Supreme Court of India
BALWANT RAI SALUJA &ANR. ETC. ETC.versusAIR INDIALTD. & ORS.
- Citation
- 2014 INSC 561
- Decided
- 25 August 2014
- Disposal
- Dismissed
- Bench
- H L DATTU
Holding
Workers employed in a statutory canteen are deemed employees of the principal establishment only for the purposes of the Factories Act, 1948, and not for all other purposes, unless the principal exercises complete administrative control, which was not the case here.
Summary
The case concerned workmen employed by a contractor to run a statutory canteen on the premises of Air India, which under Section 46 of the Factories Act, 1948, must provide such a facility. The workmen claimed they were deemed employees of Air India and sought regularisation and other employment benefits. The Supreme Court examined whether the workers could be treated as employees of the principal establishment for purposes beyond the Factories Act, and whether the corporate veil of Air India's wholly‑owned subsidiary, Hotel Corporations of India (HCI), should be pierced. Applying the test of complete administrative control, the Court found that HCI is a separate legal entity with primary objects unrelated to Air India and that Air India's control over the canteen was merely supervisory, not absolute. Consequently, the workers are deemed employees of Air India only for the purposes of the Factories Act, 1948, and cannot claim regularisation or other benefits, leading to the dismissal of the appeals.
Issues considered
- Whether workers engaged by a contractor to operate a statutory canteen on the premises of a principal establishment can be treated as employees of the principal establishment.
- Whether the relationship between Air India and its wholly‑owned subsidiary HCI amounts to a sham or camouflage warranting piercing of the corporate veil.
- Whether the statutory obligation under Section 46 of the Factories Act, 1948 creates liability for the principal employer beyond the Act, such as regularisation and other service benefits.
- Whether Air India exercised effective and absolute control over the canteen workers sufficient to establish an employer‑employee relationship.
Legislation cited
- Companies Act, 1956s. 2(47), s. 4
- Contract Labour (Regulation and Abolition) Act, 1970s. 10
- Delhi Factory Rules, 1950s. 65-70
- Factories Act, 1948s. 46
Subjects
Factories ActStatutory canteenEmployer-employee relationshipCorporate veilPiercing the veilSubsidiary companyControl testRegularisationLabour lawContract labour
Judgment
[2014] 14 S.C.R. 1512
A BALWANT RAI SALUJA &ANR. ETC. ETC.
v.
AIR INDIALTD. &ORS.
(Civil Appeal Nos. 10264-10266 of 2013)
B I
AUGUST 25, 2014
[H. L. DATTU, R. K. AGRAWAL AND ARLIN MISHRA, JJ.]
Facfories Act, 1948- S. 46- Deihl Factory Rules, 1950
- rr. 65-70-A Company (principal establishment) required
C to run a canteen in compliance of s. 46-.,. Canteen employees
employed by the contractorcompany-Whetherthe workmen
engaged in the statutory canteen through the contractor could
be treated as employees of the principal establishment -
Held: The contractor company is a separate legal entity and
D its primary objects have not direct relation with the principal
establishment - The principal company established also
does not have effective and absolute control over the workmen
of the canteen - The contractor company is not a $ham or
camouflage created by the principal establishment -
E Therefore, the workmen of the statutory canteen would be
workmen of the principal establis~ment only for the purpose
of 1948 Act, and not for all other purposes - Hence the
workers cannot claim regularization in their employment from
the principal establishment- LabourLaws.
F
Precedence - Precedent value of a decision - Extent
of- Held: Binding nature of a decision would extend to only
observations on points raised and decided - The observation
on a legal point which arose in a manner not requiring any
decision, has to ·be considered merely as an obiter dictum
G · - In order to have binding effect, a decisio(J ne.ed n·ot be
rendered by a Full Court or Constitution Bench of Supreme
Court-A pronouncement by a Division Bench is binding on
1512
BALWANTRAI SALUJA&ANR. ETC. ETC. v.AIRINDIA 1513
LTD.&ORS.
· a Division Bench or a smaller number of Judges - A
Constitution of India, 1950-Art. 141.
Doctrines/Principles:
Doctrine of piercing the corporate veil - Applicability
of- Discussed. s
Answering the referred question and dismissing the
appeals, the Court ·
HELD: 1.1. The workmen of a statutory canteeh
would be the workmen of the establishment for the C
purpose of the Factories Act, 1948 only and not for all
other purposes. The statutory obligation created under
_Section 46 of the Act, 1948, although establishes certain·
liability of the principal employer towards the. workers
employed in the given canteen facility, this must be
restricted only to the Act, 1948 and it does not govern
0
the rights of employees with reference to appointment,
seniority, promotion, dismissal, disciplinary actions,
retirement benefits;·etc., which hare the subject matter
of various other legislations, policies, etc. Therefore, it
cannot be said that the employees of the statutory E
Canteen ipso-facto become the employees of the
principal employer. [Para 38][1540-B-F]
Indian Petrochemicals Corpn. Ltd. v. Shramik
Sena (1999) 6 sec 439:1999 (1) Suppl. SCR F
47; Hari Shankar Sharma v. Artificial Limbs Mfg.
Corpn. (2002) 1 SCC 337; Reserve Bank of
India v. Workmen (1996) 3 SCC 267: 1996 (2)
SCR 1176; Haldia Refinery Canteen Employees
Union v. Indian Oil Corpn. Ltd. (2005) 5 SCC 51: G
2005 (3) SCR 972; Indian Overseas Bank v. ·
1.0.B. Staff Canteen Workers' Union &Anr. (2000) .
4 SCC 245 : 2000 (2) SCR 1212; Barat Fritz
Werner Ltd. v. State of Karnataka 2001 (4) SCC .
498 : 2001 (1) SCR 835 - relied on.
H
1514 SUPREME COURT REPORTS [2014]14 S.C.R.
A Saraspur Mills Co. Ltd. v. Raman/al Chiman/a/
(1974) 3 sec 66:1973 (3) scR 967;
Hussainbhai v. Alath Factory Thezhila/i Union
(1978) 4 sec 257: 1978 (3) SCR 1073; M.M.R.
Khan v. Union of India 1990 Supp SCC 191-
B distinguished.
' Parimal Chandra Raha v. UC 1995 Supp (2) SCC
611 : 1995 (3) SCR 34; Workmen v. Coates of
·· India Ltd. (2004) 3 SCC 547; ·Basti Sugar Mills
Ltd. v. Ram Ujagar and Ors. (1964) 2 SCR 838;
c Ahmedabad Mfg. and Calico Printing Co. Ltd., .
v. Their Workmen (1953) II LLJ 647 - referred
. · to.
1.2.. The said workers, to be called the employees
0 of the factory for all ·purposes, they would need to
satisfy the test of employer-employee relationship and ·
it must be shown"tfiat the employer exercises absolute
and effective control over the said workers.
[Para 87][1563-A-B]
. , . I . .
E . t.3. To. ascertain whether the workers of the
Contractor . can be treated
.
as the I employees of the
factory or company on whose premises they run the
said statutory canteen, this Court must apply the test of
complete administrative control. Furthermore, it would
F be necessary to show that there exists an employer-
employee relationship between the factory and - the, .
workmen working in the canteen. the relevant factors
to be taken into consideration to establish an
employer-employee relationship would include, inter.
G alia, (i) 'who appoints the workers; (ii) who pays the
salary/remuneration; (iii) who has the authority to
dismiss; (iv) who can take disciplinary action; (v)
whether there is continuity of service;· and (vi)
extent of control and supervision. [Paras 49 and
H 61][1546-8-C; 1552-C-D] '
BALWANT RAI SALUJA&ANR. ETC. ETC. v.AIR INDIA 1515
LTD.&ORS ..
Dhrangadhra Chemical Works Ltd. v. State of A
Saurashtra AIR 1957 SC 274 Ram Singh v.
Union Territory, Chandigarh (2004) 1 SCC 126:
2003 (5) Suppl. SCR 357; Bengal Nagpur Cotton
Mills v. Bharat Lat (2011) 1 SCC 635; National·
Aluminium Co. Ltd. v. Ananta Kishore Rout & Ors. B
(2014) 6 sec 756 - relied on.
International Airport _Authority of India v.
International Air Cargo Workers' Union (2009) 13
SCC 374: 2009 (8) SCR 1; Workmen of Nilgiri
Coop. Mkt. Society Ltd. v. State of T.N. (2004) 3 c
sec 514 - referred to.
Ready Mix Concrete (South East) Ltd v. Minister
of Pensions and National/nsurance (1968) 2 QB
497; Short v. J. and W. Henderson Ltd. (1946) 0
62 TLR 427; JGE v. The Trustees of Portsmouth
Roman Catholic Diocesan Trust [2012) EWCA
· Civ 938 - referred to.
1.4. The doctrine of piercing the veil allows the
Court to disregard the separate legal personality of a E
company and impose liability upon the persons
exercising real control over the said company. However,
this ·principle has been and should be applied in a
restrictive manner, that is, only in scenarios wherein
it is evident that the company was a mere camouflage F
or sham deliberately created by the. persons exercising
control over the said company for the purpose of ·
avoiding liability. The intent of piercing the veil must be ·
· such that would seek to remedy a wrong done by the
persons controlling.the company. The application would G
thus depend upon the peculiar facts and circumstances
of each case. [Para 71)(1556-G-H-; 1557-A-B]
Life Insurance Corporation of India v. Escorts Ltd.
& Ors. (1986) 1 SCC 264: (1985) 1 Suppl. SCR
909 - relied on. · H
1516 SUPREME COURT REPORTS [2014] 14 S.C.R.
A ·Vodafone International Holdings BV v. Union of.
India (2012) 6 sec 613:2012 (1) SCR 573 -
referred to. ·
United States v. Bestfoods [141 L Ed 2d 43: 524
US 51 (1998) Salomon v. A Salomon & Co Ltd.
B [1897) AC 22; Bel} Hashem v. Ali Shayif [2008]
EWHC 2380 (Fam) Lord Neuberger in Prest v.
Petrodel Resources Limited and others [2013)
UKSC 34 ~referred to. '
c 1.5. For piercing the veil of incorporation, mere
ownership and control is not a sufficient ground. It
. should be established that the control and impropriety
by the Air India resulted in depriving the Appellants-
workmen of their legal rights. [Para 80][1560-B-C]
D 1.6. The doctrine of piercing the veil cannot be
applied in the given factual scenario of the present case.
Respondent No. 2, despite being a wholly owned
subsidiary of the Respondent No. 1 they both are
distinct legal entities. The management of business of
E Respondent No. 2 is under its own Board of Directors.
The issue relating to the appointment of the Board of .
Directors of Respondent No. 2 by respondent No.1
. would be a consequence of statutory obligations of
a wholly owned subsidiary· under the Act, 1956.
F [Para 79][1559-G-H; 1560-A] . .
1. 7. It is evident from the Memorandum of
Association and Articles of Associatio.n of respondent
No.2 {the subsidiary company) that the primary objects
of respondent No. 2 have no direct relation with
G respondent No.1. It is only one of the many incidental
or ancillary objects of the HCI that make a direct
reference to assisting respondent No.1. Respondent No.
