Heavy Engineering Mazdoor Union v State of Bihar (1969)

Every reference under s. 10 begins with a question that decides everything after it: which Government may make it? Get it wrong and the reference is void, the award is a nullity, and years of adjudication fall away. Section 2(a) answers it in a single phrase — an industry "carried on by or under the authority of the Central Government" belongs to the Centre, everything else to the State.

This is the case that fixed what "under the authority of" means, and it did so by refusing the obvious answer. The Central Government owned the entire share capital, held every share through the President, appointed every director, and directed wages and salaries. The company called itself a Government undertaking in its own standing orders. On any ordinary view of control, this was the Centre's industry. The Court held it was not.

The reasoning matters beyond labour law: it is Salomon applied to the public sector. A Government company is a company first. Ownership is not agency.

Heavy Engineering Corporation Ltd, Ranchi, was incorporated under the Companies Act 1956. Its entire share capital was contributed by the Central Government and all its shares stood registered in the name of the President of India and certain officers of the Central Government. It was therefore a Government company under s. 617 of the Companies Act.

Its memorandum and articles conferred large powers on the Central Government: power to give directions on the functioning of the company, determination of the wages and salaries of its employees in accordance with those directions, and appointment of the directors by the President. In its standing orders the company described itself as a Government undertaking.

Disputes arose with the workmen. On 15 November 1966 the State Government of Bihar referred two questions to the Industrial Tribunal — the number of festival holidays, and whether the second Saturday of a month should be an off-day.

The Heavy Engineering Mazdoor Union petitioned the Patna High Court under Articles 226 and 227 attacking the reference on two grounds: that the appropriate Government was the Central Government, not the State; and that the questions referred were already pending before the certifying authority under the Standing Orders Act on an application to modify the standing orders, so they could not be industrial disputes capable of reference at all. The High Court rejected both. The Union appealed on a certificate under Article 133(1)(c).

Note what was conceded on both sides, because it narrows the case: counsel for the Union did not argue that the company was an industry carried on by the Central Government. The whole appeal turned on the three words "under the authority of".

1. What do the words "carried on under the authority of the Central Government" in s. 2(a) mean?
2. Does Government ownership of the entire share capital, coupled with extensive powers of direction, make a company's undertaking one carried on under the Centre's authority?
3. Does a question pending before the certifying authority under the Standing Orders Act 1946 cease to be an industrial dispute referable under s. 10?

For the Union: the Centre contributed all the capital, holds all the shares through the President and his officers, appoints the directors and fixes wages by direction. An undertaking so wholly owned and so completely controlled is carried on under the Centre's authority, and only the Centre could refer.

For the State and the company: the undertaking is carried on by an incorporated company, a legal person distinct from its shareholders. The Centre's powers come from the memorandum and articles, not from any relationship of principal and agent.

The appeal was dismissed. The State Government of Bihar was the appropriate Government and the reference was valid.

On "under the authority of"

There being nothing in s. 2(a) to the contrary, "authority" bears its ordinary meaning — "a legal power given by one person to another to do an act". The Court explained the idea through agency: a person is authorised when he "can act in a certain manner without incurring liability, to which he would be exposed but for the authority, or, so as to produce the same effect as if the person granting the authority had for himself done the act." If A authorises B to sell goods on his behalf, B incurs no liability and passes good title; that is principal and agent.

So the words "under the authority of" mean "pursuant to the authority, such as where an agent or a servant acts under or pursuant to the authority of his principal or master". And that, the Court said, "obviously cannot be said of a company incorporated under the Companies Act whose constitution, powers and functions are provided for and regulated by its memorandum of association and the articles of association."

On separate legal personality

An incorporated company "has a separate existence and the law recognises it as a juristic person, separate and distinct from its members", citing Salomon v Salomon & Co [1897] AC 22. Its rights and obligations differ from those of its shareholders; action against it does not directly affect them; in holding its property and carrying on its business it is not the agent of its shareholders. A company even has the nationality of the country of incorporation whatever the nationality of its members, and does not lose it if in wartime it falls under enemy control (Janson v Driefontein Consolidated Mines [1902] AC 484; Kuenigl v Donnersmarck [1955] 1 QB 515).

Therefore "the mere fact that the entire share capital of the respondent-company was contributed by the Central Government and the fact that all its shares are held by the President and certain officers of the Central Government does not make any difference." A notice to those shareholders would not be notice to the company.

The extensive powers of direction did not change this: they "were derived from the company's memorandum and articles and not by reason of the company being the agent of the Central Government."

The positive test, from s. 2(g)

The definition of "employer" in s. 2(g) supplies the answer. An industry carried on by or under the authority of Government means either an industry carried on directly by a department of Government — the Court's examples are Posts and Telegraphs and the Railways — or one carried on by such a department through the instrumentality of an agent. Learn this two-limbed test; it is the ratio in usable form.

On the second question

There was no force in the contention that a question pending before the certifying authority under the Standing Orders Act could not be referred under s. 10. Management of Bangalore Woollen, Cotton and Silk Mills Co Ltd v Workmen [1968] 1 SCR 581 and Management of Shahdara (Delhi) Saharanpur Light Railway Co Ltd v S.S. Railway Workers Union [1969] 2 SCR 131 were followed.

"Under the authority of" in s. 2(a) means pursuant to authority, in the sense of agency — not ownership and not control. An industry carried on by a company incorporated under the Companies Act is not carried on under the authority of Government merely because Government holds all its shares and directs its affairs, because the company's powers flow from its own memorandum and articles and it is not its shareholders' agent. The appropriate Government in such a case is the State Government.

This is the first link in a chain you should be able to trace, because the later cases turn on the same three words.

• Rashtriya Mill Mazdoor Sangh v Model Mills Nagpur, and the line of cases on undertakings taken over and run by an authorised controller, distinguish Heavy Engineering: there the industry really is being carried on pursuant to statutory authority, so the Centre is the appropriate Government.
• Air India Statutory Corporation v United Labour Union (1996) took a wide view of Central control in the contract-labour context.
• Steel Authority of India Ltd v National Union Waterfront Workers (2001), a Constitution Bench, overruled Air India Statutory Corporation on the point and restored the Heavy Engineering approach: a Government company or statutory corporation is not an industry carried on by or under the authority of the Central Government merely by reason of ownership or deep control. Read the two together — Heavy Engineering supplies the reasoning that the Constitution Bench eventually endorsed.

• Direct question: Who is the appropriate Government under the Industrial Disputes Act? Discuss with case law. Open with s. 2(a), give the two limbs from s. 2(g) — department, or department through an agent — then Heavy Engineering, then the correction in Steel Authority of India.
• Problem question: a wholly Government-owned company's workmen challenge a State reference. Apply the agency test; the reference stands. Say expressly that ownership and control are irrelevant, and why.
• Sub-question worth marks: why was the concession made that the company was not an industry carried on by the Central Government? Because the undertaking is carried on by the incorporated company, not by any department — which is precisely what makes the second limb the only live issue.
• Cross-reference: use this case in Company Law as an application of Salomon to public-sector undertakings, and against Article 12 "instrumentality" cases to show the same facts answered differently for different purposes.