could well be to a section of the public. Cricket Club of India was overruled for the same reason, with the observation that small, self-serving clubs, which lacked the organisational structure necessary for an ‘industry’ to exist, would not come within the ambit of the definition. And lastly, on the basis of the three-part test, Safdarjung Hospital was also overruled.
The majority judgment in BWSSB, therefore, clarified the law on the definition of “industry”. It did so in three ways:
(a) The three-part test – organisational structure, cooperation between employer and employee, and production of material goods or services – was restored;
(b) The departures from this test – that is, “direct connection”, “majority of non-workmen”, and constriction of “material services” – were rejected;
(c) The proposition that no profession or enterprise could automatically claim exemption from being an industry, but would be subject to the three-part test, was re-established.
The Aftermath: In 1982, in response to the BWSSB decision, the legislature amended the definition of “industry” in the Industrial Disputes Act. The new definition expressly incorporated the three-part test into the statute, but also carved out exceptions for hospitals, educational institutions, charitable institutions, and certain others. However, in the thirty-four years since 1982, this definition has not been notified by the Executive, and consequently, has not yet come into force.
In 2005, a Constitution Bench of the Supreme Court in State of UP vs Jai Bir Singh “referred” the correctness of BWSSB to a larger bench. In November 2016, a seven-judge bench of the Supreme Court heard further arguments on whether or not Jai Bir Singh should be referred to a nine-judge bench for reviewing BWSSB.
B2. What is an “industrial dispute”?
- Pipraich Sugar Mills vs Pipraich Sugar Mills Mazdoor Union, AIR 1957 SC 95.
- Management of Indian Cable co. vs Its Workmen, (1962) I LLJ 409 (5J Bench)
- Bombay Union of Journalists vs The Hindu, AIR 1963 SC 318 (3J Bench).
- Workmen vs Dharam Pal Premchand, AIR 1966 SC 182 (4J Bench)
- State of Punjab vs The Gandhara Transport Company, (1975) 4 SCC 838 (2J Bench)
- Rajasthan State Road Transport Corporation vs Krishna Kant, AIR 1995 SC 1715 (3J Bench)
B3. Who is a “workman”?
B3A. Definition of “workman”.
- J&K Cotton Spinning & Weaving Mills vs Badri Mali, AIR 1964 SC 737.
- Management of M/s May & Baker Ltd vs Their Workmen, AIR 1967 SC 678.
- Anand Bazar Patrika vs The Workmen, 1970 (3) SCC 248.
- Burmah Shell Oil & Storage Co. and Distributing Co. of India vs Burmah Shell Management Staff Association, AIR 1971 SC 922.
- Arkal Govind Raj Rao vs Ciba Geigy of India Ltd, (1985) 3 SCC 371.
- Mukesh K. Tripathi vs Sr Division Manager, LIC, 2004 (8) SCC 387
B3B. Burden of Proof
- Waman Ganpat Raut vs Cadbury-Fry (India) Pvt Ltd., 1980 (41) FLR 156
- Workman of Nilgiri Coop. Marketing Society vs State of Tamil Nadu, AIR 2004 SC 1639
B4. Which is the “appropriate government”?
- Heavy Engineering Mazdoor Union vs State of Bihar, (1970) SCR 1 995.
- Hindustan Aeronautics Ltd vs Their Workmen, AIR 1975 SC 1737.
- SAIL vs National Union of Waterfront Workers, (2001) 7 SCC 1.
- Nashik Workers Union vs Hindustan Aeronautics Limited, (2016) 6 SCC 224
B5. What constitutes a “change in the conditions of service”?
Section 9A of the Industrial Disputes Act prohibits “any change in the conditions of service applicable to any workman in respect of any matter specified in the Fourth Schedule“, without a twenty-one day notice period. The Fourth Schedule to the Industrial Disputes Act deals with issues such as wages, leave, hours of work, withdrawals of concessions or privileges etc. The basic idea is that if the management is going to take action that affects the workers, then there should be adequate notice for the latter to contest it.
1. National Engineering Industries Ltd vs Hanuman, AIR 1968 SC 33 (3J Bench).
2. M/s Tata Iron & Steel Co. Ltd. vs The Workmen, AIR 1972 SC 1917 (2J Bench)
The Management decided to change the weekly day-off from Sunday to Wednesday (for some workers) and Thursday (for others). The workers did not attend on Sunday, and when they attended on Thursday, they were told that it was the day off. The Management then filed an application against the workers for having resorted to an illegal strike on Sunday, while the workmen filed an application against the Management for having resorted to an illegal lock-out on Thursday.
The Supreme Court, therefore, had to determine whether changing the weekly day of rest amounted to a “change in the conditions of service”, and that whether, therefore, the Management was required to serve notice upon the workers in accordance with Section 9A. The interesting issue was that technically, changing the day of rest did not cause any financial or other material detriment to the workers, since all that was happening was that Sunday was being substituted with Thursday. The Management also argued that on a technical construction of the Fourth Schedule, changing the weekly day of rest did not fall within any of the entries: it did not fall within “hours of work and rest intervals“, because that had to do with rest between work; nor did it fall within “leave with wages and holidays“, or any withdrawal of a “customary concession or privilege.”
The Court, however, found in favour of the workers. It held that:
“Whether the paid day of rest is a Sunday or some other week day would no doubt cause no financial loss to the workmen. But the financial benefit cannot be the sole criterion in considering this question. In this connection it must not be ignored that due to long usage and other factors Sunday as a holiday may for conceivable reasons have assumed importance for workmen. For certain classes of workmen Sunday as a weekly rest day may also have special significance. Workmen may, for example, also generally like to have weekly rest day on a Sunday when their school going children have a holiday so that the entire family may be able to take part in recreational or other social activities. This consideration has its own importance. If that be so, then, notice for effecting such a change would be within the contemplation of s.9A The real object and purpose of enacting s.9A seems to be to afford an opportunity to the workmen to consider the effect of the proposed change and, if necessary, to represent their point of view on the proposal. Such consultation further serves to stimulate a feeling of common joint interest of the management and workmen in the industrial progress and increased productivity. This approach on the part of the industrial employer would reflect his harmonious and sympathetic co-operation in improving the status and dignity of the industrial employee in accordance with the egalitarian and progressive trend of our industrial jurisprudence which strives to treat the capital and labour as co-sharers and to break away from the tradition of labour’s subservience to capital.”
“In our opinion, in order to effectively achieve the object underlying s.9A, it would be more appropriate to place on the Fourth Schedule read with s.9A a construction liberal enough-to include change of weekly rest days from Sunday to some other week day.”
A few important principles arise out of this judgment. The first is about the underlying philosophy of Section 9A. The Court holds that the rationale behind 9A is not the (more individualistic) desire to protect workmen against financial loss, but rather, a vision of industrial democracy – i.e., one that places premium upon imagining industry as a cooperative enterprise between capital and labour. This, as we have seen previously, was also the animating logic behind the Supreme Court’s judgments on the definition of “industry” in the 1960s. Secondly – and relatedly – the Court therefore holds that in cases of ambiguity, the categories of the Fourth Schedule are to be given a broad and liberal interpretation. And thirdly – and perhaps most importantly – the Court makes a serious attempt to understand the impact of changing the day of rest from the perspective of those whom it affects, and takes into account, inter alia, the impact it has on their non-work family life. In other words, we see here a proto-version of the right to family life, which has become a mainstay of (for instance) the jurisprudence of the European Court of Human Rights.
3. Mahendran Singh Dantwal vs Hindustan Motors Ltd, AIR 1976 SC 2062 (3J Bench)
B6. Strikes and Lock-Outs
B7. Lay-Off (Section 25(M))
Section 2(kkk) of the Industrial Disputes Act defines a “lay-off” as “the failure, refusal or inability of an employer on account of shortage of coal, power or raw materials or the accumulation of stocks or the breakdown of machinery or natural calamity or for any other connected reason to give employment to a workman whose name is borne on the muster rolls of his industrial establishment and who has not been retrenched.” If an employer wishes to lay off his workers, then he must follow the procedure under Section 25(M) of the Industrial Disputes Act: that is, he must apply to the “appropriate government” for permission stating the reason for the lay-off, and also provide a copy to the concerned workman. The appropriate Government is required to make an enquiry, hear all interested parties, and keeping in mind the genuineness and adequacy of the reasons for the lay-off as well as the interests of the workmen, pass an order allowing or denying the request. Section 25M was introduced into the Industrial Disputes Act in 1976.
The lay-off provisions of the Industrial Disputes Act provide a particularly stark example of its underlying philosophy, which views the government as an honest, impartial broker for resolving the (unequal) conflict between capital and labour.
- Management of Kairbetta Estate, Kotagiri vs Rajamanickam, AIR 1960 SC 893 (2J Bench).
In this case, the Supreme Court held that a lock-out, which had taken place because of violence and intimation of some of the factory’s employees, could not be equated to a “lay-off”. In particular, the Court held that the phrase “or for any other connected reason” in Section 2(kkk) assumed that there must be something similar to the preceding reasons. The Court explained the conceptual distinction between a lay-off and a lock-out as follows:
“Lock-out can be described as the antithesis of a strike. Just as a strike is a weapon available to the employees for enforcing their industrial demands, a lock-out is a weapon available to the employer to persuade by a coercive process the employees to see his point of view and to accept his demands. In the struggle between capital and labour the weapon of strike is available to labour and is often used by it, so is the weapon of lock- out available to the employer and can be used by him. The use of both the weapons by the respective parties must, however, be subject to the relevant provisions of the Act. Chapter V which deals with strikes and lock-outs clearly brings out the antithesis between the two weapons and the limitations subject to which both of them must be exercised. Thus the concept of lockout is essentially different from the concept of lay-off, and so where the closure of business amounts to a lock-out under s. 2(1) it would be impossible to bring it within the scope of lay-off under s. 2(kkk).”
2. Papanasam Labour Union vs Madura Coats Ltd., AIR 1995 SC 2200 (2J Bench).
This case involved a constitutional challenge to Section 25M, which required taking the permission of the appropriate government before effecting a lay-off. Largely following the logic of the Constitution Bench in Meenakshi Mills (see below), the Court upheld the law as a reasonable restriction upon fundamental rights:
“It is evident that the Legislature has taken care in exempting the need for prior permission for lay-off in Section 25-M if such lay-off is necessitated on account of power failure or natural calamities because such reasons being grave, sudden and explicit, no further scrutiny is called for. There may be various other contingencies justifying an immediate action of lay-off but then the Legislature in its wisdom has thought it desirable in the greater public interest that decision to lay-off should not be taken by the employer on its own assessment with immediate effect but the employer must seek approval from the authority concerned which is reasonably expected to be alive to the problems associated with the industry concerned and other relevant factors, so that on scrutiny of the reasons pleaded for permitting layoff, such authority may arrive at a just and proper decision in the matter of according or refusing permission to lay-off. Such authority is under an obligation to dispose of the application to accord permission for a lay-off expeditiously and, in any event, within a period not exceeding two months from the date of seeking permission.”