2 has several primary objects, which include the running
of hotels, motels, etc., in addition to establishing
. ;_ H
BALWANT RAI SALUJA&ANR. ETC. ETC. v.AIR INDIA 1S17
LTD.&ORS.
shops, kitchens, canteens and refreshment rooms: A
Respondent No.1 only finds mention under ancillary
objects of Respondent No. 2. It cannot be said that the
Memorandum of Association of respondent No.2
provides that it functions only for respondent No.1. Nor
can it be said that. the fundamental activity of B
Respondent No. 2 is to run and operate the said
statutory canteen for respondent No.1. [Para 77][1558-
G-H; 1559-A-B]
1.8 In the present case, respondent No.2 is a
separate legal entity incorporated under the Companies C
Act, 1956 and is carrying out the activity of operating
and running of the given canteen. The Articles of
Association of respondent No.2 in no way give control
of running: the said canteen to respondent No.1. The
functions of appointment, dismissal, disciplinary action, D
etc. of the canteen staff, are retained with respondent
No.2. Thus, the exercise of control by respondent No.1
clearly indicated that the said respondent No. 2 is not a
sham or camouflage created by respondent No. 1 to
avoid certain statutory liabilities. [Para 82][1560-H; E
1561-A-C]
1.9. The .mere fact that respondent No,·1 has a
certain degree of control over respondent No.2 does
not mean that the employees working in the canteen are F
the employees of respondent No.1. It exercises control
that is in the nature of supervision. The said
supervision or control would appear to be merely to
ensure due maintenance of standards and quality in the
said canteen. [Para 84][1561-H; 1562-A-C]
G
1.10. Therefore, the appellants-workmen could not
be said to be under the effective and absolute control
of respondent No.1. Issues regarding appointment of
the said workmen, their dismissal, payment of their
salaries, etc. are within the control of respondent No.2. H
151a . SUPREME COURT REPORTS [2014) 14 S.C.R.
A It cannot be then said that the appellants are the
workmen of respondent No.1 and therefore are entitled
to regularization of their services. There is no parity in
the nature of work, mode of appointment, experience,
qualifications, etc., between the regular employees of
B respondent No.1 and the workers of the given canteen.
[Paras 85 and 86][1561-H; 1562-A-C]
2.1. The binding nature of a deCision would extend
to only observations on points raised and 'decided by
the Court.and neither on aspects which it has not decided
C nor had occasion to express its .opinion upon. The
observation made in a prior decision on a legal question
which arose in a manner not requiring any decision and
which was to an extent unnecessary, ought to be
considered merely as an obiter dictum. A ratio of the
D judgment or the principle upon which the question
before the Court is decided· must be considered as
binding to be applied as an appropriate precedent.
[Para 25][1532-G-H; 1533-A-B]
State of Punjab v. Baladev Singh (1999) 6 SCC
E
172: 1999 (3) SCR 977 - followed.
The Commissioner of Income Tax v. Sun
Engineering Works (P) Ltd., (1992) 4 SCC 363:
(1992) (1) Suppl. SCR 732; Punjab Land
F Development and Reclamation Corporation Ltd.,
Chandigarh v. Presiding Officer, Labour Court,
Chandigarh and Ors. (1990) 3 SCC 682 : 1990
(3) SCR 111 ~relied on.
2.2. The pronouncement of law by a Djvision
G Bench of the Supreme Court is binding on a Division
Bench of the same or a smaller number of Judges and
in order that such decision is binding, .it is not necessary
that it should be a decision ·rendered by a Full Court
or a Constitution Bench of the· Supreme Court.
H [Para 30][1535-A-B]
BALWANT RAI SALUJA&ANR. ETC. ETC. v.AIR INDIA 1519
LTD.&ORS.
Union of India v. Raghubir Singh 178 ITR 548 A
(SC) - followed.
Steel Authority of India Ltd. v. National Union
Waterfront Workers (2001) 7 SCC 1 : 2001 (2)
Suppl. SCR 343 - distinguished.
B
CASE LAW REFERENCE
~995 (3) SCR 34 referred to Para 11
2001 (2) Suppl. SCR 343 distinguished Para 12
(2014) 6 sec 756 relied on Para 15 c
1996 (9) Suppl. SCR 579 distinguished Para 21
1992 (1) Suppl. SCR 732 relied on Para 21' ·
1990 (3) SCR 111 relied on Para 22
D
1901AC495 relied on Para 23
(1968) .2 SCR 154 relied on Para 23
1999 (3) SCR 977 followed Para 24
1999 (1) Suppl. SCR 47 relied on Para 29
E
(2002) 1 sec 337 relied on Para 30
2005 (3) SCR 972 relied on Para 30
178 ITR 548 (SC) followed Para 30
1996 (2) SCR 1176 relied on Para 31 F
2000 (2) SCR 1212 relied on Para 31
2001 (1) SCR 835 relied on Para 33
2006 (1) SCR 93 relied on Para 33
G
(2004) 3 sec 547 referred to Para 34
1973 (3) SCR 967 distinguished Para 40
(1964) 2 SCR 838 referred to Para 40
H
1520 SUPREME COURT REPORTS ' [2014) 14 S.C.R.
A (1953) II LlJ 647 referred to Para 40
1978 (3) SCR 1073 distinguished Para 42
1990 Supp sec 191 distinguished Para 44
(1968) 2 QB 497 · referred to . Para 50
B
. (1946) 62 TLR 427 referred to Para 52
(2012] EWCA Civ 938 referred to Para 53
AIR 1957 SC 274 relied on Para 54
c 2003 (5) Suppl. SCR 357 relied on Para 55
(2011) 1 sec 635 relied on Para 56
2009 (8) SCR 1 referred to Para 57
(2004) 3 sec 514 referred to · Para 59 ·
D 2012 (1) SCR 573 referred to Para 64
524 us 51 (1998) referred to Para 65
(1897] AC 22 referred to Para 66 .
(2008] EWHC 2380 (Fam) referred to Para 68
E
(2013] UKSC 34 referred to Para 69.,
(1985) 1 Suppl. SCR 909 relied on Para 70
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos.
10264-10266 of 2013. ,.,
F ~
From the judgment and order dated 02.05.2011 in LPA
No. 388/2010, LPA No. 390/2010, LPA No. 391/2010 of the
High Court of Delhi at New Delhi.
• Jayant Bhushan, Sr.Adv., Praveen K. Singh, Sanjeev Kr.
G Choudhary, Santosh Kumar Pandey, Ms. Swastika Kumari
Navlendu Kumar Mishra and Aniruddha P. Mayee, Advs., for
the Appellants.
H
BALWANT RAI SALUJA&ANR. ETC. ETC. v.AIR INDIA 1521
LTD.&ORS.
Chander Uday Singh, Sr. Adv., Praveen Jain, Tavinder A
Sidhu, SumitGupta, Mrs. Gunjan S. Jain (For M/s. M.V. Kini &
Associates), Ms. Sangeeta Bharti, KrishanuAdhikary, Shalin
Arthwan, Rishi K.S. Gautam and Ms. Ruchi Kohli, Advs., for
the Respondents.
The Judgment of the Court was delivered by B
H. L. DATTU, J. 1. In view of the difference of opinion by
two learned Judges, and by referral order dated 13.11 .2013
of this Court, these Civil Appeals are placed before-us for
our consideration and decision. The question before this c
bench is JNhether the workmen engaged in statutory canteens,
through a contractor, could be treated as employees of the
principal establishment.
2. At the outset, it requires· to be noticed that the
learned Judges differed in their opinion regarding the liability · D
of the principal employer running statutory.canteens and further
regarding the status of the workmen engaged thereof. The
learned Judges differed on. the aspect of supervision and
control which was exercised by the Air India Ltd. (for short,
''the Air India")- respondent No. 1, and the Hotel Corporations E
of India Ltd. (for short, "the HCl")-respondent No. 2, over the
said workmen employed in these canteens. The learned
Judges also had varying interpretations regarding the status
of the HCI as a sham and camouflage subsidiary by the Air
India created mainly to deprive the legitimate statutory and F
fundamental rights of the ~onc~rned workmen and the
necessity to pierce the veil to ascertain their relation with the
principal employer. ·
3. The Two Judge bench has expressed contrasting
opinions on the prevalence of an employer-employee G
relationship between the principal employer and the workers
in the said canteen facility, based on, inter aiia,-iss.1,1es
surrounding the economic dependence of the subsidiary role
in management and maintenance of the· canteen premises,
H
1522 SUPREME COURT REPORTS [2014] 14 S.C.R.
A representation of workers, modes of appointment and
termination as well as resolving disciplinary issues among
workmen. The Bench also differed on the issue pertaining
to whether such workmen should be treated as employees
of the principal employer only for the purposes of the Factories ·
B Act, 1948 (forshort, "theAct, 1948")orforotherpurposesas
well.
FACTS:
4. The present set of appeals came before a two-Judge
c Bench of this Court against a judgment and order dated
02.05.2011 of a Division Bench of the High Courtaf Delhi in
LPA Nos. 388, 390 and 391 of 2010. The present dispute
finds origin in an industrial dispute which arose between the
Appellants-workmen herein of the statutory canteen and
D Respondent No. 1- herein. The said industrial dispute was
referred by the Central Governmein.t, by its order dated
23.10.1996 to the Central Government Industrial Tribunal cum
Labour Court (for short "the CGIT"). The question referred was
whether the workmen as employed by Respondent No. 3.-
E herein, to provide canteen services at the establishment of
Respondent No. 1-herein, could be treated as deemed·
employees of the said Respondent No. · 1. Vide order
dated 05.05.2004, the CGIT held' that the workmen .were
employees of the Respondent No ..1-Air India itnd therefore
'
F their claim was justified. Furthermore, the termination of
services of the workmen during the pend ency of the dispute
was held to be illegal.
5. By judgment and order dated 08.04.2010, the
learned Single Judge of the High Court of Delhi set aside and
G quashed the CGIT's award and held that the said workmen
would not be entitled to be treated as or deemed to be the
employees of the Air India. The Division Bench of the High
Court of Delhi vide impugned order dated 02.04.2011 found
no error in the ord~r passed by the learned Single Judge of
H
BALWANT RAI SALUJA&ANR. ETC. ETC. v.AIR INDIA 1523
LTD. &ORS. [H. L. DATTU, J.]
the High Court. The appeal was dismissed by the Division A
. Bench confirming the order of the learned Single Judge who
observed that the responsibility to run the canteen was
absolutely with the H.Cl and that the Air India and the HCI
shared an entirely contractual relationship. Therefore, the claim
of the appellants to be treated as employees of the Air India B
and to be regularized was rejected by the learned Single
Judge.
6. In the present set of appeals, the appellants are
workers who claim to be the deemed employees of the
management of Air India on the grounds, inter alia, that C
they work in a canteen established on the premises of the
respondent No. 1-Air India and that too, for the benefit of the
employees of the said respondent. It is urged that since the
canteen is •maintained as a consequence of a statutory
obligation under Section 46 of the Act, 1948, and that since D
by virtue of notification dated 21.01.1991, Rules 65-70 of the
Delhi Factory Rules, 1950 (for short, "the Rules, 1950") have
become
·-(
applicable to the respondent
.
