Supreme Court of India

GUJARAT ELECTRICITY BOARD, THERMAL POWER STATION UKAI, GUJARATversusHIND MAZDOOR SABHA AND ORS. ETC.

Citation: 1995 INSC 354
Decided: 9 May 1995
Disposal: Disposed off
Bench: P B SAWANT

Holding

The exclusive authority to abolish genuine contract labour lies with the appropriate Government under Section 10 of the Contract Labour Act, while industrial adjudicators may only adjudicate disputes and, after abolition, may direct the absorption of ex‑contractors' workers.

Summary

The Gujarat Electricity Board (GEB) employed about 1,500 contract labourers at its Ukai thermal power plant through various contractors. After the workers were terminated, the union filed a writ petition seeking reinstatement and enforcement of labour laws. The dispute was referred to an Industrial Tribunal under Section 10(2) of the Industrial Disputes Act, which held that the workers were in fact employees of GEB and ordered back wages and benefits. GEB appealed, arguing that only the appropriate Government could abolish contract labour under Section 10 of the Contract Labour (Regulation and Abolition) Act, 1970, and that the Tribunal lacked jurisdiction. The Supreme Court held that the power to abolish genuine contract labour rests exclusively with the appropriate Government; however, if the contract is sham, the workers can raise an industrial dispute to be declared employees of the principal employer. When the contract is genuine, only direct employees of the principal employer may raise a dispute for abolition and subsequent absorption of the ex‑contractors' workers, with the industrial adjudicator directing absorption after the Government’s abolition order. The Court dismissed the Board’s appeal, upheld the Tribunal’s findings, and affirmed that industrial adjudicators may determine the status of erstwhile contract workers but cannot themselves abolish the contract labour system.

Issues considered

Whether an industrial dispute can be raised for abolition of the contract labour system under the Contract Labour (Regulation and Abolition) Act, 1970.
Who is entitled to raise such an industrial dispute – the contract workers themselves or the direct employees of the principal employer.
Whether the Industrial Tribunal or the appropriate Government has the exclusive power to abolish contract labour.
What is the legal status of the erstwhile contractor's workmen after the contract labour system is abolished.

Legislation cited

Constitution of Indias. 39, s. 41, s. 43, s. 47, s. Articles 38
Contract Labour (Regulation and Abolition) Act, 1970s. 10, s. 12, s. 14, s. 23, s. 7
Contract Labour (Regulation and Abolition) Rules, 1971s. 17, s. 18, s. 20, s. 21, s. 25, s. 27
Industrial Disputes Act, 1947s. 10(2), s. 2(k)

Subjects

contract labourabolitionindustrial disputeappropriate governmentindustrial tribunalsham contractabsorption of workersprincipal employerregistration certificatelicencepublic sector undertakingslabour law

Judgment

GUJARAT ELECTRICITY BOARD, THERMAL POWER A
STATION UKAI, GUJARAT
v.
HIND MAZDOOR SABHA AND ORS. ETC.

MAY 9, 1995
B
(P.B.SAWANT AND S.B. MAJMUDAR, JJ.]

Contract Labour (Regulation and Abolition) Act, 1970: Sections 7, 10,
12, 14 and 23.

Contract Labour (Regulation and Abolition) Rules, 1971 : Rules, 17,
c
18, 20, 21, 25 and 27.

Contract Labour-Authority to abolish-Held exclusively vests in ap-
propriate Government under Section JO-Such powers can be exercised only
when there i; a genuine contract-In case of sham contract workers can raise D
industrial dispute-For ascertaining genuineness of contract Court can inves-
tigate factors mentioned in section 10(2)(a) to (d).

Contract Labour-Contractoi-Non-production of registration certifi-
cate and licence-Effect of
E
Abolition of contract labour-Absorption of ex-contractors'
employees-Direct employees of principal employer can raise industrial dis-
pute for-Industrial adjudicator can direct absorption of workmen of erstwhile
contractors.

Constitution of India, 1950: Articles 38, 39, 41, 43 and 47. F

Contract Labour-Engaging of in public sectoi-Deprecation of-
Recommendation for discontinuance of.

- The appellant-Board had deployed through various contractors 1500
skilled and unskilled manual labourers, besides its direct workmen, for G
carrying on its work or generation and distribution or electricity at its
Thermal Power Plant, Ukai in Gujarat. Respondent • Union initiated legal
proceedings seeking (i) reinstatement or some or the workers alleged to
have been illegally terminated and (ii) for enforcement or labour laws on
the ground that the contractors were flouting the labour laws. Some or the H
173
174 SUPREME COURT REPORTS (1995] SUPP. 1 S.C.R.

A disputes were settled with the help of Court Commissioner. As to the
remaining disputes viz. those relating to the revision of wages of workmen,
their rights and privileges under different statutes as well as the claim of
workers that they were employees of the appellant-Board, it was agreed
between the parties that the same should be referred for adjudication by
B a joint reference under section 10(2) of the Industrial Disputes Act, 1947.
Accordingly, a joint application was made to the Assistant Commissioner
of Labour under section 10(2) requesting him that these disputes be
referred for adjudication to the Industrial Tribunal and consequently the
reference from which the present proceedings arise was made. The refer-
ence application was duly signed by the present appellant-Board, all the
C contractors involved in the dispute and by the then Surat Labour Union
which had both direct as well as contract labourers, as its members. The
respondent-Union is the successor of the said Surat Labour Union. The
Tribunal rejected the preliminary point raised by the contractors that it
had no jurisdiction to entertain the demand raised for abolition of con-
D tract labour. Further after recording evidence and hearing the parties the
Tribunal came to the conclusion that the workmen concerned in the
reference are not the workmen of contractors and directed that they should
be deemed to be the workmen of the Board. The Tribunal, came to the
conclusion that (i) contractors had no licence under the Contract Labour
-
(Regulation and Abolition) Act, 1970 as no such original certificates were
E brought on record; (ii) the work was being done on the premises of the
Board itself as the coal was being used for the purposes of the Board, viz.,
generation of electricity; (iii) the workmen were broadly under the control
of the Board; (iv) there was overall supervision of the work by the officers
of the Board; (v) the work was of a continuous nature and (vi) the work
F was an integral part of the overall work to be executed for the purposes of
the generation of electricity and that it had to be performed within
specified time limits as part of the integrated process. Against the decision
of the Tribunal, the Electricity Board preferred a writ petition before the
High Court which was dismissed.

G In the connected appeal the High Court held that the workmen
concerned do not become the direct employees of the enterprises merely
because there are no registration certificates and licence with the under-
takings and the concerned contractors respectively.

H In the other connected appeal the Labour Court has given relief of
GUJ. ELEC1RICITY BOARD v. HIND MAZDOOR SABHA 175

reinstatement with back wages to the workmen. However, it recorded no A
finding whether the industrial dispute was raised by the direct employees of
the appellant-Society and whether the labour contract was genuine or not.
Relief was granted to the workmen only on the basis that the registration
certificate and the licences under the Act were not produced by the Society
and the contractors concerned respectively. Therefore it was directed that B
the workers should be deemed to be the employees or the Society.

In appeals to this Court on the questions; (i) whether an industrial
dispute can be raised for abolition of the contract labour system in view
of the provisions of the Act; (ii) if so, who can raise such dispute?; (iii)
whether the Industrial Tribunal or the appropriate Government has the C
power to abolish the contract labour system; and (iv) in case the contract
labour system is abolished, what is the status of the erstwhile workmen of
the contractors?

Disposing the appeals, this Court
D
HELD : 1. After the coming into operation of the Contract Labour
(Regulation and Aboli\ion) Act, 1970, the authority to abolish the contract
labour is vested exclusively in the appropriate Government which has to
take its decision in the matter in accordance with the provisions of Section
10 of the Act. No Court including the industrial adjudicator bas jurisdic- E
tion to do so. However, the authority to abolish the contract labour under
this Section come into play only where there exists a genuine contract.
[204-G, H; 219-E]
2. If the contract is sham or not genuine, the workmen of the so called
contractor can raise an industrial dispute for declaring that they were F
always the employees of the principal employer and for claiming the ap-
propriate service conditions. When such dispute is raised, it is not a dis-
pute for abolition of the labour contract and hence the provisions of Section
10 will not bar either the raising or the adjudication of the dispute. When

- such dispute is raised, the industrial adjudicator has to decide whether the G
contract is sham or genuine. It is only if the adjudicator comes to the
conclusion that the contract is sham, that he wiil have jurisdiction to
adjudicate the dispute. If, however, he comes to the conclusion that the
contract is genuine, he may refer the workmen to the appropriate Govern-
ment for abolition of the contract labour under section 10 and keep the
dispute pending. However, he can do so if the dispute is espoused by the H
176 SUPREME COURT REPORTS (1995] SUPP. 1 S.C.R.

A direct workmen of the principal employer. If the workmen of the principal
employer have not espoused the dispute, the adjudicator, after coming to
the conclusion that the contract is genuine, has to reject the reference, the
dispute being not an industrial dispute within the meaning of Section 2(k)
of the Industrial Disputes Act. He will not be competent to give any relief
to the workmen of the erstwhile contractor even if the labour contract is
B abolished by the appropriate Government under Section 10 of the Act.
[219-G-H, 220-A-B-C)
3. If the labour contract is genuine a composite industrial dispute
can still be raised for abolition of the contract labour and their absorption.
C However, the dispute will have to be raised invariably by the direct
employees of the principal employer. The industrial adjudicator, after
receipt of the reference of such dispute will have first to direct the workmen
to approach the appropriate Government for abolition of the contract
labour under Section 10 and keep the reference pending. If pursuant to
such reference, the contract labour is abolished by the appropriate
D Government, the industrial adjudicator will have to give opportunity to the
parties to place the necessary material before him to decide whether the
workmen of the erstwhile contractor should be directed to be absorbed by
the principal employer, how many of them and on what terms. If, however,
the contract labour is not abolished, the industrial adjudicator has to
E reject the reference. [220-D-F)

Vegoils Pvt. Ltd. v. The workmen, [1972) 1 SCR 673;8.H.E.L. Workers'
Association Hardwar & Ors. Etc. Etc. v. Union of India & Ors. Etc. Etc.,
[1985) 2 SCR 611;Catering Cleaners of Southern Railway Etc. v. Union of
India & Ors. Etc., [1987) 2 SCR 164; Standard Vacuum Refining Co. of India
F Ltd. v. Its Workmen & Ors., [1960) 3 SCR 466; Dena Nath & Ors. v. National
Fenilisers Ltd. & Ors., [1992) 1 SCC 695; Hussainbhai, Calicut v. The Alath
Factory 77wzhilali Union, Kozhikode & Ors., [1978) 4 SCC 257; R.K Panda
& Ors. v. Steel Authority of India Ltd., [1994) 5 SCC 304;Akbar Khan Alam
Khan & Anr. v. 771e Union of India & Ors., [1962) 1 SCR 779; Mohd. Ayub
Khan v. Commissioner of Police, Madras and Anr. [1965] 2 SCR 884; State
G of U.P. v. Abdul Rashid & Ors., [1984) Supp. SCC 347; Bhagwati Prasad
Dixit 'Ghorewala' v. Rajeev Gandhi, [1986) 4 SCC 78; Workmen of
Dimakuchi Tea Estate v. The Managemelll of Dimakuchi Tea Estate, [1958)
SCR 1156; The Workmen of Best & Crompton Industries Ltd. v. The Manage-
ment of Best & Crompton Engineering Ltd., Madras & Ors., (1985) 1 LW 492
H and Food Corporation of India Loading and Unloading Workers Union v.
GUJ. ELECTRICITY BOARD v. HIND MAZDOOR SABHA 177

Food Corporation of India, [1987) 1 LW 407, referred to. A

4. It is also not correct
.
to say
I
that to arrive at the finding as to whether
the labour contracts are genuine or not, the Court or the industrial ad-
judicator cannot investigate the factors mentioned in Section 2(a) to (d) of
Section 10(2) of the Act. The explanation to section 10(2) makes the decision B
of the appropriate Government final only on the question whether the
process or operation of the work in question is of a perennial nature or not,
and that too when a dispute arises with regard to the same. If no such
question arises, the finding recorded by the Court or the Tribunal in that
behalf is not ineffective or invalid. Further, in all such cases, the Tribunal
is called upon to record a finding on the factors in question nor for abolish- C
ing the contract but to find out whether the contract is sham or otherwise.
The contract may be genuine even where all the said factors are present.
What is prohibited by Section 10 is the abolition of the contract except by
the appropriate Government, after taking into consideration the said fac-
tors, and not the recording of the finding on the basis of the said factors, D
that the contract is sham or bogus. [224-E-G]

5. It is true that the Tribunal has not in so many words recorded a
finding that the contract was sham or bogus or a camouflage to conceal
the real facts and on its finding that the Board and the contractors had
not produced valid proof of the registration certificate and the licences for E
the relevant period has held that the workmen should be deemed to be the
employees of the Boar!!, However, the decision of the Tribunal has to be
read as a wb~e,-'ffiu~ read, the decision makes it clear that the Tribunal
has based its conclusion both on the ground that the workmen were in fact
engaged by the appellant-Board and not by the contractors who were F
merely intermediaries set up by the Board and also on the ground that
there was no valid proof of the registration certificate and the licences in
the possession of the Board and the contractors respectively. There is a
factual finding recorded by the Tribunal that the labour contracts in
question were not genuine and the decision of the Tribunal is based on this
ground as well. [224-A-D] G

6. Even after the contract labour system is abolished the direct
employees of the principal employer can raise an industrial dispute for
absorption of the ex-contractor's workmen and the adjudicator on the
material placed before him can decide as to who and how many of the H
178 SUPREME COURT REPORTS [1995] SUPP. 1 S.C.R.

