Indian Oil Corporation Ltd v Chief Inspector of Factories (1998)

The occupier is the person the Factories Act holds criminally answerable for the safety, health and welfare of workers. Getting the identification wrong means prosecuting the wrong person, so the definition is litigated constantly.

Section 2(n) says the occupier is the person who has ultimate control over the affairs of the factory, and then adds a proviso deeming particular people to be the occupier: in a firm, a partner; in a company, a director; and in a factory owned or controlled by Government, the person appointed by Government to manage its affairs.

This case answers the question the proviso leaves: a Government company is a company — so is its occupier a director under clause (ii), or the Government's appointee under clause (iii)? The answer is clause (iii), and the route to it is the phrase "owned or controlled by", read substantively rather than formally.

Note the tension with Heavy Engineering Mazdoor Union, where separate corporate personality kept a Government company out of a definition. Here it does not. The difference is the statutory language, and being able to explain that is worth marks.

The appellant, Indian Oil Corporation Limited, is a Government company as defined by s. 617 of the Companies Act, "almost wholly owned and controlled by the Government". It supplies and distributes petroleum products including LPG, and maintains storage facilities across the country.

At Namkum, Ranchi District, it already had a large storage facility, and in 1992 established a new storage unit to increase capacity.

The question was who should be accepted as the occupier of those factories. The High Court held that a director of the company was, under clause (ii). The Corporation said the Government's appointee was, under clause (iii), and appealed.

The Attorney General set out the extent of Government control: 91.5 per cent of the share capital held by the Government, 5 per cent by employees, the rest by financial institutions; Government officers acting for the President were the initial subscribers on incorporation; and the articles gave the Central Government "all-pervasive control as regards increase or reduction of the capital of the corporation, its borrowing powers, appointment and removal of its Chairman and directors, powers of its directors and working of the corporation itself." Under Article 144 the President could call for returns, accounts and information and "issue such directives or instructions as may be considered necessary in regard to the financing, conduct of business and affairs of the corporation."

The respondents argued that clause (iii) applies only to factories run by Government departmentally.

Is the occupier of a factory belonging to a Government company a director of the company under clause (ii) of the first proviso to s. 2(n), or the person appointed by Government to manage the factory under clause (iii)?

Appeals allowed. The persons appointed by the Central Government to manage the Namkum factories are to be accepted as their occupiers.

Ultimate control is the governing idea

"Apart from the main part of Section 2(n), the first proviso also indicates that the Legislature intended that the person having ultimate control over the affairs of the factory has to be regarded as occupier of the factory."

The Court explained what the proviso is doing: "The proviso to the Section is not in the nature of an exception. In order to avoid any ambiguity, to plug loopholes and to seal the escape routes, a deeming provision has been made in a mandatory form." In a firm the partners have ultimate control; in an association its members; "in the case of a company the directors have the ultimate control, as the power to manage the affairs of the company vests in the Board of Directors." Clauses (i) and (ii) therefore "merely restate" the position rather than alter it.

The narrow reading rejected

"In our opinion, it will not be proper to adopt this narrow approach while construing the scope and ambit of clauses (ii) and (iii) of the first proviso to Section 2(n). The approach which deserves to be adopted is one which would achieve the object of the provision", following the approach taken in Som Prakash Rekhi.

The conclusion

"We hold that as the factories run by the appellant-corporation are effectively and really owned and controlled by the Central Government they fall within the purview of clause (iii) and not clause (ii) of the first proviso to Section 2(n)." The High Court's contrary view was set aside, and the parties were directed to bear their own costs.

Clause (iii) of the first proviso to s. 2(n) is not confined to factories run departmentally by Government. Where a Government company's factories are effectively and really owned and controlled by the Government, the occupier is the person appointed by the Government to manage the factory, not a director of the company. Throughout, the governing test is ultimate control over the affairs of the factory.

• J.K. Industries Ltd v Chief Inspector of Factories — holds that in the case of a company it is a director who must be named occupier, and that the company cannot nominate an employee or manager instead. That is the general rule; this case is the Government-company exception to it.
• Som Prakash Rekhi v Union of India — the purposive approach to "owned or controlled by Government", applied here.
• Heavy Engineering Mazdoor Union v State of Bihar — the contrast worth drawing: there, Government ownership of all the shares did not make the undertaking one carried on "under the authority of" the Central Government, because that phrase imports agency. Here, "owned or controlled by" imports real control. Same corporate structure, different statutory words, different answers.

• Direct question: Who is an "occupier" under the Factories Act? Discuss with cases. Give s. 2(n), the three limbs of the proviso, J.K. Industries for companies, and this case for Government companies.
• Problem question pattern: a prosecution under the Factories Act against a director of a public sector undertaking. The director is the wrong respondent if the factory is really owned and controlled by Government; the Government's appointed manager is the occupier.
• A line worth reproducing: the proviso exists "to plug loopholes and to seal the escape routes" — useful whenever you are asked why a deeming provision was enacted.
• Comparison worth a paragraph: why the same Government company can be outside one definition and inside another. The answer is the statutory language, not the corporate form.