No. 1, the said. workers
should be held to be the employees of the management of
the corporation, on which such statutory obligation is placed, E
that is, Air India.
7. Respondent No. 1 is a company incorporated under
the Companies Act, 1956 and is owned by the Government of
India. The primary object oflhe said respondent is to F
provide international air transport/travel services. It has
Ground Services Department at Indira Gandhi International
Airport, Delhi. The Labour Department vide its notification
dated 20.01.1991 under sub-rule (1) of Rule 65 of the Rules,
1950, has enlisted the said M/s. Air India Ground Services G
Department, thereby making Rules 65 to 70, of the Rules,
1950 applicable to the same.
8. Respondent No. 2-HCI is also a company
incorporated under the Companies Act, 1956 arid is a
H
1524 SUPREME COURT REPORTS [2014] 14 S.C.R.
A separate legal entity from the Air India. As per the
Memorandum of Association of Respondent No. 2, the same
is a wholly-owned subsidiary of theAir India. The main objects
of the said respondent, inter alia, are to establish refreshment
rooms, canteens, etc. forthe sale of food, beverages, etc.
B , 9. Respondent No. 2 has various units and Respondent
No. 3, being Chefair Flight Catering (for short, "the Chefair''),
provides flight catering services to various airlines, including
Air India. It is this Chefair unit of HCI that operates and runs
the canteen. It requires to be noticed that the appellants-
C> workmen are engaged on a casual or temporary basis by
the' respondent Nos. 2 and 3 to render canteen services on
the premises of respondent No.1 -Air India.
·ISSUE:
D ., 10. The main issue for consideration before. this Court
in the present reference is "whether workers, engaged on a
casual or temporary basis by a contractor (HCI) to operate
and run a statutory canteen, under the provisions of the Act,
1948, on the premises of a factory- Air India, can be said to
E · be the workmen of the said factory or corporation". '
SUBMISSIONS:
11. Shri Jayant Bhushan, learned Senior Counsel forthe
appellants-workmen has two alternative submissions; firstly,
F · that in the event of a statutory requirement to provide for a
canteen or any other facility, the employees of the said facility
would automatically become employees of the principal
employer, irrespective of the existence of any intermediary
that may have been employed to run that facility. Secondly,
G the test of sufficient control by the principal employer over
the operation of the· canteen and consequently over the
appellants-workmen, should prevail. Therefore, the Court
should pierce the veil and take note of the. fact that the
contractor was a mere camouflage, and the principal employer
H was in real control of the canteen and its workmen. Reference
BALWANTRAI SALUJA&ANR. ETC. ETC. v.AIRINDIA - 1525
LTD. & ORS. [H. L. DATTU, J.]
is made to the following cases in support of his submissions- A
SaraspurMills Co. Ltd. v. Raman/al Chimanlal, (1974) 3
SCC 66; Hussainbhai v. Alath Factory Thezhilali Union, -
(1978) 4 SCC 257; M.M.R. Khan v. Union of India, 1990
Supp SCC 191; and Parimal Chandra Raha v. UC, 1995
supp (2) sec 611. B
12. Shri Jayant Bhushan also submits that the Issue raised
-in these appeals is squarely covered by the observations
made by the Constitution Bench in the case of Steel Authority
of India Ltd. v. National Union Waterfront Workers, (2001)
1sec1. c
13. While supporting the judgment in the Steel Authority
of India's case (supra), Shri C.U. Singh, learned Senior
Counsel for Respondent No. 1-Air India would contend that
the issue that came up for consideration before the 0
Constitution Bench is entirely different and, therefore, the
said decision has no bearing on the facts and the question of -
law raised in the present set of appeals.
14. Shri C.U. Singh would then refer to the various case
laws cited by the learned counsel for the appellants to show E -
that they are not only distinguishable on facts, but are
inapplicable to the facts of the present case. He would also
refer to the three-Judge Bench decision of this Court in the
case of Indian Petrochemicals Corpn. Ltd. v. Shramik Sena,
(1999) 6 SCC 439, and then would submit that the proposition F -
of law enunciated in the Indian Petrochemicals case (supra)
is followed by this Court in Hari Shankar Sharma v. Artificial
Limbs Mfg. Corpn., (2002) 1 -sec 337; Workmen v. Coates
of India Ltd., (2004) 3 SCC 547; Haldia Refinery Canteen
-Employees Union v. Indian Oil Corpn. Ltd., (2005) 5 SCC G
51; and Karnataka v. KGSD Canteen Employees' Welfare
Assn., (2606) 1 sec 567. -
_15. In so far as the second submission of the learned
counsel forthe appellants is concerned, Shri C.U. Singh would
H
1526 SUPREME COURT REPORTS (2014] 14 S.C.R.
A submit that it is not the test of sufficient control, but the test
of effective and absolute control which would be relevant,
and that if.the said test, in the given facts is applied, the
appellants would fail to establish the employer and employee
relationship. In aid of his submissions, he refers to Bengal.
B Nagpur Cotton Mills v. Bharat Lal, (2011) 1 SCC 635;
International Airport Authority of India v. International Air
Cargo Workers' Union, (2009) 13 SCC 374; and National
Aluminium Co. Ltd. v. Anania Kishore Rout & Ors., (2014) 6
sec 756.
C RELEVANT PROVISIONS:
16. To appreciate the point of view of the parties to the
present lis, it is necessary to notice the relevant provisions.
17. Section 46 of the Act, 1948 statutorily places an
D obligation on the occupier of a factory to provide and maintain
a canteen in the factory where more than two hundred and
fifty workers are employed. There is nothing in the said
provision which provides for the mode in which the factory
must set up a canteen. It appears to be left to the discretion
E of the concerned factory to either discharge the said obligation
of setting up a canteen either by way of direct involvement or
through a contractor or any other third party. The provision
reads as under:
"46. Canteens.-(1) The State Government may make
F rules requiring that in any specified factory wherein
more than two hundred and fifty workers are ordinarily
employed, a canteen or canteens shall be provided and
maintained by the occupier for the use of the workers.
G (2) Without prejudice in the generality of the foregoing
power, such rules may provide for -
(a) the date by which such canteen shall be provided;
(b) the standard in respect of construction,
accommodation, furniture and other equipment of the
H canteen;
BALWANT RAI SALUJA&ANR. ETC. ETC. v.AIR INDIA 1527
LTD. & ORS. [H. L. DATTU, J.]
(c) the foodstuffs to be served therein and the charges A
which may be made therefor;
(d) the constitution of a managing committee for the
canteen and representation of the workers in the
management of the canteen;
B
(dd) the items of expenditure in the running of the canteen
which are not to be taken into account in fixing the cost
of foodstuffs and which shall be borne by the employer;
(e) the delegation to Chief Inspector subject to such
conditions as may be prescribed, of the power to make C
rules under clause (c)."
18. By virtue of Notification No .. 27(12)89-CIF/Lab/
464 dated 21.01.1991, rules 65 to 70 of the Rules, 1950
were made applicable to Mis. Air India Ground Services
Department. The rules impose obligations upon the occupier D
of the factory as regards providing for and maintaining the
said canteen.
19. Rules 65 to 70 of the Rules, 1950 are in furtherance
of the duty prescribed on the State Government to run statutory E
canteens as per Section 46 of the Act, 1948. Rule 65, inter
alia, provides for an official notification and approval of the
occupier canteen facility as well as additional gutdelines
regarding the construction,· accommodation, hygiene,
ventilation, sanitation and other maintenance works. Rule 66 F
prescribes for setting up a dining hall, with adequate space
and furniture along with reservation of dining space for women
employees. Rule 67 enumerates the requisite equipment
such as utensils, furniture, uniforms for the canteen staff and
other equipment to be purchased and maintained in a G
hygienic manner. Rule 68 prescribes that the prices to be
charged on foodstuffs and other items will be on a non-profit
basis, as approved by the Canteen Managing Committee.
Rule 69 illustrates the procedure for handling the auditing
.
of accounts, under the supervision of the Canteen Managing H
1528 SUPREME COURT REPORTS [2014] 14 S.C.R.
A Committee as well as Inspector of Factories. Lastly, Rule 70
enumerates the consultative role of the Managing Committee
regarding, inter alia, the quality and quantity of foodstuffs
served, arrangement of menus, duration for meals, etc. It
also prescribes that such a Committee must have equal
B representation of persons nominated by the occupier and
elected members by the workers of the factory. The Manager
is entrusted with determining and supervising the procedure
for conducting such elections and dissolving the Committee
at the expiry of its two year statutory term.
C DISCUSSION :
.20. Before we deal with the issue that arises for
consideration, it would be necessary to consider the
applicability of the Constitution Bench decision in the Steel
0 Authority of India case (supra). Learned counsel refers to
paragraphs 106 and 107 qf the said judgment to contend that
the observations made therein is the expression of the Court
on the question of law and since it is the decision of the.
Constitution Bench, the same would be binding on this Court.
E To appreciate the submission, of the learned counsel, we
notice the aforesaid paragraphs:
"106. We have gone through the decisions of this Court
in VST Industries case (2001) 1 SCC 298, GB. Pant
University case (2000) 7 SCC 109 and M. Aslam
F case (2001) 1 SCC 720. 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 SaraspurMillscase(1974)3SCC
66 the contract labour working in the canteen were
G 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 (1) of Section 10 of the CLRAAct the contract
H
BALWANT RAI SALUJA&ANR. ETC. ETC. v. AIR !NOIA 1529 ·
LTD. & ORS. [H. L. DATTU, J.]
labour working in the establishment of the principal A
employer have to be absorbed as regular employees
of the establishment
."
107. 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 work of an B
establishment and employment of contract labour is
prohibited either because the industrial adjudicator/
court ordered abolition of contract labourer because
the appropriate Government issued notification under
Section 10(1) of the CLRAAct, no automatic absorption C
of the contract labour working in the establishment was
ordered; (ii) where the contract was found to be a sham
and nominal, rather a camouflage, in which case the
contract labour working in the establishment of the
principal employer were held, in fact and in reality, the D
employees of the principal employer himself. Indeed,
such cases do not relate to abolition.of contract labour '~
but presentinstances wherein the Court pierced the veil
and declared the correct position as a fact at the stage •
after employmentof contract labour stood prohibited; E·
(iii) where in discharge of a statutory obligation <?f
maintaining a canteen in an establishment the
principal employer availed the services of a contractor
the courts have held that the contract labour would
indeed be the employees of the principal employer." F
21. By placing his fingers on Clause (iii) of paragraph
107, the learned counsel would contend that the said
observation is the ratio of the Court's decision and, therefore,
it is binding on all other Courts: We do not agree. The .
Constitution Bench in Steel Authority of India's case (supra) G
. was primarily concerned with the mea_ning of the
expression "appropriate Government" in Section 2(1 )(a) of
the Contract Labour (Regulation and Abolition) Act, 1970
and in Section 2(a) of the Industrial Disputes Act, 1947 and
H
1530 SUPREME COURT REPORTS [2014] 14 S.C.R.
A the other issue was automatic absorption of the contract
labour in the establishment of the principal employer as a
consequence of an abolition notification issued under Section
10(1) of the Contract Labour (Regulation and Abolition)Act.
