KIRLOSKAR BROTHERS LIMITED versus RAMCHARAN AND ORS on 5 December 2022

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SUPREME COURT REPORTS

[2022] 18 S.C.R.

KIRLOSKAR BROTHERS LIMITED

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v.

RAMCHARAN AND ORS.

(Civil Appeal Nos. 8446-8447 of 2022)

BDECEMBER 05, 2022

[M. R. SHAH AND HIMA KOHLI, JJ.]

Contract Labour (Regulation and Abolition) Act, 1970: s. 10– Absorption of contractual labour – Concept of – On facts,respondents nos. 1-6 were contractual labourers of the respondentCno. 7-contractor engaged by the appellant in terms of the contract– On labour contract coming to an end, services of the respondentswere dispensed with by the contractor – Respondents seeking re-instatement, on the ground that they were employees of the appellantand were orally terminated – Labour Court held that the contractorhad obtained license under the CLRA Act and that the contestingDrespondents were the employees of the contractor and not of theappellant – Tribunal ordered reinstatement and held that a contractlabourer automatically becomes an employee of the principalemployer as per the MPIR Act which was upheld by the Single Judgeof the High Court, however, set aside by the Division Bench – OnEappeal, held: No documentary evidence produced that therespondents were the employees of the appellant – Even the directcontrol and supervision of the contesting respondents was alwayswith the contractor – No evidence on record that any of therespondents were given any benefits, uniform or punching cards bythe appellant – Merely because sometimes the payment of salaryFwas made and/or PF contribution was paid by the appellant, whichwas due to non-payment of the same by the contractor, therespondents shall not automatically become the employees of theappellant – No notification u/s. 10(1) issued prohibiting the contractlabour, nor there are allegations and/or even findings that theGcontract is sham and bogus and/or camouflage, the direction toabsorb or regularise the services of the contract labour cannot bemade to the principal employer/appellant – Thus, both the tribunalas well as the High Court erred in reinstating the contestingrespondents and directing the appellant-principal employer toabsorb them as their employees – Judgment and order passed byHthe labour court is restored.

Allowing the appeals, the Court

HELD 1.1 The contesting respondents were the contractuallabourers of the respondent No. 7-contractor, who was acontractor engaged by the appellant in terms of the contract dated22.04.1995, which was renewed from time to time. In the instantcase, that no notification u/s. 10 of the Contract Labour(Regulation and Abolition) Act has been issued by the StateGovernment/appropriate Government, prohibiting the contractlabour. Upon entering into the contract, necessary complianceunder the CLRA Act was also completed by the appellant andthe respondent No. 7-contractor. On the labour contract comingto an end, the services of the contesting respondents weredispensed with by the contractor. [Para 4][336-B-C]

1.2 On going through the entire material on record, nodocumentary evidence was produced, by which it can be said thatthe contesting respondents were the employees of the appellant.There is no provision under Section 10 of the CLRA Act that theworkers/employees employed by the contractor automaticallybecome the employees of the appellant and/or the employees ofthe contractor shall be entitled for automatic absorption and/orthey become the employees of the principal employer. Even thedirect control and supervision of the contesting respondents wasalways with the contractor. There is no evidence on record thatany of the respondents were given any benefits, uniform orpunching cards by the appellant. [Para 4.1][336-D-F]

1.3 Under the contract and even under the provisions ofthe CLRA, a duty was cast upon the appellant to pay all statutorydues, including salary of the workmen, payment of PF contribution,and in case of non-payment of the same by the contractor, aftermaking such payment, the same can be deducted from thecontractor’s bill. Thus, merely because sometimes the paymentof salary was made and/or PF contribution was paid by theappellant, which was due to non-payment of the same by thecontractor, the contesting respondents shall not automaticallybecome the employees of the principal employer-appellant. [Para4.2][336-F-G]

