Manoj Kumar Vs M/s Sintex Industries Pvt. Limited

1. Whether the termination of the services of Shri Manoj Kumar petitioner by the Management of M/s Sintex Industries Limited, Baddi, is in violation of the provisions of Industrial Disputes Act, 1947? OPP.

2. Whether Manoj Kumar was employed through contractor as a helper as per the provisions of Contract Labour (Regulation and Abolition) Act, 1970 and HP contract Labour (Abolition and Regulations) Rules, 1974? If so, its effect OPR.

3. Whether the petitioner is gainfully employed? OPR.

4. Whether the petition is bad for non-joinder of necessary party? OPR.

5. Relief.

"Section 8-A(1) of the Act reads as under:-

"8-A. Recovery of Money by Employers and Contractors:-

(1) The amount of contribution (that is to say the employer''s contribution as well as the employee''s contribution in pursuance of any Scheme and the employer''s contribution in pursuance of the Insurance Scheme) and any charges for meeting the cost of administering the Fund paid or payable by an employer in respect of an employee employed by or through a contractor may be recovered by such employer from the contractor, either by deduction from any amount payable to the contractor under any contract or as a debt payable by the contractor.

A reading of the above provision makes it clear that the contributions of employees employed by or through a contractor is required to be recovered by the employer from the contractor. The definition of ''employee'' under Section 2(f) of the act reads thus:--

"employee" means any person who is employed for wages in any kind of work, manual or otherwise, in or in connection with the work of an establishment and who gets his wages directly or indirectly from the employer and includes any person-

(i) employed by or through a contractor or in connection with the work of the establishment,

(ii) x x x

As per clause (i), ''employee'' includes any person employed by or through a contractor. In view of this definition, the Regional Provident Fund Commissioner of Karnataka has rightly observed in Annexure R2 dated 24.4.1990 this aspect that the law as it stands at present does not make any distinction between the employees employed directly by the employer or through the contractors and it is the principal employer responsible for implementation of the provisions of the Act and the Schemes. In the absence of any specific provision in the Act that the contractor has to obtain separate numbers in respect of the employees engaged by him to discharge the work of principal employer and in view of the specific duty cast upon the employer to file returns and to deduct the contributions of the employees from the employer the condition imposed on the petitioner in the impugned communication at Annexure A to furnish his own ESI and PF Code numbers is unwarranted and such a condition is without any authority of law.

8. Even the Employees State Insurance Corporation Act also do not prescribe that a contractor has to possess his own account in respect of the employees engaged by him for the work of the principal employer. On the other hand, Section 40 of the ESI Act prescribes that the principal employer shall pay the contributions in the first instance and thereafter, under Section 41 of the said Act he shall recover the same from the immediate employer. Under this Act also, Section 44 casts a duty on the employers to furnish returns and maintain registers in certain cases. In Section 2(9) of this Act, the definition of ''employee'' is, any person employed for wages in or in connection with the work of a factory or establishment to which the Act applies and who is employed but or through an immediate employer on the premises of the factory or establishment or under the supervision of the principal employer. Therefore, the principal employer has to discharge the duty prescribed under Section 40 and 41 of the Act and he cannot compel a contractor to have his own account in respect of the employees engaged by him to discharge the work of principal employer. Such a duty or obligation is not cast upon a contractor under the ESI Act also. Consequently, the condition imposed in Annexure-A on the petitioner to furnish his own separate account of ESI cannot be sustained as the same is not prescribed under the Act."

" It is not for the High Court to enquire 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. We would not like to express any view on the decision of the Karnataka High Court or of the Gujarat High Court (supra) since these decisions are under challenge in this court, but we would place on record that we do not agree with the afore-quoted observations of the Madras High Court about the effect of non registration of the principal employer or the non-licensing of the labour contractor nor with the view of Bombay High Court in the aforesaid case. We are of the view that the decisions of the Kerala High Court and Delhi High Court are correct and we approve the same."

"12. Learned counsel for the respondent management submitted that in the case of Dena Nath and Ors. [(1992) 1 SCC 695], Hon''ble Supreme Court held that the effect of non-compliance of the provisions of CLRA Act of 1970, i.e. non-registration of the establishment under Section 7 of the Act and non-possession of licence under Section 12 of the Act would not result in regularisation of the concerned workmen, rather it would result in penal consequences � that is, prosecution under Section 23/24 of the CLRA Act, 1970 and therefore, the finding of the Tribunal that the contract labour system is sham or camouflage was an erroneous finding and referring to the findings of the Tribunal that the arrangement of the management is camouflage, learned Single Judge held that the said finding is in clear teeth of the decision rendered by Hon''ble Supreme Court in the case of Dena Nath and Ors. v. National Fertiliser Ltd. [(1992) 1 SCC 695] and para 22 thereof reads as under:- 7

"22. It is not for the High Court to enquire 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 (sic 7) 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. We would not like to express any view on the decision of the Karnataka High Court or of the Gujarat High Court (supra) since these decisions are under challenge in this Court, but we would place on record that we do not agree with the afore-quoted observations of the Madras High Court about the effect of non registration of the principal employer or the non-licensing of the labour contractor nor with the view of Bombay High Court in the aforesaid case. We are of the view that the decisions of the Kerala High Court and Delhi High Court are correct and we approve the same."

