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2014 (8) TMI 1084 - SUPREME COURT

2014 (8) TMI 1084 - SUPREME COURT - 2015 AIR 375, 2014 (9) SCC 407, 2014 (9) JT 562, 2014 (9) SCALE 567 - Workmen engaged in statutory canteens through a contractor - nature of control - whether workers, engaged on a casual or temporary basis by a contractor (HCI) to operate and run a statutory canteen, under the provisions of the Act, 1948, on the premises of a factory – Air India, can be said to be the workmen of the said factory or corporation?- liability of the principal employer running sta .....

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ay in ensuring effective utilization of resources, monetary or otherwise. The said supervision or control would appear to be merely to ensure due maintenance of standards and quality in the said canteen. - The appellants-workmen could not be said to be under the effective and absolute control of Air India. The Air India merely has control of supervision over the working of the given statutory canteen. Issues regarding appointment of the said workmen, their dismissal, payment of their salarie .....

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ir India’s regular employees, and thereby claim the same benefits as bestowed upon the latter. It would also be gainsaid to note the fact that the appellants-herein made no claim or prayer against either of the other respondents, that is, the HCI or the Chefair. - Thus the workers engaged by a contractor to work in the statutory canteen of a factory would be the workers of the said factory, but only for the purposes of the Act, 1948, and not for other purposes, and further for the said worke .....

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eals are placed before us for our consideration and decision. The question before this bench is whether the workmen engaged in statutory canteens, through a contractor, could be treated as employees of the principal establishment. 2. At the outset, it requires to be noticed that the learned Judges differed in their opinion regarding the liability of the principal employer running statutory canteens and further regarding the status of the workmen engaged thereof. The learned Judges differed on th .....

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necessity to pierce the veil to ascertain their relation with the principal employer. 3. The Two Judge bench has expressed contrasting opinions on the prevalence of an employer-employee relationship between the principal employer and the workers in the said canteen facility, based on, inter alia, issues surrounding the economic dependence of the subsidiary role in management and maintenance of the canteen premises, representation of workers, modes of appointment and termination as well as resolv .....

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dispute finds origin in an industrial dispute which arose between the Appellants-workmen herein of the statutory canteen and Respondent No. 1-herein. The said industrial dispute was referred by the Central Government, by its order dated 23.10.1996 to the Central Government Industrial Tribunal cum Labour Court (for short the CGIT ). The question referred was whether the workmen as employed by Respondent No. 3-herein, to provide canteen services at the establishment of Respondent No. 1-herein, co .....

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not be entitled to be treated as or deemed to be the employees of the Air India. The Division Bench of the High Court of Delhi vide impugned order dated 02.04.2011 found no error in the order passed by the learned Single Judge of the High Court. The appeal was dismissed by the Division Bench confirming the order of the learned Single Judge who observed that the responsibility to run the canteen was absolutely with the HCI and that the Air India and the HCI shared an entirely contractual relation .....

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nteen is maintained as a consequence of a statutory obligation under Section 46 of the Act, 1948, and that since by virtue of notification dated 21.01.1991, Rules 65-70 of the Delhi Factory Rules, 1950 (for short, the Rules, 1950 ) have become applicable to the respondent No. 1, the said workers should be held to be the employees of the management of the corporation, on which such statutory obligation is placed, that is, Air India. 7. Respondent No. 1 is a company incorporated under the Companie .....

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o. 2-HCI is also a company incorporated under the Companies Act, 1956 and is a separate legal entity from the Air India. As per the Memorandum of Association of Respondent No. 2, the same is a wholly-owned subsidiary of the Air India. The main objects of the said respondent, inter alia, are to establish refreshment rooms, canteens, etc. for the sale of food, beverages, etc. 9. Respondent No. 2 has various units and Respondent No. 3, being Chefair Flight Catering (for short, the Chefair ), provid .....

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or (HCI) to operate and run a statutory canteen, under the provisions of the Act, 1948, on the premises of a factory - Air India, can be said to be the workmen of the said factory or corporation . SUBMISSIONS : 11. Shri Jayant Bhushan, learned Senior Counsel for the appellants-workmen has two alternative submissions; firstly, that in the event of a statutory requirement to provide for a canteen or any other facility, the employees of the said facility would automatically become employees of the .....