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A1.4 In the absence of a notification under Section 10 of theCLRA Act unless there are allegations or findings with regard toa contract being sham, private respondents, who are as such theworkmen/employee of the contractor, cannot be held to beemployees of the appellant and not of the contractor. In the instantcase, neither any notification under Section 10(1) of the CLRABAct has been issued prohibiting the contract labour, nor thereare allegations and/or even findings that the contract is sham andbogus and/or camouflage. [Paras 4.3, 4.6][336-H; 337-A; 340-E]

1.5 In the absence of any notification under Section 10 ofthe CLRA Act and in the absence of any allegations and/or findingsCthat the contract was sham and camouflage, both the IndustrialTribunal as well as the High Court have committed a seriouserror in reinstating the contesting respondents and directing theappellant – principal employer to absorb them as their employees.The parties shall be governed by the CLRA Act and relief, if any,Dcould have been granted under the provisions of the CLRA Actand not under the MPIR Act. The judgment and order passed bythe labour court is restored. [Paras 4.8, 5][341-G-H; 342-A-B]

Steel Authority of India Ltd. and Ors. Vs. National UnionWaterfront Workers and Ors. (2001) 7 SCC 1;EInternational Airport Authority of India Vs. InternationalAir Cargo Workers’ Union and Anr. (2009) 13 SCC 374– relied on.

From the Judgment and Order dated 09.03.2018 and 12.11.2018Gof the High Court of Madhya Pradesh Bench at Indore in W.P. (S)No.1083 of 2004 and Writ Appeal No.813 of 2018 respectively.

Anupam Lal Das, Sr. Adv., Ravi Bhardwaj, Anirudh Singh, RahulPratap, Krishanu Barua, Advs. for the Appellant.

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The Judgment of the Court was delivered by

M. R. SHAH, J.

1. Feeling aggrieved and dissatisfied with the impugned judgmentand order dated 09.03.2018, passed by the learned Single Judge of theHigh Court of Madhya Pradesh at Indore in W.P. (S) No. 1083 of 2004and the impugned judgment and order dated 12.11.2018 passed by theDivision Bench of the High Court in W.A. (S) No. 813 of 2018, bywhich the High Court has dismissed the said appeal(s) preferred by theappellant herein – employer confirming the judgment and order passedby the Industrial Tribunal ordering reinstatement and directing that theconcerned employees / workmen were the employees of the appellant –principal employer, the principal employer – Kirloskar Brothers Limitedhas preferred the present appeals.

2. The case on behalf of the appellant – principal employer in anutshell is as under:- 2.1 That respondent Nos. 1 to 6 herein were contractual labourersof the respondent No. 7, who was a contractor engaged by the appellantin terms of contract dated 22.04.1995, which was renewed from time totime, including on 01.08.1995. Upon entering into the contract, necessarycompliances under Contract Labour (Regulation and Abolition) Act, 1970(hereinafter referred to as “CLRA Act”) was completed by the appellantand the respondent No. 7 - contractor. The labour contract came to anend on 07.10.1996. Therefore, the services of the respondents weredispensed with by the contractor. Accordingly, the appellant filed a returnunder CLRA Act on 25.01.1997, which shows that the contract with therespondent No. 7 had come to an end.

2.2 According to the appellant, all statutory payouts, including thesalary of the workmen were paid by the contractor since under theCLRA Act, the ultimate responsibility would be upon the appellant ifthese were not paid by the contractor. By letter dated 06.04.1996, theappellant informed the contractor about deducting an amount of Rs.7,224/- from the bill payable, for non-deposit of PF contribution for May,1995.

2.3 That thereafter, the respondents approached the Labour Courtpraying inter alia that they were employees of the appellant, who havebeen orally terminated by the respondent No. 7 and sought to be re-instated in service. That the learned Labour Court vide judgment and A

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Aorder dated 14.03.2002, on appreciation of evidence returned a categoricalfinding that the Contractor had obtained license under the CLRA Actand that the contesting respondents were the employees of the contractorand not of the appellant.