The Court while over-ruling the judgment in Air India Statutory
B Corporation vs. United Labour Union (1997) 9 SCC 377,
prospectively, held that neither Section 1O of the Contract
Labour (Regulation and Abolition)Act nor any other provision
in the Act, whether expressly or by necessary implication,
provides for automatic absorption of contract labour on issue
C of notification under the said section; prohibiting contract
labour and consequently the principal employer is not
required to absorb the contract labour working in the
concerned estpblishment.
l
In the aforesaid decision, firstly, the issue whether
D contract labourers working in statutory canteen(s) would fall
within the meaning of expression "workmen" under the Act,
1948 and therefore they are.· employees of the principal
employer and secondly,· whether th~.,P~in.cipal employer to
fulfil . its obligation under Section 46 of the Act, 1948
E engages a contractor, the e.mployees of the contractor can
claim regularisation and extension of the service conditions
extended to the employees of the principal employer did
not remotely arise for consideration of the Court.
F. Secondly, fn our considered view, the observations
_ made by the Constitution Bench in paragraph 107 of the
Judgment by no stretch of imagination can be considered
'the law declared' by the Court. We say so for the reason,
the Court after noticing several decisions which were
brought to its notice, has summarised the view expressed in
G · those decision in three categories. The caiegorisation so
made cannot be said the declaration of law made by the
Court which would be binding on all the Courts within the
territory of India as envisaged under Article 141 of the
Constitution of India. This Court in the case of The
H
BALWANT RAI SALUJA&ANR. ETC. ETC. v.AIR INDIA 1531
LTD. & ORS. [H. L. DATTU, J.]
Commissioner of Income Tax v. Sun Engineering Works A
(P) Ltd., (1992) 4 SCC 363, has observed:
"39. It is neither desirable nor permissible to pick out
a word or a sentence from the judgment of this Court
divorced from the context of the question under
consideration and treat it to be complete 'law' declared 8.
by this Court. The Judgment must be read·as a whole
and the observations from the judgment have to be
considered in the light of the questions which were before
this Court. A decision of this Court takes its colour from
the questions involved in the case in which it was c
rendered and while applying the decision to the later
case, the Courts must carefully try to ascertain the true
principle laid down by the decision of this C9urt and not
pick out words or sentences from the judgment, divorced
from the context of the questions under consideration D
by this Court, to support their reasonings"
22. Further, this Court in Punjab Land Development and
Reclamation Corporation Ltd., Chandigarh v. Presiding
Officer, Labour Court, Chandigarh and Ors., (1990) 3 SCC E
682, observed as follows:
"44. An analysis of judicia.1 precedent, ratio decidendi
· and the ambit of earlier and later decisions is to be
found in the House of Lords' decision in F.A. &A.B. Ltd.
v. Lupton (Inspector of Taxes), Lord Simon concerned F
with the decisions in Griffiths v. J.P. Harrison (Watford)
Ltd. and Finsbury Securities Ltd. v. .Inland Revenue
Commissioner with their interrelationship and with the
question whether Lupton's case fell with-in the precedent
established by the one or the other case, said:. (AC p. G ·
658) .
'. .. what constitutes binding precedent is the ratio
decidendi of a case, and this is almost always to be
ascertained by an analysis of the material facts of
H
1532 SUPREME COURT REPORTS [2014] 14 .S.C.R.
A the case-that is, generally, those facts which the
·tribunal whose decision is in question itself holds,
expres~ly or implicitly, to be material.'"
23. It is stated therein that a judicial decision is the
abstraction of the principle from the facts and arguments of
B the c13se. It was further observed in the Punjab Land
Development case (supra), that:
"5.3. Lord Halsbury's dicta in Quinn v. Leatham, 1901 AC
495: (AC p. 506)
c " ... every judgment must be read as applicable to
the particular facts proved, or assumed to be proved,
since the generality of the expressions which may
be found there are not intended to be expositions of
the whole Jaw, but governed and qualified by the.·
D particular facts of the case in which such
expressions are to be found. The other is that a case
is only an authority for what it actually decid~s.;, ·
This Court held in State of Orissa v. Sudhansu Sekhar
Misra (1968) 2 SCR 154, that a decision is only an
E authority for what it actually decides. What is of the
essence in a decision is its ratio and not other
observation found therein nor what logically follows from
the various observations made in it. .. .''
F 24. A Constitution Bench of this Court in the case of
State of Punjab v. Baladev Singh, (1999) 6 SCC 172, held
• that a judgment has to be considered in the context in which
it was rendered and that a decision is an authority for what it
decides and it. is. not everything said therein constitutes a
G precedent.
25. In our view, the binding nature of a decision would
extend to only observations on points raised and decided by
the Court and neither on aspects which it has not decided nor
had occasion to express its opinion upon. The observation
H
BALWANT RAI SALUJA&ANR. ETC. ETC. v.AIR INDIA 1533
LTD. & ORS. [H. L. DATTU, J.]
made in a prior decision on a legal question which arose in A
a manner not requiring any decision and which was to an
extent unnecessary, ought to be considered merely as an
obiter dictum. We are further of the view that a ratio of the
judgment or the principle upon which the question before
the Court is decided must be considered as binding to be B
applied as an appropriate precedent.
26. The Constitution Bench in Steel Authority of India's
case (supra), decided on the limited issue surrounding the
absorption of contract workers into the principal
establishment pursuant to a notification issued by the C
appropriate Government under Section 1O of the Contract
Labour (Abolition and Regulation) Act, 1970. The conclusion
in paragraph 125 of Steel Authority of India's case (supra),
inter alia, states that on issuance of a notification under
Section 10(1) of Coritract Labour (Abolition and Regulation) D
Act, 1970 passed by the appropriate Government would
not entail the automatic absorption of contract workers
operating in the establishment and the principal employer
will not be burdened with any liability thereof. The issue
surrounding workmen employed in statutory canteens and the E
liability of principal employer was neither argued nor subject
of dispute in the Steel Authority of India's case (supra).
Therefore, in our considered view the decision on which
reliance was placed by learned counsel does not assist him
in the facts of the present case. F
27. The Act, 1948 is a social legislation and it provides
for the health, safety, welfare, working hours, leave and
other benefits for workers employed in factories and it also
provides for the improvem·ent of working conditions within G
the factory premises. Section 2 of the Act, 1948 is the
interpretation clause. Apart from others, it provides the
definition of worker under Section 2(1) of the Act, 1948, to mean
a person employed', directly or through any other agency,
whether for wages or not, in any manufacturing or cleaning
H
1534 SUPREME COURT REPORTS [2014] 14 S.C.R.
A process. Section 46 of the Act, 1948 requires the
establishment of canteens in factories employing more than
two hundred and fifty workers. The State Government have
been given power under the Section to make Rules requiring
that such canteens to be provided in the factory under Sub
B Section (2), the items for which rules are to be framed have
been specified. The Sub Section also contemplates the
delegation by the State Government the power to the Chief
Inspector to make rules in respect of .the food to be· served in
such canteens and their charges. In exercise of rules making
c power, the Delhi State has framed and notified the Rules,
1950, in which rules 65 to 70 are incorporated to give effect
to the purpose of Section 46 of the Act, 1948.
28. The question before us is "when the company is
admittedly required to run the canteen in compliance of the
D statutory obligation under Section 46 of the Act, 1948, whether
the canteen employees employed by the contractor are to be
treated as the employees of the company only for the purpose
of Act 1948 or for all the other purposes."
29. Before we advert to the aforesaid issue raised and
E
canvassed, we intend to notice soine of the decisions of this
Court where a similar issue was raised and answered. In
Indian Petrochemicals case (supra), a three Judge Bench
of this Court has stated the law on the point by holding that
the employees of the statutory canteens are covere.d within
F the definition of 'workmen' under the Act, 1948 and not for all
other purposes. The Court went on to observe that the Act,
1948 does not govern the rights of employees with reference
to recruitment, seniority, promotion, retirementbenefits
G etc. They are governed by other statutes, rules, contracts
or policies.
30. The aforesaid viewpoint is reiterated by this Court in
the case of Haldia Refinery Canteen Employees Union
and others v. Indian Oil Corporation Ltd. and ors., (2005) 5
H SCC 51 and in Hari .Shankar Sharma v. Artificial Limbs
BALWANTRAI SALUJA&ANR. ETC. ETC. v.AIRINDIA 1535
LTD. & ORS. [H. L. DATTU, J.)
Manufacturing Corporation, (2002) 1 SCC 337. As observed A
by the Constitution Bench of this Court in the case of Union
of India v. Raghubir Singh, 178 ITR 548 (SC), the
pronouncement of law by a Division Bench of the Supreme
Court is binding on a Division Bench of the same or a smaller
number of Judges and in order that such decision is binding, B
it is not necessary that it should be a decision rendered by a
Full Court or a Constitution Bench of the Supreme Court.
The Indian Petrochemical's case (supra) is decided by a
three-Judge Bench of this Court and the facts and the legal
issues raised in the present appeals are the same or similar c
as in Indian Petrochemicals case (supra), and since we are
not persuaded to take a different view in the matter, the
observations made therein is binding on us.
31. This Court in the Indian Petrochemical case
(supra), while explaining the decision in Parimal Chandra D
Raha's case (supra), has stated that in Raha's case, the
Supreme Court did not specifically hold that the deemed
employment of the workers is for all purposes nor did it
specifically hold that it is only for the purposes of the Act,
1948. However, a reading of the judgment in its entirety makes E
it clear that the deemed employment is only for the purpose
of the Act, 1948. Therefore, it has to be held that the workmen
of a statutory canteen would be the workmen of the
establishment for the. purpose of the Act, 1948 only and not
for all other purposes. To arrive at this conclusion, the Court F
has followed the view expressed by this Court in M.M.R Khan's
case (supra) and Reserve Bank oflndia v. Workmen, (1996)
3 sec 267.
32.The proposition of law in the Indian
Petrochemica(s case (supra) has been reiterated in the Hari G
Shankar Sharma's case (supra). This Court stated that:
"6. The observations in Parimal Chandra Raha case
relied on by the appellants which might have supported
the submission of the appellants have been explained H
1536 SUPREME COURT REPORTS [2014] 14 S.C.R.
A by a larger Bench in Indian Petrochemicals Corpn. Ltd.
v. Shramik Sena where it was held, after considering
the provisions of the Factories Act and the previous
decisions on the issue, that the workmen of a statutory
canteen would be the workmen of the establishment only
B for the purpose of the Factories Act and not for all other
purposes unless it was otherwise proved that the
establishment exercised complete administrative
control over the employees serving in the canteen."
33.The aforesaid principle has also been applied in
C Haldia's case (supra); KGSD Canteen case (supra); Indian
Overseas Bank v. I. O.B. Staff Canteen Workers' Union &
Anr., (2000) 4 SCC 245; and Barat Fritz Werner Ltd. v.
State of Karnataka, 2001 (4) SCC 498.
