STEEL AUTHORITY OF INDIA LTD. AND ORS. ETC. ETC. v. NATIONAL UNION WATER FRONT WORKERS AND ORS, ETC. ETC.

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A the establishment. It was argued that under the Specific Relief Act a contract of employment could not be enforced specifically much less can a new contract of employment between the principal employer and the contract labour be created by the court. He has also pointed out that in every government company/establishment which is an instrumentality of the State there are service rules governing the appointment of staff providing among other things for equality of opportunity to all aspirants for posts in such establishments, calling for candidates from the employment exchange and the reservation in favour of Scheduled Castes/Scheduled Tribes/other Backward Classes, so a direction by the court to absorb the contract labour en bloc could be complied with only in breach of the statutory service rules. He has further contended that conceding that the CLRA Act is a beneficial legislation, the benefits which the Parliament thought it fit to confer on the contract labour are specified in the Act and the court by way of interpretation cannot a,dd to those benefits.

The contentions of Mr. G.L. Sanghi for the principal employer are : that there was never the relationship of master and servant between the F.C.I. D and the contract labour; the various provisions of the Act which require the contractor to maintain canteen, rest-rooms and other facilities like a sufficient supply of wholesome drinking water at convenient places, sufficient number of latrines and urinals accessible to the contract labour in the establishment, washing facilities and the first aid facilities negative the existence of any direct relationship as sought to be made out. The responsibilities of the principal employer under the CLRA Act arise only in the event of failure of the contractor to fulfil his statutory obligations and in such an event he is bound to reimburse the principal employer. Whenever a contractor undertakes to produce a given result or to provide services to an establishment/undertaking by engaging contract labour, the relationship of the master and servant exists between the contractor and the contract labour and not between the principal employer and the contract labour. When. the Central Government/State Government/local authority entrusts any work to a contractor who recruits contract labour, in connection with that work, obviously the recruitment will not be in conformity with the statutory service rules and the same position would obtain with regard to non-governmental organisations, factories, mines etc. Further, having regard to the distinction between the principal employer and the establishment, in the absence of conferment of any authority on the manager by his principal employer to enter into a contract of employment on his behalf, the manager by entrusting work to a contractor cannot make a H contract of service between the principal employer and the contract labour;

STEEL AUTHORITY OF INDIA LTD.'· NATIONAL UNION WATER FRONT WORKERS (QUADRI, /.] 383

if this analogy is applied to the case of the Central Government/the State A Government/local authority, the contractor who undertakes to produce a given result would be creating a status of government servant by selecting and appointing persons for a particular establishment/undertaking. Such a consequence will obliterate the constitutional scheme in relation to government - employment resulting in uncontemplated and unimaginative liabilities in financial terms. He pointed out that under the Mines Act the manager has no authority to employ persons so as to create master and servanUelationship; the same position will equally apply in the case of occupier of a factory under the Factories Act. The provisions of the CLRA Act do not make the contractor an agent for creating relationship of master and servant between the principal employer and the contract labour in the situations pointed out above. In all such cases absorbing the contract labour would amount to opening a new channel of recruitment and it could not have been the intention of the Parliament in enacting CLRA Act to provide for appointment to the posts in various government/non-government establishments by circumventing the service rules. He canvassed that no direction could be issued to the principal employer by the Court to absorb the contract labour .in the establishment.

Mr. T.R. Andhyarujina, the learned senior counsel appearing for the principal employer (respondents in Transfer Case No.7 of 2000 (Delhi Multi Storey Bldg. Emp. Union v. Union of India and Anr.), urged that prior to coming into force of the CLRA Act, the Industrial Courts were ordering abolition of contract· labour system and giving appropriate directions to the employer to employ contract labour on such terms and conditions as .the employer might deem fit but no direction was given to make automatic absorption on abolition of contract labour. In 1946 in the Rege Committee Report or in 1969 in the Report of Mr. Justice P .B. Gajendragadkar who was himself a party to the judgment in The Standard-Vacuum Refining Co. of India Ltd v. ITS Workmen and Ors., 25 no recommendation was made for automatic absorption of the contract labour by the principal employer; the Statement of Objects and Reasons of the CLRA Act also does not speak of automatic absorption of contract labour which would show that the Parliament G deliberately did not make any provision for automatic absorption; when the contract is terminated either by the principal employer or by the contractor or when the contractor himself terminates services of his workers or when he abandons the contract, the _workmen go along with the contractor or may

25. 1960 (3) SCR 466 H

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A have a cause against the contractor but they can have no claim against the principal employer as such on prohibition of employment of contract labour also the same consequence should follow; by prohibiting the contract labour the Parliament intended that labour in general should be benefitted by making it impossible for the principal employer to engage contract labour through a contractor and the benefit of automatic absorption is not conferred by the B CLRA Act on the contract labour working in an establishment at the time of issuing the notification prohibiting engagement of contract labour.

Mr. K.K. Venugopal, the learned senior counsel appearing for the principal employer (appellant in O.N.G.C.) contended that Section 10 of the C CLRA Act did not speak of automatic absorption so giving a direction to make absorption of the contract labour as a consequence of issuance of notification thereunder, prohibiting the engagement of contract labour in various processes, would be contrary to the Act. Had it been the intention of the Parliament to establish relationship of master and servant between the principal employer and the contract labour, submitted the learned counsel, D Section I0 of the CLRA Act would have been differently won.Jed and new sub section to that effect would have been enacted. If the court were to accept the contention of the contract labour that automatic absorption should follow a notification prohibiting employment of contract labour, the court would be adding a sub-section to Section I 0 prescribing for automatic absorption on E issuance of notification under sub-section (I) of Section I0 which would be impermissible.