2.4 That upon appeal, the learned Industrial Tribunal passed anBorder dated 05.02.2004, ordering reinstatement and holding that a contractlabourer automatically becomes an employee of the principal employer.Thereafter, the Industrial Tribunal considered the definition of ‘employee’and ‘employer’ as contained in Sections 2(13) and 2(14) of the MadhyaPradesh Industrial Relations Act, 1960 (hereinafter called as “MPIRAct”).C

2.5 The judgment and order passed by the Industrial Tribunal hasbeen confirmed by the learned Single Judge. The writ appeal filed againstthe judgment and order passed by the learned Single Judge has beendismissed as not maintainable and hence the appellant has preferred thepresent appeals challenging the judgment(s) and order(s) passed by theDlearned Single Judge as well as by the Division Bench of the High Court.3. Shri Anupam Lal Das, learned Senior Advocate has appearedon behalf of the appellant.

3.1 Shri Das, learned senior counsel has vehemently submittedEthat as such the contesting respondents herein were the employeesemployed by the respondent No. 7 – contractor. It is submitted thattherefore and in the absence of a notification under Section 10 of CLRAAct and there being no allegations or findings with regard to the contractbeing a sham, the contesting respondents could not have been held to beemployees of the appellant and not of the contractor.F

3.2 It is submitted that neither Section 10 of the CLRA Act, norany other provision in the Act, whether expressly or by necessaryimplication, provides for absorption of contract labour in the absence ofa notification by an appropriate Government, namely, in the present case,the State Government, under sub-section (1) of Section 10, prohibitingGemployment of contract labour, in any process, operation or other workin any establishment. It is submitted that in the present case, admittedly,no notification under Section 10 of the CLRA Act has been issued. It issubmitted that therefore, in the absence of a notification under Section10 of the CLRA Act, which can only be passed by the appropriateGovernment, the Industrial Court could have given relief to the workmenH

only if they had claimed and proved by leading cogent evidence that thecontract with the contractor was a sham. It is further submitted that inthe present case, there was no such allegation or pleading or findingarrived at by any Court that the contract between the parties was asham and not genuine. Heavy reliance is placed upon the decisions ofthis Court in the case of Steel Authority of India Ltd. and Ors. Vs.National Union Waterfront Workers and Ors., (2001) 7 SCC 1(paras 65, 108, 109, 120 and 125) and International Airport Authorityof India Vs. International Air Cargo Workers’ Union and Anr.(2009) 13 SCC 374 (paras 36, 37 to 40, 53.13, 56).

3.3 It is further submitted on behalf of the appellant that in thepresent case, the Courts below were not justified in invoking the provisionsof the MPIR Act as against the provisions of the CLRA Act, which isinconsistent in view of the provisions of Article 254 of the Constitutionof India.

3.4 It is submitted that the learned Industrial Tribunal and theHigh Court have materially erred in coming to a conclusion that thecontesting respondents were in the employment of the appellant despitethere being not a single document to buttress the same. It is submittedthat the only document filed by the contesting respondents was an ESIidentity card, which did not even bear the name of the appellant herein.It is submitted that even the deduction of PF and/or PF contribution bythe appellant may not go against the appellant. It is further submittedthat on non-payment of the salary and/or PF contribution, it was theresponsibility of the appellant to pay the same and thereafter to deductthe same from the amount due and payable to the contractor. Therefore,the payment of contribution by the appellant cannot be a ground to conferthe employer-employee relationship between the appellant and thecontesting respondents.

3.5 It is submitted that in the present case, none of the respondentshad produced any appointment issued by the appellant nor were theygiven any benefits, uniform or punching cards, which were being providedto all regular employees of the appellant. The direct control andsupervision of the respondents was always with the respondent No. 7 –contractor. It is submitted that therefore, the only conclusion based uponthe record would be that the contesting respondents were the employeeof the contractor.

