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Balwant Rai Saluja Versus Air India ltd.

2014 (8) TMI 1084 - SUPREME COURT

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 statutory canteens - status of the workmen engaged - Held that:- The mere fact that the Air India has a .....

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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 salaries, etc. are within the control of the HCI. It cannot be then said that the appellants are the workmen of A .....

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so 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 workers, to be called the employees of the factory for all purposes, they would need to satisfy the test of emp .....

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e workmen engaged in statutory canteens, through a contractor, could be treated as employees of the principal establishment. 2. At the outset, it requires to be noticed that the learned Judges differed in their opinion regarding the liability of the principal employer running statutory canteens and further regarding the status of the workmen engaged thereof. The learned Judges differed on the aspect of supervision and control which was exercised by the Air India Ltd. (for short, the Air India )- .....

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ch has expressed contrasting opinions on the prevalence of an employer-employee relationship between the principal employer and the workers in the said canteen facility, based on, inter alia, issues surrounding the economic dependence of the subsidiary role in management and maintenance of the canteen premises, representation of workers, modes of appointment and termination as well as resolving disciplinary issues among workmen. The Bench also differed on the issue pertaining to whether such wor .....

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atutory canteen and Respondent No. 1-herein. The said industrial dispute was referred by the Central Government, by its order dated 23.10.1996 to the Central Government Industrial Tribunal cum Labour Court (for short the CGIT ). The question referred was whether the workmen as employed by Respondent No. 3-herein, to provide canteen services at the establishment of Respondent No. 1-herein, could be treated as deemed employees of the said Respondent No. 1. Vide order dated 05.05.2004, the CGIT hel .....

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High Court of Delhi vide impugned order dated 02.04.2011 found no error in the order passed by the learned Single Judge of the High Court. The appeal was dismissed by the Division Bench confirming the order of the learned Single Judge who observed that the responsibility to run the canteen was absolutely with the HCI and that the Air India and the HCI shared an entirely contractual relationship. Therefore, the claim of the appellants to be treated as employees of the Air India and to be regular .....

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since by virtue of notification dated 21.01.1991, Rules 65-70 of the Delhi Factory Rules, 1950 (for short, the Rules, 1950 ) have become applicable to the respondent No. 1, the said workers should be held to be the employees of the management of the corporation, on which such statutory obligation is placed, that is, Air India. 7. Respondent No. 1 is a company incorporated under the Companies Act, 1956 and is owned by the Government of India. The primary object of the said respondent is to provi .....

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the Air India. As per the Memorandum of Association of Respondent No. 2, the same is a wholly-owned subsidiary of the Air India. The main objects of the said respondent, inter alia, are to establish refreshment rooms, canteens, etc. for the sale of food, beverages, etc. 9. Respondent No. 2 has various units and Respondent No. 3, being Chefair Flight Catering (for short, the Chefair ), provides flight catering services to various airlines, including Air India. It is this Chefair unit of HCI that .....

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a factory - Air India, can be said to be the workmen of the said factory or corporation . SUBMISSIONS : 11. Shri Jayant Bhushan, learned Senior Counsel for the appellants-workmen has two alternative submissions; firstly, that in the event of a statutory requirement to provide for a canteen or any other facility, the employees of the said facility would automatically become employees of the principal employer, irrespective of the existence of any intermediary that may have been employed to run t .....

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66; Hussainbhai v. Alath Factory Thezhilali Union, (1978) 4 SCC 257; M.M.R. Khan v. Union of India, 1990 Supp SCC 191; and Parimal Chandra Raha v. LIC, 1995 Supp (2) SCC 611. 12. Shri Jayant Bhushan also submits that the issue raised in these appeals is squarely covered by the observations made by the Constitution Bench in the case of Steel Authority of India Ltd. v. National Union Waterfront Workers, (2001) 7 SCC 1. 13. While supporting the judgment in the Steel Authority of India s case (supr .....

