R.K. Panda v Steel Authority of India (1994)

The Contract Labour Act regulates contract labour and allows the appropriate Government to prohibit it in particular processes under s. 10. What it does not do is say that contract labourers become the principal employer's employees. R.K. Panda states that position firmly: there is no statutory right of absorption, a clause obliging each new contractor to keep the old workers does not create one, and whether a contract is "a mere camouflage" is a question of fact for the Labour Court or Industrial Tribunal, not for a writ court on affidavits.

Yet the Court then directed absorption. Because the petition had been pending since 1986 and the workers had been kept on for years under the Court's own interim orders, it ordered the Steel Authority to absorb all contract labourers who had worked continuously for ten years despite changes of contractor. Students must be able to hold both halves — the rule, and the exceptional relief moulded on the facts.

The petitioners were employed through various contractors at the Rourkela Plant of the Steel Authority of India, on work such as construction and maintenance of roads and buildings within the plant, public health, horticulture and town water supply. They alleged that their jobs were perennial and identical to those of regular employees, that they had worked for the respondent for 10 to 20 years under different contractors, and that they had been labelled contract labour to defeat their claim to regular employment. Each contract provided that "the incoming contractors shall employ the workers of the respective outgoing contractors subject to the requirement of the job".

The petition was entertained in 1986. Through a series of interim orders (December 1986, April and May 1987) the Court directed that the labourers be continued despite expiry of contracts, that new contractors employ them, and that the respondent give preference to those who had worked more than three years if it took the jobs over directly. The State Government of Orissa, the appropriate Government, appointed a committee on abolition of contract labour in the steel industry. Contract labour was employed in 246 jobs; it had been abolished in 104, and continued in 142. On 6 August 1992, on the respondent's offer, the 879 workmen in notified jobs were given the option of voluntary retirement or regular absorption. Some retired; most continued. The respondent told the Court that a modernisation scheme might reduce the labour force.

1. Do contract labourers acquire a right to be absorbed as regular employees of the principal employer under the Contract Labour Act, or by reason of a clause requiring successive contractors to retain them?
2. Is the question whether contract labour is a camouflage for direct employment one that a writ court can decide on affidavits?
3. What relief should be given on the facts of this long-pending petition?

The writ petition was allowed in the terms of the directions below. No order as to costs.

The Act regulates; it does not absorb

Reviewing the Act, the Court said "it is apparent that the framers of the Act have allowed and recognised contract labour and they have never purported to abolish it in its entirety." Its primary object is to prevent exploitation, through duties on the contractor and the principal employer (licensing under s. 12, amenities under s. 20, wages in the presence of the principal employer's representative under s. 21).

The Court noticed a trend of contract labourers claiming absorption after some years, "although no right flows from the provisions of the Act for the contract labourers to be absorbed or to become the employees of the principal employer." It relied on Gammon India v Union of India, B.H.E.L. Workers' Assn v Union of India (abolition is for the Government under s. 10, not the Court), Mathura Refinery Mazdoor Sangh v Indian Oil Corpn (absorption refused where no direct employer-employee link) and Dena Nath v National Fertilisers (neither the Act nor the Rules provide for absorption upon abolition).

A retention clause is not a right to regularisation

Such a clause, "which is benevolently inserted in the contract to protect the continuance of the source of livelihood of the contract labour cannot by itself give rise to a right to regularisation in the employment of the principal employer."

Camouflage is a question of fact for the industrial fora

Whether the engagement through a contractor "is a mere camouflage and a smokescreen, as has been urged in this case, is a question of fact and has to be established by the contract labourers on the basis of the requisite material." The High Court or the Supreme Court cannot decide it "only on the basis of the affidavits". The Court added: "Normally, the Labour Court and the Industrial Tribunal, under the Industrial Disputes Act are the competent fora to adjudicate such disputes on the basis of the oral and documentary evidence produced before them."

Relief moulded on the facts

The Court would ordinarily have sent the petitioners to that remedy, but it was faced with the orders passed since 1986, under which many labourers whose employment would otherwise have ended had continued. Taking all the circumstances into account, it directed, among other things:

• all labourers initially engaged through contractors but "continuously working with the respondent for the last 10 years on different jobs assigned to them in spite of the replacement and change of the contractors, shall be absorbed by the respondent", subject to medical fitness and being below 58, the age of superannuation;
• seniority to be fixed department/job-wise on continuous employment; no arrears of the difference between contractual and regular wages up to absorption; after absorption, pay on a par with regular counterparts (or the minimum unskilled rate where no rate existed);
• those who had taken voluntary retirement excluded; the direction confined to the 142 jobs where contract labour had not been abolished;
• disputes about identification to be decided by the Chief Labour Commissioner (Central);
• the respondent free to retrench absorbed workmen in accordance with law, the order being no bar;
• compliance within four months.

The Contract Labour (Regulation and Abolition) Act 1970 recognises and regulates contract labour; it confers no right on contract labourers to be absorbed by the principal employer, and a contractual clause requiring successive contractors to retain the same workers does not by itself create a right to regularisation. Whether a contract-labour arrangement is a camouflage concealing direct employment is a question of fact, to be proved by the workmen on evidence, normally before the Labour Court or Industrial Tribunal and not in writ jurisdiction on affidavits.

• Direct question: Do contract labourers have a right to be absorbed by the principal employer on abolition of contract labour or after long service? Answer no, from the scheme of the Act and the cases the Court reviews, then explain the exceptional ten-year direction in R.K. Panda.
• Problem question: contract workers who have served under successive contractors for years file a writ for regularisation. Apply R.K. Panda: the retention clause gives no right; camouflage must be proved on evidence before the industrial adjudicator.
• Point worth marks: the distinction between the ratio (no statutory right; fact question for the Labour Court or Tribunal) and the relief moulded under Art. 32 on the peculiar facts.
• Link: cited in Air India Statutory Corporation v United Labour Union (1996) as an instance of contract labour continuing for ten years despite changes of contractor being directed to be absorbed.