26. AIR 1951 SC 313

27. 1955 (I) SCR 1427

28. 1964 (2) SCR 838

29. 1974 (3) sec 66 H

STEEL AUTHORITY OF INDIA LTD. '·NATIONAL UNION WATER FRONT WORKERS [QUADRI, !.] J85

Ors., 30 His further contention is that a joint reading of definitions of "contract labour" in clause (b) and of "establishment" in clause (e) of Section 2 of the CLRA Act would show that a legal relationship between a person employed to work in an industry and the owner of the industry comes into existence and it would not make any difference whether that relationship was brought about by the act of the principal/master or by the act of his authorised agent; the very fact of being employed in connection with an industry, creates rights in favour of the person employed and against the owner of the industry by bringing into existence, in law, a relationship of employer and the employee (master and servant) between them. He pointed out that the definition of the expression "workman" in clause (i) excludes an out-worker, a person to whom any articles and materials are given out by or on behalf of the principal employer to be made up, cleaned, washed, altered, ornamented, finished, repaired, adapted or otherwise processed for sale for the purposes of the trade or business of the principal employer when the process is to be carried out either in the home oflhe out-worker or in some other premises not being premises under the control and management of the principal employer and argued that it would show that those who work at the place either of or under the Control and management of the principal employer, must be treated as the workmen of the principal employer. It is further argued that where the work is of a perennial nature, sub-section (2) of Section 10 of the CLRA Act requires that the contract labour should be abolished so it would be an abuse on the part of the employer to resort to employing contract labour in such a E case. Reliance is also placed on Rules 21(2), 25(2)(V)(a), 72, 73, 74-Form XII, Rules 75, 76, 77, 81(3), 82(2) and Forms I, II, lJJ and IV relating to certificate of registration, Form VI relating to licence, Form XIV relating to issue of employment card and Form XXV relating to annual returns of the principal employer, to contend that the principal employer has to keep track with the number of workmen employed, terms and conditions on which they are employed and, therefore, the employer cannot be permitted to plead that no relationship of master and servant exists between the principal employer and the contract labour. It is elaborated that under the CLRA Act, the action of the contractor who is the agent of the principal employer to engage contract labour, binds him and creates relationship of master and servant between them, therefore, the only consequence of notification under Section 10( I) could be to remove the contractor (middle-man) and mature the relationship which had already existed between the workman and the principal employer into a completely direct relationship and that the effect of the notification

Jo. 1978 (4) sec 2s1 H

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A could never be to extinguish the rights of the persons for whose benefit the notification was required to be issued; reliance is placed on the three Judge Bench of this Court in Air India's case (supra) and it is pointed out that Justice S.B. Majmudar who was a party to Gujarat Electricity Board, Thermal Power Station, Ukai, Gujarat v. Hind Mazdoor Sabha and Ors.,3 1 case has given very weighty reasons for automatic absorption in his concurring judgment. Insofar as the reservation quota in favour of Scheduled Castes, Scheduled Tribes and Backward Classes is concerned, he submitted that there would be many situations in which the rule of reservation could not be complied with, e.g. when a private company had made appointments without following the rule of reservation and if such a company were to be taken over by the State the claim of the workers for absorption could not be denied on the ground that it would upset the rule of reservation. It is further contended that if on issuing notification under Section I 0( I) prohibiting employment of contract labour, there is no automatic absorption, the employer cannot employ work force which will result in closing down the industry producing a crippling affect on the establishment; but if automatic absorption is held to be the rule, no disturbance will be caused in the functioning of the industry and the contract labourers would become employees of the principal employer and that the employer will, however, have a right to retrench any excess staff by following the principles of retrenchment and paying retrenchment compensation as provided in the Industrial Disputes Act. E Mr. Bhaskar P. Gupta, the learned senior counsel appearing for the contract labour (respondents in Civil Appeal Nos.719-720 of2001), submitted that identification forms for working in different departments of the company were issued by the appellant company to the contract labour and, therefore, there was a direct relationship of master and servant between the management and the labourers; and if it were to be held that there was no automatic absorption on prohibition of engagement of contract labour the workers would be placed in a position worse than that held by them before abolition. He urged for construction of the provisions of the Act on the principles laid down in Heydon's case to support the plea that the Act provided for absorption of the contract labour on issuing abolition notification by necessary implication and provided penal consequences to prevent exploitation and abuse of the contract labour. In that case, it is submitted, the company itself understood that the provisions of the Act required automatic absorption and absorbed 1550 workers leaving only 400 workers to be absorbed.

H 31 1995 (5) sec 21

STEEL AUTHORITY OF INDIA LTD. v. NATIONAL UNION WATER FRONT WORKERS [QUADRI, J.J J 87 Ms. Indira Jaisingh has contended that the primary object of the labour A laws is to effectuate the Directive Principles of State policy and, therefore, the provisions of CLRA Act have to be interpreted accordingly; the principles of contract law are inapplicable in sricto senso to labour-management relations; she relied on the following judgments of this Court: W~stern India Automobile Association v. The Industrial Tribunal, Bombay and Ors.,32 The Bharat Bank B Ltd, Delhi v. Employees of the Bharat Bank Ltd., Delhi and Anr.,31 Rai Bahadur Diwan Badri Das v. The Industrial Tribunal," Punjab and Uptron India Ltd v. Shammi Bhan and Anr. 15 Prior to the enactment of CLRA Act, it is pointed out, the courts have ordered abolition of contract labour and their departmentalisation in The Standard-Vacuum's case (supra) and Hussainbhai's (supra). She has argued that the Statement of Objects and Reasons does not say that the CLRA Act is intended to alter the then existing law; it codifies the existing law and confers quasi legislative power upon the government to prohibit contract labour; it does not affect the powers of the court to direct absorption of contract labour [see Baral Fritz Werner Ltd etc. etc. v. State of Karnataka"; the abolition notification is issued after consideration of all the facts and circumstances so the consequence can only be that the contractor is displaced and a direct relationship is established between the principal employer and the contract labour; in Air India's case (supra), it was held that the consequence of the abolition of contract labour, by necessary implication, would result in the principal employer absorbing the contract labour; the linkage between the contractor and the employee would be snapped and a E direct relationship between the principal employer and the contract labour would emerge to make them its employees; she invited our attention to Vegoils Private Limited v. The Workmen, r Dena Nath and Ors. v. National Fertilisers Ltd and Ors. and Gujarat Electricity's18 case (supra) and submitted that the award proceedings stipulated in Gujarat Electricity's Case (supra) was cumbersome procedure making the remedy "a teasing illusion", therefore, F