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following cases in support of his submissions- Saraspur Mills Co. Ltd. v. Ramanlal Chimanlal, (1974) 3 SCC 66; Hussainbhai v. Alath Factory Thezhilali Union, (1978) 4 SCC 257; M.M.R. Khan v. Union of India, 1990 Supp SCC 191; and Parimal Chandra Raha v. LIC, 1995 Supp (2) SCC 611. 12. Shri Jayant Bhushan also submits that the issue raised in these appeals is squarely covered by the observations made by the Constitution Bench in the case of Steel Authority of India Ltd. v. National Union Waterfro .....

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counsel for the appellants to show that they are not only distinguishable on facts, but are inapplicable to the facts of the present case. He would also refer to the three-Judge Bench decision of this Court in the case of Indian Petrochemicals Corpn. Ltd. v. Shramik Sena, (1999) 6 SCC 439, and then would submit that the proposition of law enunciated in the Indian Petrochemicals case (supra) is followed by this Court in Hari Shankar Sharma v. Artificial Limbs Mfg. Corpn., (2002) 1 SCC 337; Workm .....

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ed, the appellants would fail to establish the employer and employee relationship. In aid of his submissions, he refers to Bengal Nagpur Cotton Mills v. Bharat Lal, (2011) 1 SCC 635; International Airport Authority of India v. International Air Cargo Workers Union, (2009) 13 SCC 374; and National Aluminium Co. Ltd. v. Ananta Kishore Rout & Ors., (2014) 6 SCC 756. RELEVANT PROVISIONS : 16. To appreciate the point of view of the parties to the present lis, it is necessary to notice the relevan .....

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ugh a contractor or any other third party. The provision reads as under: 46. Canteens.-(1) The State Government may make rules requiring that in any specified factory wherein more than two hundred and fifty workers are ordinarily employed, a canteen or canteens shall be provided and maintained by the occupier for the use of the workers. (2) Without prejudice in the generality of the foregoing power, such rules may provide for - (a) the date by which such canteen shall be provided; (b) the standa .....

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Chief Inspector subject to such conditions as may be prescribed, of the power to make rules under clause (c). 18. By virtue of Notification No. 27(12)89CIF/Lab/464 dated 21.01.1991, rules 65 to 70 of the Rules, 1950 were made applicable to M/s. Air India Ground Services Department. The rules impose obligations upon the occupier of the factory as regards providing for and maintaining the said canteen. 19. Rules 65 to 70 of the Rules, 1950 are in furtherance of the duty prescribed on the State Gov .....

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uch as utensils, furniture, uniforms for the canteen staff and other equipment to be purchased and maintained in a hygienic manner. Rule 68 prescribes that the prices to be charged on foodstuffs and other items will be on a non-profit basis, as approved by the Canteen Managing Committee. Rule 69 illustrates the procedure for handling the auditing of accounts, under the supervision of the Canteen Managing Committee as well as Inspector of Factories. Lastly, Rule 70 enumerates the consultative rol .....

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efore we deal with the issue that arises for consideration, it would be necessary to consider the applicability of the Constitution Bench decision in the Steel Authority of India case (supra). Learned counsel refers to paragraphs 106 and 107 of the said judgment to contend that the observations made therein is the expression of the Court on the question of law and since it is the decision of the Constitution Bench, the same would be binding on this Court. To appreciate the submission of the lear .....

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mployer. These cases stand on a different footing and it is not possible to deduce from them the broad principle of law that on the contract labour system being abolished under sub-section (1) of Section 10 of the CLRA Act the contract labour working in the establishment of the principal employer have to be absorbed as regular employees of the establishment. 107. An analysis of the cases, discussed above, shows that they fall in three classes: (i) where contract labour is engaged in or in connec .....