B8. Retrenchments (Section 25(N))
- Workmen of Meenakshi Mills vs Meenakshi Mills, AIR 1994 SC 2696.
- Haryana State Agricultural Marketing Board vs Subhash, AIR 2006 SC 1263 (2J Bench)
- Karnataka Handloom Development Corporation vs Mahadev Laxman Raval, (2006) 13 SCC 15 (2J Bench).
- Punjab SEB vs Sudesh Kumar Puri, (2007) 2 SCC 428.
B9. Closure (Section 25(O))
- Excel Ware vs Union of India, AIR 1979 SC 25 (5J Bench).
B10. Unfair Labour Practices
B10I. Deprivation of Privilege or Status
- Haryana State Agricultural Marketing Board vs Subhash, AIR 2006 SC 1263 (2J Bench)
- Gangadhar Pillai vs Siemens Ltd, (2007) 1 SCC 533 (2J Bench).
C. Contract Labour
The use of contract labour is the most common method to avoid employer’s obligations under industrial law. “Contract labour” refers to a relationship between an employer and a worker that is different from the classic “relationship of employment”, or (in common law terms) a “contract of service”: in a “relationship of employment” (“contract of service”), an employer hires a worker on a long-term, permanent basis, and their relationship is thereby governed by industrial law; this is opposed to a “contract for service” (what we will informally call “contract labour”), where (again, classically) an employer will hire an independent contractor, or a self-employed service vendor, to perform a specific or defined task (for instance, I get in touch with a firm to repair my computer). In such a case, the legal relations will be governed not by industrial law, but by the contract between the parties.
Contract labour can take two forms. One is when there are two parties – A (employer) and B (independent contractor), and A hires B on a contract basis. The other is when there are three parties – A (employer), B (contractor) and C (labour). Here, A has a contract with B, according to the terms of which B will provide labour (C) to A. Thus, by interposing an entity between the employer and the labour, the employer is able to escape the obligations of industrial law by snapping the direct relationship between itself and the labour.
In pre-Independence times, multiple commissions on labour, set up by the British, pointed out that the use of contract labour to avoid legal obligations was widespread in India. Current estimates are that less than 15% of the workforce is “formally employed”. Consequently, the issue of contract labour as a legal form used to defeat the rights of labour is a vexed and pressing one, and over the years, has seen both legislative and judicial intervention.
C1. Camouflage/Sham Contracts and the Employer/Employee Relationship
The most crucial question in this domain is when, and how, can a Court “go behind” a contract, as it were, and decide that “a relationship of employment” exists between the employer and the labour, notwithstanding contractual terms to the contrary – and thereby, ensure that the rights of labour are protected. This question has been heavily litigated right from the inception of the Supreme Court, and remains in a state of flux.
- Shivnandan Sharma vs The Punjab National Bank, AIR 1955 SC 404 (3J Bench):
This case involved a tripartite relationship between the Bank, its “Treasurers” (a separate firm), and the appellant, who was a head cashier at the Bank’s Una Branch, and appointed as a “nominee” of the Treasurers. The dispute arose when the Bank decided to close the branch. As a result of this closuer, the Appellant’s services were also dispensed with. He raised a dispute under the Industrial Disputes Act. A preliminary question, therefore, was whether the Appellant was an “employee” of the Bank, and therefore entitled to invoke the provisions of the Industrial Disputes Act, or whether the interposition, or whether the interposition of the Treasurers between the Bank and the Appellant severed the relationship of employment.
The Bank relied upon its Memorandum of Agreement with the Treasurers. According to this Agreement, the Bank would pay a certain remuneration to the Treasurers; out of this remuneration, the Treasurers would pay a salary to the cashiers (who were their nominees); this salary was fixed by the Treasurers, but subject to the approval of the Bank. Any appointment made by the Treasurers was also subject to the approval of the Bank. Furthermore, the Bank also retained the power to increase or decrease the number of nominees for any branch, as well as increase or decrease the amount of remuneration. The Supreme Court noted that the legal question before it was how to distinguish between the relationship of a “master and servant” on the one hand, and an independent contractor on the other.
Relying upon English law, the Court held that “a master is one who not only prescribes to the workman the end of his work, but directs or at any moment may direct the means also, or, as it has been put, ‘retains the power of controlling the work.” In the instant case, the Court found that “the appointment-has to be approved by the Bank and the Treasurers cannot continue to employ those workmen in whose fidelity and efficiency the Bank has no confidence. Hence both in the matter of appointment and dismissal of the employees the Bank reserves to itself the power to’ give direction to the Treasurers. Similarly in the matter of the payment of salary the money comes out of the coffers of the Bank, though it may be paid by the hand of the Treasurers.” On this basis, the Court held that the Appellant was an employee of the Bank.
In this case, therefore, the Supreme Court held that even if, formally, an employer interposed a third party between itself and a worker, as long as it retained a substantial degree of control (in hiring, firing, and payment of remuneration) over the worker, the relationship between the two would remain that of employer and employee – and thereby, subject to the provisions of the Industrial Disputes Act.
2. Dharangadhara Chemical Works vs State of Saurashtra, AIR 1957 SC 264.
The Appellants were lessees of certain salt works. For salt manufacture, they hired workmen, who were known as “agarias”. The work was seasonal, and normally commenced after the monsoon. Each agaria was allotted a plot of land [“patta”]. The agarias engaged in the process of manufacture, at the end of which, for every accepted “maund” of salt, they were paid a certain remuneration. There were no prescribed working hours or muster rolls, and the agarias were free to hire extra labour on their own terms and conditions, as they saw fit. The agarias raised a dispute about the terms of work, and the State government referred it under Section 10 of the Industrial Disputes Act. The Appellants/lessees raised a preliminary objection, that the “agarias” were not “workmen” within the meaning of the Industrial Disputes Act, since there was no relation of “employment” between the lessees and the agarias.
Once again, the Court referred to the common law test of “control” as the defining feature of a relationship of employment. In this case, however, the Court further refined the control test, noting that there were many instances where the master could not control the “manner” in which the work was done. Consequently, the correct test was one of “due control and supervision”, in the context of the relevant industry. In this case, the Court found that the Agreement between the parties – which allowed the Appellants/Lessees to annul it in case the workmen did not follow the advice and instructions of its appointed officers, as well as the fact that the making of enclosures and sinking of wells was supervised by the Appellants – was enough to establish the required level of control.
Furthermore, the Court also held that the two features relied upon by the Appellants/Lessees – that the workmen were paid at piece rates and not on a daily basis, and that they were free to hire their own labour – did not go any way towards establishing that the workmen were independent contractors.
3. Shri Chintaman Rao vs State of Madhya Pradesh, AIR 1959 SC 388
The Appellants were manufacturers of bidis. For manufacture, they hired workers known as “sattedars”. The Management supplied the tobacco and bidi leaves to the sattedars; some of the sattedars maintained small factories, where they engaged “coolies” to manufacture them, while others outsourced the manufacture to workers working from their homes. The sattedars collected the finished bidis and delivered A to the Appellants, who either accepted or rejected them. The sattedars were paid the cost of manufacture, after deducting the cost of tobacco. The bidis were then refined further in the Appellant’s factory, by its own labourers.
The question in this case was whether the sattedars were employees of the Appellant, and therefore “workers” within the ambit of the Factories Act (with its attendant safeguards).
The Court applied the control test once again to find that the manner in which the sattedars performed their work was not under the control of the Appellants/Management; the sattedars’ only obligation was to deliver the finished bidis at the Appellants’ factory. That, the Court held, “would be an obligation imposed on any contractor who undertakes to supply and deliver the goods to the other party.” The sattedars therefore, were held to be independent contractors.
4. Shri Birdhichand Sharma vs First Civil Judge, Nagpur, AIR 1961 SC 644
This was another bidi manufacturing case. Here, the workers had to work in the factory, had to come to work before midday (their attendance was noted in a register), and could be removed if absent for more than eight days. The payment was made at piece rates. Bidis not up to standard could be rejected.
The Court noted that the facts of the case differed materially from the facts in Chintaman Rao. In particular, the Court held that the degree of supervision/control required to constitute a relationship of employment woul depend upon the nature of the work being performed; in this case, “the operation being a simple one, the control of the manner in which the work is done is exercised at the end of the day, when biris are ready, by the method of rejecting those which do not come up to the proper standard.” The Court found that a relationship of employment existed.
5. Shankar Balaji Waje vs State of Maharashtra, AIR 1962 SC 517.
This was yet another bidi manufacturing case. The relationship between the management and the worker did not require the worker to attend the factory at any given time, he worker was only required to inform the management if he intended to remain absent beyond ten days, there was no supervision of the actual work, he could work from home if the management agreed, payment was at piece rates, and the final product could be accepted or rejected.
A majority of the Supreme Court held that the case was covered by Chintaman Rao and not by Birdhichand Sharma. The Court drew a distinction between the manner of work and the type of work, and held that the right of rejection only spoke to the Management’s control over the type of work (i.e., bidis rolled in a particular form). Consequently, the worker was an independent contractor.
Subba Rao J. dissented, holding that an adequate degree of supervision/control had been made out, on the basis that “the appellant engages the labourers, he entrusts them with work of rolling bidis in accordance with the sample, insists upon their working in the factory, maintains registers giving the particulars of the labours absent, amount of tobacco supplied and the number of bidis rolled by each one of them, empowers the gumasta and supervisor, who regularly attends the factory, to supervise the supply of tobacco and leaves and the receipt of the bidis rolled. The nature and pattern of bidis to be rolled is obviously well understood, for it in implicit in requirement that the rolled in bidis shall accord with the sample. The rejection of bidis found not in accord with the sample is a clear indication of the right of the employer to dictate the manner in which the labourers shall manufacture the bidis.”
6. D.C. Dewan Mohidin Sahib vs Industrial Tribunal, AIR 1966 SC 370:
This case involved a tripartite relationship between the proprietors of two bidi concerns, their agents/contractors, and their workers. The dispute was over wage reduction.
The mode of work was this: the contractors took leaves and tobacco from the proprietors. They gave it to the workmen. The workmen took the leaves home and cut them; they then rolled and filled the leaves in the contractors’ factories. The contractors then took them to the proprietors, who paid for the finished bidis at piece rates, after deducting the cost of tobacco and leaves. The contractors kept a cut for themselves, and then paid the workers. If the bidis were not rolled, then the raw materials had to be returned to the proprietors, and the contractors were forbidden from selling those raw materials to anyone else. The price of the raw materials as well as the final product was fixed by the proprietors.
After examining precedent, the Court held that the “independent contractors” were not really “independent” in any real sense. The contract was entirely one-sided, with the proprietor at liberty to supply or withhold raw material as he saw fit. The contractor could not “employ” more than nine workers in his “factory”, and was not separately paid for handing over the raw materials to the workers. Consequently, the “contractors” were employees of the proprietors.