32Copy pinpoint32. AIR (36) 1949 Federal Court 111

33Copy pinpoint33. 1950 SCR 459

34Copy pinpoint34. 1963 (3) SCR 930 G

35Copy pinpoint35. 1998 (6) sec 538

36Copy pinpoint36. J.T. 2001 (2) SC 376

37Copy pinpoint37. 1911 (2) sec 724

38Copy pinpoint38. 1992 (IJ sec 695 H

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A automatic absorption alone was the proper solution. Our attention was also invited to various Forms prescribed under the Rules to bring home the point that the principal employer had complete control over the number of contract labourers being employed and there could be no over-employment without the knowledge of the employer and it was urged that the fact that the labourers had been working for quite a number of years would show that their continuance was necessary.

Mr. K.K. Singhvi, the learned senior counsel for the contract labour, referred to the reports of the Royal Commission appointed by the then British Government, the Rege Committee, the Second Planning Commission and the Second National Commission of Labour headed by Justice Gajendragadkar F to emphasise that the practice of contract labour is an unfair practice of exploiting the labour and that each of these reports recommended abolition of the contract labour and where it was not possible so to do, to regulate the same. He pleaded for absorption of the contract laboure~ by the principal employer on the abolition of the contract labour system in the process, operation or other work in the establishment in which it was employed in G 39 2001 (I) sec 298

40Copy pinpoint40. 2000 (7) sec 109

41Copy pinpoint41. 200110 sec 120

42Copy pinpoint42. 1999 (6) sec 439

STEEL AUTHORITY OF INDIA LTD. '·NATIONAL UNION WATER FRONT WORKERS [QUADRI, I.] 389 three situations: (1) where there has been notification for abolition of contact A labour; (2) where in violation -of the notification, contract labour is employed; and (3) where principal employer resorts to employing of contract labour without getting itself registered or through a contractor who is not licensed. He laid emphasis upon the Directive Principles contained in Articles 39, 41, 42 and 43 and urged for interpreting the beneficial legislation like CLRA Act B to promote the intention of the legislature; he argued that the purpose of abolition of the contract labour was to discontinue the exploitation of the contract labour and to bring it on par with lhe regular workmen, therefore, it was implicit that on abolition of the contact labour system, the concerned workmen should be absorbed as regular employees of the principal employer; relying upon the reasoning of Justice Majmudar in his concurring judgment C in Air India's case (supra), it was submitted that in labour laws the development had been on the basis of the judgments of the Courts and, therefore, we should interpret Section 10 to hold that as a result of issuance of prohibition notification, the contract labour working in an establishment at that time should stand absorbed automatically. D Ms. Asha Jain Madan, the learned counsel appearing for the contract labour (respondents in C.A. Nos. 6009-6010 of200\ @S.L.P. (C) Nos.12657- 12658 of 1998), adopted the argument of the other learned senior counsel; she also relied on the concurring judgment of Justice Majmudar in Air India's case (supra) in support of her contention that automatic absorption should follow prohibition ofcontract labour by the appropriate Government in any given establishment.

The contentions of the learned counsel for the parties, exhaustively set out above, can conveniently be dealt with under the following two issues :

A. Whether the concept'bf automatic absorption of contract labour in the establishment of the principal employer on issuance of the abolition notification, is implied in Section IO of the CLRA Act; and

B. Whether on a contractor engaging contract labour in connection with the work entrusted to him by a principal employer, the relationship of master and servant between him (the principal employer) and the contract labour, emerges.

For a proper examination of these issues, a reference to Section I 0 which provides for prohibition of employment of contract labour and Clauses (b), (c), (e), (g) and (i) of Section 2 of CLRA Act which define the terms H

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A 'contract labour', 'contractor', 'establishment', 'principal employer' and 'workman' respectively will be apposite. To interpret these and other relevant provisions of the CLRA Act, to which reference will be made presently, we may, with advantage,. refer to "CRA!ES on Statute Law" 43 quoting the following observation of Lindley M.R. in Re Mayfair Property Co." in regard to Rule in Heydon's case, 45 B "in order properly to interpret any statute it is as necessary now as it was when Lord Coke reported Heydon's Case, to consider how the law stood when the statute to be construed was passed, what the mischief was for which the old law did not provide, and the remedy provided by the statute to cure that mischief."

What the learned Master of the Rolls observed in 1898 holds good even in 2001, so we proceed in the light of Rule in Heydon's case.

We have extracted above Section 10 of the CLRA Act which empowers the appropriate Government to prohibit employment of contract labour in any process, operation or other work in any establishment, lays down the procedure and specifies the relevant factors which shall be taken into consideration for issuing notification under sub-section (!) of Section 10. It is a common ground that the consequence of prohibition notification under Section 10(1) of the CLRA Act, prohibiting employment of contract labour, is neither spelt out in Section IO nor indicated anywhere in the Act. In our view, the following consequences follow on issuing a notification under Section IO (I) of the CLRA Act:

(I) contract labour working in the concerned establishment at the time of issue of notification will cease to function; (2) the contract of principal employer with the contractor in regard to the contract labour comes to an end; (3) no contract labour can be employed by the principal employer in any process, operation or other work in the establishment to which the notification relates at any time thereafter; (4) the contract labour is not rendered unemployed as is generally assumed but continues in the employment of the contractor as the notification does not sever the relationship of master and servant

43Copy pinpoint43. (6th Edition by S.G.G.Edgar Page 96)

44Copy pinpoint44. (1898 (2) Ch.²⁸, 35,)

45Copy pinpoint45. (1584 (3) Co. Rep. 7a)

STEEL AUTHORITY OF !NOIA LTD.'· NATIONAL UNION WATERFRONT WORKERS (QUADRl, l.J 39 J between the contractor and the contract labour; (5) the contractor can utilise the services of the contract labour in any other establishment in respect of which no notification under Section I 0 (I) has been issued; where all the benefits under the CLRA Act which were being enjoyed by it, will be available; (6) if a contractor intends to retrench his contract labour he can do so only in conformity with the provisions of the LD. Act.