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f the principal employer were held, in fact and in reality, the employees of the principal employer himself. Indeed, such cases do not relate to abolition of contract labour but present instances wherein the Court pierced the veil and declared the correct position as a fact at the stage after employment of contract labour stood prohibited; (iii) where in discharge of a statutory obligation of maintaining a canteen in an establishment the principal employer availed the services of a contractor th .....

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Contract Labour (Regulation and Abolition) Act, 1970 and in Section 2(a) of the Industrial Disputes Act, 1947 and the other issue was automatic absorption of the contract labour in the establishment of the principal employer as a consequence of an abolition notification issued under Section 10(1) of the Contract Labour (Regulation and Abolition) Act. The Court while over-ruling the judgment in Air India Statutory Corporation vs. United Labour Union (1997) 9 SCC 377, prospectively, held that nei .....

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ry canteen(s) would fall within the meaning of expression workmen under the Act, 1948 and therefore they are employees of the principal employer and secondly, whether the principal employer to fulfil its obligation under Section 46 of the Act, 1948 engages a contractor, the employees of the contractor can claim regularisation and extension of the service conditions extended to the employees of the principal employer did not remotely arise for consideration of the Court. Secondly, in our consider .....

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envisaged under Article 141 of the Constitution of India. This Court in the case of The Commissioner of Income Tax v. Sun Engineering Works (P) Ltd., (1992) 4 SCC 363, has observed: 39. It is neither desirable nor permissible to pick out a word or a sentence from the judgment of this Court divorced from the context of the question under consideration and treat it to be complete law declared by this Court. The Judgment must be read as a whole and the observations from the judgment have to be con .....

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, this Court in Punjab Land Development and Reclamation Corporation Ltd., Chandigarh v. Presiding Officer, Labour Court, Chandigarh and Ors., (1990) 3 SCC 682, observed as follows: 44. An analysis of judicial precedent, ratio decidendi and the ambit of earlier and later decisions is to be found in the House of Lords decision in F.A. & A.B. Ltd. v. Lupton (Inspector of Taxes), Lord Simon concerned with the decisions in Griffiths v. J.P. Harrison (Watford) Ltd. and Finsbury Securities Ltd. v. .....

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ted therein that a judicial decision is the abstraction of the principle from the facts and arguments of the case. It was further observed in the Punjab Land Development case (supra), that: 53. Lord Halsbury s dicta in Quinn v. Leatham, 1901 AC 495: (AC p. 506) every judgment must be read as applicable to the particular facts proved, or assumed to be proved, since the generality of the expressions which may be found there are not intended to be expositions of the whole law, but governed and qual .....

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Court in the case of State of Punjab v. Baladev Singh, (1999) 6 SCC 172, held that a judgment has to be considered in the context in which it was rendered and that a decision is an authority for what it decides and it is not everything said therein constitutes a precedent. 25. In our view, the binding nature of a decision would extend to only observations on points raised and decided by the Court and neither on aspects which it has not decided nor had occasion to express its opinion upon. The ob .....

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unding the absorption of contract workers into the principal establishment pursuant to a notification issued by the appropriate Government under Section 10 of the Contract Labour (Abolition and Regulation) Act, 1970. The conclusion in paragraph 125 of Steel Authority of India s case (supra), inter alia, states that on issuance of a notification under Section 10(1) of Contract Labour (Abolition and Regulation) Act, 1970 passed by the appropriate Government would not entail the automatic absorptio .....

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egislation and it provides for the health, safety, welfare, working hours, leave and other benefits for workers employed in factories and it also provides for the improvement of working conditions within the factory premises. Section 2 of the Act, 1948 is the interpretation clause. Apart from others, it provides the definition of worker under Section 2(l) of the Act, 1948, to mean a person employed, directly or through any other agency, whether for wages or not, in any manufacturing or cleaning .....

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ood to be served in such canteens and their charges. In exercise of rules making power, the Delhi State has framed and notified the Rules, 1950, in which rules 65 to 70 are incorporated to give effect to the purpose of Section 46 of the Act, 1948. 28. The question before us is when the company is admittedly required to run the canteen in compliance of the statutory obligation under Section 46 of the Act, 1948, whether the canteen employees employed by the contractor are to be treated as the empl .....