The Court also found that the proprietors retained a substantial degree of control over the workers. The workers had to attend the factory to do the work of rolling and filling the leaves with tobacco. Furthermore, while no evidence had been placed by either side in this regard, the Court referred to the prevailing practice in the industry to hold that it was more likely than not that the proprietors exercised “supervision” over the workers by deciding whether or not the accept the bidis at the end of the day. The Court also referred to letters placed on record, whereby it was the proprietors that had written to the labour officers about increase in wages. The Court therefore held that the workers were the employees of the proprietors, and the interposition of “independent contractors” was a camouflage designed to avoid the application of the Factories Act.
7. Mangalore Ganesh Beedi Workers vs Union of India, (1974) ILLJ 367.
While this is not strictly a case dealing with the character of the employer-employee relationship, it is nonetheless important because of the detailed analysis undertaken by the Court of the realities of the bidi industry in India, and the many strategies deliberately used by manufacturers to circumvent the operation of the Factories Act and the Industrial Act, through the use of “outworkers”, interposition of “independent contractors” etc.
8. Silver Jubilee Tailoring House and Others vs. Chief Inspector of Shops and Establishments, (1974) 3 SCC 498 (3J Bench).
This was a dispute between the Silver Jubilee Tailoring House and its workmen. The workers were paid on a piece-rate basis, they generally attended the shops every day if there was work, their payment was according to their skill level, they were instructed how to stitch the cut cloth (with the Tailoring House having the option to reject cloth that was not stitched according to specification), and they could take work home with permission from the shop manager. The Tribunal and the High Court held that a relationship of employment existed.
Before the Supreme Court, the Tailoring House argued that, based on precedent, the determining factor for a relationship of employment was the common law test of control over the manner in which the work was done, which was absent in the present case. In an important development of the jurisprudence, however, the Supreme Court held that the “control over the manner of work” test was no longer the predominant determining factor for a relationship of employment. Citing precedent from around the world, it observed that – especially in the case of skilled work – control over the manner of work was an unrealistic test to apply, and that this test now belonged “to a past age” – that is, to an agricultural or primitively industrial society, where the Master was presumed to have greater knowledge, skill and expertise. Consequently:
“The fact that generally the workers attend the shop which belongs to the employer and work there, on the machines, also belonging to him, is a relevant factor. When the services are performed generally in the employer’s premises, this is some indication that the contract is a contract of service. It is possible that this is another facet of the incidental feature of employment. This is the sort of situation in which a court may well feel inclined to apply the “Organisation” test suggested by Denning, L.J. in Stevenson Jordan and Harrison v. MacDonal and Evans… the further fact that “a worker can be removed” which means nothing more than that the employer has the liberty not to give further work to an employee who has not performed his job according to the instructions of the employer, or who has been absent from the shop for a long time as spoken to by the Inspector of Labour in his evidence, would bespeak of control and supervision consistent with the character of the business.”
“… the fact that sewing machines on which the workers do the work generally belong to the employer is an important consideration for deciding that the relationship is that of master and servant. Quite apart from all these circumstances, as the employer has the right to reject the end product if it does not conform to the instruction of the employer and direct the worker to restitch it, the element of control and supervision as formulated in the decisions of this court is also present. The reputation of a tailoring establishment depends not only on the cutter but also upon the tailors. In a many cases, stitching is a delicate operation when the cloth upon which it is to be carried on is expensive. The defect in stitching might mar the appearance not only of the garment but also of its wearer. So when the tailor returns a garment, the proprietor has got to inspect it to see that it is perfect. He has to keep his customers pleased and he has also to be punctual, which means that the stitching must be done according to the instruction of the employer and within the time specified. The degree of control and supervision would be different in different types of business. If an ultimate authority over the worker in the performance of his work resided in the employer so that he was subject to the latter’s direction. that would be sufficient.”
Lastly, the fact that some of the workers worked part-time, and also for more than one employer, was held to be legally irrelevant.
Silver Jubilee is therefore an important case, in its unyoking of the employment relationship from the classical and formalistic common law test of “control over the manner of work“. By referring to a range of international authorities (both judicial and academic), the Court replaced the rigidity of the control test with the more flexible “ultimate authority” standard, which was to be determined by taking into account a number of factors, including the right to reject the final product and a supervision over the quality of the work.
9. Hussainbhai, Calicut vs The Alath Factory Thezhilali Union, Kozhikode, 1978 4 SCC 257 (3J Bench):
The Petitioner – a factory owner manufacturing ropes – argued that his workers were hired through independent contractors, and consequently, there existed no relationship of employment. The Court found that the following facts were established:
“… that the work done by these workmen was an integral part of the industry concerned; that the raw material was supplied by the Management; that the factory premises belonged to the Management; that the equipment used also belonged to the Management and that the finished product was taken by the Management for its own trade. The workmen were broadly under the control of the Management and defective articles were directed to be rectified by the Management.”
On this basis, the Court held that a relationship of employment existed. However, the Court also went further, in two crucial respects. First, it reoriented the control test, away from control over the manner of work, to control over the livelihood of the worker:
“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.”
Secondly, it grounded this argument within the Directive Principles of State Policy, noting that “myriad devices, half hidden in fold after fold of legal form depending on the degree of concealment needed, the type of industry, the local conditions and the like, may be resorted to when labour legislation casts welfare obligations on the real employer, based on Articles 38, 39, 42, 43 and 43A of the Constitution. The court must be astute to avoid mischief and achieve the purpose of the law and not be misled by the may a of legal appearances.”
In other words, the Court attempted to constitutionalise the employer-employee relationship, by invoking the Directive Principles of State Policy as an interpretive aid towards constructing a wide and progressive understanding of the word “employment”, and taking int account the inequalities of bargaining power that accompany any such relationship.
10. M/s Shining Tailors vs. Industrial Tribunal II, U.P., Lucknow, (1983) 4 SCC 464 (3J Bench)
An industrial dispute arose between the owner of a tailoring establishment in Faizabad, and his workmen. The Tribunal declared that the reference was incompetent, on the ground that because the workmen were paid at “piece rates” (i.e., payment linked to production), there was no relationship of em1ployment. The Tribunal’s decision was set aside by the High Court, which remanded the matter back down for a decision on merits. On appeal, the Supreme Court upheld the High Court’s decision, and stated that there was a relationship of employment. Citing precedent, the Court noted that:
“… the control idea was more suited to the agricultural society prior to Industrial Revolution and during the last two decades the emphasis in the field is shifted from and no longer rests exclusively or strongly upon the question of control… a search for a formula in the nature of a single test will not serve the useful purpose, and all factors that have been referred to in the cases on topics, should be considered to tell a contract of service…[for instance] the employer’s right to reject the end product if it does not conform to the instructions of the employer speaks for the element of control and supervision. So also the right of removal of the workman or not to give the work has the element of control and supervision. If these aspects are considered decisive, they are amply satisfied in the facts of this case… the right of rejection coupled with the right to refuse work would certainly establish master servant relationship and both these tests are amply satisfied in the facts of this case.”
In speaking to the “right to refuse work”, and de-emphasising the control test, the Court therefore further emphasised the livelihood standard laid down in Hussainbhai, while broadly remaining within the overall framework of “control and supervision”.
11. Management of M/s Puri Urban Cooperative Bank vs Madhusudhan Sahu, AIR 1992 SC 1452 (2J Bench).
The Appellant Bank engaged the Respondent as an “appraiser”, for weighing and testing gold ornaments offered to the bank by way of collateral for securing loans. He was engaged on a commission basis. Subsequently, he was terminated. An industrial dispute was raised. The Labour Court ordered his reinstatement, which was upheld by the High Court.
The Supreme Court set aside the High Court and Labour Court’s decisions, on the basis that the Bank had no control over the manner in which the Respondent was to do the work of weighing and testing. The Respondent – it held – was a highly skilled worker in his own right, and his only responsibility to the bank was to execute an indemnity bond, which made him accountable to the bank for any loss that the bank might sustain due to under-valuing. This, the Court held, did not constitute enough control for there to be a relationship of employment.
12. Secretary, HSEB vs Suresh, (1999) 1 LLJ 1086 (SC), (2J Bench).
The Haryana State Electricity Board was supplying electricity to urban and rural areas in the state of Haryana. The Board had cleaning work in its plants done through a contract. On a dispute being raised, the Tribunal – and then the High Court – found that a relationship of employment existed between the Board and the cleaning workers. Relying upon Hussainbhai, the Supreme Court upheld the decisions of the Tribunal and of the High Court, observing that:
“This maintenance work cannot by any stretch be ascribed to be of seasonal nature but a continued effort to achieve the purpose of its existence in terms of the statute. The number of employees required for such purpose had been specified in the contract itself and as a matter of fact supervision of the Board as regards the attendance has also not been disputed before the Labour Court: Maintenance of records pertaining to other statutory duties and liabilities has also not been disputed. Documents, as disclosed before the Labour Court, (to wit Exb. M.5) depict the overall control of the workings of the contract labour including administrative control being with the Board.”
It also referred to the High Court’s reasoning with approval:
“Keeping in view the nature of the work being carried on by the petitioner, the nature of duties which were performed by the respondents- workmen, the continuity of the work for which the labour was employed and the fact that the wages were paid by the petitioner-employer who supervised and controlled not only the attendance but also discipline of the workmen in the discharge of their duties… there is no other conclusion which can be arrived at except the one that there existing a relationship of employer and workmen between the contesting parties.”
13. Indian Petrochemicals Corporation Ltd. & Another Vs. Shramik Sena & Others (1999) 6 SCC 439 (3J Bench)
A dispute arose between Indian Petrochemicals Corporation, and its canteen workers. The canteen workers were employed through a contractor. The High Court held in favour of the workmen on the basis that under the Factories Act, the Corporation was statutorily obligated to maintain a canteen, and that consequently, workers in the canteen ipso facto became employees of the Corporation.
The Supreme Court rejected this argument, holding that canteen workers were deemed to be “workmen” only for the purposes of the Factories Act, and not across the board. Consequently, in determining whether or not a relationship of employment existed, the Court would have to carry out an independent analysis of the exact nature of the relationship between the workmen and the primary employer.
In this case, the Court found that the canteen had been in existence from the time of the establishment of the factory, the workmen had been working there uninterruptedly, the furnitures, fixtures and utilities were provided by the Corporation, the wages were reimbursed by the Corporation, and the contractor was working under the supervision and control over the Corporation. It was thus clear that a relationship of employment existed.
14. Indian Overseas Bank vs. I.O.B. Staff Canteen Workers’ Union, (2000) 4 SCC 245 (2J Bench)
A dispute arose between thirty-three canteen employees of the Indian Overseas Bank, and the Bank. Initially, the canteen was run through a contractor, but subsequently, a cooperative society was floated. However, ultimately, the canteen had to close down because it could not sustain itself. This led to the workers losing their jobs, which was the basis of the dispute.