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to the facts of the present case. He would also refer to the three-Judge Bench decision of this Court in the case of Indian Petrochemicals Corpn. Ltd. v. Shramik Sena, (1999) 6 SCC 439, and then would submit that the proposition of law enunciated in the Indian Petrochemicals case (supra) is followed by this Court in Hari Shankar Sharma v. Artificial Limbs Mfg. Corpn., (2002) 1 SCC 337; Workmen v. Coates of India Ltd., (2004) 3 SCC 547; Haldia Refinery Canteen Employees Union v. Indian Oil Corpn. .....

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ns, he refers to Bengal Nagpur Cotton Mills v. Bharat Lal, (2011) 1 SCC 635; International Airport Authority of India v. International Air Cargo Workers Union, (2009) 13 SCC 374; and National Aluminium Co. Ltd. v. Ananta Kishore Rout & Ors., (2014) 6 SCC 756. RELEVANT PROVISIONS : 16. To appreciate the point of view of the parties to the present lis, it is necessary to notice the relevant provisions. 17. Section 46 of the Act, 1948 statutorily places an obligation on the occupier of a factor .....

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nment may make rules requiring that in any specified factory wherein more than two hundred and fifty workers are ordinarily employed, a canteen or canteens shall be provided and maintained by the occupier for the use of the workers. (2) Without prejudice in the generality of the foregoing power, such rules may provide for - (a) the date by which such canteen shall be provided; (b) the standard in respect of construction, accommodation, furniture and other equipment of the canteen; (c) the foodst .....

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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 Government to run statutory canteens as per Section 46 of the Act, 1948. Rule 65, inter alia, provides for an .....

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ned in a hygienic manner. Rule 68 prescribes that the prices to be charged on foodstuffs and other items will be on a non-profit basis, as approved by the Canteen Managing Committee. Rule 69 illustrates the procedure for handling the auditing of accounts, under the supervision of the Canteen Managing Committee as well as Inspector of Factories. Lastly, Rule 70 enumerates the consultative role of the Managing Committee regarding, inter alia, the quality and quantity of foodstuffs served, arrangem .....

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ility of the Constitution Bench decision in the Steel Authority of India case (supra). Learned counsel refers to paragraphs 106 and 107 of the said judgment to contend that the observations made therein is the expression of the Court on the question of law and since it is the decision of the Constitution Bench, the same would be binding on this Court. To appreciate the submission of the learned counsel, we notice the aforesaid paragraphs: 106. We have gone through the decisions of this Court in .....

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nciple of law that on the contract labour system being abolished under sub-section (1) of Section 10 of the CLRA Act the contract labour working in the establishment of the principal employer have to be absorbed as regular employees of the establishment. 107. An analysis of the cases, discussed above, shows that they fall in three classes: (i) where contract labour is engaged in or in connection with the work of an establishment and employment of contract labour is prohibited either because the .....

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f. Indeed, such cases do not relate to abolition of contract labour but present instances wherein the Court pierced the veil and declared the correct position as a fact at the stage after employment of contract labour stood prohibited; (iii) where in discharge of a statutory obligation of maintaining a canteen in an establishment the principal employer availed the services of a contractor the courts have held that the contract labour would indeed be the employees of the principal employer. 21. B .....

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1947 and the other issue was automatic absorption of the contract labour in the establishment of the principal employer as a consequence of an abolition notification issued under Section 10(1) of the Contract Labour (Regulation and Abolition) Act. The Court while over-ruling the judgment in Air India Statutory Corporation vs. United Labour Union (1997) 9 SCC 377, prospectively, held that neither Section 10 of the Contract Labour (Regulation and Abolition) Act nor any other provision in the Act, .....

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re employees of the principal employer and secondly, whether the principal employer to fulfil its obligation under Section 46 of the Act, 1948 engages a contractor, the employees of the contractor can claim regularisation and extension of the service conditions extended to the employees of the principal employer did not remotely arise for consideration of the Court. Secondly, in our considered view, the observations made by the Constitution Bench in paragraph 107 of the Judgment by no stretch of .....

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ncome Tax v. Sun Engineering Works (P) Ltd., (1992) 4 SCC 363, has observed: 39. It is neither desirable nor permissible to pick out a word or a sentence from the judgment of this Court divorced from the context of the question under consideration and treat it to be complete law declared by this Court. The Judgment must be read as a whole and the observations from the judgment have to be considered in the light of the questions which were before this Court. A decision of this Court takes its col .....