The point, now under consideration, is : whether automatic absorption of contract labour working in an establishment, is implied in Section I 0 of the CLRA Act and follows as a consequence on issuance of the prohibition notification thereunder. We shall revert to this aspect shortly.

Now we shall notice the definitions of the terms referred to above.

The term ·contract labour' as defined in clause (b) of Section 2 reads:

"(2)(1)(b) a workman shall be deemed to be employed as 'contract labour' in or in connection with the work of an establishment when he is hired in or in connection with such work by or through a contractor, with or without the knowledge of the principal employer."

By definition the term ·contract labour' is a species of workman. A workman shall be so deemed when he is hired in or in connection with the work of an establishment by or through a contractor, with or without the knowledge of the principal employer. A w.orkman may be hired: (I) in an establishment by the principal employer or by his agent with or without the knowledge of the principal employer; or (2) in connection with the .work of an establishment by the principal employer through a contractor or by a F contractor with or without the knowledge of the principal employer. Where a workman is hired in or in connection with the work of an establishment by the principal employer through a contractor, he merely acts as an agent so ... there will be master and servant relationship between the principal employer and the workman. But where a workman is hired in or in connection with the work of an establishment by a contractor, either because he has undertaken G to produce a given result for the establishment or because he supplies workman for any work of the establishment, a question might arise whether the contractor is a mere camouflage as in Hussainbhai Caiicut's case (supra) and in Indian Petrochemicals Corporation's case (supra) etc.; if the answer is in the affinnative, the workman will be in fact an employee of the principal employer; H

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A but if the answer is in the negative, the workman will be a contract labour.

Clause (c) of Section 2 defines 'contractor' as under:

"(2)(1)(c) 'Contractor', in relation to an establishment, means a person who undertakes to produce a given result for the establishment, other than a mere supply of goods or articles of manufacture to such establishment, through contract labour or who supplies contract labour for any work of the establishment and includes a sub-contractor."

It may be noticed that the term 'contractor' is defined in relation to an establishment to mean a person who undertakes to produce a given result for the establishment through contract labour or supplies contract labour for any work of the establishment and includes sub-contractor but excludes a supplier of goods or articles of manufacture to such establishment. ' The definition of 'principal employer' in clause (g) of Section 2 runs thus: D \ "(2)(l)(g)(i) in relation to any office or department of the Government or a local authority, the head of that office or department or such other officer as the Government or the local authority, as the case may be, may specify in this behalf.

E (ii) in a factory, the owner or occupier of the factory and where a person has been named as the manager of the factory under the Factories Act, 1948 ( 63 of 1948), the person so named,

(iii) in a mine, the owner or agent of the mine and where a person has been named as the manager of the mine the person so named, F t iv)in any other establishment, any person responsible for the supervision and control of the establishment.

Explanation: For the purpose of sub-clause (iii) of this clause, the expressions "mine", "owner" and "agent" shall have the meanings G respectively assigned to them in clause U), clause (1) and clause (c) of sub-section (I) of section 2 of the Mines Act, 1952 ( 35 of 1952).''

It contains four parts. Under the first part, the head of any office or department or such other officer as the Government or the local authority, as the case may be, may specify in that behalf, is called the 'principal employer'. H The second part takes in the owner or occupier of the factory and where a

STEEL AUTHORITY OF INDIA LTD. '·NATIONAL UNION WATER FRONT WORKERS [QUADRI, J J 393

person has been named as the manager of the factory under the Factories Act, A 1948, the person so named is treated as the principal employer. The third part includes, within the meaning of the principal employer, the owner or agent of a mine or where a person has been named as the manager of the mine, the person so named. 46 And the fourth part embraces every person responsible for the supervision and control of any establishment within the fold of principal employer.

The tenn 'workman' as defined in clause (i) of .Section 2 of the CLRA Act is as follows:

"workman means any person employed in or in connection with the work of any establishment to do any skilled, semi-skilled or un- skilled manual, supervisory, technical or clerical work for hire or reward, whether the terms of employment be express or implied but does not include any such person.

(A) who is employed mainly in a managerial or administrative capacity; D (B) who, being employed in a supervisory capacity draws wages exceeding five hundred rupees per mensem or exercises, either by the nature of the duties attached to the office or by reason of the powers vested in him, functions mainly of a managerial nature; or E (C) who is an out-worker, that is to say, a person to whom any articles and materials are given out by or on behalf of the principal employer to be made up, cleaned, washed, altered, ornamented, finished, repaired, adapted or otherwise processed for sale for the purposes of the trade or business of the principal employer and the process is to be carried out either in the home of the out-

- worker or in some other premises, not being premises under the control and management of the principal employer." ' The definition is quite lucid. It has two limbs. The first limb indicates the meaning of the term as any person employed in or in connection with the work of any establishment to do any skilled, semi-skilled or un-skilled, supervisory, technical or clerical work for hire or reward. It is immaterial that

46Copy pinpoint46. The explanation appended to this clause clarifies that the expressions 'mine', 'owner' and ·agent' shall have the meanings respectively assigned to them in clause G), clause (I) and clause (c) of sub-section (I) of section 2 of the Mines Act, 1952. H

p. 394 Copy page pinpoint

A the terms of employment are express or implied. The second limb contains three exclusionary classes - (A) managerial or administrative staff; (B) supervisory staff drawing salary exceeding Rs.500/-(p.m.) and (C) an out ,. worker which implies a person to whom articles and materials are given out by or on behalf of the principal employer to be made up cleaned, washed, altered, ornamented, finished, repaired, adapted or otherwise processed for B sale for purposes of the trade or business of the principal employer and the process is to be carried out either in the home of the out-worker or in some other place not being the premises under the control and management of the principal employer.

c Now we shall consider issue A:

"Whether the concept of automatic absorption of contract labour in the establishment of the principal employer on issuance of abolition notification, is implied in Section I 0 of the CLRA Act."

