Gujarat Electricity Board, Thermal Power Station, Ukai v Hind Mazdoor Sabha (1995)

The Contract Labour Act gives the appropriate Government, under s. 10, the power to prohibit contract labour in an establishment. It says nothing about what happens to the contractor's workmen once that is done. This case filled that gap. It worked out when an industrial dispute can still be raised about contract labour, who can raise it, and what an industrial adjudicator can order — including a direction to the principal employer to absorb the ex-contractor's workmen.

Its central distinction is between a genuine labour contract and a sham one. If the contract is a sham, the Contract Labour Act does not bar the dispute at all. If it is genuine, only the Government can abolish it, and the adjudicator can deal with absorption only afterwards.

Later history: in Air India Statutory Corporation v United Labour Union (1996) the Supreme Court held that abolition by itself breaks the link with the contractor and obliges the principal employer to absorb the workmen. It disapproved the narrower award-route worked out in this case and in Dena Nath v National Fertilizers Ltd. Learn this case as the stage before Air India.

The Board ran a thermal power station at Ukai. Besides its direct workmen, it used about 1500 labourers supplied by contractors to unload coal, feed hoppers and clean. Many were adivasis who had lost their land to the project. After they formed a union, the services of a thousand of them were terminated on 16 November 1981.

The union went to the High Court, which appointed a Court Commissioner. The parties agreed to take the workmen back and to refer the remaining disputes by a joint application under s. 10(2) of the ID Act. The application was signed by the Board, all seven contractors and the Surat Labour Union, which had both direct and contract labour as members. The first term of reference asked whether the contract workers could "legally claim to be the employees" of the Board.

The Tribunal found that the labourers had worked for 5 to 8 years while contractors changed, that the contractors kept no records and had no valid licences, and that the work was continuous and integral to generating electricity. It held that the workmen of all seven contractors were to be deemed the Board's workmen. The High Court upheld the award. The Board appealed. Three other groups of appeals raising the same questions were heard with it.

1. Can an industrial dispute be raised for abolition of contract labour after the Contract Labour Act came into force?
2. If so, who can raise it?
3. Does the Industrial Tribunal or the appropriate Government have power to abolish contract labour?
4. Once contract labour is abolished, what is the status of the contractor's workmen?

The Board's appeal was dismissed with costs. The High Court's decision and the Tribunal's award were confirmed.

Only the Government can abolish a genuine contract

After the Act, the power to abolish contract labour is vested exclusively in the appropriate Government under s. 10. But "the authority to abolish the contract labour under Section 10 of the Act comes into play only where there exists a genuine contract." If the contract is a sham, s. 10 does not apply, and the court or industrial adjudicator can decide whether the workmen are really the principal employer's employees.

The Court found the silence of the Act on absorption to be "a vital lacuna in the Act." On abolition the workmen are worse off: the contractor can no longer employ them, and the principal employer is under no obligation to take them.

The adjudicator can direct absorption

The legislature may not have provided for automatic absorption because that would force contract labour on the principal employer. But "The industrial adjudicator however is not inhibited by such considerations. He has the jurisdiction to change the contractual relationships and also make new contracts between the employer and the employees under the ID Act." So where contract labour is abolished, the adjudicator may direct the principal employer to absorb such of the ex-contractor's workmen, and on such terms, as the material justifies.

The Act is not a complete code taking away this power: "There is nothing in the Act which can be construed to have deprived the industrial adjudicator of the jurisdiction to determine the same."

The Court's four conclusions (para 18)

• (i) "it is only the appropriate Government which has the authority to abolish genuine labour contract in accordance with the provisions of the said Section. No Court including the industrial adjudicator has jurisdiction to do so."
• (ii) Sham contract. The contractor's workmen may themselves raise a dispute for a declaration that they were always the principal employer's employees, and claim proper service conditions. This is not a dispute for abolition, so s. 10 does not bar it. The adjudicator must first decide whether the contract is sham or genuine. If it is genuine, and the direct workmen have not espoused the dispute, the reference must be rejected, because it is not an industrial dispute under s. 2(k).
• (iii) Genuine contract. A composite dispute for abolition and absorption can be raised, but "the dispute, will have to be raised invariably by the direct employees of the principal employer." The adjudicator must send the workmen to the Government under s. 10 and keep the reference pending. If the Government abolishes the contract labour, he decides whether to order absorption, how many and on what terms. If not, he rejects the reference.
• (iv) Even after abolition, the direct employees can raise a dispute for absorption of the ex-contractor's workmen.

The direct workmen can espouse the contract labourers' cause because they have a community of interest with them and a substantial interest in the dispute, and the employer can grant the relief. The Court relied on Workmen of Dimakuchi Tea Estate and Standard-Vacuum Refining Co.

Applied to the Board

• Espousal. The joint application had been signed by a union with both direct and contract labour as members, and the Board had never objected. The dispute had in fact been espoused by the direct employees. The Board could not raise the point for the first time under Article 136.
• Not an abolition reference. Read with the statement of claim, the reference asked for a declaration of the workmen's status, not abolition of the contract.
• Sham finding. The Tribunal had not used the word "sham", but its award had to be read as a whole. It rested on findings of control, supervision, continuous and integral work, and contractors who were mere intermediaries. The Court held that "there is a factual finding recorded by the Tribunal that the labour contracts in question were not genuine". A tribunal may examine the s. 10(2) factors to decide whether a contract is sham; what s. 10 prohibits is abolition by anyone other than the Government.
• Mechanisation since 1989 and repercussions for other plants. Any surplus could be retrenched according to law. The fear of a breakdown was "one in terrorem and has only to be stated to be rejected."

The companion appeals

Mere absence of registration and licences does not by itself make contract workmen the principal employer's employees. So the union appeals against SCOPE were dismissed. In the Bihar milk federation's appeal, the Labour Court's award was set aside because it rested only on missing registration and licences, and the workers were left free to raise a proper dispute.

Recommendations

Expressing "dismay" that even public-sector undertakings were using contract labour where direct employment was possible, the Court recommended that such undertakings absorb the labour themselves; that Governments appoint committees and abolish contract labour on their own initiative; and that the Central Government amend the Act to provide for referring absorption to the industrial adjudicator after abolition.

Under s. 10 of the Contract Labour Act only the appropriate Government can abolish a genuine labour contract. That bar does not apply where the contract is a sham: the contractor's workmen may then seek a declaration that they are the principal employer's employees, and the adjudicator decides whether the contract is genuine. Where the contract is genuine, a dispute for abolition and absorption must be espoused by the principal employer's direct workmen. After the Government abolishes the contract labour, the industrial adjudicator can direct the principal employer to absorb the ex-contractor's workmen on such terms as he determines. Absence of registration and licences alone does not make contract workmen direct employees.

• Direct question: What is the effect of abolition of contract labour under s. 10 of the CLRA Act on the contractor's workmen? Set out the lacuna, then the four conclusions of para 18, then mention Air India (1996) as the later view.
• Problem question: contract workmen who have worked in a power station for years claim to be its employees. Ask first: is the contract genuine or sham? If sham, they can raise the dispute themselves and s. 10 is no bar. If genuine, the direct workmen must espouse it and the Government must abolish first.
• Short note: Sham and genuine labour contracts. Use the Tribunal's indicators accepted here: work on the premises, control and supervision by the principal employer, continuous and integral work.
• Watch the trap: missing registration and licences alone do not create an employment relationship with the principal employer — the companion appeals turned on this.