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Labour Court, Chandigarh and Ors., (1990) 3 SCC 682, observed as follows: 44. An analysis of judicial precedent, ratio decidendi and the ambit of earlier and later decisions is to be found in the House of Lords decision in F.A. & A.B. Ltd. v. Lupton (Inspector of Taxes), Lord Simon concerned with the decisions in Griffiths v. J.P. Harrison (Watford) Ltd. and Finsbury Securities Ltd. v. Inland Revenue Commissioner with their interrelationship and with the question whether Lupton s case fell .....

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he case. It was further observed in the Punjab Land Development case (supra), that: 53. Lord Halsbury s dicta in Quinn v. Leatham, 1901 AC 495: (AC p. 506) every judgment must be read as applicable to the particular facts proved, or assumed to be proved, since the generality of the expressions which may be found there are not intended to be expositions of the whole law, but governed and qualified by the particular facts of the case in which such expressions are to be found. The other is that a c .....

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nsidered in the context in which it was rendered and that a decision is an authority for what it decides and it is not everything said therein constitutes a precedent. 25. In our view, the binding nature of a decision would extend to only observations on points raised and decided by the Court and neither on aspects which it has not decided nor had occasion to express its opinion upon. The observation made in a prior decision on a legal question which arose in a manner not requiring any decision .....

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ed by the appropriate Government under Section 10 of the Contract Labour (Abolition and Regulation) Act, 1970. The conclusion in paragraph 125 of Steel Authority of India s case (supra), inter alia, states that on issuance of a notification under Section 10(1) of Contract Labour (Abolition and Regulation) Act, 1970 passed by the appropriate Government would not entail the automatic absorption of contract workers operating in the establishment and the principal employer will not be burdened with .....

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rkers employed in factories and it also provides for the improvement of working conditions within the factory premises. Section 2 of the Act, 1948 is the interpretation clause. Apart from others, it provides the definition of worker under Section 2(l) of the Act, 1948, to mean a person employed, directly or through any other agency, whether for wages or not, in any manufacturing or cleaning process. Section 46 of the Act, 1948 requires the establishment of canteens in factories employing more th .....

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s framed and notified the Rules, 1950, in which rules 65 to 70 are incorporated to give effect to the purpose of Section 46 of the Act, 1948. 28. The question before us is when the company is admittedly required to run the canteen in compliance of the statutory obligation under Section 46 of the Act, 1948, whether the canteen employees employed by the contractor are to be treated as the employees of the company only for the purpose of Act 1948 or for all the other purposes. 29. Before we advert .....

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eference to recruitment, seniority, promotion, retirement benefits etc. They are governed by other statutes, rules, contracts or policies. 30. The aforesaid viewpoint is reiterated by this Court in the case of Haldia Refinery Canteen Employees Union and others v. Indian Oil Corporation Ltd. and ors., (2005) 5 SCC 51 and in Hari Shankar Sharma v. Artificial Limbs Manufacturing Corporation, (2002) 1 SCC 337. As observed by the Constitution Bench of this Court in the case of Union of India v. Raghu .....

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similar as in Indian Petrochemicals case (supra), and since we are not persuaded to take a different view in the matter, the observations made therein is binding on us. 31. This Court in the Indian Petrochemical case (supra), while explaining the decision in Parimal Chandra Raha s case (supra), has stated that in Raha s case, the Supreme Court did not specifically hold that the deemed employment of the workers is for all purposes nor did it specifically hold that it is only for the purposes of .....

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. 32. The proposition of law in the Indian Petrochemicals case (supra) has been reiterated in the Hari Shankar Sharma s case (supra). This Court stated that: 6. The observations in Parimal Chandra Raha case relied on by the appellants which might have supported the submission of the appellants have been explained by a larger Bench in Indian Petrochemicals Corpn. Ltd. v. Shramik Sena where it was held, after considering the provisions of the Factories Act and the previous decisions on the issue, .....