A workmen should be absorbed and on what terms. [220-G]

7. In the instant case, facts show two things, viz. the direct employees
of the Board has espoused the cause of the contract labourers, and the
appellant-Board had also accepted the fact that the dispute in question
was raised and supported also by the said employees. No objection was
B taken before the Tribunal or the High Court either to the order of reference
or to the adjudication of the dispute by the Tribunal that the dispute was
not espoused by the direct employees of the appellant-Board. This also
shows the fact that the dispute was espoused by the direct employees of
the Board was accepted by the Board and never question~d till this date.
C Apart from the fact, therefore, that the Board had signed the joint applica-
tion for reference and therefore it cannot in an appeal by special leave
under Article 136 of the Constitution for the first time raise the question
which is a mixed question of law and fact, even on facts as they stand, it
will have to be held that the dispute was in fact espoused by the direct
D employees of the appellant-Board. [221-D-F)

8. It is obvious from a reading of clause (1) of the Order of Reference
that what in fact was referred for adjudication was the determination of'
the status of the workmen, viz., whether though engaged by the contractors,
they were legally the workmen of the appellant-Board. In other words,
E implicit in the said clause is the assertion of the workmen that they are in
law the workmen of the appellant-Board and not of the contractors, and
they wanted the Tribunal to decide their exact legal status. This is also
clear from the statement of claim filed by the workmen in support of their
demand. It is, therefore, not correct to say that the present reference was
F for abolition of the contract. The reference on the other hand, was for a
declaration that the workmen were in fact and in law the employees of the
appellant-Board and that they should be given the service conditions as
are available to the direct employees of the Board. [222-B-C, 223-A]

9. The answer to the question as to what would be the status of the
G erstwhile workmen of the contractor, once the contract labour system is
abolished is that where an industrial dispute is raised, the status of the
workmen will be as determined by the industrial adjudicator. If the con·
tract labour system is abolished while the industrial adjudication is pend·
ing or is kept pending on the concerned dispute, the adjudicator can give
H direction in that behalf in the pending dispute. If, however, no industrial
GUJ. ELECTRICITY BOARD v. HIND MAZDOOR SABHA 179

dispute is pending for determination of the issue, nothing prevents an A
industrial dispute being raised for the purpose. (212-H, 213-A]

10. There is nothing in the Act which has either expressly or implied-
ly taken away the raising of an industrial dispute to absorb the ex-
contractor's workmen in the principal establishment when the dispute has
been espoused by the direct workmen or the jurisdiction of the Tribunal B
to give a direction for the purpose, of course, on such terms as it deems
fit in the circumstances of each case. [231-G]

11. It is no doubt true that neither Section 10 nor any other provision
thereof provides for determination of the status of the workmen of the C
erstwhile contractor once the appropriate Government abolishes the con-
tract labour. In fact, on the abolition of the contract, the workmen are in
a worse condition since they can neither be employed by the contractor nor
is there any obligation cast on the principal employer to engage them in
his establishment. This is a vital lacuna in the Act. Although the Act has
been placed on the statute book with all benevolent intentions, and D
elaborate provisions are made to prevent the abuse of the contract labour
system as is evident from the Statement of Objects and Reasons and the
provisions of the Act, the legislature has not provided any relief for the
concerned workmen after the contract is abolished. The legislature could
have provided in the Act itself for a reference of the dispute with regard E
to the absorption of the workmen of the erstwhile contractor to the
industrial adjudicator after the appropriate Government has abolished
the contract labour. That would also have obviated the need to sponsor
the dispute by the direct workmen of the principal employer. That can still
be done by a suitable amendment of the Act. [210-G-H, 211-A, 212-F-G]
F
12. The legislature probably did not consider it advisable to make a
provision for automatic absorption of the erstwhile contract labour in the
principal establishment on the abolition of the contract labour, fearing that
such provision would amount to forcing the contract labour on the prin-
cipal employer and making a contract between them. The industrial ad- G
judicator however is not inhibited by such considerations. He has the
jurisdiction to change the contractual relationship and also make new
contracts between the employer and the employees under the Industrial
Disputes Act. It is for this reason that in all cases where the contract labour
is abolished, the industrial adjudicator, depending upon the facts of the
case will have the authority to direct the principal employer to absorb such H.
180 SUPREME COURT REPORTS [1995] SUPP. 1 S.C.R.

A of the workmen of' the erstwhile contractor and on such terms as he may
determine on the basis of the relevant material before him. It is not correct
to say that the Act is a complete Code by itself and, therefore, the industrial
Tribunal has no jurisdiction to give a direction to the principal employer
to absorb the workmen in question. [212-D-F]

B Indian General Navigation and Railway Co. Ltd. & Anr. v. Their
Workmen, [1966] 1 LW 735; Krishan Kurup v. General Manager, Gujarat
Refinery, [1986] 4 SCC 375 and Gumiail Singh & Ors., v. State of Punjab &
Ors., [1991] 1 SCC 189, referred to.

C Sanghi Jeevaraj Ghwar Chand & Ors. v. Secretary, Madras Chillies,
Grains, Kirana Merchants Workers' Union and Anr., [1969] 1 SCR 366,
distinguished.

13. In the connected appeal the decision of the High Court that the
workmen concerned do not become the direct employees of the respondent-
D enterprises merely because there are no registration certificates and licen-
ces with the respondent undertakings and the concerned contractors
respectively is upheld. The remedy of the workmen is to raise a proper
industrial dispute for appropriate reliefs. [232-H, 233-A-B]

E D.S. Nakara & Ors. v. Union of India, [1983] 1 SCC 305;Delhi
Transport Corporation v. DTC Mazdoor Congress, [1991] Suppl. 1 SCC 600
and The State of Haryana v. Piara Singh, [1992) 2 SCC 118, held inap·
plicable.

14. In the other connected appeal, the award of the Labour Court and
F the decision of the High Court are set aside. The workers are free to raise a
fresh proper industrial dispute and claim appropriate relief. [233-F]

15. It is a matter of regret that even the undertakings in the public
sector have been indulging in unfair labour practice by engaging contract
G labour when workmen can be employed directly even according to the tests
laid down by Section 10(2) of the Act. The only ostentsible purpose in
engaging the contract labour instead of the direct employees is the
monetary advantage by reducing the expenditure. Apart from the fact that
it is an unfair labour practice, it is also an economically short-sighted and
unsound policy, both from the point of view of the undertaking concerned
H and the country as a whole. The economic growth is not to be measured only
GUJ. ELECTRICITY BOARD v. HIND MAZDOOR SABHA 181

in terms of production and profits. It has to be gauged primarily in terms A
of employment and earnings of the people. Man has to be the focal point of
development. The attitude adopted by the undertakings is inconsistent with
the need to reduce unemployment and the Government policy declared from
time to time, to give jobs to the unemployed. This is apart from the mandate
of the directive principles contained in Articles 38, 39, 41, 42, 43 and 47 of B
our Constitution. Accordingly, it is recommended that: [234-B-C]

(a) All undertakings which are employing the contract labour system
in any process, operation or work which satisfies the factors mentioned in
clauses (a) to (d) of Section 10(2) of the Act, should on their own,
discontinue the contract labour and absorb as many of the labour as is C
feasible as their direct employees; [234-D]

(b) both the Central and the State Government should appoint a
Committee to investigate the establishments in which the contract labour
is engaged and where ou the basis of criteria laid down in clauses (a) to
(d) of Section 10(2) of the Act, the contract labour system can be abolished D
and direct employment can be given to the contract labour. The ap-
propriate Government on its own should take initiative to abolish the
labour contracts in the establishments concerned by following the proce-
dure laid down under the Act; [234-E-F]

(c) The Central Government should amend the Act by incorporating E
a suitable provision refer to the industrial adjudicator the question of the
direct employment of the workers of the ex-contractor in the principal
establishment, when the appropriate Government abolishes the contract
labour. [234-G]
F
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 5497 of
1995 Etc. Etc.

From the Judgment and Order dated 15.12.90 of the Gujarat High
Court in S.C.A. No. 2119 of 1988.
G
K.K. Venugopal, N.B. Shetye, Govind Mukhoty, K. Madhava Reddy,
G.B. Pai, B.V. Desai, P. Patnaik, Ms. Malini Poduval, K.K. Rai, A.O. Sikri,
N.R. Sahni, Ms. Neelam Kalsi, Vimal Dave, M. Panicker, D. Pillai, P.K.
Pillai and Uma Nath Singh for the appearing parties.

The Judgment of the Court was delivered by . H
182 SUPREME COURT REPORTS [1995] SUPP.1 S.C.R.

A SAWANT, J. Leave granted in all the petitions.

These four groups of appeals raise common questions of law relating
to the abolition of contract system of labour. Civil appeals C.A. No. 5497
& 5504/95 arising out of SLP (c) Nos. 2613 of 1991 and 13520 of 1991 are
filed by the managements, viz., Gujarat Electricity Board and M/s. Bihar
B State Cooperative Milk Producers' Federation Ltd. respectively, while civil
appeals 5498-02/95, 5503/95 arising out of SLP (c) Nos. 9310-14 of 1991
and 9315 of 1991 are filed by the employees' unions, ·viz., Delhi Office~
and Establishment Employees' Union and New Delhi General Mazdoor
Union respectively, both against the same management, viz., Standing
C Conference of Public Enterprises [SCOPE] & Anr.

2. For the sake of convenience, we will first deal with the facts in
Civil Appeal 5497/95 arising out of SLP [CJ No. 2613 of 1991 and the
questions of law as they arise therefrom.

D C.A. 5497/95@
SLP (CJ No. 2613 of 1991.

3. The appellant-Board runs a Thermal Power Station at Ukai in
Gujarat where it generates and distributes electricity to the consumers. At
the relevant time besides the direct workmen, the Board deployed through
E various contractors 1500 skilled and unskilled manual labourers to carry on
the work of loading and unloading of coal and for feeding the same in the
hoppers and for doing the cleaning and other allied activities in its power
station. It appears that these workmen hailed from the adivasi area and
many of them had lost their land on account of the construction of the
Thermal Power Project of the Board with the result that the employment
F in the power station was the only means of livelihood left for them. The
contractors, according to the respondent-Union, exploited these workmen
by flouting labour laws. Ultimately, the workmen organised themselves into
a trade union. But on that count they were victimised and on 16th Novem-
ber, 1981, the services of a thousand of these workmen were abruptly
G terminated. The Union, therefore, filed a writ petition in the High Court
praying for direction to reinstate the workmen and for implementing and
enforcing the Factories Act, the Employees' Provident Fund Act, the
Payment of Wages Act and other labour enactments. The High Court by
its order of 16th December, 1981 appointed one Shri Israni as a Court
Commissioner to make detailed enquiries regarding the allegations made
H in the writ petition and also to try to resolve the dispute between the
GUJ.ELECTRICTIYBOARDv. HINDMAZDOORSABHA[SAWANT,J.) 183

parties. The Commissioner held talks with the concerned parties and also A
associated the officers of the Labour Department of the Government with
the said talks. It was agreed by the between the parties, viz., the Board and
the contractors on the one hand and the workmen on the other, that all
the workmen whose names and numbers were mutually agreed to, be
allowed to enter the power station for work from 4th January, 1982 and
that a settlement under .Section 2[p] of the Industrial Disputes Act, 1947 B
[for short the 'ID Act'] be duly executed in that behalf. It was further
agreed that the remaining disputes between the parties, viz., those relating
to the revision of wages of the workmen, their rights and privileges arising
out of the Factories Act, Employees' Provident Fund Act, Maternity
Benefits Act and the Workmen's Compensation Act as well as the disputes C
with regard to the workmen's contention that they were the employees of
the Board be referred for adjudication by a joint reference under Section
10(2) of the ID Act. Accordingly, a joint application was made to the
A_ssistant Commissioner of Labour under Section 10[2] of the ID Act
requesting .him that the disputes mentioned therein be referred for ad-
judication to the Industrial Tribunal and consequently the reference from D
which the present proceedings arise was made. The terms of the reference
were as follow :

"(1) Whether the workers whose services are engaged by the contrac-
tors, but who are working in the Thermal Power Station of Gujarat
Electricity Board at Ukai, can legally claim to be the employees of the E
G.E.B.? (2) If yes, whether such employees can claim the following rights
which the other employees of Gujarat Electricity Board are already enjoy-
ing? (a) weekly off, (b) sick leave, (c) C.L., (d) Earned or Privilege Leave,
(e) maternity Leave & other benefits to female employees, (f) Gratuity, (g)
Provident Fund, (h) Bonus and (i) Wage scales, etc., (3) If they are not F
held to be the employees of Gujarat Electricity Board, what are their rights
in respect of the matters mentioned in [2] above, against their respective
employers? (4) Whether such employees prove that during the year 1979,
1980 and 1981, they or any of them were made to work overtime. If yes,
what would be due to them on that account and from who? (5) Whether
such employees are entitled to revision of their present wages? If yes., what G
should be their revised wages and from which date ? (6) Whether the said
employees prove that so far as their services are concerned, there have
been breaches of any of the provisions of the Factories Act, Employees
Provident Fund Act, Maternity Benefits and Workmen's Compensation
Act. If yes, what relief can be legally given to them in that respect and from
which date?" H
184 SUPREME COURT REPORTS [1995] SUPP. 1 S.C.R.

