Air India Statutory Corporation v United Labour Union (1996)

This is the high-water mark of the automatic-absorption doctrine under the Contract Labour (Regulation and Abolition) Act 1970. It decides two things that dominate Unit 4: who is the "appropriate Government" under s. 2(1)(a) of that Act, and what happens to the workmen when a notification under s. 10(1) abolishes the contract labour system.

On the first, the Court departed from the common-law "principal and agent" reading of Heavy Engineering Mazdoor Union v State of Bihar. On the second, it held that abolition by itself snaps the link with the contractor and obliges the principal employer to absorb the workmen — disapproving the narrower view of Dena Nath v National Fertilizers Ltd and the award-route worked out in Gujarat Electricity Board v Hind Mazdoor Sabha.

The appellant was originally a statutory authority under the International Airport Authority of India Act 1971; on that Act's repeal by the Airports Authority of India Act 1994 it was amalgamated with the National Airport Authority, and was later reconstituted as a company under the Companies Act 1956.

The members of the respondent union were engaged as contract labour for sweeping, cleaning, dusting and watching of the buildings owned and occupied by the appellant. The appellant had obtained a certificate of registration from the Regional Labour Commissioner (Central) on 20 September 1971; that registration was revoked by proceedings dated 22 May 1973 after the Regional Labour Commissioner (Central), Bombay, informed the appellant by a letter of 20 January 1972 that the State Government was the appropriate Government under the Act.

On 9 December 1976, acting on the recommendation of and in consultation with the Central Advisory Board, the Central Government issued a notification under s. 10 prohibiting the employment of contract labour for sweeping, cleaning, dusting and watching of buildings owned or occupied by establishments in respect of which the Central Government is the appropriate Government. The prohibition did not apply to outside cleaning and other maintenance operations of multi-storeyed buildings which cannot be carried out except with specialised experience.

The appellant did not abolish the contract system. The workmen filed writ petitions seeking enforcement of the notification and absorption. The learned single Judge allowed the petition on 16 November 1989, directing that all contract workers be regularised as employees of the appellant from the date of filing of the writ petition. A day earlier, on 15 November 1989, the Government of India had referred the matter to the Central Advisory Board (the Mohile Committee), which recommended not to abolish the contract labour system in those services. The Division Bench dismissed the appeal, and the employer came to the Supreme Court.

The Court set out seven questions, of which the following carry the syllabus:

1. The meaning of "appropriate Government" under s. 2(1)(a) of the Act.
2. "Whether the view taken in Heavy Engineering case is correct in law?"
3. "Whether on abolition the contract labour are entitled to be absorbed; if so, from what date ?"
4. "Whether the High Court under Article 226 has power to direct their absorption; if so, from what date ?"
5. Whether a reference under s. 10 of the Industrial Disputes Act is necessary for the dispute about absorption.
6. "Whether the view taken by this Court in Dena Nath and Gujarat State Electricity Board's case is correct in law ?"
7. "Whether the workmen have got a right for absorption and, if so, what is the remedy for enforcement ?"

Section 2(1)(a) makes the Central Government the appropriate Government in relation to an establishment in respect of which the Central Government is the appropriate Government under the Industrial Disputes Act, and the State Government in relation to any other establishment. Everything therefore turns on the phrase "by or under the authority of" the Central Government.

In Heavy Engineering, a two-Judge Bench had held that the words "under authority of" mean pursuant to the authority, as an agent or servant acts under the authority of his principal or master, so that a Government company deriving its powers from its Memorandum and Articles of Association is not carrying on business pursuant to the authority of the Central Government; the fact that the President and officers of the Central Government held all the shares made no difference, because the company and its shareholders are distinct entities. The judgment records that those "learned judges came to that conclusion on the basic of concessions and on private law of principal and agent".

The Court traced how that reading was carried forward in Hindustan Aeronautics Ltd, Rashtriya Mill Mazdoor Sangh and Food Corporation of India, and found no independent reasoning in the first, a bonus context in the second, and a functional, place-of-establishment reasoning in the third. Against this it set the development of Art. 12 jurisprudence — Sukhdev Singh, R.D. Shetty, U.P. Warehousing Corporation and Ajay Hasia — and the trinity of the Preamble, Part III and Part IV.

The conclusion was that public law interpretation, not the private law of principal and agent, governs the phrase: the two-Judge Bench in Heavy Engineering had narrowly interpreted the expression, and the Court held those to be "common law principles which no longer bear any relevance when it is tested on the anvil of Article 14." The Court added that "Heavy Engineering case is based on concession."

Hence: "we have no hesitation to hold that the appropriate Government is the Central Government from the inception of the Act." The notification of 9 December 1976 was therefore issued by the appropriate Government and was valid in law. Having abolished the system, the Central Government was denuded of power under s. 10(1) to appoint a further committee to go over the self-same question, so the Mohile Committee's contrary recommendation and its acceptance were "without any legal base and, therefore, non est."

The Court read the Act as socio-economic welfare legislation whose object is to prevent the exploitation of labour. Sections 7 and 12 require registration of the principal employer and licensing of the contractor, backed by penal consequences; ss. 16 to 19 require canteens, rest rooms, wholesome drinking water and latrines and urinals. These were treated as constitutional entitlements: the canteen provision serves "a right to food, a basic human right", the rest-room provision "a right to leisure enshrined in Article 43 of the Constitution", and drinking water and sanitation are part of the right to health and to just and humane conditions of work, all facets of Art. 21.