The Tribunal found that the canteen was on the premises of the bank, for the exclusive use of the bank employees, open during the bank’s working hours, that the infrastructure and utilities were provided by the bank, and that the cost of materials and wages was borne by the bank. Consequently, despite the fact that the workers were employed and managed by a “Management Committee” (which itself was comprised out of the employees of the bank), a relationship of employment existed between the canteen workers and the bank.
On appeal, a single judge of the High Court reversed the decision of the Tribunal; however, on further appeal, a Division Bench of the High Court reversed the single judge, and restored the Tribunal’s order.
The Supreme Court upheld the Division Bench’s decision on the basis of the evidence appraised by it, and by the Tribunal, and crucially, noted that:
“The promoters of the canteen being permanent employees in the service of the Bank, permitted to run the canteen, by merely being in control of the day-to-day affairs of the canteen, the Bank cannot absolve of its liabilities when it was really using the canteen management as its instrumentality and agent.”
In other words, even in a situation where day-to-day control rested with the contractor, a relationship of employment existed where a number of other factors signifying the character of that relationship existed.
15. Indian Banks Association vs. Workmen of Syndicate Bank, (2001) 3 SCC 36 (2J Bench)
An industrial dispute arose between certain banks and their deposit collectors. The bank argued that the deposit collectors were not workmen, since they were working on a contract for a specific period and on a commission, there was no control or supervision by the banks, there were no specific working hours, no age qualifications, no disciplinary control, and no requirement of exclusive work. The Deposit Collectors argued, on the other hand, that their commissions were linked to productivity, that their working hours were uneven because they had to visit their depositors at times convenient to them, and that they had to work in accordance with various stipulations laid down by the bank.
The Tribunal found that a relationship of employment existed, and this finding was upheld by the High Court. The Supreme Court accepted the findings of the Courts below, and held that:
“We also cannot accept the submission that the banks have no control over the Deposit Collectors. Undoubtedly, the Deposit Collectors are free to regulate their own hours of work, but that is because of the nature of the work itself. It would be impossible to fix working hours for such Deposit Collectors because they have to go to various depositors. This would have to be done at the convenience of the depositors and at such times as required by the depositors. If this is so, then no time can be fixed for such work. However, there is control inasmuch as the Deposit Collectors have to being the collections and deposit the: same in the banks by the very next day. They have to then fill in various forms, accounts, registers and pass books. They also have to do such other clerical work as the bank may direct. They are, therefore, accountable to the bank and under the control of the bank.”
A key concept used in this judgment is that of accountability, as a substitute for “control”, or the classical “control over the manner in which the work is to be done” test. Here the Court held that if the tasks to be performed were of a nature that required accountability directly to the principal employer, then a relationship of employment existed. The test of accountability is particularly important in light of the (spurious) distinction drawn in other judgments between “control” and “supervision” (see below).
16. Bharat Heavy Electricals Ltd. vs. State of U.P., (2003) 6 SCC 528 (2J Bench)
The Respondents were engaged as gardeners (“malis“) to sweep, clean, maintain, and look after the lawns on the Appellant’s factory premises and residential colony, through the medium of a contractor. Their services were terminated, and they raised an industrial dispute. The Appellants contested the relationship of employment. The Labour Court found that a relationship of employment existed, on two grounds: first, that the “Head Gardener”, who was an employee of the Appellant, used to issue the directions for work to the gardeners, and they used to report to him; and secondly, the gardeners’ attendance was marked in a separate register, also maintained by an employee of the Appellants (this Register – it was alleged – was torn up by the Appellant when the dispute arose). On these bases, the Labour Court held that the interposition of a contractor was a camouflage, and an attempt to get around the provisions of the UP Industrial Disputes Act.
The Labour Court’s findings were upheld by the High Court in a writ petition. The High Court held that since the gardeners’ work was supervised by an employee of the Appellants, and because their attendance was also noted in a register belonging to the Appellant, the degree of control was enough for there to be an employment relationship. The High Court also relied upon Hussainbhai.
Two additional arguments were raised before the Supreme Court: first, that Hussainbhai was distinguishable, since unlike in that case, the workmen here were not an “integral part” of the Appellant’s operations; and secondly, Hussainbhai itself had been diluted in SAIL vs National Union of Waterfront Workers (see below).
The Supreme Court rejected both arguments, and upheld the concurrent findings of the Labour Court and the High Court. On the first, it held:
“There is nothing in the said judgment [i.e., Hussainbhai] to say that the workmen engaged for the work in the premises of the industry though their work was not an integral part of the industry, cannot be employees of the industry.”
The “integral part of the industry” test, it will be noticed, bears some similarities with the “direct connection” test in the cases dealing with the definition of “industry” (see above). And the “integral aspect” test, it is submitted, suffers from precisely the same problems that the “direct connection” test did: in determining what kind of work is an “integral part” of the industry, the Court appears to be applying a neutral test of causation, but in fact ends up applying a normatively charged standard. And secondly, the connection between the “integral part” test, and the determination of which workers are to be protected under industrial law through the relationship of employment, remains sketchy; the relevance of the “integral part” test for industrial law has not been addressed by the Courts, at least not in India. Consequently, it is submitted that Bharat Heavy Electricals was correct in relying upon Hussainbhai and rejecting the “integral part” test.
On the second submission, the Court held that notwithstanding SAIL, “the case of Hussainbahi Calicut (supra) is neither dissented nor diluted.” Consequently, its basic test would continue to apply. In the present case, therefore, “the finding that the respondents-workmen were the employees of the appellant, does not rest merely on the test of control. The other evidence and facts and circumstance of the case were also kept in mind in recording such a finding including a vital fact that the appellant did not produce the records alleging that they were not available which led to drawing adverse inference against them. It is not possible for us to hold that such concurrent findings recorded by the Labour Court and the High Court that the workmen were to be treated as the employees of the appellant are either perverse or based on no evidence or untenable at all.”
17. Ram Singh vs Union Territory, Chandigarh, (2004) 1 SCC 126 (2J Bench)
This case had a somewhat tangled history. Casual labourers with the Chandigarh Department of Engineering made a plea for regularisation before the Tribunal, which was rejected. They then went up before the High Court, arguing that although ostensibly they were contract labourers, a relationship of employment existed between them and the Department. The High Court rejected the argument. On appeal, the Supreme Court held that the question of whether a relationship of employment existed had to be determined by the Industrial Tribunal, on an appreciation of evidence – and could not be done for the first time before the appellate courts. Consequently, the appeal was dismissed. However, in doing so, the Court did restate the law on contract labour and the employer/employee relationship:
“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, organise the work, supply tools and materials and what are the ‘mutual obligations’ between them.”
18. Workmen of Nilgiri Co-Op Marketing Society vs State of Tamil Nadu, (2004) 3 SCC 514.
The Niligirs Cooperative Marketing Society was a large society, consisting of about 22,000 members. One of its tasks was to hold vegetable auctions in its “marketing yards”. The vegetables were brought by the growers/farmers, and sold to various merchants. For the purposes of the auction, the gunny bags carrying potatoes had to be unloaded from the lorries that had brought them, they had to be unpacked, the potatoes had to be “graded”, and then weighed and packed into gunny bags brought by the merchants. These tasks were performed by contract labour, engaged by third parties. The Society did not maintain any attendance register, and there were no fixed working hours.
An industrial dispute was raised, and the appropriate government made a reference asking whether the non-employment of the workmen was justified. The Tribunal held that there was no relationship of employment between the parties. The Petitioner-Union’s appeals to the High Court were dismissed.
Before the Supreme Court, the Union argued that the workmen had been working in the society’s yard on a daily basis; the society paid their wages, resolved their disputes, and gave them gifts during the festive season.
The Court listed eight factors in determining whether a relationship of employment existed: “(a) who is appointing authority; (b) who is the pay master; (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.” In “difficult cases” such as the present one, the Court suggested that one important factor is the extent to which the tasks performed are integrated into the main concern of the establishment.
On the facts, the Court found that there existed no “complete control or supervision” over the workmen; furthermore, the growers and traders were free to engage their own porters and graders, there were no attendance registers or working hours, the Society had no control over the number of workers, no disciplinary control, the money was paid by the individual growers/merchants, and so on. According to the Court, the degree of supervision was only “for the purpose of overseeing the smooth transactions and not for its own benefit.” Overall, the Court held that:
“The society is a service society which has been formed with the object of protecting the growers from being exploited at the hands of the traders. It has been found that the employment of the workmen for doing a particular piece of work is at the instance of the producer or the merchants on an ad hoc basis or job to job basis and, thus, the same may not lead to the conclusion that relationship of employer and employee has come into being. Furthermore, when an employee has a right to work or not when an offer is made to him in this behalf by the producer or by the merchants will also assume significance… for the purpose of earning livelihood, a person has to involve himself into certain kinds of activities wherefor, he must subject himself to some sort of discipline or control, which is even otherwise implicit.“
19. Haldia Refinery Canteen Employees Union vs Indian Oil Corpn. Ltd., (2005) 5 SCC 51 (2J Bench).
The appellant workmen were working in the statutory canteen (i.e., a canteen required to be established by factory owners under the Factories Act), established by Indian Oil, through its contractor, at its factory in Haldia. The workmen argued that under the contract, the number of workmen was decided by the Respondent-owner, there was compulsory dismissal for acts involving “turpitude”, the contractor was required to main a register with the names and addresses of the workmen, and the Respondent-owner had an absolute right of rejection of any workmen.
The Court held, however – in a rather opaque paragraph – that although 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.”
(But what other purpose could there by to exercise effective control? And why is the purpose for which effective control is exercised even relevant to the enquiry? The Court did not explain).
Additionally, the Court found that the Respondent-owners were not paying the wages, and did not have the power to take disciplinary action against the workmen. Consequently, the Court held that there was no employment relationship.
20. International Airports Authority of India vs International Air Cargo Workers’ Union, (2009) 13 SCC 374 (2J Bench).
The International Airports Authority of India engaged M/s Airfreight Pvt Ltd as its contractor for engaging labour to handle the cargo shipments at its Madras Cargo complex. Airfreight had to pay a license fee to IAAI, and was responsible for paying the wages of the workmen. In 1985, IAAI decided to take over the ground handling work, and hand it over to a new contractor; it made no guarantees to the workmen that they would be taken on under the new contractor. Consequently, the workmen formed a cooperative society and commenced litigation against IAAI; various petitions were filed, and some settlements were reached. The matter finally reached the Tribunal, which held that after the contract of Airfreight had been exhausted, the workmen had become the permanent employees of IAAI; and even when they were working as contract labourers through the society, effectively, IAAI was exercising control and supervision over them.
In writ proceedings, the single judge of the Madras High Court reversed the decision of the Tribunal; however this decision, in turn, was set aside by the Division Bench, which restored the finding of the Tribunal. The matter then reached the Supreme Court.