D It would be useful to notice the historical perspective of the contract labour system leading to the enactment of the CLRA Act for a proper appreciation of the issue under examination. The problem; and the abuses resu Iting from engagement of contract labour had attracted the attention of the Government from time to time. In the pre-independence era, in 1929 a Royal Commission was appointed by the then British Government to study and report all the aspects of labour. Suffice it to mention that in 1931 the Royal Commission ( also known as 'Whitley Commission') submitted its report mentioning about existence of intermediary named "jobber" and recommended certain measures to reduce the influence of the 'jobber'. Nothing substantial turned on that. In 1946 Rege Committee noted that in India contractors would either supply labour or take on such portions of work as they could handle ..The Committee pointed out,. "whatever may be the grounds advanced by employers, it is to be feared that the disadvantages of the system are far more numerous and weightier than the advantages"; though the Rege Committee recognised need for contract labour yet urged for its abolition where it was possible and recommended for regulating conditions of service where its continuance was unavoidable.. In 1956 the Second Planning Commission (of which the then Prime Minister Pandit Jawahar Lal Nehru was the Chairman) observed that in the case of contract labour the major problems relate to the regulations of working conditions and ensuring them continuous employment and for that purposes suggested that it was necessary to: H .,..'

STEEL AUTHORITY OF !NOIA LTD "·NATIONAL UNION WATER FRONT WORKERS [QUADRI, J.] 395

(a) undertake studies to ascertain the extent and the nature of the problems involved in different industries:

(b) examine where contract labour could be progressively eliminated. This should be undertaken straightway;

(c) determine cases where responsibility for payment of wages, ensuring proper conditions of work, etc. could be placed on the principal employer in addition to the contractor;

(d) secure gradual abolition of the contract system where the studies show this to be feasible, care being taken to ensure that the displaced labour is provided with alternative employment; C (e) secure for contract labour the conditions and protection enjoyed by other workers engaged by the principal employer; and

(f) set up a scheme of decasualisation, wherever feasible."

It is no doubt true that one of the suggestions referred to above, does speak of "care being taken to ensure that the displaced labour is provided with alternative employment", but a careful reading of the recommendation shows that the Committee was not unmindful of the fact that abolition of the contract labour system would result in displacement of labour, nonetheless what it thought fit to recommend was alternative employment and not absorption in the establishment where the contract labour was working.

In 1969, the National Commission of Labour submitted its report recording the finding that the contract labour system was functioning with advantage to the employer and disadvantage to the contract labour and recommended that it should be abolished. The Commission also observed that under the various enactments the definition of 'worker' was enlarged to include contract labour and thus benefits of working conditions and hours of work admissible to labour directly employed were made available to the cor.tract labour as well.

Indeed, the National Commission which was chaired by Justice P.B. G Gajendragadkar who was a party to the judgment of this Court in The Standard Vacuum's case (supra) possibly inspired by that judgment enumerated factors, indicated therein which would justify dispensing with the contract labour system, in para 29.11 of its report, which is reproduced hereunder. H

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A "29.11 - Judicial awards have discouraged the practice of employment of contract labour, particularly when the work is (i) perennial and must go on from day to day; (ii) incidental and necessary for the work of the factory; (iii) sufficient to employ a considerable number ofwholetime workmen; and (iv) being done in most concerns through regular workmen. These awards also came out against the system of B "middlemen''.''

While recommending abolition of contract labour altogether, it was emphasised that such facilities which other regular workers enjoyed, should be made available to contract labour if for some unavoidable reasons the C contract labour had to stay. In para 29.15 of its report the National Commission of Labour noticed the fact of introduction of The Contract Labour (Regulation and Abolition) Bill, 1967 (for short 'the Bill') in the Parliament, which incorporated to a great extent the said recommendations. The Bill later became the CLRA Act. It is worth noticing that in spite of absence of a provision for absorption of contract labour in the Bill (on issuance of notification under D Section I0(1) of the CLRA Act prohibiting engagement of contract labour), the National Commission endorsed that measure.

We have given punctilious reading to the report of the Joint Committee of the Parliament on the said Bill. Neither in the main report nor in the dissent note, do we find a reference to the automatic absorption of the contract labour. This may perhaps be for the reason that on abolition of contract labour system in an establishment, the contract labour nonetheless remains as the workforce of the contractors who get contracts in various establishments where the contract labour could be engaged and where they would be extended the same statutory benefits as they were enjoying before. We noticed that it was clear to the Joint Committee that by abolition of contract labour, the principal employer would be compelled to employ permanent workers for all types of work which would result incurring high cost by him, which implied creation of employment opportunities on regular basis for the contract labour. This could as well be yet another reason for not providing automatic absorption. G This is so far as the recommendations of various commissions and committees leading to enactment of CLRA Act.