"53. This Court would first refer to the relevant pronouncements by various English Courts in order to analyse their approach regarding employer-employee relationship.

54. In Ready Mix Concrete (South East) Ltd v. Minister of Pensions and National Insurance, [1968] 2 QB 497, Mc Kenna J. laid down three conditions for the existence of a contract of service. As provided at p.515 in the Ready Mix Concrete case, the conditions are as follows:

"�� "(i) The servant agrees that, in consideration of a wage or other remuneration, he will provide his own work and skill in the performance of some service for his master;

(ii) he agrees, expressly or impliedly, that in the performance of that service he will be subject to the others control in a sufficient degree to make that other master;

(iii) the other provisions of the contract are consistent with its being a contract of service."

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

56 Mc Kenna J. further referred to Lord Then kerton''s "four indicia" of a contract of service said in Short v. Page 43 J. and W. Henderson Ltd. (1946) 62 TLR 427. The J. and W. Henderson case (supra) at p.429, observes as follows:

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

57. A recent decision by the Queen''s Bench, in JGE v. The Trustees of Portsmouth Roman Catholic Diocesan Trust, [2012] EWCA Civ 938, Lord Justice Ward, while discussing the hallmarks of the employer-employee relationship, observed that an employee works under the supervision and direction of his employer, whereas an independent contractor is his own master bound by his contract but not by his employer''s orders. Lord Justice Ward followed the observations made by Mc Kenna J. in the Ready Mix Concrete case (supra) as mentioned above. The JGE case (supra), further noted that ''control'' was an important factor in determining an employer-employee relationship. It was held, after referring to numerous judicial decisions, that there was no single test to determine such a relationship. Therefore what would be needed to be done is to marshal various tests, which Page 44 should cumulatively point either towards an employer employee relationship or away from one.

58. Short v. J. and W. Henderson Ltd., as cited in the Ready Mix Concrete case (supra) and in the JGE case (supra), was also referred to in the four Judge Bench decision of this Court in Dhrangadhra Chemical Works Ltd. v. State of Saurashtra, AIR 1957 SC 274. In the Dhramngadhra Chemical Works case (supra), it was observed that (AIR 268 pra 14)

"14��. the prima facie test for the determination of the relationship between master and servant is the existence of the right in the master to supervise and control the work done by the servant not only in the matter of directing what work the servant is to do but also the manner in which he shall do his work���."

59. In Ram Singh v. Union Territory, Chandigarh, (2004) 1 SCC 126, as regards the concept of control in an employer-employee relationship, observed as follows: (SCC p 131 para 15)

"15. In determining the relationship of employer and employee, no doubt, "control" is one of the important tests but is not to be taken as the sole test. In determining the relationship of employer and employee, all other relevant facts and circumstances are required to be considered Page 45 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. (See Industrial Law, 3rd Edn., by I.T.

Smith and J.C. Wood, at pp. 8 to 10.)"

60. In Bengal Nagpur Cotton Mills case (supra), this Court observed that: (SCC p.638 paras 9-10)

"9. In this case, the industrial adjudicator has granted relief to the first respondent in view of its finding that he should be deemed to be a direct employee of the appellant. The question for consideration is whether the said finding was justified.

10. It is now well settled that if the industrial adjudicator finds that the contract between the principal employer and the contractor to be a sham, nominal or merely a Page 46 camouflage to deny employment benefits to the employee and that there was in fact a direct employment, it can grant relief to the employee by holding that the workman is the direct employee of the principal employer. Two of the well-recognised tests to find out whether the contract labourers are the direct employees of the principal employer are: (i) whether the principal employer pays the salary instead of the contractor; and (ii) whether the principal employer controls and supervises the work of the employee. In this case, the Industrial Court answered both questions in the affirmative and as a consequence held that the first respondent is a direct employee of the appellant."

61. Further, the above case made reference to the case of the International Airport Authority of India case (supra) wherein the expression "control and supervision" in the context of contract labour was explained by this Court. The relevant part of the International Airport Authority of India case (supra), as quoted in Bengal Nagpur Cotton Mills case (supra) is as follows: (Bengal Nagpur Cotton Mills case, SCC pp.638-39, para 12)

"12. "38 ... if the contract is for supply of labour, necessarily, the labour supplied by the contractor will work under the directions, supervision and control of the principal employer but that would not make the worker a Page 47 direct employee of the principal employer, if the salary is paid by a contractor, if the right to regulate the employment is with the contractor, and the ultimate supervision and control lies with the contractor.