A 4. Before the Tribunal, the Union filed the statement of claim as well
as an application for interim relief. Both the Board and the contractors
submitted their reply to the application for interim relief. The Tribunal
gave its award being Award Part I dated 30th April, 1982 giving interim
relief whereby the Board was directed to pay wages to the workmen at the
B rate of Rs. 9.40 per day from 1st April, 1982 till the disposal of the main
reference. Under the said Award, the Board was directed to give to the
workmen leave with wages and weekly off in accordance with the provisions
of the Factories Act, and maternity benefits as per the provisions of the
Maternity Benefits Act.

C To the main reference, written statements were filed both by the
Board and the contractors. The Board also filed application stating therein
that in the meanwhile some of the contractors who were engaged and who
were parties to the reference were no longer working with it and that new
contractors were engaged in their place. The Tribunal joined the new
D contractors as parties to the dispute. Likewise, the Union also made an
application for joining some of the contractors as parties and they were
joined as parties to the reference. Some contractors filed applications of
decision on the preliminary point raised in their written statement that
since demand nos. 1 and 2 in the reference amounted to a demand for
abolition of contract labour system, the Tribunal had no jurisdiction to
E entertain the said demand and that the said point should be heard first.
This application was rejected by the Tribunal.

After recording evidence and hearing the parties, the Tribunal by its
award came to the conclusion that quite a number of skilled and unskilled
F employees were employed in the Thermal Power Station for unloading of
coal wagons, breaking of coal, feeding them in hoppers, stacking, cleaning
each work, fabrication jobs etc., that the labourers were the local adivasis
and they were not given any leave or other facilities before 1982 except the
wages which were very meagre, that workmen were doing all types of
unskilled jobs which they were asked to do and that they were rotated in
G different jobs. Further, while the contractors had changes, the workmen
continued to work and the workmen were working for periods ranging from
5 to 8 years. The contractors had not maintained any records and were not
providing any facilities whatsoever. The contractors had no licence under
the Contract Labour [Regulation and Abolition] Act, 1970 [hereinafter
H referred to as the 'Act'] and that no relevant original certificate of registra-
GUJ. ELECTRICITY BOARD v. HIND MAZDOOR SABHA [SAWANf, J.) 185

tion or licence had been brought on record. The registration certificate and A
four licences produced by the Board were ignored by the Tribunal on the
ground that they were only copies and nothing had been produced in
support of their authenticity. The Tribunal also held that even otherwise,
these documents were not relevant since the registration certificate
produce pertained to the contractors who were not concerned in the B
present case while the licences produced were for a period subsequent to
the date of the reference. The Tribunal relied on the decisions of the High
Courts of Madras and Karnataka, viz., The Workmen of Best & Cromption
Industries Ltd. v. The Management of Best & Cromption Engineering Ltd.,
Madras & Ors., (1985) 1 LLJ 492 and Food Corporation of India Loading
and Unloading Workers' Union v. Food Corporation of India, (1987) 1 LLJ C
407 respectively and held that the workmen concerned in the reference
could not be the workmen of the contractors. The Tribunal then proceeded
to analyse the position of each of the seven contractors involved in the
reference, and held, on the basis of the evidence concerning the said
contractors and the workmen working under them, that the workmen of all D
the seven contractors should be deemed to be the workmen of the Board.
The Tribunal also gave consequential direction for payment of arrears of
wages to the workmen by adjusting the advances which were given to them
by the interim directions of the Tribunal. Against the said award of the
Tribunal, the Board preferred a writ petition before the High Court.
E
The High Court by its decision under challenge before us, held,
among other things, that there was no demand for abolition of contract
labour system as contended by the Board and hence the preliminary
objection raised by the Board that the Tribunal had no jurisdiction to
consider the question of the abolition of contract labour system in view of F
the provisions of the Act, had no merit in it. The High Court held that the
Tribunal was called upon to decide as to whether the workers who- were
engaged for working in the Thermal Power Station were employees of the
Board or of the contractors. Hence the Tribunal was required to examine
the reality behind the facade after piercing the veil. The High Court also G
held, negativing the contention to the contrary, that the Tribunal had not
based its finding on the sole ground that there were no valid licences for
certain periods for certain contractors issued under the provisions of the
Act. The Tribunal had decided the question on overall consideration of the
facts and circumstances and on the grounds apart from the absence of valid
licences. One of the factors taken into consideration by the Tribunal was H
186 SUPREME COURT REPORTS [1995] SUPP. 1 S.C.R.

A the continuous nature of work.

5. Before us the main contention advanced on behalf of the appel-
lant-Board is that after the coming into force of the Act, it is only the
appropriate Government which can abolish the contract labour system
B after consulting the Central Board or the State Board, as the case may be
and no other authority including the industrial adjudicator has jurisdiction
either to entertain such dispute or to direct its abolition. It is also con-
tended on behalf of the Board that in any case neither the appropriate
Government nor the industrial adjudicator has the power to direct that the
workmen of the erstwhile contractor should be deemed to be the workmen
C of the principal employer and such a direction is contrary to the provisions
of the Act. The Central Government or the industrial adjudicator as the
case may be, can only direct the abolition of the contact labour system as
per the provisions of the Act but the Act does not permit either of them
to declare the erstwhile workmen of the contractor to be the employees of
D the principal employer. It is also contended that if the contract is genuine
as evidenced by the registration certificate granted to the principal
employer and the licence issued to the contractor, then it would have to
be held that the workmen concerned are in effect the workmen of the
contractor and not the workmen of the principal employer and hence no
.
dispute can be raised under the ID Act by such workmen for any relief
E since it is only the workmen present or past who can raise such a dispute
under the ID Act for relief against their employer. On the other hand, it
is contended on behalf of the workmen that the Act does not prevent or
prohibit the raising of a dispute under the ID Act for abolition of the
contract labour system. Where the contract is genuine, the workmen of the
F principal employer can raise the dispute for abolition of the contract labour
system. Where it is not genuine, the workmen of the so called contractors
themselves can raise a dispute for a declaration that they are in fact the
employees of the principal employer. In either case, on the basis of the
well-known factors laid down by the judicial decisions to establish the
relationship of the employer and the employee between the parties, the
G Tribunal or the Court, as the case may be, will have jurisdiction to declare
the contract labourers as the direct employees of the principal employer
and grant consequential reliefs.

6. In view of the aforesaid contentions, the questions that fall for
H consideration in this appeal, which are common to all the appeals are, as
GUJ. ELECTRICITY BOARD v. HIND MAZDOOR SABHA [SAWANT, J.] 187

follows: A
[a] Whether an industrial dispute can be raised for abolition of the
contract labour system in view of the provisions of the Act?

[b] If so, who can raise such dispute?
B
[c] Whether the Industrial Tribunal or the appropriate Government
has the power to abolish the contract labour system? and

[d] In case the contract labour system is abolished, what is the status
of the erstwhile workmen of the contractors?
c
6. We may first refer to the relevant provisions of the Act.

The Statement of Objects and Reasons accompanying the Bill'
provided as under:

'The system of employment of contract labour lends itself to D
various abuses. The question of its abolition has been under the
consideration of Government for a long time. In the second Five
Year Plan, the Planning Commission made certain recommenda-
tions, namely, undertaking of studies to ascertain the extent of the
problem of contract labour, progressive abolition of the system and E
improvement of service conditions of contract labour where the
abolition was not possible. The matter was discussed at various
meetings of Tripartite Committees at which the State Governments
were also represented and general consensus of opinion was that
the system should be abolished wherever possible or practicable
and that in cases where this system could not be abolished al- F
together, the working conditions of contract labour should be
regulated so as to ensure payment of wages and provision of
essential amenities.

2. The proposed Bill aims at abolition of contract labour in respect G
of such categories as may be notified by appropriate Government
in the light of certain criteria that have been laid down, and at
regulating the service conditions of contract labour where abolition
is not possible. The Bill provides for the setting up of Advisory
Boards of a tripartite character, representing va'fious interests, to
advice Central and State Governments in administering the legis' H
188 SUPREME COURT REPORTS [1995) SUPP. 1 S.C.R.

A lation and registration of establishments and contractors. Under
the Scheme of the Bill, the provision and maintenance of certain
basic welfare amenities for contract labour, like drinking water and
first-aid facilities, and in certain cases rest-rooms and canteens,
have been made obligatory. Provisions have also been made to
guard against details in the matter of wage payment."
B
As the preamble of the Act points out, the Act has been placed on
the statute book for two purposes, viz., (i) to regulate the employment of
contract labour and (ii) to provide for its abolition in certain circumstances
and for matters connected therewith. It is thus clear that the Act does
C contemplate the total abolition of contact labour but its abolition only in
certain circumstances and to regulate the employment of contract labour
in certain establishments. The object as well as the provisions of the Act
also show that the Parliament while realising the need for abolishing the
contract labour system in certain circumstances also felt the need to
D continue it in other circumstances by properly regulating the same. The
Act came into force on and from 5th September, 1970. It applies to [a]
every establishment in which 20 or more workmen are employed or were
employed as contract labour on any day of the preceding 12 months and
[b] to every contractor who employs or employed on any day of the .
preceding 12 months 20 or more workmen. Liberty is given to the ap-
E propriate Government to apply the provisions of the Act to any estab-
lishment employing such number of workmen less than 20 as may be
specified in the notification. The provisions of sub-section [5] of Section 1
of the Act make it clear [a] that the Act will not apply to establishments
in which work only of an intermittent or casual nature is performed and
F [b] if question arises whether work performed in an establishment is of an
intermittent nature, the appropriate Government shall decide that question
after consultation with the Central Advisory Board or the State Advisory
Board as the case may be and that "its decision shall be final". The
explanation to the said sub-section [5] makes it clear that the work per-
formed in an establishment shall not be deemed to be of an intermittent
G nature [i] if it was performed for more than 120 days in the preceding 12
months or [ii] if it is of a seasonal character and is performed for more
than 60 days in a year. Section 2 [a] gives definition of 'appropriate
Government'. Section 2[e] defines 'establishment' to mean [a] any office or
department of the Government or a local authority and [b] any place where
H any industry, trade, business, manufacture or occupation is carried on.
GUJ. ELECTRICITY BOARD v. HIND MAZDOORSABHA [SAWANT, J.] 189

Section 2(g] defines 'principal° employer'. Section 2 [i] defines 'workmen' A
as under:

"[i] workmen" means any person employed in or in connection
11

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

(A] who is employed mainly in a managerial or administrative
capacity; or

(BJ who being employed in a supervisory capacity draws wages C
exceeding five hundred rupees per mensem or exercises, either by
the nature of the duties attached to the office or by reason of the
.· powers vested in him, functions mainly of a managerial nature; or

(CJ who is an out-worker, that is to say, a person to whom any D
articles and materials are given out by or on behalf of the principal
employer to be made up, cleaned, washed, altered, ornamented,
finished, repaired, adapted or otherwise processed for sale for the
purposes of the trade or business of the principal employer and
the process is to be carried out either in the home of the out-
workers or in some other premises, not being premises under the E
control and management of the principal employer."

Sections 3 and 4 require the Central and the State Governments to
constitute respectively Central and State Advisory Contract Labour
Boards, Section 7 requires every principal employer of an establishment to
which the Act applies, to make an application in the prescribed form to F
the registering officer for registration of the establishment.

Section 8 provides for revocation of the registration if the registration
of any establishment has been obtained by misrepresentation or suppres-
sion of any material fact or if for any other reason, the registration has G
become useless or ineffective. Section 9 of the Act speaks of the effect of
non- registration. It states that no principal employer of an establishment
shall employ contract labour in the establishment after the time fixed for
the purpose. Section 10 then provides as follows :

"10. Prohibition of employment of contract labour. - (1] Not- H
190 SUPREME COURT REPORTS [1995] SUPP. 1 S.C.R.

A withstanding anything contained in this Act, the appropriate
Government may, after consultation with the Central Board or, as
the case may be, a State Board, prohibit, by notification in the
Official Gazette, employment of contract labour in any process,
operation or other work in any establishment.

B [2] Before issuing any notification under sub-section [1] in relation
to an establishment, the appropriate Government shall have regard
to the conditions of work and benefits provided for the contract
labour in that establishment and other relevant factors, such as -

[a] whether the process, operation or other work is incidental to,
c or necessary for the industry, trade, business, manufacture or
occupation that is carried on in the establishment;

[b J whether it is of perennial nature, that is to say, it is of sufficient
duration having regard to the nature of industry, trade, business,
D manufacture or occupation carried on in that establishment;

[c] whether it is done ordinarily through regular workmen in that
establishment or an establishment similar thereto;

[d] whether it is sufficient to employ considerable number of
E whole-time workmen.