We have already referred to the Statement of Objects and Reasons of · the Act elsewhere in this judgment which also does not allude to the concept H of automatic absorption of the contract labour on issuance of notification for

STEEL AUTHORITY OF INDJA LTD '·NATIONAL UNION WATER FRONT WORKERS [QUADRI, J.] ) 97

prohibition of employment of the contract labour. A Now turning to the provisions of the Act, the scheme of the Act is to regulate cond.itions of workers in contract labour system and to provide for its abolition by the appropriate Government as provided in Section I 0 of the CLRA Act. In regard to the regulatory measures, Section 7 requires the principal employer of an establishment to get itself registered under the Act. B Section 12 of the Act obliges every contractor to obtain licence under the provisions of the Act. Section 9 of the Act places an embargo on the principal employer of an establishment, which is either not registered or registration of which has been revoked under Section 8, from employing contract labour in the establishment. Similarly, Section 12(1) bars a contractor from undertaking C . or executing any work through contract labour except under and in accordance with a licence. Sections 23, 24 and 25 of the Act make contravention of the provisions of the Act and other offences punishable thereunder. With regard to the welfare measures intended for the contract labour, Section 16 imposes an obligation on the appropriate Government to make rules to require the contractor to provide canteen for the use of the contract labour. The contractor is also under an obligation to provide rest room as postulated under Section 17 of the Act. Section 18 imposes a duty on every contractor employing contract labour in connection with the work of an establishment to make arrangement for a sufficient supply of wholesome drinking water for the contract labour at convenient places, a sufficient number of latrines and urinals of the prescribed type at convenient and accessible places for the contract labour in the establishment, washing facilities etc. Section 19 requires the contractor to provide and maintain a first aid box equipped with prescribed contents at every place where contract labour is employed by him. Section 21 specifically says that a contractor shall be responsible for payment of wages to workers employed by him as contract labour and such wages have to be paid before the expiry of such period as may be prescribed. The principal employer is enjoined to have his representative present at the time of payment of wages. In the event of the contractor failing to provide amenities mentioned above, Section 20 imposes an obligation on the principal employer to provide such amenities and to recover the cost and expenses incurred therefor from the contractor either by deducting from any amount payable to the contractor or as a debt by the contractor. So also, Sub-Section (4) of Section 21 says that in the case of the contractor failing to make payment of wages as prescribed under Section 21, the principal employer shall be liable to make payment of wages to the contract labour employed by the contractor and will be entitled to recover the amount so paid from the contractor by deducting H

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A from any amount payable to the contractor or as a debt by the contractor. These provisions clearly bespeak treatment of contract labour as employees of the contractor and not of the principal employer.

If we may say so, the eloquence of the CLRA Act in not spelling out the consequence of abolition of contract labour system, discerned in the light B of various reports of the Commissions and the Committees and the Statement of Objects and Reasons of the Act, appears to be that the Parliament intended to create a bar on engaging contract labour in the establishment covered by the prohibition notification, by a principal employer so as to leave no option with him except to employ the workers as regular employees directly. Section C I 0 is intended to work as' a permanent solution to the problem rather than to provide a one time measure by departmentalizing the existing contract labour who may, by a fortuitous circumstance be in a given establishment for a very short time as on the date of the prohibition notification. It could as well be that a contractor and his contract labour who were with an establishment for a number of years were changed just before the issuance of prohibition D notification. In such a case there could be no justification to prefer the contract labour engaged on the relevant date over the contract labour employed for longer period earlier. These may be some of the reasons as to why no specific provision is made for automatic absorption of contract labour in the CLRA Act. E In the light of the above discussion we are unable to perceive in Section I0 any implicit requirement of automatic absorption of contract labour by the principal employer in the concerned establishment on issuance of notification by the appropriate Government under Section 10(1) prohibiting employment of contract labour in a given establishment. F Here we may also take note of the judicial approach in regard to absorption of contract labour on issuing direction for its abolition, from the cases decided before the enactment of CLRA Act. In The Standard Vacuum's case (supra), the appellant-company engaged contractor for cleaning and maintenance work at the refinery and plant belonging to it. The contract labour made a demand for abolition of contract labour system and for absorption of the contract labour in the regular service of the company. The dispute was referred to the Tribunal under the Industrial Disputes Act. The appellant raised an objection to the competence of the reference, inter alia, on the ground that there can be no dispute between it and the respondents as they were the workmen of a different employer namely, the contractor. The

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Tribunal found against the appellant on the question of competence of the reference and passed award directing that the contract lab,pur system should be abolished. On appeal, this Court held that as the ingredients of Section 2(k) of the Industrial Disputes Act were present, the dispute between the parties was an industrial dispute and, therefore, reference was competent. It was further held that the work entrusted to the contractor was incidental to and necessary for the work of the refinery and was of perennial nature; it was sufficient to employ a considerable number of whole-time workmen and that type of work was being done in most concerns through regular workmen. Therefore, the Tribunal's suggestion directing abolition of contract labour was right and no interference with the award of the Tribunal was called for. However, it was observed that the date from which the direction for abolition of contract labour was to be effective, should not be put into force with retrospective effect and having noted that a few months remained for the existing contract to come to an end, permitted the exis,ing contract system to be continued for the rest of the period of the coritract. A chary reading of the above judgment shows that though direction for abolition of contract labour was approved, no automatic absorption of the contract labour working as on the date of abolition in the establishment was ordered by this Court. It is interesting to notice that the conditions pointed out by this Court, namely, (i) the work was incidental and necessary for the work of establishment; (ii) was of perennial nature; (iii) was sufficient to employ a considerable number of whole time workmen and (iv) that type of work was being done in most concerns through regular workmen, have been incorporated in sub-section 2 of Section IO of CLRA Act.

~ch emphasis is laid on the judgment of this Court in The Standard Vacuum's case (supra) in support of the contention that the Courts directed absorption of contract labour as a consequence of prohibition of employment of contract labour. We have pointed out above that a thoughtful reading of the said judgment would disclose that no such principle has been laid down therein. On the contrary, the Court having affirmed the direction prohibiting employment of contract labour extended the date from which the prohibition was to take effect so as to permit the existing contractor to continue for the rest of the period of the contract. Thus it is clear that before the enactment of the CLRA Act the industrial adjudicators/courts did direct abolition of contract labour system but did not order absorption of contract labour by the principal employer on such abolition of the contract labour system.