The Supreme Court found that a lump sum payment was made by the IAAI to the Society, and the Society then paid the contract labourers; that there was no evidence to show that IAAI was taking disciplinary action against the workers; that despite the existence of supervision “merely because the contract labour work is under the supervision of the officers of the principal employer, it cannot be taken as evidence of direct employment under the principal employer.” Consequently, the Court held that there was no employment relationship.
The Court’s reasoning here is rather difficult to understand. On the first issue – that of payment – the argument is entirely circular. The very purpose of interposing a third party between the principal employer and the workmen is to avoid industrial liability by routing employer obligations through the legal form of the third party. Therefore, paying workmen’s wages through the contractor was exactly the kind of thing that an employer would do to avoid liability, and exactly the kind of thing that the tests of employment was designed to nullify. Indeed, the Court took strong evidence of the employment relationship – i.e., that ultimately, wages were coming from the employer – and used it to negate that relationship on the sole basis that the payment was being routed through the contractor.
Similarly, the third prong of the reasoning – the distinction between “control” and “supervision” – seems to have been spun out of whole cloth. The old test – in its classic, common law form – distinguished between a contract for service and a contract of service on the ground that in the first, the employer could only direct what was to be done, while in the second, he could also direct the manner in which it was done. Supervision of the work as it is carried out is precisely directing the “manner” in which it is done. And furthermore, as pointed out above in Haldia, the Court does not explain the relevance of the control/supervision distinction to the employment relationship; in both cases, it simply makes a few trite, truistic remarks that the principal employer would generally need to supervise the work to ensure efficiency and quality without explaining why or how that would negate the employment relationship.
There is another way of looking at this: the fact that the principal employer feels the need to engage in constant supervision of the work is very strong evidence of the fact that the work is thoroughly integrated into the employer’s business; if that was not so – say, for instance, an employer’s contracted-out work simply involved the contractor providing cars and drivers to take the employer’s officers to business meetings, presumably there would be no need for “supervision” of this kind of work, precisely because it was far removed from the work the employer was actually doing. However, in both Haldia and in IAAI, the Court seemed to be unaware that the control/supervision distinction seriously undermined the integration test which was entrenched in law.
21. Bengal Nagpur Cotton Mills vs Bharat Lal, (2011) 1 SCC 635.
22. NALCO vs Ananta Kishore Rout, (2014) 9 SCC 407 (2J Bench).
The National Aluminium Company established two schools for the wards of its employees, the running of which was entrusted to the Chinmay Mission, through a contract (and subsequently to Saraswati Vidya Mandir). Eventually, the employees of these schools filed petitions claiming that they were employees of NALCO. The petitions were allowed by the High Court, and NALCO appealed.
23. Balwant Rai Saluja vs Air India, (2014) 9 SCC 407. (3J Bench)
This case involved the status of workmen who were employed in the statutory canteens of Air India. The canteens were run by HCI, a contractor, and a wholly owned subsidiary of Air India. The canteens were established pursuant to Section 46 of the Factories Act, 1948, which required the occupier of a factory to provide a canteen in a factory where more than two hundred and fifty workers are employed; they were also established pursuant to certain Rules of the Delhi Factory Rules of 1950, which laid down standards of hygiene, spaces, equipment etc.
The Court held that the test of employment is one of “absolute” or “complete administrative control”, which would have to be decided on a case to case basis. Referring to common law cases, the Court observed that markers for demonstrating this included the power of appointment, payment of salary/remuneration, authority to dismiss, authority to take disciplinary action, continuity of service, and extent of control/supervision. In the instant case, the Court found that the HCI was set up in accordance with its own Articles of Association, and was in control of appointment, dismissal and disciplinary action against the canteen staff. Responding to the contention that Air India was exercising control over HCI in respect of transfer of workmen, rates of subsidies, uniforms etc., the Court held that this was purely in the nature of “supervisory” control, and were a consequence of obligations under the 1950 Rules. The Court therefore held that the canteen staff were not the employees of Air India, but of HCI.
Notably, this decision – once again – rested upon the distinction between “control” and “supervision”.
Also – and rather inexplicably – the Court invoked the doctrine of lifting the corporate veil in deciding upon the relationship between Air India and HCI. After citing precedent on the point that the corporate veil should be lifted only in rare cases, or when there was a sham/fraud, the Court held that neither of these conditions were present, and that consequently, Air India and HCI were separate entities. However, the Court provided no explanation for why a doctrine of corporate law, evolved in the specific context of affixing liability upon companies, was being transplanted lock, stock and barrel to the domain of labour law, which is based upon an entirely different set of assumptions (one of which, as Indian Courts have repeatedly held, is to provide a modicum of protection and security to workers). Consequently, while it might be true that under corporate law, Air India and HCI are separate legal entities, and Air India is not liable for the acts of HCI, this does not mean that under labour law, Air India and HCI are to be treated as entirely distinct entities with respect to the status of workmen/employees. However, this distinction was – unfortunately –missed by the Court.
C2. Prohibition of Contract Labour: Impact
The second – and equally important question – is this: if Parliament, or a Court, was to hold that an enterprise was illegally employing contract labour, and directed it to cease from doing so, what would be the fate of the workmen? Would it follow from the prohibition of the contract labour that the contractual labourers would now be transformed into permanent employees, with rights under industrial law? Or would it now be at the discretion of the company whom it could hire, and under what conditions?
- Standard-Vacuum Refining Co. vs Its Workmen, AIR 1960 SC 948 (3J Bench)
The Appellant company employed contract labour to carry out cleaning and maintenance work at its refinery, and at the premises and the plant belonging to it. These contracts were on a yearly basis, and there was no job security for the workers. Consequently, an industrial dispute was raised.
The Tribunal found that the work being done was necessary for the company, and was being done on a daily basis. Consequently, it directed the Appellant company to abolish the system of contract labour that it was using, and to hire permanent labour without going through a contractor-intermediary. The Tribunal rejected the workers’ argument, however, that the Company should also be directed to absorb the existing contract employees on a permanent basis, and on parity with existing employees. Rather, it directed the Company to give preference to the contract labourers when it was hiring permanent workers, and left it to its discretion to fix pay-scales etc.
Upholding the Tribunal’s directions, the Supreme Court noted that it was now generally accepted that the use of contract labour was an undesirable labour practice. In the present case:
“[The work] is incidental to the manufacturing process and is necessary for it and of a perennial nature which must be done every day. Such work is generally done by workmen in the regular employ of the employer and there should be no difficulty in having regular workmen for this kind of work. The matter would be different if the work was of intermittent or temporary nature or was so little that it would not be possible to employ full-time workmen for the purpose. Under the circumstances the order of the tribunal appears to be just and there are no good reasons for interfering with it.”
Because, however, the contract in this case was not a sham, the Court stopped short of directly ordering absorption. Upholding the Tribunal’s directions on this point as well, it observed:
“If the contract had been mala fide and a cloak for suppressing the fact that the workmen were really the workmen of the company, the tribunal would have been justified in ordering the company to take over the entire body of workmen and treat it as its own workmen. But because the contract in this case was bona fide the tribunal has not ordered the company to take over the entire body of workmen. It has left to it to decide for itself how many workmen it should employ and on what terms and has merely directed that when selection is being made preference should be given to the workmen employed by the present contractor.”
2. Shibu Metal Works vs Their Workmen, (1966) 1 LLJ 717 (SC) (4J Bench)
The Appellant was a factory employing 65 – 70 workmen. In three of its sections – “chillai”, “lathe” and “press”, it employed contract labour. In 1962, the appropriate government made a reference to the Industrial Tribunal; one of the questions was whether the contract labour in these three departments ought to be abolished. The Tribunal answered this question in the positive, holding that the nature of the work was perennial, and permanent, and part of the company’s manufacturing process.
The Supreme Court upheld the Tribunal’s decision in a brief judgment, noting Standard Vacuum as well as the Royal Commission of Labour in india’s opinion that contract labour might have had some merits in “primitive times”, but in the present day, it was far more desirable for the Managament to discharge its responsibilities “in law and equity” by retaining full control over the “selection, hours of work and payment of the workers.”
3. National Iron & Steel Co. vs State of West Bengal, AIR 1967SC 1206 (3J Bench)
The Supreme Court followed the judgment in Standard Vacuum, upholding the Tribunal’s decision to abolish contract labour in an enterprise, and noting that “industrial adjudication should not encourage the employment of contract labour.”
N.B.: In 1970, Parliament enacted the Contract Labour (Regulation and Abolition) Act [“CLRA”]. The CLRA provided for certain safeguards for contract labour (e.g., safe working conditions, regular payment by the principal employer etc). Under Section 10, it also provided for the instances in which “the appropriate Government” may “abolish” the system of contract labour that was being used in any establishment, as long as four preliminary conditions were fulfilled (i.e., whether it was of a perennial nature, whether it was incidental to or necessary for the work of the establishment, whether that kind of work was ordinarily done by permanent employees, and whether it was sufficient to employ full-time workmen). The Act was silent, however, on what consequences would follow from the abolition of contract labour.
Consequently, there were two legal questions that arose out of the silences of the CLRA. The first was whether the power to prohibit contract labour in any establishment was within the sole discretion of the appropriate government – or whether, if the statutory preconditions for abolition were fulfilled in a particular establishment, a union could raise a dispute, and – as happened in Standard Vacuum – the tribunal or the Court could order abolition. This issue could take two different forms. First, it could be argued that while the CLRA gave the power to the appropriate government to abolish contract labour (subject to the Section 10 conditions), it did not take away that power from the Tribunal (i.e., the Tribunal and the Appropriate Government now had concurrent jurisdiction over the question of the abolition of contract labour). And secondly, it could be argued that Section 10 did not merely confer power upon the Appropriate Government to abolish contract labour, but a power coupled with a duty; i.e., if the four preconditions under Section 10 were fulfilled, then the government was under an obligation to abolish contract labour (and in this context, “may” was to be read as “shall”).
The second legal question what happened to the contract workers when contract labour was abolished in an establishment? Did they get a right – or at least, a preferential right (as held in Standard Vacuum) to be employed as regular workmen with the establishment, now that it was prohibited to employ contract labour? Or was their fate left completely undetermined?
4. Vegolis Pvt Ltd vs The Workmen, AIR 1972 SC 1942 (2J Bench).
In Vegolis, the Court was called upon to answer the first of the two questions (see above). The facts are somewhat complex, because the reference to the Tribunal was made before the passage of the CLRA (in 1967), and the decision of the Tribunal was handed down after the CLRA received assent, but before it came into force. Briefly, Swastik Oil Mills Ltd. was a company carrying on the business of manufacturing edible oils, soaps and by-products. It employed around 700 permanent workmen at its factory; it also employed contract labour for loading, unloading, weighing and stacking materials and bags and feeding the hoppers.
The labour union raised a dispute asking that the contract labour be abolished, and that the contract labourers be regularised as permanent workmen. Before the Tribunal, the Union argued that the work was regular and continuous in nature, and was being performed by more than 200 workmen. Furthermore, this job – of loading, unloading and stacking – was integrally connected with the company’s operations. Consequently, using contract labour for this purpose was simply an attempt by the company to avoid paying benefits and regular wages to these workmen, and amounted to an unfair labour practice.