Under s. 10(2) the Advisory Board must consider whether the work is incidental to or necessary for the industry, "whether it is of perennial nature", "whether it is done ordinarily through regular workmen in the establishment or an establishment similar thereto", and "whether it is sufficient to employ considerable number of whole time workmen". The Explanation makes the appropriate Government's decision on perennial nature final. Once those conditions are satisfied, "the continuance of contract labour stands prohibited and abolished. The concomitant result would be that source of regular employment became open."

The Court frankly acknowledged the gap in the statute: "we find no express provision in the Act declaring the contract labour working in the establishment of the principal employer in the particular service to be the direct employees of the principal employer." It filled that gap from the words "matters connected therewith" in the Preamble, read with the object of the Act and the constitutional rights of the workmen.

If the workmen were doing duties found to be of perennial nature on a par with regular service, they too require to be regularised; the Act did not intend to denude them of their sources of livelihood and throw them out of employment. Hence: "Abolition of contract labour system ensures right to the workmen for regularisation of them as employees in the establishment in which they were hitherto working as contract labour through the contractor." The contractor stands removed from regulation under the Act and a direct relationship of employer and employee is created between the principal employer and the workmen.

"On abolition of contract labour, the intermediary, i.e., contractor, is removed from the field and direct linkage between labour and principal employer is established. Thereby, the principal employer's obligation to absorb them arises. The right of the employee for absorption gets ripened and fructified."

The policy reason is given bluntly. On the contrary view, "it would be an open field for the principal employer to freely flout the provisions of the Act and engage workmen in defiance of the Act and adopt the principle of hire and fire making it possible to exploit the appalling conditions in which the workmen are placed."

Dena Nath was a two-Judge Bench which, on a literal reading, had concluded that the Act merely regulates the conditions of service of workmen employed by a contractor; that neither the Act nor the rules provide for direct absorption by the principal employer on abolition; and that a High Court under Art. 226 cannot direct absorption. This Court accepted part of that reasoning — a court cannot itself decide whether contract labour should be abolished, that being for the appropriate Government — but held the rest too narrow: "The Division Bench in Dena Nath's case has taken too narrow a view on technical consideration without keeping at the back of the mind the constitutional animations and the spirit of the provisions and the object which the Act seeks to achieve."

Gujarat Electricity Board, a co-ordinate Bench, had tried to fill the gap by routing absorption through an industrial award. The Court held that this "attempted, by interpretation, to fill in the gap but it also fell shout of full play and got beset with insurmountable difficulties in its working". Those difficulties are set out practically: the existing employees' union may not espouse the cause of the contract labour for a reference under s. 10 of the Industrial Disputes Act; the workmen have no right of their own to seek a reference; they are meanwhile out of a job, waiting endlessly for an award and the litigation after it; and without wages they cannot keep fighting. The right and the remedy would be "a teasing illusion" and would leave the workman at the mercy of the principal employer. "The award proceedings as suggested in Gujarat Electricity Board case are beset with several incongruities and obstacles in the way of the contract labour for immediate absorption."

On the writ jurisdiction the Court was expansive: "The founding fathers placed no limitation or fetters on the power of the High Court under Article 226 of the Constitution except self-imposed limitations. The arm of the Court is long enough to reach injustice wherever it is found."

It drew support from The Standard-Vacuum Refining Co. of India v Its Workmen (a Tribunal's direction to abolish contract labour upheld even before the Act), Security Guards Board for Greater Bombay v Security & Personnel Service Pvt. Ltd (the workers' relationship is with the establishment where they work, not with the agency through which they came), Sankar Mukherjee v Union of India (the Act to be construed liberally, allied perennial jobs treated alike), R.K. Panda v Steel Authority of India (contract labour continuing for ten years despite changes of contractor directed to be absorbed) and National Federation of Railway Porters, Vendors & Bearers v Union of India (the Labour Commissioner directed to enquire and report, on which relief was moulded).

1. The Central Government was the appropriate Government "from the inception of the Act", the phrase "appropriate Government" being construed on public law principles; the narrow, common-law construction in Heavy Engineering was not accepted.
2. The notification of 9 December 1976 was valid, and the later contrary recommendation of the Mohile Committee and its acceptance were non est.
3. On abolition under s. 10(1), "by necessary implication, the principal employer is under statutory obligation to absorb the contract labour. The linkage between the contractor and the employee stood snapped and direct relationship stood restored between principal employer and the contract labour as its employees."
4. Accordingly "all the workmen in the respective services working on contract labour are required to be absorbed in the establishment of the appellant." There was no impediment to absorbing them in the last grade on a regular basis, and the establishment was to take the steps needed to prescribe a scale of pay. "Therefore, the date of engagement will be the criteria to determine their inter se seniority." If excess staff had to be retrenched, the principle of "last come, first go" was to be applied, subject to reappointment when a vacancy arose.
5. The employer's alternative proposal that absorption be left to the management's discretion was rejected as one that "would defeat, more often than not, the purpose of the Act and keep the workmen at the whim of the establishment."
6. On the writ question: "though there is no express provision in the Act for absorption of the employees whose contract labour system stood abolished by publication of the notification under section 10 (1) of the Act, in a proper case, the court as sentinal in the qui vive is required to direct the appropriate authority to act in accordance with law and submit a report to the court and based thereon proper relief should be granted."
7. "The appeals are accordingly dismissed, but in the circumstances, without costs."

The expression "appropriate Government" in s. 2(1)(a) of the Contract Labour (Regulation and Abolition) Act 1970 is to be construed by public law principles and not by the private law of principal and agent; and a valid notification under s. 10(1) prohibiting the employment of contract labour removes the contractor as intermediary, creating by necessary implication a direct employer-employee relationship between the principal employer and the workmen, who are entitled to absorption, enforceable in the writ jurisdiction.