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z Werner Ltd. v. State of Karnataka, 2001 (4) SCC 498. 34. The Coates of India Ltd. s case (supra) was regarding a dispute over the status of the appellant workmen therein who were hired by a contractor to work in a canteen run on the premises of the respondent company. This Court observed that merely some requirement under the Act, 1948 of providing a canteen in the industrial establishment is by itself not conclusive of the question or sufficient to determine the status of the persons employed .....

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Court went on to observe that since the canteen employees were not directly appointed by the Company nor had they ever moved the Company for leave or other benefits enjoyed by the regular employees of the Company, and further that the canteen employees got their wages from the respective contractors and, therefore, they are not employees of the Company. 35. The Haldia case (supra) was similar to the facts of the present case. In that case, the appellant-workmen were working in the statutory can .....

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agement, administration and functioning of the said canteen. Therefore, writ applications were filed seeking issuance of mandamus to the respondent to absorb the appellants in the service of the respondent therein and to regularize them as such. This Court then made a detailed reference to the Parimal Chandra Raha case (supra), the MMR Khan case (supra) and the Indian Petrochemicals case (supra). The Court then extensively referred to the terms and conditions of the contract between the canteen .....

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ood to the workmen of the establishment. This, however, does not mean that the employees working in the canteen have become the employees of the management. 15. A free hand has been given to the contractor with regard to the engagement of the employees working in the canteen. There is no clause in the agreement stipulating that the canteen contractor unlike in the case of Indian Petrochemicals Corpn. Ltd. shall retain and engage compulsorily the employees who were already working in the canteen .....

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contractor has also been made responsible for the proper maintenance of registers, records and accounts so far as compliance with any statutory provisions/obligations is concerned. A duty has been cast on the contractor to keep proper records pertaining to payment of wages, etc. and also for depositing the provident fund contributions with the authorities concerned. The contractor has been made liable to defend, indemnify and hold harmless the employer from any liability or penalty which may be .....

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ed by the contractor to work in the said canteen, it was observed by this Court in the Haldia case (supra) that the control was of a supervisory nature and that there was no control over disciplinary action or dismissal. Such control was held not to be determinative of the alleged fact that the workmen were under the control of the management. This Court observed as follows: 16. The management has kept with it the right to test, interview or otherwise assess or determine the quality of the emplo .....

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the canteen. Only because the management exercises such control does not mean that the employees working in the canteen are the employees of the management. Such supervisory control is being exercised by the management to ensure that the workers employed are well qualified and capable of rendering proper service to the employees of the management. 37. The last case that we intend to refer on this point is that of KGSD Canteen case (supra), wherein this Court was required to answer the question a .....

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

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rement benefits, etc., which are the subject matter of various other legislations, policies, etc. Therefore, we cannot accept the submission of Shri Jayant Bhushan, learned counsel that the employees of the statutory Canteen ipso-facto become the employees of the principal employer. 39. We may now refer to the various decisions, cited by learned counsel, Shri Jayant Bhushan. 40. The Saraspur Mills case (supra) came before this Court as a result of a dispute under the Bombay Industrial Relations .....

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of the appellant-company. The case of the workmen was that the appellant-company was running the canteen to fulfill its statutory obligations and thus the running of the said canteen would be part of the undertaking of the appellant although the appellant did not run itself the canteen but handed over the premises to the co-operative society to run it for the use and welfare of the Company s employees and to discharge its legal obligation. The appellant-company had resisted the claim by contendi .....

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n 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 (supra) to hold that the workers of the canteen run by a cooperative society to be the employees of the appel .....

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factory premises on one hand, and the petitioner who was the factory owner manufacturing ropes who had engaged such contractor, on the other hand. The issue therein pertained to whether such workmen would be that of the contactor or the petitioner. In the said case, the Court went into the concept of employer employee relationship from the point of view of economic realities. It was observed, by a three-Judge Bench, that: 5. The true test may, with brevity, be indicated once again. Where a work .....

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conspectus of factors governing employment, we discern the naked truth, though draped in different perfect paper arrangement, that the real employer is the Management, not the immediate contractor. ... 43. The Hussainbhai case (supra) did not deal with the Act, 1948, much less any statutory obligation thereunder. The case proceeded on the test of employer employee relationship to ascertain the actual employer. The Court gave due weight and consideration to the concept of economic control in thi .....