Now, it would be apt to notice the judicial approach after the enactment H

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A of the CLRA Act. In Vegoils's case (supra), the question before this Court was: had the Industrial Tribunal jurisdiction to issue direction to the establishment to abolish contract labour with effect from the date after coming into force of the CLRA Act? The appellant-company had engaged contract labour in seeds godown and solvent extraction plants in its factory. The appellant took the plea that the type of work was intermittent and sporadic for which the contract labour was both efficient and economic. On the other hand, the union of the workmen submitted that the work was continuous and perennial in nature and that in similar companies the practice was to have permanent workmen; it claimed that the contract labour system be abolished and .the contract labour be absorbed as regular employees in the concerned establishment of the appellant. The Tribunal having found that the work for which the contract labour was engaged was closely connected with the main industry carried on by the appellant and that the work was also of perennial character, directed abolition of contract labour system from a date after coming into force of the CLRA D Act but rejected the claim for absorption of contract labour in the establishment of the appellant. On appeal to this Court, after pointing out the scheme of Section I 0 of the Act, it was held that under the CLRA Act, the jurisdiction to decide about the abolition of contract labour had to be in accordance with Section I0, therefore, it would be proper that the question, whether the contract E labour in the appellant industry was to be abolished or not, be left to be dealt with by the appropriate Government under the Act, if it became necessary. From this judgment, no support can be drawn for the proposition that absorption of the contract labour is a concomitant of the abolition notification under Section 10(1) of the Act."

F • A Constitution Bench of this Court in Mis Gammon India Ltd. and Ors. v. Union of India and Ors. r considered the constitutional validity of the CLRA Act and the Rules made thereunder in a petition under Article 32 of the Constitution of India. In that case, the work of construction of a building for the banking company was entrusted to the petitioners ·building contractors • who engaged contract labour for construction work. While upholding the G constitutional validity of the CLRA Act and the Rules made thereunder, this Court summed up the object of the Act and the purpose for enacting Section I0 of the Act as follows :

"The Act was passed to prevent the exploitation of contract labour -----

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and .also to introduce better conditions of work. The Act provides for regulation and abolition of contract labour. The underlying policy of the Act is to abolish contract labour, wherever possible and practicable, and where it cannot be abolished altogether, the policy of the Act is that the working conditions of the contract labour should be so regulated as to ensure payment of wages and provision of essential amenities. That is why the Act provides for regulated conditions of work and contemplates progressive abolition to the extent contemplated by Section 10 of the Act. Section 10 of the Act deals with abolition while the rest of the Act deals mainly with regulation. The dominant idea of Section 10 of the Act is to find out whether contract labour is necessary for the industry, trade, business, manufacture or occupation which is carried on in the establishment."

There is nothing in that judgment to conclude that on abolition of contract labour system under Section 10( 1), automatic absorption of contract labour in the establishment of the principal employer in which they were working at that time, would follow. D In Dena Nath's case (supra), a two-Judge Bench of this Court considered the question, whether as a consequence of non-compliance of Sections 7 and 12 of the CLRA Act by the principal employer and the licensee respectively, the contract labour employed by the principal employer would become the employees of the principal employer. Having noticed the observation of the three-Judge Bench of this Court in The Standard-Vacuum's case (supra) and having pointed out that the guidelines enumerated in sub-section (2) of Section 10 of the Act are practically based on the guidelines given by the Tribunal in the said case, it was held that the only consequence was the penal provisions under Sections 23 and 25 as envisaged under the CLRA Act and that merely because the contractor or the employer had violated any provision of the Act or the Rules, the High Court in proceedings under Article 226 of the Constitution could not issue any mandamus for deeming the contract labour as having become the employees ofthe principal employer. This Court thus resolved the conflict of opinions on the said question among various High Courts. It was further held that neither the Act nor the Rules framed by the G Central Government or by any appropriate Government provided that upon abolition of the contract labour, the labourers would be directly absorbed by the principal employer.

In the case of R.K. Panda and Ors. v. Steel Authority of India and H

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A Ors., 48 contract labour was employed at Rourkela Plant of the Steel Authority of India through contractors and continued in employment for long periods - between IO and 20 years - as contract labourers. It was found that though the respondents were changing the contractors, yet under the terms of the agreement the incoming contractors were obliged to retain the contract labour B engaged by the outgoing contractors. That apart, for about eight years the contract labour was continued to be employed by virtue of the interim order of this Court. It was noticed that in B.H.E.L. Workers' Association, Hardwar ... and Ors. etc. v. Union of India and Ors. etc. 49, Mathura Refinery Mazdoor Sangh through its Secretary v. Indian Oil Corpn. Ltd., Mathura Refinery Project, Mathura and Anr. 50 and the Dena Nath's case (supra), on the question C - whether the contract labourers had become the employees of the principal employer in course of time or whether the engagement and employment of labourers through a contractor was a mere camouflage and a smokescreen - this Court took the view that it was a question of fact and had to be established by the contract labourers on the basis of the requisite material in the industrial court or industrial tribunal. However, having regard to the various interim D orders passed by this Court and the time taken in deciding the case, this Court considered the matter on merits and on the basis of the offer made by the respondents, which was recorded, issued certain directions which need not be quoted here. However, no order was made directing absorption of contract labour on abolition of contract labour system. E In National Federation of Railway Porters, Vendors and Bearers v. Union of India and Ors., 51 a two-Judge Bench of this Court on the basis of findings contained in the report of the Labour Commissioner that there was no evidence that the labourers were the employees of the Society (contractor) and that they were contract labourers provided by the Society under the F agreement, treated them as labourers of the Northern Railway as they had completed 240 days of continuous service in a year, some from 1972, some from 1980 and some from 1985. Following the order of this Court dated April 15, 1991 [Raghavendra Gumashta v. Union of lndia51 (Writ Petition No. 277of1988)], the Court directed their absorption in the Railway Service.

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It is obvious that direction to absorb the labourers was given on the premise that they were not the employees of the contractor (the society) but were of the Northern Railways.