The Company argued, instead, that the work was of a temporary and intermittent nature, for which, in the interests of economy and efficiency, it was employing contract labour. Loading and unloading, for instance, depended on the availability of trucks; the feeding of the hoppers was also intermittent.
The Tribunal accepted the first part of the Union’s demand – i.e., abolition of contract labour, while rejecting the second part (regularisation). After considering detailed written and oral evidence, it came to the conclusion that since the solvent extraction plant was working for 300 days in the year out of 365, the work could not be said to be intermittent or irregular; and furthermore, this work was inextricably connected with the main business of the company. Consequently, the Tribunal ordered the abolition of the contract labour.
The Supreme Court upheld the Tribunal’s finding on the question of the feeding of the hoppers; on the question of loading/unloading, however, it took a different view. Dealing with the Tribunal’s direction to the Appellants not to employ contract labour even after 1971, the Court held:
“We are emphasising the provisions of s. 10 [of the CLRA] to highlight the point that a particular authority acting in a particular manner has been given the power and jurisdiction to decide whether contract labour has to be prohibited in any establishment. Before such a decision is taken, the representatives of the workmen, contractor and the industry have an opportunity to express their opinion. The more important aspect to be noted is the provision in the Explanation which makes the decision of the appropriate Government final, on the question, whether any process or operation or work is of a perennial nature. … the appropriate Government. when taking action under s. 10 will have an overall picture of the industries carrying on similar activities, and decide whether contract labour is to be abolished in respect of any of the activities of that industry. Therefore, it, is reasonable to conclude that the jurisdiction to decide about the Abolition of contract labour, or to put it differently, to prohibit the employment of, contract labour is now to be done in accordance with s. 10. Therefore, it is proper that the question whether the contract labour regarding loading and unloading in the industry of the appellant is to be abolished or not, is left to be dealt with the appropriate Government under the, Act, if it becomes necessary. On this ground, we are of the opinion that the direction of the Industrial Tribunal in this regard all have to be set aside.”
In effect, therefore, the Court held that Section 10 of the CLRA established not just one path for the abolition of contract labour, but an exclusive path, and had vested exclusive jurisdiction in the Appropriate Government for directing abolition. While this settled the first sub-issue of the first question (discussed above) pertaining to jurisdiction, it left open the second sub-issue – that is, whether S. 10 only vested discretionary power in the government, or a power coupled with a duty.
5. B.H.E.L. Workers’ Association, Hardwar vs Union of India, (1985) 2 SCR 611 (2J Bench)
B.H.E.L. was a case that addressed some important conceptual questions under the C.L.R.A. Trade Unions filed a petition claiming that out of the 16,000 workers employed at B.H.E.L.’s factory in Hardwar, around a thousand workers were kept on a contractual basis, who were doing the same work as the regular employees, but were at the mercy of the contractors and working at depressed wages. Consequently, it was argued that these workers’ rights under Articles 14 and 19(1)(g) were infringed. It was prayed that the contract labourer be declared illegal, and the contract labourers be declared as the permanent employees of B.H.E.L.
The interesting thing about the claim in B.H.E.L. was that the Union’s prayer for prohibiting contract labour and regularising the contract labourers directly rested upon the Constitution. The Union argued that treating workers who were performing similar functions differently, by making some of them permanent and some of the, contractual, B.H.E.L. (a State enterprise) was violating Article 14.
The Court, however, declined to engage with this question, holding instead that the evidence before it was insufficient to make a finding either way, in Article 32 proceedings. Rather:
“If there is any dispute with regard to the type of work, the dispute has to be decided by the Chief Labour Commissioner (Central). It is clear that Parliament has not abolished contract labour as such but has provided for its abolition by the Central Government in appropriate cases under sec. 10 of the contract Labour (Regulation and Abolition) Act, 1970. It is not for the court to enquire into the question and to decide whether the employment of contract labour in any process, operation or other work in any establishment should be abolished or not. This is a matter for the decision of the Government after considering the matters required to be considered under sec. 10 of the Act. Similarly the question whether the work done by Contract labour is the same or similar work as that done by the workmen directly employed by the principal employer of any establishment is a matter to be decided by the Chief Labour Commissioner under the proviso to Rule 25 (ii) (v) (a). In these circumstances, we have no option but to dismiss both the writ petitions but with a direction to the Central Government to consider whether the employment of contract labour should not be prohibited under sec. 10. of the Act in any process, operation or other work of the BHEL, Hardwar. There will also be a direction to the Chief Labour Commissioner to enquire into the question whether the work done by the workmen employed by the contractors is the same type of work as that done by the workmen directly employed by the principal employer in the BHEL, Hardwar.”
The Court’s refusal to decide the issue on the basis of insufficient evidence, however, is a clear cop-out. Notice that this case was decided in 1985, by which time the Supreme Court’s PIL jurisprudence was well under way (indeed, Chinappa Reddy J., the author of this judgment, was one of the foremost early exponents of the PIL), a jurisprudence which was specially notable for turning the Supreme Court – effectively – into a Court where evidentiary issues were adjudicated upon on a regular basis. Secondly, it is in the very nature of an Article 14 claim – alleging differential treatment – that the Court would be required to ascertain what treatment was being meted out by the government to the claimants, and those whom they claimed were being unjustifiably treated better.
The Court’s subsidiary argument – that under the scheme of the C.L.R.A. this question would have to be decided by the appropriate government and the labour commissioner – is also a dodge. Even if we accept the argument that the C.L.R.A. is a complete code that lays out an exclusive procedure for prohibiting contract labour – that procedure is limited to situations in which the four preconditions laid out under Section 10 exist. The C.L.R.A. does not – and indeed, it could not – deprive the Court of its power to address the constitutional violation of the State treating similarly placed workers differently.
6. Catering Cleaners of Southern Railway vs Union of India, (1987) 2 SCR 164 (2J Bench).
The Petitioners were catering cleaners of the Southern Railways. In all other branches of the railways, using contract labour for catering cleaners had been abolished. Furthermore, a Parliamentary Committee had also found that the work was a permanent nature, and had also found that the other conditions under S. 10 C.L.R.A. were also fulfilled (following the Committee report, the petitioners had submitted various memoranda to the authorities requesting that they be made permanent, but to no avail).
Consequently, the Petitioners requested the Court to issue a mandamus to the Central Government, directing it to abolish the contract labour. It is important to note a distinction between this case and previous cases: previously, labour unions had asked the Tribunal/Court to directly abolish a system of contract labour in an establishment, on the basis that the conditions under S. 10 were fulfilled. The Court had declined to do so, on the basis that the exclusive power to abolish contract labour, under the scheme of the C.L.R.A., rested with the government. Here, therefore, instead of asking the Court to abolish contract labour, the Union asked the Court to issue a writ to the Government requiring it to do so under Section 10 (notice that this directly speaks to the second sub-part of the first question about the C.L.R.A. that we outlined before (see above) – i.e., does S. 10 impose a duty upon the appropriate government to abolish contract labour if the conditions of S. 10 are satisfied – and if so, can this duty be judicially enforced?)
Once again, however, the Court declined to oblige. It repeated the familiar line about the government being the exclusive authority under S. 10 (while failing to note the distinction between the two kinds of claims outlined above). However, the Court then muddied waters somewhat, by making the following observation:
“The decision, of course, will be subject to judicial review. But we do not think that we will be justified in issuing the mandamus prayed for unless and until the Government fails or refuses to exercise the power vested in it under s.10. In the circumstances the appropriate order to make in the present case is to direct the Central Government to take appropriate action under s.10 of the Contract Labour (Abolition and Regulation) Act in the matter of prohibiting the employment of contract labour in the work of cleaning catering establishments and pantry cars in the Southern Railway. This must be done within six months from today.”
There are two questions that arise out of this paragraph. The first is whether “judicial review” is limited to judicial reviews by courts of record (i.e., the High Court under 226 or the Supreme Court under 32), or whether, if the government refuses to prohibit contract labour in a particular establishment, that decision can be challenged before the Tribunal itself. And secondly – and more importantly – what standard of judicial review is the Tribunal/Court going to apply? Is it the Wednesbury standard of judicial review over administrative action, where the Court will only ask whether the Government’s decision was arbitrary, mala fide, or procedurally improper, and will decline to substitute its own views for the Government’s? Or – in light of the C.L.R.A.’s history and purpose, and the undeniable proposition – repeated regularly by the Courts – that contract labour is a deeply undesirable way of using labour – a stronger form of judicial review is to apply, where the Court will conduct an independent assessment of whether the Government’s evaluation of the S. 10 preconditions was correct or not?
What the Court did make clear was that the Government’s refusal to prohibit contract labour in an establishment could be challenged, and the challenge could potentially succeed, in which case the Court could issue a mandamus to the Government requiring it to prohibit contract labour. The answer to the the second sub-part of our first issue (see above), therefore, is that at least in a certain class of cases, the Government does have an obligation to prohibit contract labour, and that this obligation is judicially enforceable (“may” means “shall”). However, the details of that process were left entirely open in this judgment.
7. Sankar Mukherjee vs Union of India, (1990) I LLJ 443 (SC) (2J Bench).
This case was strikingly similar to B.H.E.L. The Government of West Bengal issued a notification under S. 10 of the C.L.R.A., prohibiting contract labour in 16 departments of M/s Indian Iron and Steel Ltd.. With respect to the brick department, the notification prohibited contract labour for “cleaning and stacking and other allied jobs except loading and unloading of bricks from wagons and trucks.”
It was argued that the removal of loading and unloading of bricks from the prohibition notification was arbitrary and violated Article 14, since – like cleaning and stacking – loading and unloading of bricks had the same characteristics, and was also integrally connected with the business.
On the logic of B.H.E.L., the Court ought to have declined to answer this question on the basis of insufficient evidence, as well as the government’s exclusive authority to decide the question. However, in this case, the Court refused to do so. Instead, it held:
“It is not denied that the bricks handled by the Brick Department are used in furnaces of the company as refractory. Therefore the work done by the Brick Department including loading and unloading of bricks is incidental to the industry carried on by the company. It is also not denied that the petitioners are employed as contract labour by the company for the last 15/20 years. Then where is the justification to treat the petitioners differently and deny them the right of regular appointment?”
“We may examine the case from another aspect. The petitioners have specifically averred in paras 7 and 11 of the writ petition that the job of loading and unloading of bricks is allied and incidental to the job of stacking of bricks… in the counter affidavit on behalf of the company filed by its Dy. Chief Personnel Manager, there is no specific denial to the above averments. Though it has been stated that the petitioners are not doing the job of stacking the bricks, there is no denial nor any averment or material on the record to show that the job of loading and unloading of bricks is not incidental or allied to the stacking of the bricks. Even otherwise we fail to understand how the stacking of bricks is a job which is not incidental to loading and unloading. The purchase of bricks, transportation to the factory, unloading, stacking and use in the furnace are the jobs in one continuing process and it is difficult to accept that these jobs are not incidental or allied to each other… that being so all the workmen performing these jobs are to be treated alike. On the same reasoning it cannot be said that the loader’s job is not, and other jobs in the Brick Department are, of perennial nature. In any case there is no material or basis to show that the job of loading and un- loading of bricks is not of perennial nature.”