0 34. The Coates of India Ltd. 's case (supra) was
regarding a dispute over the status of the appellant-workmen
therein who were hired by a contractor to work in a canteen
run on the premises of the respondent company. This Court
observed that merely some requirement under the Act, 1948
E of providing a canteen in the industrial establishment is by
itself not conclusive of the question or sufficient to determine
the status of the persons employed in the· canteen. The
Industrial Court and the learned Single Judge of the High
Court held in favour of the workmen. However, the Division
F Bench of the High Court held in favour of the respondent-
company therein. This Court took note of the relevant finding
of fact by the learned Single Judge therein and upheld the
conclusion of the Division Bench of the High Court, that the
workmen were employed only by the contractor to run the
G canteen, and they were not employees of the respondent
Company. The Court went on to observe that since the
canteen employees were not directly appointed by the
Company nor had they ever moved the Company for leave
or other benefits enjoyed by the regular employees of the
H Company, and further that the canteen employees got their
BALWANT RAI SALUJA&ANR. ETC. ETC. v. AIR INDIA 1537
LTD. & ORS. [H. L. DATTU, J.]
w'ages from the respective contractors and, therefore, they A
are not employees of the Company.
35.The Haldia case (supra) was similar to the facts of
the present case. In that case, the appellant-workmen were
working in the statutory canteen run by the respondent through
a contractor in its factory. It was contended therein that the 8
factory of the respondent where the workmen were employed
was governed by the provisions of the Act, 1948 and the
canteen where the said workmen were employed would be a
statutory canteen and the same was maintained for the benefit
of the workmen employed in the factory. It was alleged therein· C
that the respondent had direct control over the said workmen
and the contractor had no control over the management,
· administration and functioning of the said canteen.
Therefore, writ applications were filed seeking issuance of
mandamus to the respondent to absorb the appellants in the D
. service of the respondent therein and to regularize them as
such. This Court then made a detailed reference to the
Parimal (;handra Raha case (supra), .the MMR Khan case
(supra) and the Indian Petrochemicals case (supra). The
Court then extensively referred to the terms and conditions E
of the contract between the canteen contractor and the
respondent to ascertain whether there was any control of the
respondent company therein over the workers in the canteen,
and if so what was the nature of the said control. It was
· observed as follows: F
"14. No doubt, the respondent management does
exercise effective control over the contractor on certain
matters in regard to the running of the canteen but
such control is being exercised to ensure that the
canteen is run in ·an efficient manner and to provide G
wholesome and healthy food to the workmen of the
establishment. This, however, does not mean that the
employees working in the canteen have become the
employees of the management.
H
1538 SUPREME COURT REPORTS. [2014] 14S.C.R.
A . 15. A free hand has been given to the contractor with
regard to the engagement of the employees working in
the canteen. There is no clause in the agreement
stipulating that the canteen contractor unlike in the case
of Indian Petrochemicals Corpn. Ltd. shall retain and
B engage compulsorily the employees who were already
working in the canteen under the previous contractor.
There is no stipulation of Hie contract that the .
employees working in the canteen at the time of the
commencement of the contract must be retained by
c the contractor. The management unlike in Indian
Petrochemicals Corpn. Ltd. case is not reimbursing the
wages of the workmen engaged in the canteen. Rather
the contractor has been made liable to pay provident
fund contribution, leave salary, medical. benefits to
o his employees and to observe statutory working hou.rs.
The contractor has also been made responsible for the
proper maintenance of registers, records and accounts
so far as compliance with any statutory provisions/
obligations is concerned. A duty has been cast on the
E contractor to keep proper records pertaining to payment
of wages, etc. and also for depositing the provident
fund contributions with the authorities concerned. The
contractor has been made li(lble to defend, indemnify
and hold harmless the employer from any liability or
F penalty which may be imposed by the Central, State or
local authorities by reason of any violation by the
contractor of such laws, regulations and also·from all
claims, suits or proceedings that may be brought
against the management arising under or incidental to
G or by reason ofthe work provided/assigned [pic]under
. the contract brought by the employees of the contractor,
third party or by the Central or State Government
authorities."
36. As regards the nature of control exercised by the
H management over the workmen employed by the contractor
BALWANT RAI SALUJA&ANR. ETC. ETC. v.AIR INDIA 1539
LTD. & ORS. [H. L. DATTU, J.]
to work in the said canteen, it was observed by this Court in A
the Haldia case (supra) that the control was of a supervisory
nature and that there was no control over disciplinary action
or dismissal. Such control was held not to be determinative
of the alleged fact that the workmen were under the control
of the management. B
This Court observed as follows:
"16. The management has kept with it the right to test,
interview or otherwise assess or determine the quality
of the employees/workers with regard to their level of c
skills, knowledge, proficiency, capability, etc. so as to
ensure that the employees/workers are competent and
qualified and suitable for efficient performance of the
work covered under the contract. This control has been
kept by the management to keep a check over the
0
quality of service provided to its employees.· it has
nothing to do with either the appointment or taking
disciplinary action or dismissal or removal from service
of the workmen working in the canteen. Oniy because
the management exercises such control does not mean
that the employees working in the canteen are the E·
employees of the management. Such supervisory
control is being exercised by the management to ensure
that the workers employed are well qualified and capable
of rendering proper service to the employees of the F
management."
37. The last case that we intend to refer on this point is
that of KGSD Canteen case (supra), wherein this Court was
required to answer the question as to whether the employees
of the canteen are employees of the State or whether their G
services should be directed to be regularized or not. However,
in the said case, the State had no statutory compulsion to
run and maintain any canteen for its employees. This Court
made reference to numerous cases on this issue, inter a/ia,
H
•
1540 SUPREME COURT REPORTS [2014] 14 S.C.R.
A the. Saraspur Mills case (supra), the Parimal Chandra Raha
case (supra), the MMR Khan case (supra), the Indian
Petrochemicals case (supra), the Constitution Bench decision
in the Steei Authority of India case (supra), the Hari Shankar
Sharma case (supra), and the Haldia case (supra).
B 38. We conclude that the question as regards the status
of workmen hired by a contractor to work in a statutory canteen
established under the provisions of th!'. Act, 1948 has been
well settled by a catena of decisions of this Court. This Court
is in agreement with the principle laid down in the Indian
C Petrochemicals case (supra) wherein it was held that the
workmen of a statutory canteen would be the workmen of the
establishment for the purpose of the Act, 1948 only and not
for all other purposes. We add that the statutory obligation .
created under Section 46 of the Act, 1948, although
D establishes certain liability of the principal employer towards
the workers employed in the given canteen facility, this must
be restricted only to the Act, 1948 and it does not govern the
rights of employees with reference to appointment, seniority,
promotion, dismissal, disciplinary actions, retirement benefits,
E etc., which are the subject matter of various other legislations,
policies, etc. Therefore, we cannot accept the submission
of Shri Jayant Bhushan, learned counsel that the employees
of the statutory Canteen ipso-facto become the employees
of the principal employer.
F
39. We may now refer to the various decisions, cited
by learned counsel, Shri Jayant Bhushan.
40. The Saraspur Mills case (supra) came before this
Court as a result ofa dispute under the Bombay Industrial
G Relations Act, 1946. In that case, the appellant-Company
was responsible for maintaining the canteen under the
provisions of Section 46 of the Act, 1948 and the rules made
thereunder. The appellant-therein had handed over the task
of running the said canteen to a cooperative society. The
H
•
BALWANT RAI SALUJA&ANR. ETC. ETC. v.AIR INDIA 1541
LTD. & ORS. [H. L. DATTU, J.]
society employed the respondent-workmen in the canteen. A
One of the issues that came up for consideration before
this Court was that. whether the employees of the said
cooperative society could be said to be the employees of
the appellant-company. The case of the workmen was that
the appellant-company was running the canteen to fu Ifill its· B
statutory obligations and thus the running of the said canteen
would be part of the undertaking of the appellant although the
appellant did not run itself the canteen but handed over the
premises to the co-operative society to run it for the use and
welfare of the Company's employees and to discharge its C
legal obligation. The appellant- company had resisted the
claim by coritending that the workmen had never been
employed by it but by the co-operative society which was its
licensee. This Court after referring to the amended definition
of employee and employerin Section 3(13) and 3(14) of D
Bombay Industrial Relation Act, 1946 and the definition of
'Worker' under the Act, 1948, and also referring to earlier
decision in Basti Sugar Mills Ltd. v. Ram Ujagar and Ors.,
(1964) 2 SCR 838, held that since under Act, 1948, it was the
duty of the appellant- company to run and maintain the canteen E
for use of ·its employees, the ratio of the decision in
Ahmedabad Mfg. and Calico Printing Co. Ltd., v. · Their
Workmen{1953) II LLJ 647 would be fully applicable in which
the very same provision of the Act, 1948 were considered
and confirmed the finding of the Industrial Court. F
41. It would be relevant to note that the primary reasoning
of the Court in the Saraspur Mills case (supra) to hold that
the workers of the canteen run by a cooperative society to be
the employees of the appellant-company therein, was in view
of the amended definition of "employer" and "employee" as G
found under ti.le Boml;>ay Industrial Relations Act, 1946 and
definition of 'Workmen' under the Act, 1948. Since no such
expansive definition finds mention neither in the Act, 1948 nor
in the facts of the present case, it would not be proper to
place reliance on the given case as a precedent herein. ·H
1542 SUPREME COURTREPORTS [2014] 14 S.C.R.
A 42. In the Hussainbhai case (supra), the dispute arose
between workmen hired by a contractor to make ropes within
the factory premises ,on one hand, and the petitioner who
was the factory owner manufacturing ropes who had engaged'
sucti contractor, on the other hand. The issue therein
B · ·pertained to whether such workmen would be that of the
· contactor or the petitioner. In the said case, the Court went
into the concept of employer~employee relationship from the
poirit of view of economic realities. It was observed, by a
three-Judge Bench, that:
c "5. the true test may, with brevity, be indicated once .
again. Where a worker or group of workers labours to
produce goods or services and these goods or
services are for the business of another, that other is, in
fact, the employer. He has economic control over the
D workers' subsistence, skill, and continued employment.
If he, for any reason, chokes off, the, worker is, virtuallY,.
laid off. The presence of intermediate contractors with .
whom alone the workers have immediate or direct
relationship ex contractu is of no consequence when,
E on lifting the veil or looking at the conspectus offaCtors
governing employment, we discern the naked truth,
though draped in different perfect paper arrangement,
·that the real employer is the Management, not the
immediate contractor.... "
F
43. The Hussainbhai case (supra) did not deal with the
Act, 1948, much less any statutory obligation thereunder. The
case proceeded on the test of employer-employee
relationship to ascertain the actual employer. The Court
G gave due weight and considyration to the· concept of
'economic control' in this regard. It may only be appropriate
for the Court in the presentcase to refer to this judgment as
regards determi11ing the employer-employee relationship.