Explanation. - If a question arises whether any process or opera-
tion or other work is of perennial nature, the decision of the
appropriate Government thereon shall be final."

F Section 12 provides for the licensing of the contractors and states
that no contractor shall undertake or execute any work through contract
labour except under and in accordance with the licence issued. It also
provides that the licence issued may contain such conditions including any
particular conditions as to hours of work, f1Xation of wages and other
essential amenities in respect of contract labour as the appropriate Govern-
G ment may deem fit to impose, in accordance with the rules, if any, made
under Section 35. Section 13 provides for the grant of licences in the
prescribed form and the application for licence has to contain the par-
ticulars regarding the location of the establishment, the nature of process,
the operation or work for which contract labour is to be employed and
H such of the particulars as may be prescribed. The licensing officer on
GUJ. ELECTRICITY BOARD v. HIND MAZDOOR SABHA [SAWANT, J.] 191
_,
receipt of the application has to make investigation, and the licence if A
granted is valid for the period specified therein and may be renewed from
....., time to time for such period and on such conditions as may be prescribed .
The following conditions are prescribed by Rule 25 [2]:

[i] the licence shall be non-transferable;
B
[ii] the number of workmen employed as contract labour in the
establishment shall not, on any day, exceed the maximum
number specified in the licence;

[iii] save as provided in these rules, the fees paid for the grant,
or as the case may be, for renewal of the licence shall be non- c
refundable;

[iv] the rates of wages payab[e to the workmen by the contractor
shall not be less than the rates prescribed under the Minimum

.. [v]
Wages Act, 1948 for such employment where applicable and
where the rates have been fixed by agreement, settlement or
award, not less than the rates so fixed;

(a) in cases where the workmen employed by the contractor
D

perform the same or similar kind of work as the workmen
directly employed by the principal employer of the estab- E
lishment, the wage rates, holidays hours of work and other
conditions of service of the workmen of the contract shall be
the same as applicable to the workmen directly employed by
the principal employer of the establishment on the same or
similar kind of work;
F
Provided that in the case of any disagreement with regard
to the type of work the same shall be decided by the Chief
Labour Commission [Central];

(b) in other cases the wage rates, holidays, hours of work and
G
conditions of service of the workmen of the contract shall be
-·- such as may be specified in this behalf by the Chief Labour
Commission [Central].

Section 14 states that if the licensing offi~er is satisfied either on a
reference made to him in this behalf or otherwise, that among other things, H
192 SUPREME COURT REPORTS [1995] SUPP. 1 S.C.R.

A the holder of a licence has obtained the licence by misrepresentation or
suppression of any material fact or has without reasonable cause failed to
comply with the conditions subject to which the licence has been granted
or has contravened any provision of the Act or the Rules made thereunder,
he can cancel the licence. The cancellation is without prejudice to any
B other penalty to which the holder of the licence may be liable under the
Act. Section 20 casts an obligation on the principal employer to provide
any amenity required to be provided under the Act to the contract labour
and permits the principal employer to recover all expenses from the
contractor incurred by him for providing the amenities. Section 21 likewise
makes the contractor responsible for payment of wages to each worker
C employed by him, and every employer to nominate a representative to be
present at the time of the disbursement of the wages. In case the contractor
fails to make the payment within the prescribed period or makes short
payment, the principal employer is made liable to make payment of wages
in full or the unpaid balance as the case may be and the principal employer
D is permitted to recover the amount so paid, from the contractor. Sections
22 to 27 of Chapter VI prescribe penalties for contravention of the
provisions of the Act. Section 29 of Chapter VII requires every principal
employer and every contractor to maintain such registers and records
giving such particulars of contract labour employed, the nature of work
performed by the contract labour, the rates of wages paid to the contract
.E labour and· such other particulars in such form as may be prescribed.
Section 30 makes the laws and agreements inconsistent with the Act,
ineffective while saving the more beneficial service conditions of the con-
tract labourers. Section 31 empowers the appropriate Government to grant
exemption to any establishment or class of establishments or any class of
F contractors from complying with the provisions of the Act or the rules
made thereunder on such conditions and restrictions as may be prescribed.

7. Under the Act the Government has in exercise of power granted
by Section 35 of the Act made Contract Labour [Regulation and Abolition]
Rules, 1971 [hereinafter referred to as the 'Rules'] which have come into
G force from 10th February, 1971. Rule 17 [1] prescribes a form, viz., Form
I, for application, referred to in Section 7 [1 ], for registration of the
establishment, to be made by the principal employer for employing con-
tract labour. The form shows that the employer has to furnish, among other
things, information with regard to [1] nature of work carried on in the
H establishment, [ii] particulars of contractors and contract labour, viz., [a]
GUJ. ELECTruCTIY BOARD v. HIND MAZDOORSABHA [SAWANT, J.] 193

names and addresses of contractors, [b] nature of work in which the A
contract labour is employed or to be employed, [c] maximum number of
contract labour to be employed on any day through each contractor, [d]
estimated date of commenceme~t of each contract . labour under each
contractor and [e] estimated date of termination of employment of contract
labour under each contractor. Rule 18 [1] provides for Form II of the B
certificate. of registration to be granted under Section 7 [2] of the Act. The
certificate of registration has to contain [i] the name and address of the
establishment, [ii] the maximum number of workmen to be employed as
contract labour in the establishment [iii] the type of business, trade, in-
dustry, manufacture or occupation which is carried on in the establishment, C
[iv] the names and addresses of contractors, [v] nature of work in which
contract labour in employed or is to be employed and [vi] other particulars .
relevant to the employment of contract labour. Rule 18 [3] requires the
registering officer to maintain a register in a form showing the particulars
of establishment in relation to which certificate of registration has been
issued and the register of establishment has, in addition, to show the total D
number of workmen directly employed by the employer. Rule 18 [4]
requires that any change in the particulars specified in the certificate of
registration has to be intimated by the employer to the registering officer
within 30 days from the date of the change and the particulars of and the ,
reasons for such change. Rule 20 provides for an amendment of the E
certificate of registration pursuant to the change intimated by the employer
under Rule 18 [4] which amendment has to be granted by the registering
officer only after satisfying himself that there has occurred a change. Rule
21 provides for an application for a licence to be made by the contractor
in Form JV. The form requires information witl). regard, among other F
things, to [i] name and address of the contractor, [ii] particulars of estab-
lishment where contract labour is to be employed such as [a] name and
address of the establishment, [b] type of business, trade, industry, manufac-
ture or occupation which is carried on in the establishment, [c] number and
date of certificate of registration of the establishment under the Act and
[d] name and addresses of employer; and [iii] particulars of contract labour G
such as [a] nature of work in which contract labour is or is to be employed
in the establishment, [b] duration of the proposed contract work giving
particulars of the proposed date of commencing and ending of the contract
work [c] name and address of the agency or manager of contractor at the
work site (d] maximum number of contract labour proposed to be H
194 SUPREME COURT REPORTS [1995] SUPP. 1 S.C.R.

A employed m the establishment on any date. Rule 21 [1] also requires
certificate in Form V by the principal employer that he has engaged the
applicant-contractor as a contractor in his establishment and that he un-
dertakes to be bound by all the provisions of the Act and the Rules. Rule
25 prescribes the form and the terms and conditions on which licence is
B issued to the contractor. The conditions on which the licence is issued
include the condition that the licence shall be non-transferable and the
number of workmen employed as contract labour in the establishment shall
not on any date exceed the maximum number specified in the licence and
that the rates of wages payable to the workmen by the contractor shall not
C be less than the rates prescribed under the Minimum Wages Act, 1948 for
such employment, and where the rates have been fixed by agreement,
settlement or award, the same shall not be less than the rates so fixed. In
cases where the workmen employed by the contractor perform the same
or similar kind of work as the workmen directly employed by the employer
of the establishment, the wage rates, holidays, hours of work and other
D conditions of service of the workmen of the contractor shall be the same
as applicable to the workmen directly employed by the employer. In other
cases, the wage rates, holidays, hours of work and conditions of service of
the contractor's workmen shall be such as may be specified in that behalf
by the Chief Labour Commissioner [Central]. While specifying the wage
E rates, holidays etc. the Chief Labour Commissioner has to have regard to
the wage rates, holidays etc. obtaining in similar employments. The licen-
cee-contractor has to notify any change in the number of workmen or the
conditions of work. Rule 27 states that every licence granted to the con-
tractor shall remain in force for 12 months from the date it is granted or
F renewed. Rule 29 provides for renewal of licences. Rule 32 provides for
the grant of temporary certificate of registration and licences where the
contract labour is ·not estimated to last for more than 15 days. Rule 75
requires every contractor to maintain in respect of each registered estab-
lishment a register in Form XIII. This form mentions details to be given in
respect, among others, of the name and address of the principal employer
G and of the establishment, the name and address of the contractor and the
nature and location of work, the nam~ and surname of each workman and
their permanent home address, the date of commencement of employment,
the signature or thumb-impression of workman, the date of termination of
employment and reasons for termination. Rule 76 requires that every
H contractor shall issue an employment card in Form XIV to each worker
GUJ. ELECTRJC!TY BOARD v. HIND MAZDOORSABHA [SAWANf, J.] 195

within three days of the employment of the worker. Rule 77 requires that A
every employer shall issue service certificate to each of the workmen.

8. The provisions of the Act and of the Rules show, among other
things, that every principal employer engaging a contractor and every
contractor engaging the contract labour in the establishment, has to obtain B
for the purpose, registration certificate and the licences respectively from
the authority under the Act. The nature of work for which the contract
labour is engaged, the maximum number of the contract labour proposed
to be engaged, the period for which such labour is to be employed the
names and addresses of the workmen so employed have also to be fur-
nished to the authority. The workmen have to be paid minimum wages and C
where there are agreements, settlements etc. the wages which are agreed
to thereunder have to be paid. Further, if the contract labour is employed
for doing the same type of work as is done by the direct employees of the
principal employer, wages have to be paid and facilities given to the
contract labour as are paid or given to the direct employees of the principal D
employer. Any change in the nature of employment or the number of fhe
workmen to be employed and the period for which they are to be employed
etc. has to be intimated to the authority concerned.

If any amenity is required by the provisions of the Act to be provided E
for the benefit of the contract labour, viz., canteens, rest rooms, drinking
water, latrine, urinals, washing facilities and first aid facilities, and is not
provided by the contractor within the time prescribed therefor, it is the
principal employer who is required to provide the same within such time
as may be prescribed. The principal employer can, however, recover the
F
expenses of providing such facilities from the contractor's account or as a
debt payable by t~e contractor. Further, the principal employer is required
to nominate the representative duly authorised by him to be present at the
time of the disbursement of wages by the contractor to the labour, and such
representative is required to certify the wages paid to the labour. It is the
principal employer who has to ensure the payment of wages to the contract G
___ /
labour and in case the contractor fails to make payment of wages within
the prescribed period or makes short payment, it is the principal employer
who is made liable to make the payment of wages in full or the unpaid
balance due, as the case may be. He can recover the amounts so paid from
the contractor's account or as a debt payable by the contractor. H
196 SUPREME COURT REPORTS [1995) SUPP. 1 S.C.R.

A The contractor is also required to obtain a licence before undertak-
ing or executing any work through contract labour and he can execute such
work only in accordance with the licence issued to him. The application
for licence has to indicate the location of the establishment, the nature of
process, operation or work for which contract labour is to be employed
-
B and other particulars, prescribed under the Rules. The licence issued has
to contain conditions relating to the hours of work, fixation of wages and
essential amenities.

The contravention of any provision of the Act including contraven-
tion of any condition of the licence granted to the contractor is made a
C penal offence.

Further, under Section 10 of the Act, the authority to prohibit
employment of contract labour in any process, operation or other work in
any establishment has been vested in the appropriate Government which
D has to exercise it after consultation with the Central Board or the State
Board as the case may be. Before issuing the notification prohibiting the
contract labour, the appropriate Government has to have regard to the
conditions of work and benefits provided for the contract labour in the
establishment and other relevant factors such as [a] whether the process,
operation or other work is incidental to or necessary for the industry, trade,
E business, manufacture or occupation that is carried on in the establishment,
[b] whether it is of a perennial nature, i.e., whether it is of sufficient
duration having regard to the nature of industry, trade, business, manufac-
ture or occupation carried on in the establishment, [c) whether it is done
ordinarily through direct workmen in that establishment or an estab-
F lishment similar thereto, and [dj whether it is sufficient to employ consid-
erable number of whole-time workers. The explanation to that section
makes the decision of the appropriate Government final with regard to the
question whether the process, operation or other work is of perennial
nature. The effect of non-registration of an establishment under the Act is
that the establishment cannot employ contract labour. So, also, the effect
G of non-licensing of the contractor is that the contractor is precluded from
undertaking or executing any work through contract labour.