In Mathura Refinery Mazdoor Sangh's case (supra), the disputes between the contract labourers represented by the appellant and the respondents, referred to the industrial tribunal for adjudication, included the question, whether the contract labourers were the employees of the respondent corporation. The tribunal answered the question against the appellant but issued, among others, a direction that the respondent should give preference to the contract labour in the employment by waiving the requirement of age and other qualification wherever possible. It was, however, clarified by the industrial tribunal that the ameliorative steps should not be taken to mean that the contract labour had become the direct employees of the refinery. Against those directions, this Court dismissed the appeal holding that the suggestions and directions given by the tribunal in the impugned award, could not be improved upon.

In Association of Chemical Workers, Bombay v. A.L. Alaspurkar and D 52 Ors. a three-Judge Bench of this Court declined to go into the correctness of the pronouncement in Dena Nath's case (supra) that automatic absorption does not follow on prohibition of contract labour but directed the principal employer to consider the contract labour, by giving them preference, in appointment. E In Gujarat Electricity Board's case (supra), a two-Judge Bench of this Court has held that ifthere is a genuine labour contract between the principal employer and the contractor, the authority to abolish the contract labour vests in the appropriate Government and not in any court including industrial adjudicator. If the appropriate Government abolishes the contract labour system F in respect of an establishment the industrial adjudicator would, after giving opportunity to the parties to place material before it, decide whether the workmen be absorbed by the principal employer, if so, how many of them and on what terms, but if the appropriate Government declines to abolish the contract labour the industrial adjudicator has to reject the reference. If, G however, the so-called contract is not genuine but is sham and camouflage to hide the reality, Section 10 would not apply and the workmen can raise an industrial dispute for relief that they should be deemed to be the employees of the principal employer. The court or the industrial adjudicator would have jurisdiction to entertain such a dispute and grant necessary relief. H

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A While this was the state of law in regard to the contract labour, the issue of automatic absorption of the contract labour came up before a Bench of three learned Judges of this Court in Air India's case (supra). The Court · held : (I) though there is no express provision in the CLRA Act for absorption of the contract labour when engagement of contract labour stood prohibited on publication of the notification under Section 10(1) of the Act, from that moment the principal employer cannot continue contract labour and direct relationship gets established between the workmen and the principal employer; (2) the Act did not intend to denude the contract labour of their source of livelihood and means of development throwing them out from employment; and (3) in a proper case the Court as sentinel on the qui vive is required to direct the appropriate authority to submit a report and if the finding is that the workmen were engaged in violation of the provisions of the Act or were continued as contract labour despite prohibition of the contract labour under Section I 0( I), the High Court has a constitutional duty to enforce the law and grant tltem appropriate relief of absorption in the employment of the principal employer. Justice Majmudar, in his concurring judgment, put it on the ground that when on the fulfillment of the requisite conditions, the contract labour is abolished under Section 10 (I), the intermediary contractor vanishes and along with him vanishes the term "principal employer" and once the intermediary contractor goes the term "principal" also goes with it; out of the tripartite contractual scenario only two parties remain, the beneficiaries of the abolition of the erstwhile contract labour system, i.e. the workmen on the one hand and the employer on the other, who is no longer their principal employer but necessarily becomes a direct employer for erstwhile contract labourers. The learned Judge also held that in the provision of Section I0 there is implicit legislative intent that on abolition of contract labour system, the erstwhile contract workmen would become direct employees of the employer on whose establishment they were earlier working and were enjoying all the regulatory facilities under Chapter V in that very establishment. In regard to the judgment in Gujarat Electricity Board's case (supra), to which he was a party, the learned Judge observed that he wholly agreed with Justice Ramaswamy's view that the scheme envisaged by Gujarat Electricity Board G case was not workable and to that extent the said judgment could not be given effect to.

For reasons we have given above, with due respect to the learned Judges, we are unable to agree with their reasoning or conclusions.

H The principle that a beneficial legislation needs to be construed liberally

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in favour of the class for whose benefit it is intended, does not extend to reading in the provisions of the Act what the legislature has not provided whether expressly or by necessary implication, or substituting remedy or benefits for that provided by the legislature. We have already noticed above the intendment of the CLRA Act that it regulates the conditions of service of the contract labour and authorizes in Section I 0( I) prohibition of contract labour system by the appropriate Government on consideration of factors enumerated in sub-section (2) of Section I 0 of the Act among other relevant factors. But, the presence of some or all those factors, in our view, provide no ground for absorption of contract labour on issuing notification under sub- section (I} of Section 10. Admittedly when the concept of automatic absorption of contract labour as a consequence of issuing notification under Section C I 0( I) by the appropriate Government, is not alluded to either in Section 10 or at any other place in the Act and the consequence of violation of Sections 7 and 12 of the CLRA Act is explicitly provided in Sections 23 and 25 of the CLRA Act, it is not for the High Courts or this Court to read in some unspecified remedy in Section 10 or substitute for penal consequences specified in Sections 23 and 25 a different sequel, be it absorption of contract labour D in the establishment of principal employer or a lesser or a harsher punishment. Such an interpretation of the provisions of the statute will be far beyond the principle of ironing out the creases and the scope of interpretative legislation and as such clearly impermissible. We have already held above, on consideration of various aspects, that it is difficult to accept that the Parliament E intended absorption of contract labour on issue of abolition notification under Section I 0(1) of CLRA Act.

We have gone through the decisions of this Court in V.S. T Industries' case (supra}, G. B. Pant University's case (supra) and Mohammed Asliim's case (supra). All of them relate to statutory liability to maintain the canteen by the principal employer in the factory/establishment. That is why in those cases, as in The Saraspur Mills' case (supra), the contract labour working in the canteen were treated as workers of the principal employer. These cases stand on a different footing and it is not possible to deduce from them the broad principle of law that on the contract labour system being abolished under sub-section (I) of Section 10 of the CLRA Act the contract labour working in the establishment of the principal employer has to be absorbed as regular employees of the establishment.

An analysis of the cases, discussed above, shows that they fall in three classes; (i) where contract labour is engaged in or in connection with the H

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