'
_ 44. Th'e case of M.M.R. Khan (supra), also came up for
H consideration before a three-Judge Bench of this Court. It
BALWANT RAI SALUJA&ANR. ETC. ETC. v. AIR INDIA 1543
LTD. & ORS. [H. L. DATTU, J.)
related to the workers employed in canteens run iri the A
different railway establishments. The relief claimed was that ·
the workers concerned should be .treated as railway
employees and should be extended all service benefits which
are available to the said railway employees. The Court was
concerned, in the said case, with three types of canteens:- B
(i) Statutory ,Canteens; (ii) Non-Statutory, Recognized
Canteens; and (iii) Non-Statutory, Non-Recognized
Canteens. As regards statutory canteens, the Court noticed
that under Section 46 of the Act, 1948, the occupier of a factory
was not only obliged to provide for and maintain a canteen c
where more than 250 workers are employed, but was also
obliged to abide by the rules which the concerned
Government may make, including the rules for constitution of
a ·managing committee for running the canteen and for
representation of the workers in the management of the D
canteen. In other words, the whole working and functioning
of the canteen has to conform to the statutory rules made in
that behalf.
45. It would be relevant to notice the facts noted by this
Court in the MMR Khan's case (supra). This Court had made· E
an explicit reference to the relevant provisions of the
Railway Establishment Manual and the Administrative
Instruct.ions on Departmental Canteens in Offices. and
Industrial Establishments of the Government as issued by the
Department of Personnel and Training, Ministry of F
Personnel, Public Grievances and Pensions of the
Government of India, which dealt with the canteens and had
express provisions thereunder that were integral to the final
decision of this Court. The issue that arose before the Court ·
was whether the employees of the statutory canteen could be G
said to be the employees of the railway administration as
well. This Court observed that:
"25. Since in terms of the Rules made by the State
Governments under Section 46 of the Act, it is obligatory
H
1544 SUPREME COURT REPORTS [2014] 14 S.C.R.
A on the railway administration to provide a canteen,
and the canteens in question have been established
pursuant to the said provision there is no difficulty in
holding that the canteens are incidental to or connected
with the manufacturing process or the subject of the
B manufacturing process. The provision of the canteen is
deemed by the statute as a necessary concomitant of
the manufacturing activity. Paragraph 2829 of the Railway
Establishment Manual recognizes ihe obligation on the
railway Administration created by the Act and as pointed
c out earlier paragraph 2834 makes provision for meeting
the cost ·of the canteens. Paragraph 2832
acknowledges that although the railway
administration may employ anyone such as a staff
committee or a co-operative society for the
D management of the canteens, the l,egal responsibility
for the proper management rests not with such agency
but solely with the railway administration. If the
management of the canteen is handed over to a
consumer cooperative society the bye-laws of such
E society have to be amended suitably to provide for an
overall control by the railway administration.
26. In fact as has been pointed out earlier the
Administrative Instructions on dep?rtmental canteens in
terms state that even those canteens which are not
F governed by the said Act have to be under a complete
· administrative control of the concerned department and
the recruitment, service conditions and the disciplinary
proceedings to be taken against the employees have
to be taken according to_ the rules made in that behalf qy
the said department. In the circumstances, even where
the employees are appointe? by the staff committee/
cooperative society it will have to be held that their
appointment is made by the department through the
agency of the committee/society as the case may be.
H "
BALWANT RAI SALUJA&ANR. ETC. ETC. v.AIR INDIA 1545
LTD. & ORS. [H. L. DATTU, J.]
46. We are in agreement with the view expressed in A
MMR Khan case (supra). We further observe that the
reasoning of the Court, as noticed hereinabove, was based
on the Railway Establishment Rules and the relevant
Administrative instructions issued by the Government of India.
By virtue of the aforesaid Rules and Administrative B
instructions, it was made mandatory that the complete
administrative control of the canteen be given to the Railway
Administration. Such mandatory obligations are not present
in the instant case. In light of the same, the given case cannot
be said to be a precedent on the general proposition as C
regards the status of employees of a statutory canteen
established under the Act, 1948.
47. We have already referred to the decision of this
Court in Parimal Chandra Raha case (supra), and, therefore,
we are not referring to the said decision once over again. D
However, we add that in the Parimal Chandra Raha case
(supra), this Court made a general observation that under the
·provisions of the Act, 1948, it is statutorily obligatory on
the employer to provide and maintain a canteen for the use of
his employees. As a consequence, the Court stated that, the E .
canteen would become a part ofthe principal establishment
and, therefore, the workers employed in such canteen would
be the employees of the said establishment. This Court went
on to observe that the canteen was a part of the establishment
of the Corporation, thatthe contractors engaged were only a F ·
veil between the Corporation and the canteen workers and
therefore, the canteen workers were the employees of the
Corporation. This Court, while arriving at the said.conclusion
laid emphasis on the contract between the corporation and
the contractor, whereby it was shown that the terms of the said G
contract were in the nature of directions to the contractor about
the manner in which the canteen should be run and the canteen
services should be rendered to the employees. Furthermore,
it was found that majority of the workers had been working in
H
1546 .SUPREME COURT REPORTS (2014] 14 S.C.R.
A the sa.id canteen continuously for a long time, whereas the
intermediaries were changed on numerous occasions.
48 .. In light of the above discussion, in our view, the case
laws on which the reliance is placed by learned counsel would
not assist him to drive home the point canvassed.
B
49. To ascertain whether _the workers of the Contractor
can be treated as the employees of the factory or company
on whose premises they run the said statutory canteen, this
Court must apply the test of complete administrative control.
c Furthermore, it would be necessary to show that there exists
an employer-employee relationship between the factory arid
the workmen working in the canteen. In this regard, the following
cases would be relevant to be noticed.
50. This Court would first refer to the relevant
D pronouncements by various English Courts in order to
analyze their approach regarding employer-employee
relationship. In the case of Ready Mix Concrete (South
East) ·Ltd v. Minister of Pensions and National.
Insurance, (1968] 2 QB 497, McKenna J. laid down three
E conditions for the existence of a contract of service. As
provided at p.515 in the Ready Mix Concrete case (supra),
the conditions are as follows: ·
··- '
".(i) The servant agrees that, in consideration of a
wage or other remuneration, he will provide his own
F work and skill in the. performance 9f some service for
his master; (ii) he agrees, expressly or impliedly, that in
· the performance of that service he will be subject to
the other's control in a sufficient degree to make. that
other master; (iii) the other provisions of the contract
G are consistent with. its being a contract of service."
51. In the Ready Mix Concrete case (supra), McKenna
J. further elaborated upon the above-quoted conditions. As
regards the first, he stated that there must be wages or
H remuneration; else there is no consideration and therefore
BALWANT RAI SALUJA&ANR. ETC. ETC. v.AIR INDIA 1547
LTD. & ORS. [H. L. DATTU, J.]
no contract of any kind, As regards the· second condition, he A
stated that control would include the power of deciding the
thing to be done, the way in which it shall be done, the
. means to be employed in doing it, the time when and the.
place where "it. shall be done. Furthermore, to establish a
master-servant relationship, such control must be existent in B
a sufficient degree.
52. McKenna J. further referred to Lord Thankerton's "four
indicia" of a contract of service said in Short v. J. and W.
Henderson Ltd. (1946) 62 TLR 427. The J. and W Henderson ·
case (supra) at p.429, observes as follows: · · C
"(a)The master's power of selection of his servant; (b) .
the payment of wages or other remuneration; (c) the
master's right to control the method of doing the work;
and (d) the master's right of suspension or dismissal."_ D ·
53. A recent decision by the Queen's Bench, in JGE v.
The Trustees of Portsmouth Roman Catholic Diocesan
Trust, [2012] EWCA Civ 938, Lord Justice Ward, while
discussing the hallmarks of the· employer-employee
relationship, observed that an employee works under the E
supervision and direction of his employer, whereas an
independent contractor is his own master bound by his
contract but not by his employer's orders. Lord Justice Ward
followed the observations made by McKenna J. in ·the Ready
Mix Concrete case (supra) as mentioned above. The JGE F
case (supra), further note.d that 'control' was an important
factor in determining an employer-employee relationship. It
was held, after referring to numerous judicial decisions, that
there was no single test to determine such a relationship.
Therefore what would be needed to be done is to marshal G
various tests, which should cumulatively point either towards
an employer-employee relationship or away from one.
54. The case of Short v. J. and W. Henderson Ltd., as
cited in the Ready Mix Concrete case (supra) and in the
H
1548 SUPREME COURT REPORTS [2014) 14 S.C.R.
A JGE case (supra), was also referred to in the four-Judge
Bench decision of this Court in Dhrangadhra Chemical
Works Ltd. v. State of Saurashtra, AIR 1957 SC 274. In
the Dhrangadhra Chemical Works case (supra), it was
observed that the prima facie test for ttie determination of
B the relationship between master and servant is the existence
of the right in the master to supervise and control the work
done by the servant not only in the matter of directing what
·work the servant is to do but also the manner in which he shall
do hiswork.
c 55. In Ram Singh v. Union Territory, Chandigarh, (2004)
1 SCC 126, as regards the concept of control in an employer-
employee relationship, observed as follows:
"15. In determining the relationship ofemployer and
D employee, no doubt, "control" is ~me of the important
tests but is not to be taken as the sole test. In determining
the relationship of employer and employee, all other
relevant facts and circumstances are required to be
considered including the terms and conditions of the
contract. It is necessary to take a multiple pragmatic
E
·approach weighing up all the factors for and against an
· employment instead of going by the sole "test of control".
An integrated approach is needed. "Integration" test is
one of the relevant tests. It is applied by examining
whether the person was fully integrated into the
F
employer's. concern or remained apart from and
independent of it. The other factors which may be relevant
are - who has the pGwer to select and dismiss, to
pay remuneration, deduct insurance contributions,
organize the work, supply tools and materials and what
G are the "mutual obligations" between them. (See
Industrial Law, 3rd Edn., by l.T. Smith and J.C. Wood,
at pp. 8 to 1O.)"
56. In the case of Bengal Nagpur Cotton Mills case,
. H (supra), this Court observed that:
BALWANTRAI SALUJA&ANR. ETC. ETC. v.AIRINDIA 1549
LTD. & ORS. [H. L. DATTU, J.]
"9. In this case, the industrial adjudicator has granted A
relief to the first respondent"in view of its finding tha.t he
should be deemed to be a direct employee of the
appellant. The question for consideration is whether the
said finding was justified.
10. It is now well settled that if the industrial adjudicator 8
finds that the contract between the principal employer
and the contractor to be a sham, nominal or merely a
camouflage to. deny employment benefits to the
employee and that there was in fact a direct
employment, it can grant relief to the employee by C
holding that the workman is the direct employee of the
principal employer. Two of the well-recognized tests to
find out whether the contract labourers are the direct
employees of the principal employer are: (i) whether
the principal employer pays the salary instead of the D
contractor; and (ii) whether the principal employer
controls and supervises the work of the employee. In
this case, the Industrial Court answered both questions
in the affirmative and as a consequence held that the
first respondent is a direct employee of the appellant." E
57. Further, the above case made reference to the ·
case of the International Airport Authority of India case
(supra) wherein the expression "control and supervision" in
the context of contract labour was explained by this Court. F
The relevant part of the International Airport Authority of
India case (supra), as quoted in Bengal Nagpur Cotton
Mills case (supra) is as follows:
"38 .... ifthe contract is for supply of labour, necessarily,
the labour supplied by the contractor will work under the G
directions, supervision and control of the principal
employer but that would not make the worker a direct
employee of the principal employer, if the salary is
paid by a contractor, if the right to regulate the
H
1550 SUPREME COURT REPORTS . [2014) 14 S.C.R.
A employment is· with the contractor, and the ultimate
supervision and control lies with the contractor.