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A3.6 Making above submissions, it is prayed that the present appealsbe allowed.

4. Having heard learned senior counsel appearing on behalf ofthe appellant and the material on record, it appears that the contestingrespondents herein were the contractual labourers of the respondentBNo. 7 – contractor, who was a contractor engaged by the appellant interms of the contract dated 22.04.1995, which was renewed from timeto time. It is an admitted position in the present case that no notificationunder Section 10 of the CLRA Act has been issued by the StateGovernment / appropriate Government, prohibiting the contract labour.It also appears that upon entering into the contract, necessary complianceCunder the CLRA Act was also completed by the appellant and therespondent No. 7 – contractor. On the labour contract coming to an end,the services of the contesting respondents were dispensed with by thecontractor.

4.1 On going through the entire material on record, no documentaryDevidence was produced, by which it can be said that the contestingrespondents were the employees of the appellant. There is no provisionunder Section 10 of the CLRA Act that the workers/employees employedby the contractor automatically become the employees of the appellantand/or the employees of the contractor shall be entitled for automaticEabsorption and/or they become the employees of the principal employer.It is to be noted that even the direct control and supervision of thecontesting respondents was always with the contractor. There is noevidence on record that any of the respondents were given any benefits,uniform or punching cards by the appellant.F4.2 Under the contract and even under the provisions of the CLRA,a duty was cast upon the appellant to pay all statutory dues, includingsalary of the workmen, payment of PF contribution, and in case of non-payment of the same by the contractor, after making such payment, thesame can be deducted from the contractor’s bill. Therefore, merelybecause sometimes the payment of salary was made and/or PFGcontribution was paid by the appellant, which was due to non-paymentof the same by the contractor, the contesting respondents shall notautomatically become the employees of the principal employer – appellantherein.

4.3 Even otherwise, as observed hereinabove, in the absence of aHnotification under Section 10 of the CLRA Act unless there are allegations or findings with regard to a contract being sham, private respondentsherein, who are as such the workmen/employee of the contractor, cannotbe held to be employees of the appellant and not of the contractor. Atthis stage, the decision of this Court in the case of Steel Authority ofIndia Ltd. and Ors. Vs. National Union Waterfront Workers andOrs. (supra) is required to be referred to. Following two questions fellfor consideration before this Court:- A.whether the concept of automatic absorption of contractlabour in the establishment of the principal employer onissuance of the abolition notification, is implied in Section10 of the CLRA Act; and B.whether on a contractor engaging contract labour inconnection with the work entrusted to him by a principalemployer, the relationship of master and servant betweenhim (the principal employer) and the contract labour,emerges.

4.4 After considering various decisions of this Court on the point,in paragraph 125, it was concluded as under:- “125. The upshot of the above discussion is outlined thus:

(1) (a) Before 28-1-1986, the determination of the questionwhether the Central Government or the State Government is theappropriate Government in relation to an establishment, willdepend, in view of the definition of the expression “appropriateGovernment” as stood in the CLRA Act, on the answer to a furtherquestion, is the industry under consideration carried on by or underthe authority of the Central Government or does it pertain to anyspecified controlled industry, or the establishment of any railway,cantonment board, major port, mine or oilfield or the establishmentof banking or insurance company? If the answer is in theaffirmative, the Central Government will be the appropriateGovernment; otherwise in relation to any other establishment theGovernment of the State in which the establishment was situated,would be the appropriate Government; (b) After the said date in view of the new definition of thatexpression, the answer to the question referred to above, has tobe found in clause (a) of Section 2 of the Industrial Disputes Act;if (i) the Central Government company/undertaking concerned or A

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any undertaking concerned is included therein eo nomine, or (ii)any industry is carried on (a) by or under the authority of theCentral Government, or (b) by a railway company; or (c) by aspecified controlled industry, then the Central Government will bethe appropriate Government; otherwise in relation to any otherestablishment, the Government of the State in which that otherestablishment is situated, will be the appropriate Government.