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r purposes. The Court went on to observe that the Act, 1948 does not govern the rights of employees with reference to recruitment, seniority, promotion, retirement benefits etc. They are governed by other statutes, rules, contracts or policies. 30. The aforesaid viewpoint is reiterated by this Court in the case of Haldia Refinery Canteen Employees Union and others v. Indian Oil Corporation Ltd. and ors., (2005) 5 SCC 51 and in Hari Shankar Sharma v. Artificial Limbs Manufacturing Corporation, (2 .....

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Judge Bench of this Court and the facts and the legal issues raised in the present appeals are the same or similar as in Indian Petrochemicals case (supra), and since we are not persuaded to take a different view in the matter, the observations made therein is binding on us. 31. This Court in the Indian Petrochemical case (supra), while explaining the decision in Parimal Chandra Raha s case (supra), has stated that in Raha s case, the Supreme Court did not specifically hold that the deemed emplo .....

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xpressed by this Court in M.M.R Khan s case (supra) and Reserve Bank of India v. Workmen, (1996) 3 SCC 267. 32. The proposition of law in the Indian Petrochemicals case (supra) has been reiterated in the Hari Shankar Sharma s case (supra). This Court stated that: 6. The observations in Parimal Chandra Raha case relied on by the appellants which might have supported the submission of the appellants have been explained by a larger Bench in Indian Petrochemicals Corpn. Ltd. v. Shramik Sena where it .....

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); Indian Overseas Bank v. I.O.B. Staff Canteen Workers Union & Anr., (2000) 4 SCC 245; and Barat Fritz Werner Ltd. v. State of Karnataka, 2001 (4) SCC 498. 34. The Coates of India Ltd. s case (supra) was regarding a dispute over the status of the appellant workmen therein who were hired by a contractor to work in a canteen run on the premises of the respondent company. This Court observed that merely some requirement under the Act, 1948 of providing a canteen in the industrial establishment .....

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oyed only by the contractor to run the canteen, and they were not employees of the respondent Company. The Court went on to observe that since the canteen employees were not directly appointed by the Company nor had they ever moved the Company for leave or other benefits enjoyed by the regular employees of the Company, and further that the canteen employees got their wages from the respective contractors and, therefore, they are not employees of the Company. 35. The Haldia case (supra) was simil .....

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hat the respondent had direct control over the said workmen and the contractor had no control over the management, administration and functioning of the said canteen. Therefore, writ applications were filed seeking issuance of mandamus to the respondent to absorb the appellants in the service of the respondent therein and to regularize them as such. This Court then made a detailed reference to the Parimal Chandra Raha case (supra), the MMR Khan case (supra) and the Indian Petrochemicals case (su .....

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exercised to ensure that the canteen is run in an efficient manner and to provide wholesome and healthy food to the workmen of the establishment. This, however, does not mean that the employees working in the canteen have become the employees of the management. 15. A free hand has been given to the contractor with regard to the engagement of the employees working in the canteen. There is no clause in the agreement stipulating that the canteen contractor unlike in the case of Indian Petrochemica .....

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contribution, leave salary, medical benefits to his employees and to observe statutory working hours. The contractor has also been made responsible for the proper maintenance of registers, records and accounts so far as compliance with any statutory provisions/obligations is concerned. A duty has been cast on the contractor to keep proper records pertaining to payment of wages, etc. and also for depositing the provident fund contributions with the authorities concerned. The contractor has been m .....

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ment authorities. 36. As regards the nature of control exercised by the management over the workmen employed by the contractor to work in the said canteen, it was observed by this Court in the Haldia case (supra) that the control was of a supervisory nature and that there was no control over disciplinary action or dismissal. Such control was held not to be determinative of the alleged fact that the workmen were under the control of the management. This Court observed as follows: 16. The manageme .....

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appointment or taking disciplinary action or dismissal or removal from service of the workmen working in the canteen. Only because the management exercises such control does not mean that the employees working in the canteen are the employees of the management. Such supervisory control is being exercised by the management to ensure that the workers employed are well qualified and capable of rendering proper service to the employees of the management. 37. The last case that we intend to refer on .....