The Court, therefore, struck down the part of the notification that took loading and unloading out of the ambit of prohibition.
While there are two ways in which B.H.E.L. and Mukherjee are distinguishable (1. No actual prohibition had taken place in B.H.E.L., and 2. Contra B.H.E.L., Mukherjee made a positive finding that there was enough evidence to decide the case in Article 32 proceedings), and therefore, technically, the former was not binding upon the latter. Conceptually, however, it is clear that they are entirely at odds over the judicial role in the context of the existence of the C.L.R.A.; where B.H.E.L. saw no role for Article 14 in such cases, and chose to defer entirely to the actions of the government, Mukherjee directly applied Article 14 to invalidate State action. And in between these two cases is Catering Cleaners, with its unclear standards of judicial review over governmental action in prohibiting or failing to prohibit contract labout under S. 10.
8. Dena Nath vs National Fertiliser Ltd., (1992) I LLJ 289 (SC) (2J Bench).
In Dena Nath, the Court had to address the second issue (see above). the question before the Supreme Court was: what were the consequences of the employer failing to comply with Sections 7 and 12 of the CLRA, which required registration of the establishment and licensing of the contractors. Various High Courts had differed: one line of cases had held that the consequences were limited to prosecution, whereas the other line had held that the consequence was that the contract labourers automatically became permanent employees. The Bombay High Court had held, for instance, that the CLRA was a beneficial legislation, whose object was not to leave workmen jobless; consequently, the CLRA was to be interpreted in a fashion that promoted its purpose of ameliorating the condition of contract labour, and in this context, what was particularly important was the statute’s silence in listing out the consequences of the abolition of contract labour and, in particular, the statute not stating that on abolition the relationship between the principal employer and the contract labour came to an end. A similar finding was made by the Gujarat High Court.
The Supreme Court disagreed. Broadly following the reasoning in Vegolis – i.e., that the CLRA was a complete code – it held that:
“It is not for the High Court to inquire into the question and decide whether the employment of contract labour in any process, operation or in any other work in any establishment should be abolished or not. It is a matter for the decision of the Government after considering the matter, as required to be considered under Section 10 of the Act. The only consequences provided in the Act where either the principal employer or the labour contractor violates the provision of Sections 9 and 12 respectively is the penal provision, as envisaged under the Act for which reference may be made to Sections 23 and 25 of the Act. We are thus of the firm view that in proceedings under Article 226 of the Constitution merely because contractor or the employer had violated any provision of the Act or the rules, the Court could not issue any mandamus for deeming the contract labour as having become the employees of the principal employer.”
8.R. K. Panda vs Steel Authority of India,  3 S.C.R. 1034 (3J Bench).
Here again, a petition was filed alleging that despite the permanent character of the work, certain workers were being kept on purely as contractual labourers (with the twist that in the contract between the principal employer and the contractor, there was a clause that the incoming contractor would keep on the employees who were working under the outgoing contractor). The Court invoked the now-familiar argument:
“Whether the contract labourers have become the employees of the principal employer in course of time and whether the engagement and employment of labourers through a contractor is a mere camouflage and a smokescreen, as has been urged in this case, is a question of fact and has to be established by the contract labourers on the basis of the requisite material. It is not possible for the High Court or this Court, while exercising writ jurisdiction or jurisdiction under Article 136 to decide such questions, only on the basis of the affidavits. It need not be pointed out that in all such cases, the labourers are initially employed and engaged by the contractors. As such at what point of time a direct link is established between the contract labourers and the principal employer, eliminating the contractor from the scene, is a matter which has to be established on material produced before the court. Normally, the Labour Court and the Industrial Tribunal, under the Industrial Disputes Act are the competent fora to adjudicate such disputes on the basis of the oral and documentary evidence produced before them.”
Due to the peculiar history of this case, however – including previous interim orders – the final relief was moulded differently, and absorption was directed.
9. Gujarat Electricity Board, Thermal Power Station vs Hind Mazdoor Sabha, (1995) I LLJ 790 (SC) (2J Bench).
The facts of Hind Mazdoor Sabha were rather poignant. A thermal power plant was built at Uka, Gujarat. The adivasis whose land was taken for the power plant were displaced and lost their livelihood; they ended up being employed on a contractual basis by the Appellant Board to the work of loading and unloading the coals, and feeding the hoppers. The workers finally organised themselves into a union, in retaliation for which a number of them were dismissed. Litigation ensued, and a Court Commissioner was appointed to attempt a reconciliation. After a partial conciliation, a reference was made in 1982 by the government to the Tribunal; one question was whether the workers who were engaged by contractors, could claim to be employees of the Appellant Board.
The Tribunal found flagrant violations of the C.L.R.A. by the Appellant Board, along with exploitation of the adivasi workers; it also held, that on the basis of the evidence before it, the workers were the employees of the Appellant Board. This decision was upheld by the High Court.
A multi-pronged challenge was made before the Supreme Court, including the contention, that in essence, the Tribunal had directed the abolition of contract labour, which was not permitted to it under the C.L.R.A. The Court noted:
“It is no doubt true that neither Section 10 of the Act nor any other provision thereof provides for determination of the status of the workmen of the erstwhile contractor once the appropriate Government abolishes the contract labour. In fact, on the abolition of the contract, the workmen are in a worse condition since they can neither be employed by the contractor nor is there any obligation cast on the principal employer to engage them in his establishment. We find that this is a vital lacuna in the Act. Although the Act has been placed on the statute book with all benevolent intentions, and elaborate provisions are made to prevent the abuse of the contract labour system as is evident from the Statement of Objects and Reasons and the provisions of the Act referred to by us in detail earlier, the legislature has not provided any relief for the concerned workmen after the contract is abolished.”
“The legislature probably did not consider it advisable to make a provision for automatic absorption of the erstwhile contract labour in the principal establishment on the abolition of the contract labour, fearing that such provision would amount to forcing the contract labour on the principal employer and making a contract between them. The industrial adjudicator however is not inhibited by such considerations. He has the jurisdiction to change the contractual relationships and also make new contracts between the employer and the employees under the ID Act.”
The consequences of prohibition of contract labour, therefore, were to be determined on a case to case basis by the industrial tribunal, and absorption was a remedy that the Tribunal was entitled to order.
10. National Federation of Railway Porters, Vendors and Bearers vs Union of India, (1995) 3 SCC 152 (2J Bench).
Interestingly, in this case, the Supreme Court followed the final relief awarded in R.K. Panda (rather than its reasoning), and held that a Court-directed report of the Assistant Labour Commissioner, which had found that the work was perennial, that the workers had been working for many years, and that at certain railway stations, the work was done by permanent employees, was enough ground for directing absorption.
11. Air India Statutory Corporation vs United Labour Union,  9 SCALE 70.
In 1970, Parliament enacted the Contract Labour (Regulation and Abolition) Act [“CLRA”]. The CLRA provided for certain safeguards for contract labour (e.g., safe working conditions, regular payment by the principal employer etc), and also provided for the instances in which “the appropriate Government” could “abolish” the system of contract labour that was being used in any establishment, as long as certain preliminary conditions were fulfilled (e.g., the work being of a “perennial nature”, whether such work was normally done by regular workmen, how integrated it was into the main industry etc.). The Act was silent, however, on what consequences would follow from the abolition of contract labour.
In Air India Statutory Corporation vs United Labour Union, Air India employed contract labour for sweeping, cleaning, dusting, and watching its buildings. In 1976, the Central Government issued a notification prohibiting Air India from using contract labour (with a few narrow exceptions that are not of relevance here). After Air India didn’t comply, the Labour Union filed a petition before the High Court, asking directions to Air India to abide by the notification, and also absorb the erstwhile contract labourers as permanent employees.
The Court, therefore, was asked to determine the consequences that followed when the appropriate government prohibited contract labour in any establishment (there was also a dispute over which government was the appropriate government, which is not of relevance here).
The Court began by observing that “the appalling conditions of contract labour who are victims of exploitation have been engaging the attention of various committees for a long time and in furtherance of the recommendations, the Act was enacted to benefit, as a welfare measure, the contract labour.” Also, by way of establishing the background conceptual framework, the Court referred to both Part III and the Directive Principles, in order to stress the importance of both social and economic democracy, and – channeling Ambedkar’s final speech in the Constituent Assembly Debates – the need to “eliminate inequalities in status through the rule of law.”
Armed with this conceptual background, the Court then observed that the Preamble to the CLRA stated that the Act was about the regulation and prohiition of contract labour, and “matters connected therewith.” The phrase “matters connected therewith” assumed a scope broader than simply regulating and prohibiting contract labour. Allied to this was the basic point that if “after abolition of the contract labour system… workmen [w]ould be left in a lurch denuding them of the means of livelihood and the enjoyment of the basic fundamental rights provided while the contract labour system is regulated under the Act [i.e., through the various statutory safeguards under the CLRA itself]”, this would be an illogical outcome that would defeat the very purpose of the Act (i.e., to guarantee a degree of protection to contract labour). Consequently, the Court held:
“It is true that we find no express provision in the Act declaring the contract labour working in the establishment of the principal employer in the particular service to be the direct employees of the principal employer. Does the Act intend to deny the workmen to continue to work under the Act or does it intend to denude him of the benefit of permanent employment and if so, what would be the remedy available to him. The phrase “matters connected therewith” in the Preamble would furnish the consequence of abolition of contract labour… As seen, the object is to regulate the contract labour so long as the contract labour is not perennial. The labour is required to be paid the prescribed wages and are provided with other welfare benefits envisaged under the Act under direct supervision of the principal employer. The violation visits with penal consequences. Similarly, when the appropriate Government finds that the employment is of perennial nature etc. contract system stand abolished, thereby, it intended that if the workmen were performing the duties of the post which were found to be of perennial nature on par with regular service, they also require to be regularised. The Act did not intend to denude them of their source of livelihood and means of development, throwing them out from employment. As held earlier, it is a socio-economic welfare legislation. Right to socio-economic justice and empowerment are constitutional rights. Right to means of livelihood is also constitutional right. Right to facilities and opportunities are only part of and means to right to development. Without employment or appointment, the workmen will be denuded of their means of livelihood and resultant right to life, leaving them in the lurch since prior to abolition, they had the work and thereby earned livelihood... The operation of the Act is structured on an inbuilt procedure leaving no escape route. Abolition of contract labour system ensures right to the workmen for regularisation of them as employees in the establishment in which they were hitherto working as contract labour through the contractor. The contractor stands removed from the regulation under the Act and direct relationship of “employer and employee” is created between the principal employer and workmen… the object of the Act is to prevent exploitation of labour. Section 7 and Section 12 enjoin the principal employer and the contractor to register under the Act, to supply the number of labour required by the principal employer through the contractor; to regulate their payment of wages and conditions of service and to provide welfare amenities, during subsistence of the contract labour. The failure to get the principal employer and the contractor registered under the Act visits with penal consequences under the Act. The object, thereby, is to ensure continuity of work to the workmen in strict compliance of law. The conditions of the labour are not left at the whim and fancy of the principal employer. He is bound under the Act to regulate and ensure payment of the full wages, and also to provide all the amenities enjoined under Sections 16 to 19 of the Act and the rules made thereunder. On abolition of contract labour, the intermediary, i.e., contractor, is removed from the field and direct linkage between labour and principal employer is established. Thereby, the principal employer’s obligation to absorb them arises.”