39. The principal employer only controls and directs the
work to be done by a contract labour, when such labour
is assigned/allotted/sent to him. But it is the contractor
B as employer, who chooses whether the worker is to be
assigned/ allotted to the principal employer or used
otherwise. In short, worker being the employee of the
contractor, the· ultimate supervision. and control lies with
the contractor as he decides where the employee will
c work and how long he will work and subject to what
conditions. Only when the contractor assigns/sends
the worker to work under the principal employer, the
worker works under the supervision and. control of
the principal employer but that is secondary control. The
D primary control is with the contractor."
58. A recent decision concerned with the employer-
employee relationship was that of the NALCO case (supra).
In this case, the appellant had established two schools for
E the benefit of the wards of its employees. The Writ Petitions
were filed bythe employees of each school for a declaration
that they be treated as the employees of the appellant-
company on grounds of, inter alia, real control and supervision
by the latter. This Court, while answering the issue canvassed
F was of the opinion that the proper approach would be to
ascertain whether there was complete control and supervision
by the appellant-therein. In this regard, reference was made
to the case of Dhrangadhra Chemical Works case (suprat
wherein this Court had observed that:
G "14. The principle which emerges from these authorities
is that the prima facie test for the determination of the
relationship between master and servant is the
existence of the right in the master to supervise and
control the work done by the servant not only in the matter
H
BALWANT RAI SALUJA&ANR. ETC. ETC. v.AIR INDIA 1551
LTD. & ORS. [H. L. DATTU, J.)
of directing what work the servant is to do but also the A
manner in which he shall do his work, or to borrow the
words of Lord Uthwatt at p.23 in Mersey Docks and
Harbour Board v. Coggins & Griffith (Liverpool) Ltd.,
(1952) SCR 696 "Thepropertestiswhetherornotthe
hirer had authority to control the manner of execution B
of the act in question"."
59. The NALCO case (supra) further made reference to
the case of Workmen of Nilgiri Coop. Mkt. Society Ltd. v.
State of T.N., (2004) 3 SCC 514, wherein this Court had
observed as follows: C
"37. The control test and the organization test, therefore,
are not the only factors which can be said to be decisive.
With a view to elicit the answer, the Court is required to ·
consider several factors which would have a bearing 0
on the result: (a) who is the appointing authority; (b)
who is the paymaster; (c) who can dismiss; (d) how long
· alternative service lasts; (e) the extent of control and
supervision; (f) the nature of the job e.g. whether it is
professional or skilled work; (g) nature of establishment; E
(h) the right to reject.
38. With a view to find out reasonable solution in a
problematic case of this nature, what is needed is an
integrated approach meaning thereby integration of
the. relevant tests wherefor it may be necessary to F
examine as to whether the workman concerned was
fully integrated into the employer's concern meaning
thereby independent of the concern although attached
therewith to some extent."
60. It was concluded by this Court in the NALCO case G
(supra) that there may have been some element of control
with NALCO because its officials were nominated to the
Managing Committee of the said schools. However, it was
observe.d that the above-said fact was only to ensure that the
H
1552 SUPREME COURT REPORTS [2014] 14 S.C.R.
A schools run smoothly and properly. In this regard, the Court
observed as follows:
"30 .... However, this kind of "remote control"would not
make NALCO the employer of these workers. This only
shows that since NALCO is shouldering and meeting
B financial deficits, it wants to ensure that the money is
spent for the rightful purposes."
61. Thus, it can be conclu~ed that the relevant factors
to be taken into consideration to establish an employer- ·
c employee relationship would include, inter a/ia, (i) who
appoints the workers; (ii) who pays the salary/remuneration;
(iii) who has the authority to dismiss; (iv) who can take
disciplinary action; (v) whether there is continuity of service;
and (vi) extent of control and supervision, i.e. whether there
exists complete control and supervision. As regards, extent
0
of control and supervision, we have already taken note of the
observations in Bengal Nagpur Cotton Mills case (supra),
the International Airport Authority of India case (supra) and
the NALCO case (supra).
E 62. In the present set of appeals, it is an admitted fact
that the HCI is a wholly owned subsidiary of the Air India. It has
been urged by the learned counsel for the appellants that this
Court should pierce the veil and declare that the HCI is a
sham and a camouflage. Therefore, the liability regarding
F the appellants herein would fall upon the Air India, not the
HCI. In this regard, it would be pertinent to elaborate upon
the concept of a subsidiary company and the principle of lifting
the corporate veil.
63. The Companies Act in India and all over the
G world have statutorily recognized subsidiary company as a
separate legal entity. Section 2(47) of the Companies Act,
1956 (for short "the Act, 1956") defines 'subsidiary company'
or 'subsidiary', to mean a subsidiary company within the
meaning of Section 4 of the Act, 1956. For the purpose of
H
BALWANT RAI SALUJA&ANR. ETC. ETC. v.AIR INDIA 1553
LTD. & ORS. [H. L. DATTU, J.]
the Act, 1956, a company shall be, subject to the provisions of A
sub-section (3) of Section 4, of the Act, 1956, deemed to be
subsidiary of another. Clause (1) of Section 4 of the Act, 1956
further imposes certain preconditions for a company to be a
subsidiary of another. The other such company must
exercise control over the composition of the Board of B
Directors of the subsidiary company, and have a controlling
interest of over 50% of the equity shares and voting rights of
the given subsidiary company. ·
64. In a concurring judgment by K.S.P. Radhakrishnan,
J., in the case of Vodafone International Holdings BV v. C
Union of India, (2012) 6 SCC 613, the following was observed:
"Holding company and subsidiary company
257. The legal relationship between a holding company D
and WOS is that they are two distinct legal persons and
the holding company does not own the assets of the
subsidiary and, in law, the management of the business
of the subsidiary also vests in its Board of Directors ....
E
258. Holding company, of.course, if the subsidiary is a
WOS, may appoint or remove any Director if it so
desires by a resolution in the general [pic]body
meeting of the subsidiary. Holding companies and
subsidiaries can be considered as single economic F
entity and consolidated balance sheet is the accounting
relationship between the holding company and
subsidiary company, which shows the status of the entire
business enterprises. Shares of stock in the subsidiary
company are held as assets on the books of the parent G
company and can be issued as C!Ollateral for
additional debt financing. Holding company and
subsidiary company are, however, considered as
separate legal· entities, and subsidiary is allowed
decentralized management. Each subsidiary can reform H
1554 SUPREME COURT REPORTS (2014) 14 S.C.R.
A its own management personnel· and holding company
may also provide .expert, efficient .and competent
services for the benefit of the subsidiaries."
65. The Vodafone case (supra), further made reference
to a decision of the US Supreme Court in United States v.
8 Bestfoods [141 L Ed 2d 43: 524 US 51 (1998)). In that case,
the US Supreme Court explained that as a general principle
of corporate law a parent corporation is not liable for the acts
of its subsidiary. The US Supreme Court went on to explain
that corporate veil can be pierced and the parent company
c can be held liable for the conduct of its subsidiary, only if it is
shown that the corporal form is misused to accomplish certain
wrongful purposes, and further that the parent company is
directly a participant in the wrong complained of. Mere
ownership, parental control, management, etc. of a subsidiary
D was held not to be sufficient to pierce the status of their
relationship and, to hold parent company liable.
66. The doctrine of 'piercing the corporate veil' stands
as an exception to the principle that a company is a. legal
E entity separate and distinct from its shareholders with its own
legal rights and obligations. It seeks to disregard the separate
personality of the company and attribute the acts of the
company to those who are allegedly in direct control of its
operation. The starting point of this doctrine was discussed
F in the celebrated case of Salomon v. A Salomon & Co Ltd.,
[1897] AC 22. Lord Halsbury LC (paragraphs 31-33),
negating the applicability of this doctrine to the facts of the
case, stated that:
"... a company must be treated like any other independent
G person with its rights and liabilities legally appropriate ·
· to itself .. :, whatever may have been the ideas or schemes
of those who brought it into existence."
67. Most of the cases subsequent to the Salomon
case (supra), attributed the doctrine of piercing the veil to the ,
H
BALWANT RAI SALUJA&ANR. ETC. ETC. v.AIR INDIA 1555
LTD. & ORS. [H. L. DATTU, J.]
fact that the company was a 'sham' or a 'fai;:ade'. However, A
there was yet to be any clarity on applicability of the said
doctrine.
68. In recent times, the law has been crystallized around
the six principles formulated by Munby J. in Ben Hashem v.
Ali Shayif, [2008] EWHC 2380 (Fam). The six principles, as B
found at paragraphs 159-164 of the case are as follows- (i)
ownership and control of a company were not enough to
justify piercing the corporate veil; (ii) the Court cannot pierce
the corporate veil, even in the absence of third party interests
in the company, merely because it is thought to be necessary C
in the interests of justice; (iii) the corporate veil can be pierced
only if there is some impropriety; (iv) the impropriety in
question must be linked to the use of the company structure
to avoid or conceal liability; (v) to justify piercing the corporate
veil, there must be both control of the company by the D ·
wrongdoer(sj' and impropriety, that is use or misuse of the
company by them as a device or facade to 9onceal their
wrongdoing; and (vi) the company may be a 'fai;:ade' even
though it was not or'iginally incorporated with any deceptive .
intent, provided that it is being used for the purpose of E
deception at the time of the relevant transactions. The Court
would, however, pierce the corporate veil only so far as it was
necessary in order to provide a remedy for the particular wrong
which those controlling the company had done.
F
· 69. The principles laid down by the Ben Hashem case
(supra) have bee~ reiterated by UK Supreme Court by Lord
Neuberger in Prest v. Petrodel Resources Limited and
others, [2013] UKSC 34, at paragraph 64. Lord Sumption,
in the Prest case (supra), finally observed as follows:
G
"35. I conclude that there is a limited principle of English
law which applies when a person is under an existing
legal obligation or liability or subject to an existing legal
restriction which he deliberately evades or whose
H
1556 SUPREME COURT REPORTS [2014] 14 S.C.R.
A enforcement he deliberately frustrates by interposing a
company under his control. The Court may then pierce
the corporate veil for the purpose, and only for the
purpose, of depriving the company or its controller of the
advantage that they would otherwise have obtained by
B the company's separate legal personality. The principle
is properly described as a limited one, because in
almost every case where the test is satisfied, the facts
will in practice disclose a legal relationship between
the company and its controller which will make it
c unnecessary to pierce the corporate veil."
70. The position of law regarding this principle in India
has been enumerated in various decisions. A Constitution
Bench of this Court in Life Insurance Corporation of India V.
Escorts Ltd. & Ors., (1986) 1 SCC 264, while discussing
D the doctrine of corporate veil, held that:
"90 .... Generally and broadly speaking, we may say that
the corporate veil may be lifted where a statute itself
contemplates lifting the veil, or fraud or improper
conduct is intended to be prevented, or a taxing statute
E
or a beneficent statute is ·sought to be evaded or
where associated companies are inextricably connected·
as to be, in reality, part of one concern. It is neither
necessary nor desirable to enumerate the classes of
cases where lifting the veil is permissible, since that
F
must necessarily depend on the relevant statutory or
other provisions, the object sought to be achieved, the
impugned conduct, the involvement of the element of
the public interest, the effect on parties who may be
affected etc."