It is against the background of these provisions of the Act and in the
light of the decisions of this Court which are cited before us that we have
H to answer the questions raised in these appeals.
GUJ. ELECTRICITYBOARDv. HINDMAZDOORSABHA (SAWANT,J.] 197

9. On the basis of the provisions of Section 10, it is contended that A
no industrial dispute can be raised to abolish contract labour in any
process, operation or other work in any establishment. The contention is
two-fold. In the first instance, it is argued that the said section gives
exclusive authority to the appropriate Government to prohibit contract
labour and that too after following the procedure laid down therein. Before B
taking the decision to prohibit, the appropriate Government has to (i)
consult the Central Board or the State Board, as the case may be; (ii) have
regard to the conditions of work and benefits provided for the contract
labour in that establishment; and (iii) have regard to other relevant factors
such as - (a) whether the process, operation or the connected work is
incidental to, or necessary for the industry, trade, business, manufacture or C
occupation carried on in that establishment; (b) whether it is of perennial
nature, that is to say, it is of sufficient duration having regard to the nature
of industry, trade, business, manufacture or occupation carried on in that
establishment; (c) whether it is done ordinarily through direct workmen in
that establishment or an establishment similar thereto; (d) whether it is D
sufficient to employ considerable number of wholetime workmen. The
other contention is that the decision of the appropriate Government in that
behalf is final and the decision is not liable to be challenged in any Court
including before the industrial adjudicator.

10. In support of the first contention, reliance was placed on the E
following decisions of this Court :'

In Vegoils Pvt. Ltd. v. The Workmen, [1972] 1 SCR 673, the facts were
that the appellant, a private limited company carried on the business of
manufacturing edible oils, soaps and certain by-products, and employed F
about 700 permanent workmen for the purpose. However, for loading and
unloading seed and oil cake bags and for feeding hoppers in the solvent
extraction plant, it employed labour through a contractor. The direct
workmen raised an industrial dispute claiming, inter a/ia, that the work of
loading and unloading seed bags as well as that of feeding hoppers was of
a perennial nature and hence the contract labour in respect of the said G
work should be abolished. The Industrial Tribunal held that the work of
feeding the hoppers could not be said to be intermittent and sporadic as
claimed by the company and that it was closely connected with the prin-
cipal activity of the appellant. The Tribunal also recorded a finding that in
similar plants in the region, the work of feeding the hoppers was carried H
198 SUPREME COURT REPORTS (1995] SUPP. 1 S.C.R.

A on by permanent workmen. Hence, the Tribunal held that the company
sh011ld carry out this work through permanent workmen. As regards load-
ing and unloading of seed and cake bags, the Tribunal held that these
activities were also closely connected with the main industry and the work
was of a permanent character. Although the comparable units in the same
B region carried on the working of loading and unloading through contract
labour, the Tribunal held that since the contract labour has to be dis-
couraged, the appellant must employ only permanent workmen for doing
the said job as well. The Tribunal then referred to the Act, [i.e., the
Contract Labour (Regulation and Abolition) Act] as well as to a State
enactment, viz., Maharashtra Mathadi Hamal and Other Manual Workers
C [Regulation of Employment and Welfare] Act, 1969 and observed that
these two enactments also supported its view. In appeal before this Court,
the company, apart from questioning the Tribunal's decision on merits,
challenged the jurisdiction of the Tribunal to consider the question of the
abolition of contract labour in view of the provisions of the two Acts. This
D Court held that the Tribunal acquired jurisdiction to entertain the dispute
in view of the reference made by the State Government on April 17, 1967.
On that date, neither the Central Act nor the Maharashtra Act had been
passed. Even during the proceedings before the Tribunal, the company
raised no objection after the passing of the two enactments that the
E Tribunal had no longer jurisdiction to adjudicate upon the dispute. Under
these circumstances, the Tribunal had to adjudicate upon the points
referred to it having due regard to the principles laid down by the courts
particularly this Court governing the abolition of contract labour. The
Court further held that the Act had received the assent of the President
F before the passing of the Tribunal's award while the State Act had come
into force before the passing of the award. Though the contention that the
Tribunal lost jurisdiction to consider the question of contract labour in view
of these enactments could not be accepted, it was held that this Court
would be justified when dealing with the appeal, to give effect particularly
to the provisions of the Act having due regard to the clearly expressed
G intention of the legislature in the said Act regarding the circumstances
under which contract labour could be abolished. The Court also held that
even according to the evidence of the company's witnesses it was clear that
the feeding of hoppers in the solvent extraction plant was an activity closely
and intimately connected with the main activity of the appellant, and that
H excepting for a few days, this work had to go on continuously throughout
GUJ. ELECTRICITY BOARD v. HIND MAZDOOR SABHA [SA WANT, J.] 199

the year. It could not also be said that by employment contract labour for A
the purpose the appellant would be enabled to keep down the costs on the
ground that there would not be sufficient work for all the workmen if
permanent labour was employed. Further, the award of the Tribunal
abolishing the contract labour in respect of feeding the hoppers was fully
justified because it was in accordance with the principles laid down by this B
Court which were substantially incorporated in clauses [a] to [d] of Section
10 [2] of the Act and upheld the direction of the Tribunal in that regard.
However, this Court held that the Tribunal's direction to the company not
to engage any labour through a contractor for the work of loading and
unloading after May 1, 1971 must be set aside. Since the Act had come
into force on 10th February; 1971 and under Section 10 of the Act the C
jurisdiction to decide matters connected with the prohibition of contract
labour was vested in the appropriate Government, it is only the appropriate
Government that can prohibit contract labour by following the procedure
and in accordance with the provisions of the Act. The Court also held that
the Industrial Tribunal in the circumstances had no jurisdiction, though its D
award was dated 20th November, 1970, to give a direction in that respect
which becomes enforceable after the date of the coming into operation of
the Act. Further under clause [c] of Section 10[2] of the Act, one of the
relevant factors to be taken into account when contract labour regarding
any particular type of work is proposed to be established, is whether that
type of work is done ordinarily through direct workmen in the estab- E
lishment or an establishment similar thereto. In the case before the Court,
similar establishments employed contract labour for loading and unloading
but the evidence also showed that the work of loading and unloading
required varying number of workmen.
F
It will thus appear from this decision firstly, that an industrial dispute
can be raised by the direct workmen of the establishment for abolition of
the contract labour system. Secondly, although on the date the dispute was
raised the Act was not in force, and hence the dispute with regard to the
abolition of the contract labour system had to be decided by the Tribunal, G
since the Act came into force at the time of the decision, the dispute had
to be decided in accordance with the provisions of the Act. Hence on and
after the coming into force of the Act, no direction could be given by the
Industrial Tribunal to abolish the contract labour system, since the juris-
diction to give directions with regard to the prohibition of contract labour
is vested appropriate Government. H
200 SUPREME COURT REPORTS [1995] SUPP. 1 S.C.R.

A In B.H.E.L. Workers' Association Hardwar & Ors. Etc. Etc. v. Union
of India & Ors. Etc. Etc., [1985] 2 SCR 611 the matter came to this Court
by way of a writ petition filed by the workmen under Article 32 of the
Constitution. It was contended by the Workmen's Association that out of
16000 and odd workmen working within the premises of the respondent-
Company, as many as a thousand workers were treated as contract labour
B and placed under the control and at the mercy of contractors and though
they did the same work as workers directly employed by the company, they
were not paid the same wages nor were their conditions of service the same
as that of the directly employed workers. It was further alleged that the
management paid to the contractors, and in turn, the contractors paid
C salary to them, after deducting substantial commission, and the wages paid
to them did not bear comparison to the wages paid to those directly
employed by the company. Hence it was alleged that the rights of the
contract workers were infringed under Articles 14 and 19 [1] (f) [sic. - g?]
of the Constitution and a declaration was sought from the Court that the
system of contract labour prevalent in the respondent-company was illegal,
D the contract employees were the direct employees of the respondent-com-
pany and entitled to equal pay as the workmen directly employed. The
respondent-company opposed the petition by contending that if the
petitioners had any genuine grievance, they could avail themselves of the
rights secured to them under the Act, Minimum Wages Act, Equal
E Remuneration Act, etc. for seeking appropriate relief. It was further con-
tended on behalf of the company that certain jobs though required to be
done within the plant area, could more conveniently and efficiently be done
on a job contract basis, and this was actually due to the introduction of a
new technology for expansion of production programme with foreign col-
laboration. The jobs themselves were entrusted to contractors and it was
F not appropriate to say that the contractors merely supplied the labour.
They were required to do the total job and payment was made on the basis
of the quantum of work involved and not on the basis of the workers
employed by the contractor. This Court dismissed the writ petition hy
holding that the Act does not provide for the total abolition of contract
G labour, but for its abolition only in certain circumstances, and for the
regulation of the employment of contract labour in certain establishments.
The Act is not confined to private employers only. The definition of
'establishment' under Section 2[e] and of 'principal employer' under Sec-
tion 2 [g] expressly include the Government or any of its departments. The
Court further held that no invidious distinction can be made against
H contract labour. Contract labour is entitled to the same wages, holidays,
GUJ.ELECTRICITYBOARDv.HJNDMAZDOORSABHA[SAWANT,J.) 201

hours of works, and conditions of service as are applicable to workmen A
directly employed by the principal employer ofthe establishment on the
same or similar kind of work. They are entitled to recover their wages and
their conditions of service in the same manner as workers employed by the
principal employer under the appropriate Industrial and Labour Laws. If
there is any dispute with regard to tM type of work, the dispute has to be
decided by the Chief Labour Commissioner (Central). The Parliament has B
not abolished contract Jabour but has provided for its abolition by the
Central Government in appropriate cases under Section 10 of the Act. It
is not for the court to enquire into the question and to decide whether the
employment of contract labour in ·any process, operation or other work in
any establishment should be abolished or not. This is a matter for the C
decision of the Government after considering the matter required to be
considered under Section 10 of the Act. Whether the work done by the
contract labour is the same or similar to that done by the workmen directly
employed by the principal employer of any establishment, is a matter to be
decided by the Chief Labour Commissioner under the proviso to Rule 25 D
[ii) [iv] (a) of the 1971 Rules.
>
The Court further held that it was not possible in an application
under Article 32 to embark upon an enquiry whether the thousand and odd
workmen working in various capacities and engaged in multifarious ac-
tivities did work identical with work done by the workmen directly E
employed by the company and whether for that reason, they should not be
treated as contract labour but as direct employees of the company. There
are other forums created under other statutes designed to decide such and
like questions. The Court further observed that the counsel wanted this
Court to abolish the employment of contract labour by the State and by all F
public sector undertakings which was not possible since that would· be
nothing but the exercise of legislative activity with which function the court
is not entrusted by the constitution, while holding thns, the Court however,
directed the Central Government to consider whether the employment of
contract labour should not be prohibited under Section 10 of the Act in G
any process, operation or other work of the BHEL. The court also directed
the Chief Labour Commissioner to enquire into the question whether the
work done by the workmen employed by the contractors is the s~e type
of work as that done by the workmen directly employed by the principal
employer in the BHEL, Hardwar. H
202 SUPREME COURT REPORTS [1995] SUPP. 1 S.C.R.

A In Catering Cleaners of Southem Railway Etc. v. Union of India & Ors.
Etc., [1987] 2 SCR 164, the petitioners who were catering cleaners of the
Southern Railway had filed a representative writ petition on behalf of about
300 and odd catering cleaners working in the catering establishments at
various Railway junctions of the Southern Railway and in the pantry cars
B of long-distant trains running under the control of the Southern Railway.
Since a long time, they were agitating for the abolition of the contract
labour system under which they were employed to do the cleaning work in
the catering establishments and pantry cars and for their absorption as
direct employees of the principal employer, viz., the Southern Railway.
Although the contract labour system had been abolished in almost all the
C railways in the country, the Southern Railway persisted in employing
contract labour for doing the work in question. Since several repre-
sentations made by them to the authorities proved fruitless, they ap-
proached this Court under Article 32 of the Constitution to direct the
respondent-Union of India and others to exercise their power under Sec-
D tion 10 [1] of the Act and to abolish the contract system and further to
direct the Railways to regularise the services of the existing catering
cleaners and to extend to them the service benefits then available to other .
categories of employees in the catering establishments. The Railway ad-
ministration opposed the writ petition contending that it had not been
E found possible to abolish the contract labour because the nature of the
cleaning work in the catering units of the Southern Railway, was fluctuating
and intermittent. The Court referred to the report of the Parliamentary
Committee which had held that the job of cleaning in Railway catering
units was of a permanent nature and the work if entrusted to the direct
F employees would only marginally increase the cost. The Committee had
recommended the employment of cleaners directly by the Railways to avoid
their exploitation. The Court also referred to the decision of this Court in
Standard Vacuum Refining Co. of ll!dia Ltd. v. Its Workmen & Ors., [1960]
3 SCR 466. After analysing the provisions of the Act, the Court held that
on the facts, it appeared to it to be clear that the work of cleaning catering
G establishments and pantry cars was necessary and incidental to the industry
or business of the Southern Railway, that the work was of a perennial
nature, that it was done through direct workmen in most Railways in the
country and that the work required the employment of sufficient number
of whole-time workmen and thus the requirement of clauses [a] to [d] of
H Section 10 [2] of the Act were satisfied. In addition, the Court found that
GUJ. ELECTRICITY BOARD v. HIND MAZDOOR SABHA [SAWANT, J.) 203

there was a factor of profitability of the catering establishments which as A
stated in the report of the Parliamentary Committee, was making a profit
of Rs. 50 lakhs per annum. However, even on these findings, the Court held
that the writ petitioners could not invite the Court to issue a mandamus
directing the Central Government to abolish the contract labour system
because under Section 10 of the Act, Parliament had vested in the ap- B
propriate Government the power to prohibit the employment of contract
labour in any process, operation or any other work in any establishment.
The appropriate Government is required to consult the Central Board or
th\'_ State Board as the case may be, before arriving at its decision. The
decision, of course, is subject to the judicial review. Hence, the Court
would not be justified in issuing a mandamus prayed for unless and until C
the Government failed or refused to exercise the power vested in it under
Section 10 of the Act. In the circumstances, the appropriate order to make
according to the Court, was to direct the Central Government to take
suitable action under Section 10 of the Act in the matter of prohibiting the
employment of contract labour and the Government should do it within six D
months from the date of the order. The Court further observed that without
waiting for the decision of the Central Government, the Southern Railway
was free of its own motion to abolish the contract labour system and to
regularise the services of the employees in the work of cleaning catering
establishments and pantry cars. The Court further observed that the ad-
ministration of the Southern Railway should refrain until the decision of E
the Central Government from employing contract labour. The Court also
directed that the work of cleaning catering establishments and pantry cars
should be done departmentally by employing those workmen who were
previously employed by the contractors on the same wages and conditions
of work as were applicable to those engaged for the same work by the F
Southern Railway.