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(2) (a) A notification under Section 10(1) of the CLRA Actprohibiting employment of contract labour in any process, operationor other work in any establishment has to be issued by theappropriate Government:

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(1) after consulting with the Central Advisory Board or theState Advisory Board, as the case may be, and

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(ii) other relevant factors including those mentionedin sub-section (2) of Section 10; (b) Inasmuch as the impugned notification issued by the CentralEGovernment on 9-12-1976 does not satisfy the aforesaidrequirements of Section 10, it is quashed but we do so prospectivelyi.e. from the date of this judgment and subject to the clarificationthat on the basis of this judgment no order passed or no actiontaken giving effect to the said notification on or before the date ofFthis judgment, shall be called in question in any tribunal or courtincluding a High Court if it has otherwise attained finality and/or ithas been implemented.

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(3) Neither Section 10 of the CLRA Act nor any other provisionin the Act, whether expressly or by necessary implication, providesfor automatic absorption of contract labour on issuing a notificationby the appropriate Government under sub-section (1) of Section10, prohibiting employment of contract labour, in any process,operation or other work in any establishment. Consequently theprincipal employer cannot be required to order absorption of thecontract labour working in the establishment concerned.

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KIRLOSKAR BROTHERS LIMITED v. RAMCHARAN ANDORS. [M. R. SHAH, J.]

(4) We overrule the judgment of this Court in Air Indiacase [(1997) 9 SCC 377] prospectively and declare that anydirection issued by any industrial adjudicator/any court includingthe High Court, for absorption of contract labour following thejudgment in Air India case [(1997) 9 SCC 377] shall hold goodand that the same shall not be set aside, altered or modified on thebasis of this judgment in cases where such a direction has beengiven effect to and it has become final.

(5) On issuance of prohibition notification under Section 10(1)of the CLRA Act prohibiting employment of contract labour orotherwise, in an industrial dispute brought before it by any contractlabour in regard to conditions of service, the industrial adjudicatorwill have to consider the question whether the contractor has beeninterposed either on the ground of having undertaken to produceany given result for the establishment or for supply of contractlabour for work of the establishment under a genuine contract oris a mere ruse/camouflage to evade compliance with variousbeneficial legislations so as to deprive the workers of the benefitthereunder. If the contract is found to be not genuine but a merecamouflage, the so-called contract labour will have to be treatedas employees of the principal employer who shall be directed toregularise the services of the contract labour in the establishmentconcerned subject to the conditions as may be specified by it forthat purpose in the light of para 6 hereunder.

(6) If the contract is found to be genuine and prohibitionnotification under Section 10(1) of the CLRA Act in respect ofthe establishment concerned has been issued by the appropriateGovernment, prohibiting employment of contract labour in anyprocess, operation or other work of any establishment and wherein such process, operation or other work of the establishment theprincipal employer intends to employ regular workmen, he shallgive preference to the erstwhile contract labour, if otherwise foundsuitable and, if necessary, by relaxing the condition as to maximumage appropriately, taking into consideration the age of the workersat the time of their initial employment by the contractor and alsorelaxing the condition as to academic qualifications other thantechnical qualifications.”

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A4.5 Thus, as observed and held by this Court, neither Section 10of the CLRA Act nor any other provision in the Act, expressly or bynecessary implication, provides for automatic absorption of contract labouron issuing a notification by the appropriate Government under sub-section(1) of Section 10, prohibiting employment of contract labour, in any process,operation or any other work in any establishment and consequently, theBprincipal employer cannot be required to order absorption of the contractlabour working in the establishment concerned. It has further beenobserved and held by this Court in the aforesaid decision that on issuanceof prohibition notification under Section 10(1) of the CLRA Act,prohibiting employment of contract labour or otherwise, in case of anCindustrial dispute brought before it by any contract labour in regard toconditions of service, the industrial adjudicator will have to consider thequestion whether the contractor has been interposed either on the groundof having undertaken to produce any given result for the establishmentor for supply of contract labour for work of the establishment under agenuine contract or is a mere ruse/camouflage to evade complianceDwith various beneficial legislations so as to deprive the workers of thebenefits thereunder.