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ra), the MMR Khan case (supra), the Indian Petrochemicals case (supra), the Constitution Bench decision in the Steel Authority of India case (supra), the Hari Shankar Sharma case (supra), and the Haldia case (supra). 38. We conclude that the question as regards the status of workmen hired by a contractor to work in a statutory canteen established under the provisions of the Act, 1948 has been well settled by a catena of decisions of this Court. This Court is in agreement with the principle laid .....

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ts of employees with reference to appointment, seniority, promotion, dismissal, disciplinary actions, retirement benefits, etc., which are the subject matter of various other legislations, policies, etc. Therefore, we cannot accept the submission of Shri Jayant Bhushan, learned counsel that the employees of the statutory Canteen ipso-facto become the employees of the principal employer. 39. We may now refer to the various decisions, cited by learned counsel, Shri Jayant Bhushan. 40. The Saraspur .....

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s Court was that, whether the employees of the said cooperative society could be said to be the employees of the appellant-company. The case of the workmen was that the appellant-company was running the canteen to fulfill its statutory obligations and thus the running of the said canteen would be part of the undertaking of the appellant although the appellant did not run itself the canteen but handed over the premises to the co-operative society to run it for the use and welfare of the Company s .....

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4) 2 SCR 838, held that since under Act, 1948, it was the duty of the appellant-company to run and maintain the canteen for use of its employees, the ratio of the decision in Ahmedabad Mfg. and Calico Printing Co. Ltd., v. Their Workmen (1953) II LLJ 647 would be fully applicable in which the very sameprovision of the Act, 1948 were considered and confirmed the finding of the Industrial Court. 41. It would be relevant to note that the primary reasoning of the Court in the Saraspur Mills case (su .....

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Hussainbhai case (supra), the dispute arose between workmen hired by a contractor to make ropes within the factory premises on one hand, and the petitioner who was the factory owner manufacturing ropes who had engaged such contractor, on the other hand. The issue therein pertained to whether such workmen would be that of the contactor or the petitioner. In the said case, the Court went into the concept of employer employee relationship from the point of view of economic realities. It was observe .....

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ediate or direct relationship ex contract is of no consequence when, on lifting the veil or looking at the conspectus of factors governing employment, we discern the naked truth, though draped in different perfect paper arrangement, that the real employer is the Management, not the immediate contractor. ... 43. The Hussainbhai case (supra) did not deal with the Act, 1948, much less any statutory obligation thereunder. The case proceeded on the test of employer employee relationship to ascertain .....

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ers concerned should be treated as railway employees and should be extended all service benefits which are available to the said railway employees. The Court was concerned, in the said case, with three types of canteens:- (i) Statutory Canteens; (ii) Non-Statutory, Recognized Canteens; and (iii) Non-Statutory, Non-Recognized Canteens. As regards statutory canteens, the Court noticed that under Section 46 of the Act, 1948, the occupier of a factory was not only obliged to provide for and maintain .....

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case (supra). This Court had made an explicit reference to the relevant provisions of the Railway Establishment Manual and the Administrative Instructions on Departmental Canteens in Offices and Industrial Establishments of the Government as issued by the Department of Personnel and Training, Ministry of Personnel, Public Grievances and Pensions of the Government of India, which dealt with the canteens and had express provisions thereunder that were integral to the final decision of this Court. .....

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or connected with the manufacturing process or the subject of the manufacturing process. The provision of the canteen is deemed by the statute as a necessary concomitant of the manufacturing activity. Paragraph 2829 of the Railway Establishment Manual recognizes the obligation on the railway Administration created by the Act and as pointed out earlier paragraph 2834 makes provision for meeting the cost of the canteens. Paragraph 2832 acknowledges that although the railway administration may emp .....

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on departmental canteens in terms state that even those canteens which are not governed by the said Act have to be under a complete administrative control of the concerned department and the recruitment, service conditions and the disciplinary proceedings to be taken against the employees have to be taken according to the rules made in that behalf by the said department. In the circumstances, even where the employees are appointed by the staff committee/cooperative society it will have to be he .....