In Dena Nath & Ors. v. National Fertilisers Ltd. & Ors., [1992] 1 SCC
695, the question involved was whether, if the principal employer does not
get registration under Section 7 and/or the contractor does not get licence
under Section 12 of the Act, the labour engaged by the principal employer G
through the contractor is deemed to be the direct employees of the
principal employer or not. On this point there was a conflict in the
decisions of High Courts of Delhi, Calcutta, Punjab and Kerala on the one
hand and of the High Courts of Madras, Bombay, Gujarat and Karnataka
on the other. The view taken by the former High Courts was that the only H
204 SUPREME COURT REPORTS [1995] SUPP. 1 S.C.R.

A consequence of the non-compliance of the provisions of Sections 7 and 12
of the Act was that the principal employer and the contractor as the case
may be, are liable for prosecution under the Act whereas the view taken
by the latter High Courts was that in such a situation the contract labour
became the direct employees of the principal employer. After noticing the
B decision of this Court in Standard Vacuum Refining Co. case [supra] and
going through the genesis of the Act, the Court held that it is not for the
High Court to enquire into the question and decide whether the contract
labour in any process, operation or any other work in any establishment
should be abolished or not. It is a matter for the appropriate Government
C to decide after considering all the matters as required by Section 10 of the
Act. The Court further held that the only consequence provided under the
Act where either the principal employer or the labour contractor violates
the provisions of Sections 7 or 12 as the case may be, is the penalty as
envisaged under Sections 23 and 25 of the Act. Merely because a contrac- ...
tor or an employer has violated a provision of the Act or the Rules, the
D Court cannot issue any mandamus for deeming the contract labour as
having become the employees of the principal employer. The Court
referred to the decisions of the Karnataka and the Gujarat High Courts
....
[the latter is under challenge in the present proceedings] and observed that
it would not like to express any opinion on the same since they were under
E challenge in this Court but would place on record that it did not agree with
the observations of the Madras High Court regarding the effect of the
non-registration of the principal employer or the non-licensing of the
labour contractor nor with the view of the Bombay High Court which was
under consideration before it. The Court further stated that it was of the
F view that the decisions of the Calcutta and Delhi High Courts were correct
and approved of the same.

11. These decisions in unambiguous terms lay down that after the
coming into operation of the Act, the authority to abolish the contract
labour is vested exclusively in the appropriate Government which has to
G take its decision in the matter in accordance with the provisions of Section
10 of the Act. This conclusion has been arrived at in these decisions on the
interpretation of Section 10 of the Act. However, it has to be remembered
that the authority to abolish the contract labour under Section 10 of the
Act comes into play only where there exists a genuine contract. In other
·H words, if there is no genuine contract and the so called contract is sham
GUJ. ELECTRICITY BOARD v. HIND MAZDOORSABHA [SAWANT, J.] 205

or a camouflage to hide the reality, the said provisions are inapplicable. A
When, in such circumstances, the concerned workmen raise an industrial
dispute for relief that they should be deemed to be the employees of the
principal employer, the Court or the industrial adjudicator will have juris-
diction to entertain the dispute and grant the necessary relief. In this
connection, we may refer to the following decision of this Court which were B
also relied upon by the counsel for the workmen.

In The Standard-Vacuum Refining Co. of India Ltd. v. Its Workmen
and Others, [supra], an industrial dispute was raised by the workmen of the
appellant-company with respect to the contract labour employed by the
company for cleaning maintenance work at the refinery including the C
premises and plants belonging to it. The workmen made a demand for
abolition of the contract system and for absorbing workmen employed
through the contractor into the regular service of the company. The matter
was referred for adjudication to industrial Tribunal. The company objected
to the reference on the ground (1] that it was incompetent inasmuch as D
there was no dispute between it and the respondents and it was not open
to them to raise a dispute with respect to the workmen of some other
employer, viz., the contractor, and [2] in any case, it was for the company
to decide what was the best method of carrying on its business and the
Tribunal could not interfere with that function of the management. The
Tribunal held that the reference was competent. It was of the opinion that E
the work which was being done through the contractor was necessary for
the company to be done daily, that doing this work through annual con-
tracts resulted in deprivation of security of service and other benefits of
the workmen of the contractor and hence the contract system with respect
to that work should be abolished. In appeal, this Court held that the dispute F
raised was an industrial dispute within the meaning of section 2[k] of the
Industrial Disputes Act because [i] the respondent-workmen had a com-
munity of interest with the workmen of the contractor, [ii] they had also
substantial interest in the subject-matter of the dispute inasmuch as the
class to which they belonged was substantially affected thereby, and [iii] G
the company could give relief in the matter. The Court further held that
the work in question was incidental to the manufacturing process and was
necessary for it and was of a perennial nature which must be done every
day. Such work is generally done by workmen in the regular employment
of the employer and there should be no difficulty in having direct workmen
for that kind of work. The matter would be different if the work was of H
206 SUPREME COURT REPORTS [1995] SUPP. l S.C.R.

A intermittent or temporary; nature or was so little that it would not be
possible to employ full time workmen for the purpose. While dealing with
the contention that the Tribunal should not have interfered with the
management's manner of having its work done in the most economical and
convenient way that it thought proper, and that the case in question was
B not one where the contract system was a camouflage and the workmen of
the contractors were really the workmen of the company, the Court held
that it may be accepted that the contractor in that case was an independent
person and the system was genuine and there was no question of the
company carrying on the work itself and camouflaging it as if it was done
through contractors in order to pay less to the workmen. But the fact that
C the contract in the case was a bona fide one would not necessarily mean
that it should not be touched by the industrial Tribunals. If the contract
had been ma/a fide and a cloak for suppressing the fact that the workmen
were really the workmen of the company, the Tribunal would have been
justified in ordering the company to take over the entire body of workmen •
D and treat it as its own workmen. But because the contract in the case was
bona fide, the Tribunal had not ordered the company to take over the
entire body of workmen. It had left to the company to decide for itself how ..
many workmen it should employ and on what terms, and had merely
directed that when selection is being made, preference be given to the
workmen employed by the contractor. The Court also held that the only
E question for decision was whether the work which was perennial and must
go on from day to day and which was incidental and necessary for the work
of the refinery and was sufficient to employ a considerable number of
whole-time workmen and which was being done in most concerns through
direct workmen, should be allowed to be done by contractors. Considering
F the nature of the work done and the conditions of service in the case, the
Court opined that the Tribunal's decision was right and no interference
was called for.

This decision is of seminal importance for two reasons. It laid down
the tests for deciding whether contract labour should be continued in a
G particular establishment, occupation or process etc. Section 10 of the Act
incorporates more or less the same tests as laid down by this decision.
Secondly, it also spelt out the circumstances when the workmen of an
establishment can espouse the cause of other workmen who were not the
direct employees of the establishment and raise an industrial dispute within
· H the meaning of the ID Act.
•
GUJ. ELECIBICITY BOARDv. HINDMAZDOORSABHA[SAWANT,J.] 207

This being a case decided prior to the coming into operation of the A
Act, the Court has held here that even if the contract is a genuine one, the
industrial adjudicator will have jurisdiction to abolish the contract labour
<· and give appropriate relief as the industrial Tribunal had done in the case.
Its importance lies in the fact that it lends support to the proposition that
even after the coming into operation of the Act, the industrial adjudicator B
will have, in appropriate cases, jurisdiction to investigate as to whether the
contract is genuine or not, and if he comes to the conclusion that it is not,
he will have jurisdiction also to give suitable relief. It may also appear that
even where the contract is genuine but it comes to be abolished by the
appropriate Governme.nt under Section 10 of the Act, the industrial ad-
judicator will have jurisdiction to determine the status of the workmen of C
the erstwhile contractor.

In Hussainbhai, Calicut v. The Alath Factory Thozhilali Union, Koz-
hikode & Ors., (1978] 4 SCC 257, a number of workmen were engaged in
the petitioner's factory to make ropes. But they were hired by contractors D
who had executed agreements with the petitioners to get such work done.
When 29 of these workmen were denied employment, an industrial dispute
was referred by the State Government. The Industrial Tribunal held them
to be workmen of the petitioner. This award was challenged by the
petitioner before the High Court and the learned Single Judge held that
the petitioner was the employer and the workmen were employees under E
the petitioner. The Division Bench of the High Court upheld this decision.
While dismissing the special leave petition against the said decision, this
Court observed that the facts found were that the work done by the
workmen was an integral part of the industry concerned. The raw material
was supplied by the management, the factory premises belonged to the F
management, the equipment used also belonged to the management and
the finished product was taken by the management for its own trade. The
workmen were broadly under the control of the management and the
defective articles were directed to be rectified by the management. These
circumstances were conclusive to prove that the workmen were workmen G
of the petitioner. The Court further held that if the livelihood of the
workmen substantially depends on labour rendered to produce goods and
services for the benefit and satisfaction of the enterprise, the absence of
direct relationship or the presence of dubious intermediaries cannot snap
the real life bond. If however, there is total dissociation between the
management and the workmen, the employer is in substance and in real H
208 SUPREME COURT REPORTS [1995] SUPP. 1 S.C.R.

A life terms another. The true test is where the workers or group of workers
labour to produce goods or services and these goods or services are for
the business of another, that another is in fact, the employer. He has
economic control over the workers' skill, subsistence, and continued ·.
employment. If for any reason, he chokes off, the workers are virtually laid
B off. The presence of intermediate contractors with whom alone the workers
have immediate or direct relationship ex contractu is of no consequence
when on lifting the veil or looking at the conspectus of factors governing
employment, the naked truth is discerned and especially since it is one of
the myriad devices resorted to by the managements to avoid responsibility
when labour legislation casts welfare obligations on real employer based
C on Articles 38, 39, 42, 43 and 43A [sic.] of the Constitution.

In R.K Panda & Ors. v. Steel Authority of India Ltd., [1994] 5 SCC
304, the contract labourers by filing a writ petition under Article 32 claimed
parity in pay with direct employees and also regularisation in the employ-
D ment of the respondent -authority. They were continuing in employment for
periods ranging from 10 to 20 years. The contractors used to be changed
but the new contractors were under the terms of the agreement required
to retain the workers of the predecessor contractors. The workers were
employed through the contractors for different purposes like construction
and maintenance of roads and buildings within plant premises, public
E health, horticulture, water supply etc. In the agreement with the contrac-
tors, it was stated that the parties shall be governed by the provisions of
the Act as well as by the provisions of the Payment of Bonus Act. On these
facts, this Court observed as follows :

F "It is true that with the passage of time and purely with a view
to safeguard the interests of workers, many principal employers
while renewing the contracts have been insisting that the contractor
or other new contractor retains the old employees. In fact such a
condition is incorporated in the contract itself. However, such a
clause in the contract which is benevolently inserted in the contract
G to protect the continuance of the source of livelihood of the
contract labour cannot by itself give rise to a right to regularisation '
in the employment of the principal employer. Whether the contract
labourers have become the employees of the principal employer
in course of time and whether the engagement and employment
H of labourers through a contractor is a mere camouflage and a
GUJ. ELECTRICITYBOARDv. HINDMAZDOORSABHA[SAWANT,J.l 209

smokescreen, as has been urged in this case, is a question of fact A
and has to be established by the contract labourers on the basis of
the requisite material. It is not possible for the High Court or this
Court, while exercising writ jurisdiction or jurisdiction under Ar-
ticle 136 to decide such questions, only on the basis of the af-
fidavits. It need not be pointed out that in all such cases, the B
labourers are initially employed and engaged by the contractors.
As such at what point of time a direct link is established between
the contract labourers and the principal employer, eliminating the
contractor from the scene, is a matter which has to be established
on material produced before the court. Normally, the Labour
Court and the Industrial Tribunal, under the Industrial Disputes C
Act are the competent for a to adjudicate such disputes on the
basis of the oral and documentary evidence produced before
them."