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available to the said railway employees. The Court was concerned, in the said case, with three types of canteens:- (i) Statutory Canteens; (ii) Non-Statutory, Recognized Canteens; and (iii) Non-Statutory, Non-Recognized Canteens. As regards statutory canteens, the Court noticed that under Section 46 of the Act, 1948, the occupier of a factory was not only obliged to provide for and maintain a canteen where more than 250 workers are employed, but was also obliged to abide by the rules which the .....

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shment Manual and the Administrative Instructions on Departmental Canteens in Offices and Industrial Establishments of the Government as issued by the Department of Personnel and Training, Ministry of Personnel, Public Grievances and Pensions of the Government of India, which dealt with the canteens and had express provisions thereunder that were integral to the final decision of this Court. The issue that arose before the Court was whether the employees of the statutory canteen could be said to .....

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the canteen is deemed by the statute as a necessary concomitant of the manufacturing activity. Paragraph 2829 of the Railway Establishment Manual recognizes the obligation on the railway Administration created by the Act and as pointed out earlier paragraph 2834 makes provision for meeting the cost of the canteens. Paragraph 2832 acknowledges that although the railway administration may employ anyone such as a staff committee or a co-operative society for the management of the canteens, the leg .....

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ave to be under a complete administrative control of the concerned department and the recruitment, service conditions and the disciplinary proceedings to be taken against the employees have to be taken according to the rules made in that behalf by the said department. In the circumstances, even where the employees are appointed by the staff committee/cooperative society it will have to be held that their appointment is made by the department through the agency of the committee/society as the cas .....

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not present in the instant case. In light of the same, the given case cannot be said to be a precedent on the general proposition as regards the status of employees of a statutory canteen established under the Act, 1948. 47. We have already referred to the decision of this Court in Parimal Chandra Raha case (supra), and, therefore, we are not referring to the said decision once over again. However, we add that in the Parimal Chandra Raha case (supra), this Court made a general observation that u .....

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etween the Corporation and the canteen workers and therefore, the canteen workers were the employees of the Corporation. This Court, while arriving at the said conclusion laid emphasis on the contract between the corporation and the contractor, whereby it was shown that the terms of the said contract were in the nature of directions to the contractor about the manner in which the canteen should be run and the canteen services should be rendered to the employees. Furthermore, it was found that ma .....

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rt must apply the test of complete administrative control. Furthermore, it would be necessary to show that there exists an employer-employee relationship between the factory and the workmen working in the canteen. In this regard, the following cases would be relevant to be noticed. 50. This Court would first refer to the relevant pronouncements by various English Courts in order to analyze their approach regarding employer-employee relationship. In the case of Ready Mix Concrete (South East) Ltd .....

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

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llows: (a) The master's power of selection of his servant; (b) the payment of wages or other remuneration; (c) the master's right to control the method of doing the work; and (d) the master's right of suspension or dismissal. 53. A recent decision by the Queen s Bench, in JGE v. The Trustees of Portsmouth Roman Catholic Diocesan Trust, [2012] EWCA Civ 938, Lord Justice Ward, while discussing the hallmarks of the employer-employee relationship, observed that an employee works under th .....

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rmine 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 Dhrangadhra Chemical Works Ltd. v. State of Saurashtra, AIR 1957 SC 274. In the Dhrangadhra Chemical Works .....

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: 15. In determining the relationship of employer and employee, no doubt, control is one of the important tests but is not to be taken as the sole test. In determining the relationship of employer and employee, all other relevant facts and circumstances are required to be considered including the terms and conditions of the contract. It is necessary to take a multiple pragmatic approach weighing up all the factors for and against an employment instead of going by the sole test of control . An in .....

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d J.C. Wood, at pp. 8 to 10.) 56. In the case of Bengal Nagpur Cotton Mills case (supra), this Court observed that: 9. In this case, the industrial adjudicator has granted relief to the first respondent in view of its finding that he should be deemed to be a direct employee of the appellant. The question for consideration is whether the said finding was justified. 10. It is now well settled that if the industrial adjudicator finds that the contract between the principal employer and the contract .....