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inistrative control of the canteen be given to the Railway Administration. Such mandatory obligations are not present in the instant case. In light of the same, the given case cannot be said to be a precedent on the general proposition as regards the status of employees of a statutory canteen established under the Act, 1948. 47. We have already referred to the decision of this Court in Parimal Chandra Raha case (supra), and, therefore, we are not referring to the said decision once over again. H .....

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anteen was a part of the establishment of the Corporation, that the contractors engaged were only a veil between the Corporation and the canteen workers and therefore, the canteen workers were the employees of the Corporation. This Court, while arriving at the said conclusion laid emphasis on the contract between the corporation and the contractor, whereby it was shown that the terms of the said contract were in the nature of directions to the contractor about the manner in which the canteen sho .....

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as the employees of the factory or company on whose premises they run the said statutory canteen, this Court must apply the test of complete administrative control. Furthermore, it would be necessary to show that there exists an employer-employee relationship between the factory and the workmen working in the canteen. In this regard, the following cases would be relevant to be noticed. 50. This Court would first refer to the relevant pronouncements by various English Courts in order to analyze t .....

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or his master; (ii) he agrees, expressly or impliedly, that in the performance of that service he will be subject to the other's control in a sufficient degree to make that other master; (iii) the other provisions of the contract are consistent with its being a contract of service. 51. In the Ready Mix Concrete case (supra), McKenna J. further elaborated upon the above-quoted conditions. As regards the first, he stated that there must be wages or remuneration; else there is no consideration .....

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J. and W. Henderson Ltd. (1946) 62 TLR 427. The J. and W. Henderson case (supra) at p.429, observes as follows: (a) The master's power of selection of his servant; (b) the payment of wages or other remuneration; (c) the master's right to control the method of doing the work; and (d) the master's right of suspension or dismissal. 53. A recent decision by the Queen s Bench, in JGE v. The Trustees of Portsmouth Roman Catholic Diocesan Trust, [2012] EWCA Civ 938, Lord Justice Ward, whil .....

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onship. It was held, after referring to numerous judicial decisions, that there was no single test to determine such a relationship. Therefore what would be needed to be done is to marshal various tests, which should cumulatively point either towards an employeremployee relationship or away from one. 54. The case of Short v. J. and W. Henderson Ltd., as cited in the Ready Mix Concrete case (supra) and in the JGE case (supra), was also referred to in the fourJudge Bench decision of this Court in .....

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04) 1 SCC 126, as regards the concept of control in an employer-employee relationship, observed as follows: 15. In determining the relationship of employer and employee, no doubt, control is one of the important tests but is not to be taken as the sole test. In determining the relationship of employer and employee, all other relevant facts and circumstances are required to be considered including the terms and conditions of the contract. It is necessary to take a multiple pragmatic approach weig .....

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aterials and what are the mutual obligations between them. (See Industrial Law, 3rd Edn., by I.T. Smith and J.C. Wood, at pp. 8 to 10.) 56. In the case of Bengal Nagpur Cotton Mills case (supra), this Court observed that: 9. In this case, the industrial adjudicator has granted relief to the first respondent in view of its finding that he should be deemed to be a direct employee of the appellant. The question for consideration is whether the said finding was justified. 10. It is now well settled .....

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her the principal employer pays the salary instead of the contractor; and (ii) whether the principal employer controls and supervises the work of the employee. In this case, the Industrial Court answered both questions in the affirmative and as a consequence held that the first respondent is a direct employee of the appellant. 57. Further, the above case made reference to the case of the International Airport Authority of India case (supra) wherein the expression control and supervision in the c .....

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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 a .....

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he appellant had established two schools for the benefit of the wards of its employees. The Writ Petitions were filed by the employees of each school for a declaration that they be treated as the employees of the appellant-company on grounds of, inter alia, real control and supervision by the latter. This Court, while answering the issue canvassed was of the opinion that the proper approach would be to ascertain whether there was complete control and supervision by the appellanttherein. In this .....