One particularly significant feature of Air India Statutory Corpn. is its attempt to constitutionalise labour law by expressly using Part III as well as the Directive Principles as interpretive aids to determine questions left open by the CLRA. At the beginning of its reasoning, the Court observed that “the concepts engrafted in the statute require interpretation from that perspectives [i.e., fundamental rights and DPSPs], without doing violence to the language. Such an interpretation would elongate the spirit and purpose of the Constitution and make the aforesaid rights to the workmen a reality lest establishment of an egalitarian social order would be frustrated and Constitutional goal defeated.” Through the course of its judgment, the Court regularly referred to the social/workers’ rights provisions of the DPSPs, speaking, in particular, of economic justice and dignity (through Article 38), and social justice through the rule of law as a method for removing social, economic and political imbalances (of power), even where these imbalances existed between private parties. Implicit in the Court’s analysis was the idea that imbalances of power within the workplace are of constitutional concern, and subject to the application of constitutional values.
It is interesting to note the conceptual similarities between Air India and Hussainbhai’s Case (see above). In Hussainbhai’s Case, the Court observed that a relationship of economic dependency between the worker and the ultimate employer – i.e., the latter’s ability to “choke off” the livelihood of the former – justified a finding that there was a relationship of employment between the two (and that, consequently, the worker was entitled to statutory safeguards under the Industrial Disputes Act, and other labour legislation). Similarly, in Air India, what weighed with the Court was the sense that “permanent employment which is not a bounty of the employer nor can its survival be at the volition and mercy of the employer. Income is the foundation to enjoy many Fundamental Rights and when work is the source of income, the right to work would become as such a fundamental right. Fundamental Rights can ill-afford to be consigned to the limbo of undefined premises and uncertain application.” Both Courts saw the unequal relationships in the workplace, and the potential for exploitation, as something that needed to be judicially remedied through an interpretation of the existing statutory regime, in a manner that horizontalised the relationships in question – i.e., evened out the imbalance of power. While Hussainbhai was not quite so explicit in its foundational reasoning, Air India made it clear that the peg on which it hung its argument was the Constitution
12. SAIL vs National Union of Waterfront Workers, (2001) 7 SCC 1. [5J Bench]
In SAIL vs National Union of Waterfront Workers, a Constitution Bench of the Supreme Court overruled the judgment in Air India Statutory Corpn., and held that no absorption could follow a prohibition of contract labour under the CLRA. The Court went into the legislative history of the CLRA to hold that Parliament’s silence in not providing for the consequences that followed the abolition of contract labour implied Parliament’s intent against absorption. The Court’s reason for holding this way included a reference to numerous Parliamentary and other Reports on contract labour preceding and leading up to the CLRA, none of which recommended absorption. This, according to the Court, was possibly because “on abolition of contract system in an establishment, the contract labour nonetheless remains as the workforce of the contractors who get contracts in various establishments where the contract labour could be engaged and where they would be extended the same statutory benefits as they were enjoying before. We noticed that it was clear to the Joint Committee that by abolition of contract labour, the principal employer would be compelled to employ permanent workers for all types of work which would result incurring high cost by him which implied creation of employment opportunities on regular basis for the contract labour. This could as well be yet another reason for not providing automatic absorption.”
The Court then observed that the Statement of Objects and Reasons of the CLRA also made no reference to absorption, as did the provisions of the Act itself: “the eloquence of the a CLRA Act in not spelling out the consequences of abolition of contract labour system, discerned in the light of various reports of the Commissions and the Committees and the Statement of Objects and Reasons of the Act, appears to be that the Parliament intended to create a bar on engaging contract labour in the establishment covered by the prohibition notification, by a principal employer so as to leave no option with him except to employ the worker as regular employees directly.”
What is particularly noteworthy about the Constitution Bench’s judgment in SAIL – and its overruling of the three-judge bench judgment in Air India – is that its reasoning rests almost entirely on legislative silence. Apart from a half-hearted, half-paragraph attempt to argue that it would be illogical if recently-recruited contract labourers got the benefit of absorption while long-standing contract labourers who had recently been let go didn’t, the Court provides no independent justification for its judgment apart from the fact that the CLRA makes no mention of absorption. However, as the three-judge bench had pointed out in Air India, legislative silence with respect to the consequences that followed the prohibition of contract labour left both options open: absorption, or no absorption. The Air India court had then applied the well-accepted interpretive principles of asking itself which of the two interpretations served the purpose of the CLRA, and also, which of the two interpretations better served the constitutional scheme. In SAIL, regrettably, the Constitution Bench chose to overrule Air India without dealing with either of these detailed arguments (and in fact, as the Court records, counsel for the labour unions pressed both these arguments); in fact, it wasn’t even able to show – from the legislative history – that there was any evidence in favour of its interpretation.
Consequently, it is respectfully submitted that a judgment whose sole foundation is that “Parliament was silent on whether X or Y is to happen, and therefore Y is to happen” is erroneous, and merits reconsideration.
13. State of Karnataka vs Uma Devi, 2006 (4) SCC 1 (5J Bench).
Although this case was primarily about casual work, the Court also held (broadly) that contract workers could not be regularised through a judicial order. Uma Devi will be considered in greater detail in the casual work section.
C3. Contract Labour and Permanent Labour: Equal Pay for Equal Work
Rule 25(2)(v)(a) of the Contract Labour Rules, 1971, stipulates that “in cases where the workmen employed by the contractor perform the same or similar kind of work as the workmen directly employed by the principal employer of the establishment, the wage rates, holidays, hours of work and other condition of service of the workmen of the contractor shall be the same as applicable to the workmen directly employed by the principal employer of the establishment on the same or similar kind of work.” The key questions have revolved around how this specific, statutory requirement under the Contract Labour Act interacts with the broader principle of “equal pay for equal work” under labour jurisprudence, and under Articles 14 and 39 of the Constitution.
The question is important because Rule 25(2)(v)(a) only uses the phrase “same or similar kind of work“. This would suggest a singular focus on the character of the work that is being done. This is substantially narrower – and more worker-friendly – then the principle of “equal pay for equal work” under labour jurisprudence, which requires the Court to take into account a series of additional factors such as cadre and posts, recruitment procedures etc. Consequently, the key issue is whether the these additional factors are to be read into Rule 25(2)(v)(a) while interpreting the meaning of “same or similar kind of work“, or whether this phrase has to be interpreted autonomously.
- U.P. Rajya Vidyut Utpadan Board vs U.P. Vidyut Mazdoor Sangh, (2009) 17 SCC 318 (2J Bench)
- Indian Oil Corporation vs Chief Labour Commissioner, LPA No. 65/2013 (Guj HC).
D. Government Service under Part XIV of the Constitution
D1. Casual Employment and Regularisation of Workers
- State of Karnataka vs Uma Devi, 2006 (4) SCC 1 (5J Bench)
- U.P. Power Corporation vs Bijli Mazdoor Sangh, (2007) 5 SCC 755.
- Maharashtra State Road Transport Corporation vs Casteribe Rajya Parivahan Karmchari Sanghatana, (2009) 8 SCC 556 (2J Bench)
- State of Karnataka vs M L Kesari, (2010) 9 SCC 247 (2J Bench).
- Nihal Singh vs State of Punjab, (2013) 14 SCC 65.
- Hari Nandan Prasad vs FCI, (2014) 7 SCC 190.
- Sudarshan Rajpoot vs U.P. SRTC, (2015) 2 SCC 317.
- T.N. Terminated Full-Time Temporary LIC Employees vs LIC, (2015) 9 SCC 62 (2J Bench).
While the facts of this case are complex, involving a series of labour awards and litigations, broadly, the Su
D2. Who is a holder of a “Civil Post” under Article 311?
- State of Assam vs Shri Kanak Chandra Dutta, AIR 1967 SC 884.
- Superintendent of Post Offices vs Rajamma, AIR 1977 SC 1677.
- State of Gujarat vs Raman Lal Keshav Lal Soni, AIR 1984 SC 161.
- State of UP vs Chandra Prakash Pandey, (2001) 4 SCC 78.
- State of Karnataka vs Ameerbi, (2007) 11 SCC 681.
- Edward Mills Co. Ltd. vs State of Ajmer, AIR 1955 SC 25 (5J Bench).
- Bijay Cotton Mills vs State of Ajmer, AIR 1955 SC 33 (5J Bench).
- Messrs Crown Aluminium Works vs Their Workmen, AIR 1958 SC 30 (3J Bench)
- Express Newspapers vs Union of India,  S.C.R. 12. (5J Bench).
- Unichoyi vs State of Kerala, AIR 1962 SC 12.
F. Equal Pay for Equal Work
- Randhir Singh vs Union of India, AIR 1982 SC 879.
- State of Orissa vs Balaram Sahu, (2003) 1 SCC 250 (2J Bench).
- State of Haryana vs V. Chiranjit Singh, (2006) 9 SCC 321 (3J Bench).
- Official Liquidator vs Dayanand, (2008) 10 SCC 1 (3J Bench).
- State of Punjab vs Jagjit Singh, C.A. No. 213 of 2013, decided on 26.8.2016.
G. Employees’ Provident Funds Act and Employees State Insurance Act
- Regional P.F. Commissioner vs Hooghly Mills, (2012) 2 SCC 489 (2J Bench).
H. Apprentices and Trainees
- Employees State Insurance Corporation and Anr. vs Tata Engineering and Locomotive Co., (1975) 2 SCC 835 (3J Bench).
- Trambak Rubber Industries vs Nashik Workers’ Union, (2003) 6 SCC 416 (2J Bench).
- Management of Otis vs Chairman, 2003 98 FLR 53 (Del HC).
- Vijayalakshmi Insecticides vs Chairman, 2004 1 CLR 866 (AP HC)
- Mukesh Tripathi vs Sr Div Manager, LIC, (2004) 8 SCC 387.
- U.P. State Electricity Board vs Shiv Mohan Singh, (2004) 8 SCC 402. (3J Bench).
- Regional Provident Fund vs Central Aercanut, 2006 LLR 263 SC (2J Bench).
- National Small Industries Corporation Limited vs Lakshminarayanan, (2007) 1 SCC 214 (2J Bench).