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yer controls and supervises the work of the employee. In this case, the Industrial Court answered both questions in the affirmative and as a consequence held that the first respondent is a direct employee of the appellant. 57. Further, the above case made reference to the case of the International Airport Authority of India case (supra) wherein the expression control and supervision in the context of contract labour was explained by this Court. The relevant part of the International Airport Auth .....

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ies 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 a .....

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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 regard, reference was made to the case of Dhrangadhra Chemical Works case (supra) wherein this Court had o .....

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) Ltd., (1952) SCR 696 The proper test is whether or not the hirer had authority to control the manner of execution of the act in question . 59. The NALCO case (supra) further made reference to the case of Workmen of Nilgiri Coop. Mkt. Society Ltd. v. State of T.N., (2004) 3 SCC 514, wherein this Court had observed as follows: 37. The control test and the organization test, therefore, are not the only factors which can be said to be decisive. With a view to elicit the answer, the Court is requir .....

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ing thereby integration of the relevant tests wherefor it may be necessary to examine as to whether the workman concerned was fully integrated into the employer s concern meaning thereby independent of the concern although attached therewith to some extent. 60. It was concluded by this Court in the NALCO case (supra) that there may have been some element of control with NALCO because its officials were nominated to the Managing Committee of the said schools. However, it was observed that the abo .....

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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 .....

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y company and the principle of lifting the corporate veil. 63. The Companies Act in India and all over the world have statutorily recognized subsidiary company as a separate legal entity. Section 2(47) of the Companies Act, 1956 (for short the Act, 1956 ) defines subsidiary company or subsidiary , to mean a subsidiary company within the meaning of Section 4 of the Act, 1956. For the purpose of the Act, 1956, a company shall be, subject to the provisions of sub-section (3) of Section 4, of the Ac .....

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Holdings BV v. Union of India, (2012) 6 SCC 613, the following was observed: Holding company and subsidiary company 257. The legal relationship between a holding company and WOS is that they are two distinct legal persons and the holding company does not own the assets of the subsidiary and, in law, the management of the business of the subsidiary also vests in its Board of Directors. ... 258. Holding company, of course, if the subsidiary is a WOS, may appoint or remove any Director if it so des .....

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ubsidiary company are, however, considered as separate legal entities, and subsidiary is allowed decentralized management. Each subsidiary can reform its own management personnel and holding company may also provide expert, efficient and competent services for the benefit of the subsidiaries. 65. The Vodafone case (supra), further made reference to a decision of the US Supreme Court in United States v. Bestfoods [141 L Ed 2d 43: 524 US 51 (1998)]. In that case, the US Supreme Court explained tha .....

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a subsidiary was held not to be sufficient to pierce the status of their relationship and, to hold parent company liable. 66. The doctrine of piercing the corporate veil stands as an exception to the principle that a company is a legal entity separate and distinct from its shareholders with its own legal rights and obligations. It seeks to disregard the separate personality of the company and attribute the acts of the company to those who are allegedly in direct control of its operation. The sta .....

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upra), attributed the doctrine of piercing the veil to the fact that the company was a sham or a façade . However, there was yet to be any clarity on applicability of the said doctrine. 68. In recent times, the law has been crystallized around the six principles formulated by Munby J. in Ben Hashem v. Ali Shayif, [2008] EWHC 2380 (Fam). The six principles, as found at paragraphs 159- 164 of the case are as follows- (i) ownership and control of a company were not enough to justify piercing .....

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and impropriety, that is use or misuse of the company by them as a device or facade to conceal their wrongdoing; and (vi) the company may be a façade even though it was not originally incorporated with any deceptive intent, provided that it is being used for the purpose of deception at the time of the relevant transactions. The Court would, however, pierce the corporate veil only so far as it was necessary in order to provide a remedy for the particular wrong which those controlling the .....

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evades or whose enforcement he deliberately frustrates by interposing a company under his control. The Court may then pierce the corporate veil for the purpose, and only for the purpose, of depriving the company or its controller of the advantage that they would otherwise have obtained by the company's separate legal personality. The principle is properly described as a limited one, because in almost every case where the test is satisfied, the facts will in practice disclose a legal relatio .....