Taking into consideration the developments during the pendency of D
the writ petition in this Court and 'the offer made by the. respondent-
authority to the workmen either to accept voluntary retirement on the
terms offered by it or to agree to be absorbed on regular basis and the
scheme of modernisation which was in the process of implementation, the
Court gave certain directions in respect of 879 workmen who were involved
in that case. Those directions included, among ~ther things, regularisation E
of those workmen who had put in 10 years' continuous service provided
they were below 58 years of age which was the age of superannuation under
the respondent-authority. The workmen so regularised were not to receive
any difference in their contractual and regular wages till the date of their
absorption which was to be completed within four months of the date of F
the order. The respondent-authority was further at liberty to retrench
workmen so absorbed in accordance with law. The said direction was
further applicable to 142 out of 246 jobs in view of the fact that contract
labour had already been abolished in· 104 jobs.

12. As regards the second contention based on the provisions of G
Section 10 of the Act, viz., that the decision of the Government under the
said provision as to whether it should be abolished or not, is final and the
same cannot be challenged in any court including before the industrial
adjudicator. Shri Venugopal in support of his contention relied upon
certain decisions of this Court under the Citizenship Act, 1955 where the H
210 SUPREME COURT REPORTS [1995] SUPP. 1 S.C.R.

A finality is attached to the decision of the Central Government taken under
Section 9 [2] of the said Act. The provisions of Section 9 [2] of the
Citizenship Act wh_ich are more or less pari materia with the provisions of
Section 10 of the present Act, are as follows :

"[2] If any question arises as to whether, when or how any person
B has acquired the citizenship of another country, it shall be deter-
mined by such authority, in such manner, and having regard to
such rules of evidence, as may be prescribed in this behalf."

The decisions of the Court in that behalf are Akbar Khan a/am Khan
C & Anr. v. The Union of India & Ors., [1962] 1 SCR 779; Mohd. Ayub Khan
v. Commissioner of Police, Madras and Anr., [1965] 2 SCR 884; State of
U.P. v. Abdul Rashid & Ors., [1984] Supp. SCC 347 and Bhagwati Prasad
Dixit 'Ghorewala' v. Rajeev Gandhi, [1986] 4 SCC 78.

D 13. It is not necessary for us to go into the question of the finality of
the decision under Section 10 of the Act since as held by this Court in
Vegoils Pvt. Ltd., B.H.E.L. Workers' Association, Catering Cleaners of
Southern Railway, and Dena Nath [supra], the exclusive authority to
decide whether the contract labour should be abolished or not is that of
the appropriate Government under the said provision. It is further not
E disputed before us that the decision of the Government is final subject, of
course, to the judicial review on the usual grounds. However, as stated
earlier, the exclusive jurisdiction of the appropriate Government under
Section 10 of the Act arises only where the labour contract is genuine and
the question whether the contract is genuine, or not can be examined and
F adjudicated upon by the court or the industrial adjudicator, as the case
may be. Hence in such cases, the workmen can make a grievance that there
is no genuine contract and that they are in fact the employees of the
principal employer.

14. It is no doubt true that neither Section 10 of the Act nor any
G other provision thereof provides for determination of the status of the
workmen of the erstwhile contractor once the appropriate Government
abolishes the contract labour. In fact, on the abolition of the contract, the
workmen are in a worse condition since they can neither be employed by
the contractor nor is there any obligation cast on the principal employer
H to engage them in his establishment. We find that this is a vital lacuna in
GUJ. ELECTRICITY BOARD v. HIND MAZDOOR SABHA [SAWANT, J.] 211

the Act. Although the Act has been placed on the statute book with all A
benevolent intentions, and elaborate provisions are made to prevent the
abuse of the contract labour system as is evident from the Statement of.
Objects and Reasons and the provisions of the Act referred to by us in
detail earlier, the legislature has not provided any relief for the concerned
workmen after the contract is abolished. One reason for the same pointed B
out to us was that the workmen engaged by the contractor may not be
qualified to be engaged by the principal employer according to the latter's
rules of recruitment. In this respect, we envisage two different situations,
first where similar type of work is being carried out by the direct employees
of the principal employer and, second where the contract labour is engaged
to execute work which is not being carried out by any section of the direct C
employees of the principal employer. As regards the first situation, the
condition no. [5] of the licence to be granted to the contractor in Form VI
under Rule 25 [1] of the Rules requires that wages rates, holidays, hours
of work and other conditions of service of the contract workmen shall be
the same as applicable to the workmen directly employed by the principal D
employer for performing the same or similar type of wor.k. In other cases,
the wage rates, holidays, hours of work and other conditions of service of
the workmen of the contractor, as per condition [6] of the said Form, shall
be such as may be specified by the Chief Labour Commissioner [Central].
When the legislature has been careful enough to take such precautions, we E
are unable to appreciate as to why it could not have provided also for the
absorption of the workmen who have been doing the work in question. It
is possible that the contractor has been transferring his workmen from one
job to another and the same workmen may not be working for all the time
in the same establishment or the process. But as pointed out earlier, the
application for registration under Rule 17 [1], the certificate of registration F
under Rule 18 [1], the register of establishment under Rule 18 [3], the
application for licence under Rule 21 [1] and the licence granted under
Rule 25 [1] all require the particulars of contract labour to be furnished in
the prescribed form. Hence it should not be difficult to verify the workmen
who were actually working in the establishment in question for a given G
period of time and the period for which they had worked since the record
of payment of wages made to them would be available as it is to be made
in the presence of the representative of the principal employer who is also
responsible to make the payment of the whole of the wages or the balance
of it in case the contractor makes default. For ensuring the payment to the · H
212 SUPREME COURT REPORTS (1995] SUPP. 1 S.C.R.

A workmen, the muster roll has necessarily to be maintained. If they have in
fact worked for a reasonably long time satisfactorily and have thus gained
experience, it should not be difficult to identify and absorb them. In fact,
they will any time be better then fresh recruits and their engagement would
be beneficial to the establishment concerned. On account of the abolition
B of the contract labour, the establishment will in any case require replace-
ment of the contract labour. It may be that the establishment may not
require the whole complement of the workmen erstwhile employed by the
contractor. But that also may not always be correct since the contractor
would more probably than not have employed less work-force than may be
necessary in order to keep his margin of profit as wide as possible.
C Whatever the case, the logic in not employing the workmen of the erstwhile
contractor or those of them who may be necessary, in the principal estab-
lishment after the contract is abolished, does not appear to be sound.

The legislature probably did not consider it advisable to make a
D provision for automatic absorption of the erstwhile contract labour in the
principal establishment on the abolition of the contract labour, fearing that
such provision would amount to forcing the contract labour on the prin-
cipal employer and making a contract between them. The industrial ad-
judicator however is not inhibited by such considerations. He has the
jurisdiction to change the contractual relationships and also make new
E contracts between the employer and the employees under the ID Act. It is
for this reason that in all cases where the contract labour is abolished, the
industrial adjudicator, depending upon the facts of the case will have the
authority to direct the principal employer to absorb such of the workmen
of the erstwhile contractor and on such terms as he may determine on the
p basis of the relevant material before him. Hence the legislature could have
provided in the Act itself for a reference of the dispute with regard to the
absorption of the workmen of the erstwhile contractor to the industrial
adjudicator after the appropriate Government has abolished the contract
labour. That would also have obviated the need to sponsor the dispute by
G the direct workmen of the principal employer. That can still be done by a
suitable amendment of the Act.

15. The answer to the question as to what would be the status of the
erstwhile workmen of the contractor, once the contract labour system is
abolished is therefore that where an industrial dispute is raised, the status
H of the workmen will be as determined by the industrial adjudicator. If the
GUJ. ELECTRICITY BOARD v. HIND MAZDOOR SABHA [SA WANT, J.l 213

contract labour system is abolished while the industrial adjudication is A
pending or is kept pending on the concerned dispute, the adjudicator can
give direction in that behalf in the pending dispute. If, however, no in-
dustrial dispute is pending for determination of the issue, nothing prevents
an industrial dispute being raised for the purpose.

16. The last but equally important question that remains to be B
answered is : who can raise an industrial dispute for absorption of the
workmen of the ex-contractor by the principal employer. As has been
pointed out earlier, if the contract is not genuine, the workmen of the
contractor themselves can raise such dispute, since in raising such dispute
the workmen concerned would be proceeding on the basis that they are in C
fact the workmen of the principal employer and not of the contractor.
Hence the dispute would squarely fall within the definition of industrial
dispute under Section 2(k) of the ID Act being a dispute between the
employer and the employees. In that case, the dispute would not be for
abolition of the contract labour, but for securing the appropriate service D
conditions from the principal employer on the footing that the workmen
concerned were always the employees of the principal employer and they
were denied their dues. In such a dispute, the workmen are required to
establish that the so called labour contract was sham and was only a
camouflage to deny them their legitimate dues.
E
However, the situation is obviously different when the labour con-
tract is genuine and there is no relationship of employer- employee be-
tween the principal employer and the workmen of the contractor. No
industrial dispute can be raised by the workmen of the contractor either
before or after the contract labour is abolished by the appropriate Govern-
ment under Section 10 of the Act. This hurdle in raising the dispute will F
however disappear if it is raised by the direct workmen of the principal
employer who have (i) a community of interest with the contract labour,
(ii) a substantial interest in the subject matter of the dispute and (iii) when
the employer can grant the relief as is held in the following decisions :
G
In Workmen of Dimakuchi Tea Estate v. The Management of
Dimakuchi Tea Estate, [1958] SCR 1156, the question for decision was
whether the dispute raised by the workmen relating to a person who was
not a workman could be an industrial dispute as defined in the ID Act and
as the definition stood before the amendment of 1956. The appellants who
were the workmen of the respondent, espoused the cause of one Dr. H
214 SUPREME COURT REPORTS [1995) SUPP.1 S.C.R.

A Banerjee, Assistant Medical Officer who had been dismissed without hear-
ing, with a month's salary in lieu of notice, but who had accepted such
payment and left the tea garden. The dispute raised was ultimately referred
by the Government to the Tribunal. Both the Tribunal and the appellate
industrial Tribunal took the view that as Dr. Banerjee was not workman,
the dispute was not an industrial dispute as defined in Section 2 [k] of the
B ID Act. In appeal from the said decision after analysing the provisions of
Section 2(k), the majority of this Court summarised the law on the subject
as follows:-

"To summarise. Having regard to the scheme and objects of
c the Act, and its other provisions, the expression 'any person' in
Section 2(k) of the Act must be read subject to such limitations
and qualifications as arise from the context; the two crucial limita-
tions are (1) the dispute must be a real dispute between the parties
to the dispute (as indicated in the first two parts of the definition
clause) so as to be capable of settlement or adjudication by one
D party to the dispute giving necessary relief to the other, and (2)
the person regarding whom the dispute is raised must be one in
whose employment, non-employment, terms of employment, or
conditions of labour (as the case may be) the parties to the dispute
have a direct or substantial interest. In the absence of such interest
E the dispute cannot be said to be a real dispute between the parties.
Where the workmen raise a dispute as against their employer, the
person regarding whose employment, non-employment, terms of
employment or conditions of labour the dispute is raised need not
be, strictly speaking, a 'workman' within the meaning of the Act
must be one in whose employment, non-employment, terms of
F employment or conditions of labour the workmen as a class have
a direct or substantial interest.

In the case before us, Dr. K.P. Banerjee was not a 'workman'.
He belonged to the medical or technical staff - a different category
G altogether from workman. The appellants had no direct, nor sub-
stantial interest in his employment or non-employment, and even
assuming that he was a member of the same Trade Union, it cannot
be said, on the tests laid down by us, that the dispute regarding
his termination of service was an industrial dispute within the
H meaning of Section 2(k) of the Act."
GUJ. ELECTRICITY BOARD v. HIND MAZDOOR SABHA [SAWANT. J.) 215

Justice Sarkar, in his dissenting judgment, however held that the ID A
Act did not make the interest of the workmen in the dispute a condition
of the existence of an industrial dispute. Such an interest is incapable of
definition and to make it a condition of an industrial dispute would defeat
the object of the Act. The learned Judge further held that even assuming
that workmen must be interested in order that there can be an industrial B
dispute, the present case satisfied that test and fell within the purview of
section 2 [k) of the ID Act.

In The Standard-Vacuum Refining Co. case [supra] to which we had
an occasion to refer to earlier in another context, after taking due note of
the propositions of law laid down in Dimakuchi (supra), this Court has C
discussed the law on the subject elaborately. The said discussion bears
verbatim reproduction here.

"....The definition of "industrial dispute' in Section 2(k) requires
three things -
D
(i) There should be a dispute or difference;

(ii) The dispute or difference should be between employers
and employers, or between employers and workmen or be-
tween workmen and workmen;
E
(iii) The dispute or difference must be connected with the
employment or non-employment or the terms of employment
or with the conditions of labour, of any person.

The first part thus refers to the factum of a real and substantial
dispute, the second part to the parties to the dispute and the third F
to the subject-matter of the dispute. The contention of the learned
Solicitor-General is two-fold in this connection, namely, (i) that
there is no real or substantial dispute between the company and
the respondents and (ii) that the subject-matter of the dispute is
such that it cannot come within the terms of the definition in G
Section 2(k).