G
71. Thus, on relying upon the aforesaid decisions, the
doctrine of piercing the veil allows the Court to disregard
the separate legal personality of a company and impose
liability upon the persons exercising real control over the
H
BALWANT RAI SALUJA&ANR. ETC. ETC. v.AIR INDIA 1.557
LTD. & ORS. [H. L. DATTU, J.]
said company. However, this principle has been and should A
be applied in a restrictive manner, that is, only in scenarios
wherein it is evident that the company was a mere
camouflage or sham deliberately created by the pers0ns
exercising control over the said company for the purpose of
avoiding liability. The intent of piercing the veil must be such B
that would seek to remedy a wrong done by the persons
controlling the company. The application would thus depend
upon the peculiar facts and circumstances of each case.
72. Having considered the relevant judicial decisions and
the well establishe·d and settled principles, it would be C
appropriate to revert back to the controversy as found in the
present factual matrix.
73. In the present reference, this Court is required· to
ascertain whether workmen, engaged on a casual or 0
temporary basis by a contractor to operate and run a statutory
canteen on the premises of a factory or corporation, can
be said to be the workmen of the said factory or
corporation. '
74. It has been noticed above that workmen hired by a E
contractor to work in a statutory canteen established under
the provisions of the Act, 1948 would be the saia workmen of
the given factory or corporation, but for the purpose of the
Act, 1948 only and not for all other purposes. Therefore,
the appellants-workmen, in the present case, in light of the F
settled principle of law, would be workmen of the Air India, but
only for the purposes of the Act, 1948. Solely by virtue of
this deemed status under the Act, 1948, the said workers
would not be able to claim regularization in their employment
from the Air India. As has been observed in the Indian G
Petrochemicals case (supra), the Act, 1948 does not govern
the rights of employees with reference to recru,itment,
seniority, promotion, retirement benefits, etc. These are
governed by other statutes, rules, contracts or policies.
H
1558 SUPREME COURT REPORTS [2014) 14 S.C.R.
A 75. To ascertain whether the appellants-herein would be
entitled to other benefits and rights such as regularization,
this Court would have to apply the test of employer-employee
·relationship as noticed hereinabove. For the said purpose, it
would be necessary to refer to the MemoraAdum of
B Association and the Articles of Association of the HCI to look
into the nature of the activities it undertakes. The objects of
the HCI, as provided under its Memorandum of Association,
inter alia, include the following:
(i)To carry on the business of hotel, motel, restaurant,
c cafe, tavern, flight kitchen, refreshment room and
boarding and lodging, house-keepers, licensed
victuallers, etc.; 1
(ii) To provide lodging and boarding and other facilities
D to the public;
(iii) To purchase, erect, take on lease or otherwise
acquire, equip and manage hotels;'
(iv) To establish shops, kitchens, refreshment rooms,
canteens and depots for the sale of various food and
E beverages.
76. The· objects incidental or ancillary to the main
objects include, inter alia:
"
F
(5) To carry on any business by means of operating
hotels etc. or other activity which would tend to promote
or assist Air-India's business as an international air
carrier.
G "
77. It can be noticed from the above, that the primary
objects of the HCI have no direct relation with theAir India. It is
only one of the many incidental or ancillary objects of the
HCI that make a direct reference to assisting Air India. The
H
BALWANT RAI SALUJA&ANR. ETC. ETC. v.AIR INDIA 1559
LTD. & ORS. [H. L. DATTU, J.)
argument that the HCI runs the canteen solely for Air India's A
purpose and benefit could not succeed in this light. The HCI ·
has several primary objects, which include the running of
hotels, motels, etc., in addition to establishing shops,
kitchens, canteens and refreshment rooms. The Air India only
finds mention under HCl's ·ancillary objects. It cannot be B
said that the Memorandum of Association of the HCI
provides that HCI functions only for Air India. Nor cari it be
said that the fundamental activity of the HCI is to run and
operate the said statutory canteen for the Air India.
78. As regards HCl'sArticles of Association, it is stated
c·
therein that the HCI shall be a wholly-owned subsidiary of the
Air India and that its share capital shall be held by the Air
India and/or its nominees. Furthermore, the said Articles
included provisions whereby Air India controls the
composition of the Board.of Directors of the HCI, including D
the power to remove any such director or even the Chairman
of the Board. Further, Air India has the right to issue directions
to the HCI, which the latter is bound to comply with. In this
regard, it may be contended that the Air India has effective
and absolute control over the HCI and that therefore latter is E ·
merely a veil between the appellants-workmen and Air India.
We do not agree with this contention.
79. In support of the above we find that nothing has"
been brought before this Court to show that such provisions .
in the Articles of Association are either bad in law or would F
impose some liability upon the Air India, in terms of calling
the appellants 'to be its own workers. In our view, the said
Articles are not impermissible in law. It is our considered
opinion that the doctrine of piercing the veil cannot be applied
in the given factual scenario. Despite being a wholly owned G
subsidiary of the Air India, Respondent No. 1 and Respondent
No. 2 are distinct legal entities. The management of business
of the HCI is under its own Board of Directors. The issue
relating to the appointment of the Board of Directors of the
H
1560 . SUPREME COURT REPORTS [2014] 14S.C.R. ·
A l-ICI by the Air India would be a consequence of statutory
obligations of a wholly owned subsidiary under the Act, 1~56.
80. The present facts would not be a fit case to pierce
the veil, which as enumerated above, must be exercised
sparingly by the Courts. Further, for piercing the veil of
B incorporation, mere ownership a·nd control is not a sufficient
ground. It should be established that the control and
impropriety by the Air India resulted in depriving the
Appellants-workmen herein of their legal rights. As regards
the question of impropriety, the Division Bench of the High
C Court of Delhi in the impugned order dated 02.05.2011,
noted that there has been no advertence on merit, in respect
of the workmen's rights qua HCI, and the claim to the said
right may still be open to the workmen as per law against
the HCI. Thus, it cannot be concluded that the controller 'Air
D India' has avoided any obligation which the workmen may
be legally entitled to. Further, on perusal of the,
Memorandum of Association and Articles of Association of
the HCI, it cannot be said thattheAir India intended to create
HCI as a mere fac;:ade for the purpose of avoiding liability
E towards the Appellants-workmen herein. , ·
81. Therefore, the only consideration before this Court
is the nature of control that the Air India may have over the
HCI, and whether such control may be called effective and
F absolute control. Such controloverthe HCI would be required
to be established to· show that the appellants-workmen
were in fact the employees of the Air India.
, 82. It may be noticed again that the NALCO case (supra)
dealt with a similar issue. In that case, the Court had observed
· G that the day-to-day functioning of the school as seiup by the
appellant therein was not under NALCO, but under a
. managing committee therein. Further, the said Managing
Committee was a separate and distinct legal entity from
NALCO, and was solely responsible for recruitment,
H
BALWANT RAI SALUJA&ANR. ETC. ETC. v.AIR INDIA 1561
LTD. & ORS. [H. L. DATTU, J.]
disciplinary action, termination, etc. of its staff. The Court .A
therefore had held that the respondents therein could not be
said to be employed by NALCO. In the present case, HCI is
a separate legal entity incorporated under the Act, 1956 and
is carrying out the activity of operating and running of the
given canteen. The said Articles of Association of the HCI, in B
.no way give control of running the said canteen to the Air
India. The functions of appointment, dismissal, disciplinary
action, etc. of the canteen staff, are retained with the HCI.
Thus, the exercise of control by the HCI cle.arly indicated that
the said respondent No. 2 is not a sham or camouflage created c
by respondent No. 1 to avoid certain statutory liabilities.
83. Reference was also made by the learned counsel
for the Appellants to certain docuinents such as minutes of
meetings, etc. to show that tbe Air India was exercising control
over the HCI in matters relating to transfer of workmen in the D
canteen, rates of subsidies, items on the menu, uniforms of
the canteen staff, etc. On a perusal of the said documents,
it is found that the said matters were, again, in the nature of
supervision. In fact, most of these were as a consequence
of the obligations imposed under the Rules, 1950. Air India, E
being the entity bearing the financial burden, would give
suggestions on the running of the canteen. Furthermore, in .
light of complaints, issues or even s,uggestions raised by its
own employees who would avail the said canteen services,
Air India would put forth recommendations or requests to F ·
ensure the redressal of said complaints or grievances. As
regards discussions over uniforms, prices, subsidies, etc., it
may be noted that the same are obligations under the
Rules, 1950 as applicable to Air India.
84. In our considered view, and in light of the principles G
applied in the Haldia case (supra), such control would have
nothing to do with either the appointment, dismissal or
removal from service, or the taking of disciplinary action
against the workmen working in the canteen. The mere fact H
. 1562 - .SUPREME COURT REPORTS [2014] 14 S.C.R.
A thattheAir India has a certain degree of control over the HCI,
does not mean that the employees working in the canteen
are the Air India's employees. The Air India exercises control
that is in the nature of supervision. Being the primary
shareholder in the HCI and shouldering certain financial
B burdens such as providing with the subsidies as required by
law, the Air India would be entitled to have an opinion or a
say in ensuring effective utilization of resources, monetary
or otherwise. The said supervision or control would appear
to be merely to ensure due maintenance of standards and
C quality in the said canteen.
85. Therefore, in our considered view and in light of. the
above, the appellants-workmen could not be said to be under
the effective and absolute control of Air India. The Air India
merely has control of supervision over the working of the
D given statutory canteen. Issues regarding appointment of the
said workmen, their dismissal, payment of their salaries,
etc. are within the control of the _HCI. It cannot be then said
that the appellants are the workmen of Air India and therefore
are entitled to regularization of their services.
E
86. It would be pertinent to mention, at this stage, that
ther_e _ is no parity in the nature of work, mode of
appointment, experience, qualifications, etc., between the
regular employees of the Air India and the workers of the
F given canteen. Therefore, the appellants-workmen cannot be
p!aced at the same footing as the Air India's regular
employees, and thereby claim the same benefits as bestowed
upon the latter. It would also be gainsaid to note the fact that
the appellants-herein made no claim or prayer against either
of the other respondents, that is, the HCI or the Chefair.
G
87. In terms of the above, the reference is answered as
follows:
The workers engaged by a contractor to work in the
statutory canteen of a factory would be the workers of the said
H
BALWANT RAI SALUJA&ANR. ETC. ETC. v. AIR INDIA 1563
LTD. & ORS. [H. L. DATTU, J.]
factory, but only for the purposes of the Act, 1948, and not for A
other purposes, and further for the said workers, to be called
the employees of the factory for all purposes, they would
need to satisfy the test of employer-employee relationship
and it 111ust be shown that the employer exercises absolute
and effective control over the said workers. B
88. In view of the above, while answering the referral
order, we dismiss these appeals. No order as to costs.
Ordered accordingly.
c
Kalpana K. Tripathy Appeals dismissed.
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