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w the words of Lord Uthwatt at p.23 in Mersey Docks and Harbour Board v. Coggins & Griffith (Liverpool) Ltd., (1952) SCR 696 The proper test is whether or not the hirer had authority to control the manner of execution of the act in question . 59. The NALCO case (supra) further made reference to the case of Workmen of Nilgiri Coop. Mkt. Society Ltd. v. State of T.N., (2004) 3 SCC 514, wherein this Court had observed as follows: 37. The control test and the organization test, therefore, are no .....

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ut reasonable solution in a problematic case of this nature, what is needed is an integrated approach meaning thereby integration of the relevant tests wherefor it may be necessary to examine as to whether the workman concerned was fully integrated into the employer s concern meaning thereby independent of the concern although attached therewith to some extent. 60. It was concluded by this Court in the NALCO case (supra) that there may have been some element of control with NALCO because its off .....

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d 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 no .....

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Air India, not the HCI. In this regard, it would be pertinent to elaborate upon the concept of a subsidiary company and the principle of lifting the corporate veil. 63. The Companies Act in India and all over the world have statutorily recognized subsidiary company as a separate legal entity. Section 2(47) of the Companies Act, 1956 (for short the Act, 1956 ) defines subsidiary company or subsidiary , to mean a subsidiary company within the meaning of Section 4 of the Act, 1956. For the purpose .....

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company. 64. In a concurring judgment by K.S.P. Radhakrishnan, J., in the case of Vodafone International Holdings BV v. Union of India, (2012) 6 SCC 613, the following was observed: Holding company and subsidiary company 257. The legal relationship between a holding company and WOS is that they are two distinct legal persons and the holding company does not own the assets of the subsidiary and, in law, the management of the business of the subsidiary also vests in its Board of Directors. ... 25 .....

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of the parent company and can be issued as collateral for additional debt financing. Holding company and subsidiary company are, however, considered as separate legal entities, and subsidiary is allowed decentralized management. Each subsidiary can reform its own management personnel and holding company may also provide expert, efficient and competent services for the benefit of the subsidiaries. 65. The Vodafone case (supra), further made reference to a decision of the US Supreme Court in Unite .....

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directly a participant in the wrong complained of. Mere ownership, parental control, management, etc. of a subsidiary was held not to be sufficient to pierce the status of their relationship and, to hold parent company liable. 66. The doctrine of piercing the corporate veil stands as an exception to the principle that a company is a legal entity separate and distinct from its shareholders with its own legal rights and obligations. It seeks to disregard the separate personality of the company an .....

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or schemes of those who brought it into existence. 67. Most of the cases subsequent to the Salomon case (supra), attributed the doctrine of piercing the veil to the fact that the company was a sham or a façade . However, there was yet to be any clarity on applicability of the said doctrine. 68. In recent times, the law has been crystallized around the six principles formulated by Munby J. in Ben Hashem v. Ali Shayif, [2008] EWHC 2380 (Fam). The six principles, as found at paragraphs 159- .....

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(v) to justify piercing the corporate veil, there must be both control of the company by the wrongdoer(s) and impropriety, that is use or misuse of the company by them as a device or facade to conceal their wrongdoing; and (vi) the company may be a façade even though it was not originally incorporated with any deceptive intent, provided that it is being used for the purpose of deception at the time of the relevant transactions. The Court would, however, pierce the corporate veil only so .....

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n existing legal obligation or liability or subject to an existing legal restriction which he deliberately evades or whose enforcement he deliberately frustrates by interposing a company under his control. The Court may then pierce the corporate veil for the purpose, and only for the purpose, of depriving the company or its controller of the advantage that they would otherwise have obtained by the company's separate legal personality. The principle is properly described as a limited one, bec .....

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rally and broadly speaking, we may say that the corporate veil may be lifted where a statute itself contemplates lifting the veil, or fraud or improper conduct is intended to be prevented, or a taxing statute or a beneficent statute is sought to be evaded or where associated companies are inextricably connected as to be, in reality, part of one concern. It is neither necessary nor desirable to enumerate the classes of cases where lifting the veil is permissible, since that must necessarily depen .....