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plates lifting the veil, or fraud or improper conduct is intended to be prevented, or a taxing statute or a beneficent statute is sought to be evaded or where associated companies are inextricably connected as to be, in reality, part of one concern. It is neither necessary nor desirable to enumerate the classes of cases where lifting the veil is permissible, since that must necessarily depend on the relevant statutory or other provisions, the object sought to be achieved, the impugned conduct, t .....

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e camouflage or sham deliberately created by the persons exercising control over the said company for the purpose of avoiding liability. The intent of piercing the veil must be such that would seek to remedy a wrong done by the persons controlling the company. The application would thus depend upon the peculiar facts and circumstances of each case. 72. Having considered the relevant judicial decisions and the well established and settled principles, it would be appropriate to revert back to the .....

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aid workmen of the given factory or corporation, but for the purpose of the Act, 1948 only and not for all other purposes. Therefore, the appellants-workmen, in the present case, in light of the settled principle of law, would be workmen of the Air India, but only for the purposes of the Act, 1948. Solely by virtue of this deemed status under the Act, 1948, the said workers would not be able to claim regularization in their employment from the Air India. As has been observed in the Indian Petroc .....

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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 victuallers, etc.; (ii) To provide lodging and boarding and other facilities to the public; (iii) To purc .....

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objects of the HCI have no direct relation with the Air India. It is only one of the many incidental or ancillary objects of the HCI that make a direct reference to assisting Air India. The argument that the HCI runs the canteen solely for Air India s purpose and benefit could not succeed in this light. The HCI has several primary objects, which include the running of hotels, motels, etc., in addition to establishing shops, kitchens, canteens and refreshment rooms. The Air India only finds ment .....

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he said Articles included provisions whereby Air India controls the composition of the Board of Directors of the HCI, including the power to remove any such director or even the Chairman of the Board. Further, Air India has the right to issue directions to the HCI, which the latter is bound to comply with. In this regard, it may be contended that the Air India has effective and absolute control over the HCI and that therefore latter is merely a veil between the appellants-workmen and Air India. .....

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eing a wholly owned subsidiary of the Air India, Respondent No. 1 and Respondent No. 2 are distinct legal entities. The management of business of the HCI is under its own Board of Directors. The issue relating to the appointment of the Board of Directors of the HCI by the Air India would be a consequence of statutory obligations of a wholly owned subsidiary under the Act, 1956. 80. The present facts would not be a fit case to pierce the veil, which as enumerated above, must be exercised sparingl .....

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laim to the said right may still be open to the workmen as per law against the HCI. Thus, it cannot be concluded that the controller Air India has avoided any obligation which the workmen may be legally entitled to. Further, on perusal of the Memorandum of Association and Articles of Association of the HCI, it cannot be said that the Air India intended to create HCI as a mere façade for the purpose of avoiding liability towards the Appellants-workmen herein. 81. Therefore, the only consid .....

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therein was not under NALCO, but under a managing committee therein. Further, the said Managing Committee was a separate and distinct legal entity from NALCO, and was solely responsible for recruitment, disciplinary action, termination, etc. of its staff. The Court therefore had held that the respondents therein could not be said to be employed by NALCO. In the present case, HCI is a separate legal entity incorporated under the Act, 1956 and is carrying out the activity of operating and running .....

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ellants to certain documents such as minutes of meetings, etc. to show that the Air India was exercising control over the HCI in matters relating to transfer of workmen in the canteen, rates of subsidies, items on the menu, uniforms of the canteen staff, etc. On a perusal of the said documents, it is found that the said matters were, again, in the nature of supervision. In fact, most of these were as a consequence of the obligations imposed under the Rules, 1950. Air India, being the entity bear .....

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sidered view, and in light of the principles applied in the Haldia case (supra), such control would have nothing to do with either the appointment, dismissal or removal from service, or the taking of disciplinary action against the workmen working in the canteen. The mere fact that the Air India has a certain degree of control over the HCI, does not mean that the employees working in the canteen are the Air India s employees. The Air India exercises control that is in the nature of supervision. .....

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