4.6 In the present case, neither any notification under Section10(1) of the CLRA Act has been issued prohibiting the contract labour,nor there are allegations and/or even findings that the contract is shamEand bogus and/or camouflage.

4.7 In the case of International Airport Authority of IndiaVs. International Air Cargo Workers’ Union and Anr. (supra),after considering the decision of this Court in the case of Steel Authorityof India Ltd. and Ors. Vs. National Union Waterfront WorkersFand Ors. (supra), it has been observed and held by this Court thatwhere there is no abolition of contract labour under Section 10 of theCLRA Act, but the contract labour contends that the contract betweenthe principal employer and the contractor is sham and nominal, the remedyis purely under the ID Act. It is further observed that the industrialGadjudicator can grant the relief sought if it finds that the contract betweenthe principal employer and the contractor is sham, nominal and merely acamouflage to deny employment benefits to the employee and that thereis in fact a direct employment, by applying tests like: who pays the salary;who has the power to remove/dismiss from service or initiate disciplinaryaction; who can tell the employee the way in which the work should beH

KIRLOSKAR BROTHERS LIMITED v. RAMCHARAN ANDORS. [M. R. SHAH, J.]

done, in short, who has direct control over the employee. It is furtherobserved that where there is no notification under Section 10 of theCLRA Act and where it is not proved in the industrial adjudication thatthe contract was a sham/nominal and camouflage, then the question ofdirecting the principal employer to absorb or regularise the services ofthe contract labour does not arise. It has further been observed inparagraphs 38 and 39 as under :- “38. The tests that are applied to find out whether a person isan employee or an independent contractor may not automaticallyapply in finding out whether the contract labour agreement is asham, nominal and is a mere camouflage. For example, if thecontract is for supply of labour, necessarily, the labour supplied bythe contractor will work under the directions, supervision andcontrol of the principal employer but that would not make theworker a direct employee of the principal employer, if the salaryis paid by a contractor, if the right to regulate the employment iswith the contractor, and the ultimate supervision and control lieswith the contractor.

39. The principal employer only controls and directs the workto be done by a contract labour, when such labour is assigned/allotted/sent to him. But it is the contractor as employer, whochooses whether the worker is to be assigned/allotted to theprincipal employer or used otherwise. In short, worker being theemployee of the contractor, the ultimate supervision and controllies with the contractor as he decides where the employee willwork and how long he will work and subject to what conditions.Only when the contractor assigns/sends the worker to work underthe principal employer, the worker works under the supervisionand control of the principal employer but that is secondary control.The primary control is with the contractor.”

4.8 Applying the law laid down by this Court in the aforesaid twodecisions to the facts of the case on hand and in the absence of anynotification under Section 10 of the CLRA Act and in the absence ofany allegations and/or findings that the contract was sham andcamouflage, both the Industrial Tribunal as well as the High Court havecommitted a serious error in reinstating the contesting respondents anddirecting the appellant – principal employer to absorb them as theiremployees. The parties shall be governed by the CLRA Act and relief, if AB

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Aany, could have been granted under the provisions of the CLRA Act andnot under the MPIR Act.

5. In view of the above and for the reasons stated above, thepresent appeals are allowed. The impugned judgment(s) and order(s)passed by the High Court in W.P.(S) No. 1083 of 2004 and W.A. No.B813 of 2018 as well as the judgment and order passed by the IndustrialTribunal are hereby quashed and set aside. The judgment and awardpassed by the Labour Court is hereby restored.

Present appeals are accordingly allowed. However, in the factsand circumstances of the case, there shall be no order as to costs.

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Nidhi Jain

Appeals allowed.

(Assisted by : Shashwat Jain, LCRA)

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