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plied in a restrictive manner, that is, only in scenarios wherein it is evident that the company was a mere camouflage or sham deliberately created by the persons exercising control over the said company for the purpose of avoiding liability. The intent of piercing the veil must be such that would seek to remedy a wrong done by the persons controlling the company. The application would thus depend upon the peculiar facts and circumstances of each case. 72. Having considered the relevant judicial .....

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contractor to work in a statutory canteen established under the provisions of the Act, 1948 would be the said workmen of the given factory or corporation, but for the purpose of the Act, 1948 only and not for all other purposes. Therefore, the appellants-workmen, in the present case, in light of the settled principle of law, would be workmen of the Air India, but only for the purposes of the Act, 1948. Solely by virtue of this deemed status under the Act, 1948, the said workers would not be able .....

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employee relationship as noticed hereinabove. For the said purpose, it would be necessary to refer to the Memorandum of Association and the Articles of Association of the HCI to look into the nature of the activities it undertakes. The objects of the HCI, as provided under its Memorandum of Association, inter alia, include the following: (i) To carry on the business of hotel, motel, restaurant, café, tavern, flight kitchen, refreshment room and boarding and lodging, housekeepers, licensed .....

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r-India s business as an international air carrier. 77. It can be noticed from the above, that the primary objects of the HCI have no direct relation with the Air India. It is only one of the many incidental or ancillary objects of the HCI that make a direct reference to assisting Air India. The argument that the HCI runs the canteen solely for Air India s purpose and benefit could not succeed in this light. The HCI has several primary objects, which include the running of hotels, motels, etc., .....

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he Air India and that its share capital shall be held by the Air India and/or its nominees. Furthermore, the said Articles included provisions whereby Air India controls the composition of the Board of Directors of the HCI, including the power to remove any such director or even the Chairman of the Board. Further, Air India has the right to issue directions to the HCI, which the latter is bound to comply with. In this regard, it may be contended that the Air India has effective and absolute cont .....

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opinion that the doctrine of piercing the veil cannot be applied in the given factual scenario. Despite being a wholly owned subsidiary of the Air India, Respondent No. 1 and Respondent No. 2 are distinct legal entities. The management of business of the HCI is under its own Board of Directors. The issue relating to the appointment of the Board of Directors of the HCI by the Air India would be a consequence of statutory obligations of a wholly owned subsidiary under the Act, 1956. 80. The prese .....

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1, noted that there has been no advertence on merit, in respect of the workmen s rights qua HCI, and the claim to the said right may still be open to the workmen as per law against the HCI. Thus, it cannot be concluded that the controller Air India has avoided any obligation which the workmen may be legally entitled to. Further, on perusal of the Memorandum of Association and Articles of Association of the HCI, it cannot be said that the Air India intended to create HCI as a mere façade f .....

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that case, the Court had observed that the day-to-day functioning of the school as setup by the appellant therein was not under NALCO, but under a managing committee therein. Further, the said Managing Committee was a separate and distinct legal entity from NALCO, and was solely responsible for recruitment, disciplinary action, termination, etc. of its staff. The Court therefore had held that the respondents therein could not be said to be employed by NALCO. In the present case, HCI is a separat .....

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. 1 to avoid certain statutory liabilities. 83. Reference was also made by the learned counsel for the Appellants to certain documents such as minutes of meetings, etc. to show that the Air India was exercising control over the HCI in matters relating to transfer of workmen in the canteen, rates of subsidies, items on the menu, uniforms of the canteen staff, etc. On a perusal of the said documents, it is found that the said matters were, again, in the nature of supervision. In fact, most of thes .....

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ay be noted that the same are obligations under the Rules, 1950 as applicable to Air India. 84. In our considered view, and in light of the principles applied in the Haldia case (supra), such control would have nothing to do with either the appointment, dismissal or removal from service, or the taking of disciplinary action against the workmen working in the canteen. The mere fact that the Air India has a certain degree of control over the HCI, does not mean that the employees working in the can .....

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