39. The principal employer only controls and directs the work to be done by a contract labour, when such labour is assigned/allotted/sent to him. But it is the contractor as employer, who chooses whether the worker is to be assigned/ allotted to the principal employer or used otherwise. In short, worker being the employee of the contractor, the ultimate supervision and control lies with the contractor as he decides where the employee will work and how long he will work and subject to what conditions. Only when the contractor assigns/sends the worker to work under the principal employer, the worker works under the supervision and control of the principal employer but that is secondary control. The primary control is with the contractor. (international Airport Authority of India cases, SCC p. 388, paras 38- 39)"

62. A recent decision concerned with the employer-employee relationship was that of the NALCO case (supra). In this case, the appellant had established two schools for the benefit of the wards of its employees. The Writ Petitions were filed by the employees of each school for a declaration that they be treated as the employees of Page 48 the appellant-company on grounds of, inter alia, real control and supervision by the latter. This Court, while answering the issue canvassed was of the opinion that the proper approach would be to ascertain whether there was complete control and supervision by the appellant-therein. In this regard, reference was made to the case of Dhrangadhra Chemical Works case (supra) wherein this Court had observed that: (Nalco case, SCC pp.768-69, para 22)

"22. ''14. The principle which emerges from these authorities is that the prima facie test for the determination of the relationship between master and servant is the existence of the right in the master to supervise and control the work done by the servant not only in the matter of directing what work the servant is to do but also the manner in which he shall do his work, or to borrow the words of Lord Uthwatt at p.23 in Mersey Docks and Harbour Board v. Coggins and Griffith (Liverpool) Ltd., (1952) SCR 696 "The proper test is whether or not the hirer had authority to control the manner of execution of the act in question". (Dharangadhra Chemical Works case, AIR p.268, para 14)

" 63. The NALCO case further made reference to the case of Workmen of Nilgiri Coop. Mkt. Society Ltd. v. State of T.N., (2004) 3 SCC 514, wherein this Court had observed as follows: (Nalco case, SCC p.771, para 27)

"27. "37. The control test and the organisation test, therefore, are not the only factors which can be said to be decisive. With a view to elicit the answer, the Court is required to consider several factors which would have a bearing on the result:

(a) who is the appointing authority; (b) who is the paymaster; (c) who can dismiss; (d) how long alternative service lasts; (e) the extent of control and supervision; (f) the nature of the job e.g. whether it is professional or skilled work; (g) nature of establishment; (h) the right to reject.

38. With a view to find out reasonable solution in a problematic case of this nature, what is needed is an integrated approach meaning thereby integration of the relevant tests where for it may be necessary to examine as to whether the workman concerned was fully integrated into the employer''s concern meaning thereby independent of the concern although attached therewith to some extent." (Workmen of Nilgiri Coop. Mktg. Society case, SCC p.529, paras 37-38)."

64. It was concluded by this Court in the NALCO case (supra) that there may have been some element of control with NALCO because its officials were nominated to the Managing Committee of the said schools. However, it was observed that the above-said fact was only to ensure that the schools run smoothly and properly. In this regard, the Court observed as follows: (SCC p.772, para 30)

"30. ... However, this kind of "remote control" would not make NALCO the employer of these workers. This only shows that since NALCO is shouldering and meeting financial deficits, it wants to ensure that the money is spent for the rightful purposes."

65. Thus, it can be concluded that the relevant factors to be taken into consideration to establish an employer-employee relationship would include, inter alia, (i) who appoints the workers; (ii) who pays the salary/remuneration; (iii) who has the authority to dismiss; (iv) who can take disciplinary action; (v) whether there is continuity of service; and (vi) extent of control and supervision, i.e. whether there exists complete control and supervision. As regards, extent of control and supervision, we have already taken note of the observations in Bengal Nagpur Cotton Mills case (supra), the International Airport Authority of India case (supra) and the NALCO case."

"22. A careful reading of the judgments reveals that the High Court can interfere with an Order of the Tribunal only on the procedural level and in cases, where the decision of the lower courts has been arrived at in gross violation of the legal principles. The High Court shall interfere with factual aspect placed before the Labour Courts only when it is convinced that the Labour Court has made patent mistakes in admitting evidence illegally or have made grave errors in law in coming to the conclusion on facts. The High Court granting contrary relief under Articles 226 and 227 of the Constitution amounts to exceeding its jurisdiction conferred upon it. Therefore, we accordingly answer the point No. 1 in favour of the appellant."