The first submission can be disposed of shortly. There is un-
doubtedly a real and substantial dispute. between the company and
the respondents on the question of the employment of contract-
labour for the work of the company. The fact that the respondents H
216 SUPREME COURT REPORTS [1995] SUPP. 1 S.C.R.

A who have raised this dispute are not employed on contract basis
will not make the dispute any the less a real or substantial dispute
between them and the company as to the manner in which the
work of the company should be carried on. The dispute in this
case is that the company should employ workmen directly and not
through contractors in carrying on its work and this dispute is
B
undoubtedly real and substantial even though the regular workmen
(i.e. the respondents) who have raised it are not employed on
contract labour. In Dimakuchi case to which reference has been
made, the dispute was relating to an employee of the tea estate
who was not a workmen. It was nevertheless held that this was a
c real and substantial dispute between the workmen and the com-
pany. How the work should be carried on is certainly a matter of
some importance to the workmen and in the circumstances it
cannot be said that this is not a real and substantial dispute
between the company and its workmen. Thus out of three in-
gredients of Section 2 (k) the first is satisfied; the second also is
D
satisfied because the dispute is between the company and the
respondents; it is the third ingredient which really calls for deter-
mination in the light of the decision in Dimakuchi case.

Section 2(k), as it is worded, would allow workmen of a par-
E ticular employer to raise a dispute connected with the employment
or non-employment, or the terms of employment or with the
conditions of labour of any person. It was this aspect of the matter
which was considered in Dimakuchi case and it was held that the
words "any person" used in Section 2(k) would not justify the
workmen of a particular employer to raise a dispute about any one
F
in the world, though the words "any person" in that provision may
not be equated with he words "any workman". The test therefore
to be applied in determining the scope of the words "any person"
in Section 2(k) was stated in the following words at pp.1174-75:

G "If, therefore, the dispute is a collective dispute, the party
raising the dispute must have either a direct interest in the subject
matter of dispute or a substantial interest therein the sense that
the class to which the aggrieved party belongs is substantially
affected thereby. It is the community of interest of the class as a
H whole-class of employers or class of workmen-which furnishes the
GUJ. ELECTRICITY BOARD v. HIND MAZDOOR SABHA [SAWANT, J.] 217

real nexus between the dispute and the parties to the dispute. We A
see no insuperable difficulty in the practical application of this test.
In a case where the party to a dispute is composed of aggrieved
workmen themselves and the subject-matter of the dispute relates
to them or any of them, they clearly have a direct interest in the
dispute. Where, however, the party to the dispute also composed B
of workmen espouse the cause of another person whose employ-
ment or non-employment, etc., may prejudicially affect their inter-
est, the workmen have a substantial interest in the subject-matter
of dispute. In both such cases the dispute is an industrial dispute."

We have therefore to see whether the respondents who have C
raised this dispute have a direct interest in the subject-matter of
the dispute or. a substantial interest therein the sense that the class
to which the respondents belong is substantially affected thereby
and whether there is community of interest between the respon-
dents and those whose cause they have espoused. There can be no D
doubt that there is community of interest in this case between the
respondents and the workmen of Ramji Gordhan and Company.
They belong to the same class and they do the work of the same
employer and it is possible for the company to give the relief which
the respondents are claiming. The respondents have in our opinion E
also a substantial interest in the subject-matter of the dispute,
namely, the abolition of the contract system in doing work of this
kind. The learned Solicitor-General particularly emphasised that
there was no question of the interest of the respondents being
prejudicially affected by the employment or non-employment or F
the terms of service or conditions of labour of the workmen of
Rarnji Gordhan and Company and placed reliance on the words
"may prejudicially affect their interest" appearing in the observa-
tions quoted above. We may, however, mention that the test laid
down is that the workmen espousing the cause should have a
substantial interest iri the subject-matter of the dispute, and it was G
only when illustrating the practical application of the test that this
Court used the words "may prejudicially affect their inter.est".
Besides it is contended by Mr. Gokhale for the respondents that
even if prejudicial effect on the interest of the workmen espousing
the cause is necessary, this is a case where the respondents' interest H
218 SUPREME COURT REPORTS [1995] SUPP.1 S.C.R.

A may be prejudicially affected in future in case the contract system
of work is allowed to prevail in this branch of the work of the
company. He submits that if the company can carry on this part
of the work by contract system it may introduce the same system
in other branches of its work which are now being done by its
B regular workmen. We do not think it necessary to go into this
aspect of the matter as we have already indicated that prejudicial
effect is only one of the illustrations of the practical application of
the test laid down in Dimakuchi case, viz., substantial interest in
the sense that the class to which the aggrieved party belongs is
substantially affected thereby. It seems to us therefore that the
c respondents have a community of interest with the workmen of
Ramji Gordhan and Company who are in effect working for the
same employer. They have also a substantial interest in the sub-
ject-matter of the dispute in the sense that the class to which they
belong (namely, workmen) is substantially affected thereby. Finally ..
D the company can give relief in the matter. We are therefore of
opinion that ail the ingredients of Section 2(k) as interpreted in ·
Dimakuchi case are present in this case and the dispute between
the parties is an industrial dispute and the reference was com-
petent.11
E
17. In view of the aforesaid decision, it cannot be and was not
disputed before us that the direct workmen of the principal employer can
espouse an industrial dispute for absorption of the contractor's workmen
and the industrial adjudicator will have jurisdiction to entertain such
F dispute and grant the necessary relief. The answer to the last question, viz.,
who can raise an industrial dispute for the purpose of absorption of the
contractor's labour in the principal establishment is, therefore, as follows :

If the workmen of the so called contractor allege that in fact the con-
tract is sham and they are in fact the workmen ofthe principal employer, they
G may raise the dispute themselves not for abolition of the contract labour
system, but for making available to them the appropriate service conditions,
When such dispute is raised, it is not for abolition of the contract labour, but
for a declaration that the workmen concerned are in fact the employees of
the principal employer, and for consequential reliefs on such declaration. If,
H however, the contract is genuine, the direct workmen of the principal
GUJ. ELECTRICITY BOARD v. HIND MAZDOOR SABHA [SAWANT, J.] 219

employer may espouse the industrial dispute for abolition of the contract A
labour system and for absorption of the contractor's workmen as the direct
workmen of the principal employer. When such dispute is raised by the
direct workmen of the principal employer, the industrial adjudicator can
entertain the reference; but in view of the provisions of Section 10 of the Act,
he will have first to direct the woi;kmen to approach the appropriate Govern- B
ment for considering the question as to whether the contract labour in ques-
tion should or should not be abolished under the said provisions. If, on such
reference being made by the workmen, the appropriate Government does
not abolish the contract labour, the industrial adjudicator has to reject the
rererence since the jurisdiction to abolish the contract is exclusively vested in
the appropriate Government and he has no jurisdiction to adjudicate the C
dispute. However, if the appropriate Government abolishes the contract
labour, the industrial adjudicator can proceed to decide (i) as to whether the
erstwhile contract labour should be absorbed in the principal establishment;
(ii) if so, to what extent and (iii) on what terms. The decision on the points,
will have to be given by him by giving opportunity to the parties to lead the D.
necessary evidence.

18. Our conclusions and answers to the questions raised are, there-
fore, as follows :

(i) In view of the the provisions of Section 10 of the Act, it is only E
appropriate Government which has the authority to abolish
genuine labour contract in accordance with the provisions of the
said Section. No Court including the industrial adjudicator has
jurisdiction to do so.
F
(ii) if the contract is sham or not genuine, the workmen of the so
called contractor can raise an industrial dispute for declaring that
they were always the employees of the principal employer and
.· for claiming the appropriate service conditions. When such dis-
pute is raised, it is not a dispute for abolition of the labour G
contract and hence the provisions of Section 10 of the Act will
not bar either the raising or the adjudication of the dispute. When
such dispute is raised, the industrial adjudicator has to decide
whether the contract is sham or genuine. It is only if the ad-
judicator comes to the conclusion that the contract is sham, that
he will have jurisdiction to adjudicate the dispute. If, however, H
220 SUPREME COURT REPORTS [1995] SUPP. 1 S.C.R.

A he comes to the conclusion that the contract is genuine, he may
refer the workmen to the appropriate Government for abolition
of the contract labour under Section 10 of the Act and keep the
dispute pending. However, he can do so ifthe dispute is espoused
by the direct workmen of the principal employer. If the workmen
of the principal employer have not espoused the dispute, the
B adjudicator, after coming to the conclusion that the contract is
genuine, has to reject the reference, the dispute being not an
industrial dispute within the meaning of Section 2 (k) of the ID
Act. He will not be competent to give any relief to the workmen
of the erstwhile contractor even if the labour contract is abolished
c by the appropriate Government under Section 10 of the Act.

(iii) If the labour contract is genuine a composite industrial dispute
can still be raised for abolition of the contract labour and their
absorption. However, the dispute, will have to be raised invariab-
ly by the direct employees of the principal employer. The in-
D dustrial adjudicator, after receipt of the reference of such dispute
will have first to direct t)le workmen to approach the appropriate
Government for abolition of the contract labour under Section
10 of the Act and keep the reference pending. If pursuant to
such reference, the contract labour is abolished by the ap-
E propriate Government, the industrial adjudicator will have to give
opportunity to the parties to place the necessary material before
him to decide whether the workmen of the erstwhile contractor
should be directed to be absorbed by the principal employer,
how many of them and on what terms. If, however, the contract
labour is not abolished, the industrial adjudicator has to reject
F
the reference.

(iv) Even after the contract labour system is abolished, the direct
employees of the principal employer can raise an industrial -.
dispute for absorption of the ex-contractor's workmen and the
G adjudicator on the material placed before him can decide as to
who and how many of the workmen should be absorbed and on
what terms.

19. It is in the light of the above position of law which emerges from
H the provisions of the Act and the judicial decisions on the subject that we
GUJ. ELECTRICITY BOARDv. HINDMAZDOORSABHA [SAWANf,J.] 221

have to answer the contentio.ns raised in different civil appeals before us. A
As regards the present civil appeals, the facts of which have already been
referred to earlier, Shri Venugopal, the learned counsel for the appellant-
Board contended that none of the direct workmen of the Board had
espoused the cause of the contract labour and hence the Tribunal had no
jurisdiction to entertain the reference. He also submitted that any amount B
of consent by the appellant-Board for such a reference will not confer
jurisdiction on the Tribunal to entertain the reference.

As has been pointed out earlier, the order of reference of the dispute
to the Tribunal was made by the State Government on the basis of a joint
application for reference under Section 10(2) of the ID Act. The applica- C
tion was duly signed by the present appellant-Board, all the seven contrac-
tors involved in the dispute and by the then Surat Labour Union which had
both direct as well as contract labourers, as its members. The respondent-
union is the successor of the said Surat Labour Union. These facts show
two things, viz., that contrary to the submission made by the learned D
counsel, the direct employees of the Board had espoused the cause of the
contract labourers, and the appellant- Board had also accepted the fact
that the dispute in question was raised and supported also by the said
employees. No objection was taken before the Tribunal or the High Court
either to the order of reference or to the adjudication of the dispute by the
Tribunal that the dispute was not espoused by the direct employees of the E
appellant-Board. This would also show that the fact that the dispute was
espoused by the direct employees of the Board was accepted by the Board
and never questioned till this date. Apart from the fact, therefore, that the
Board had signed the joint application for reference and therefore it
cannot in an appeal by special leave under Article 136 of the Constitution F
for the first time raise the question which is a mixed question of law and
fact, we are of the view that even on facts as they stand, it will have to be
held that the dispute was in fact espoused by the direct employees of the
appellant-Board. We therefore reject the said contention.

20. It was next contended that the dispute raised by the workmen was G
for abolition of the contract and such a dispute could not have been
entertained by the Tribunal in view of the provisions of Section 10 of the
Act. For this purpose, the learned counsel relied upon clause (1) of the
order of Reference. We find nothing in the said clause which supports the
contention of the learned counsel. The clause reads as follows : H
222 SUPREME COURT REPORTS (1995] SUPP. 1 S.C.R.

A "whether the workers whose services are engaged by the con-
tractors, but who are working in the Thermal Power Station of
Gujarat Electricity Board at Ukai, can legally claim to be the
employees of the Gujarat Electricity Board?"

B It will be obvious from a reading of the said clause that what in fact
is referred for adjudication is the determination of the status of the
workmen, viz., whether though engaged by the contractors, they are legally
the workmen of the appellant-Board? In other words, implicit in the said
clause is the assertion of the workmen that they are in law the workmen of
the appellant-Board and not of the contractors, and they wanted the
C Tribunal to decide their exact legal status. This is clear from also the
statement of claim filed by the workmen in support of their demand. In
paragraph 3 of the statement of claim, it is averred that the Board has been
employing Mukadam supervisors "who are draped in different paper arran-
gements and are now known as contractors of the Thermal Power Station"
D and the Board and the so-called contractors have joined hands for mass
victimisation and termination of services even without payment of due
,
wages. Again, in paragraph 5 of the statement of claim, it is stated that the
workmen are being paid wages by the management of the Board through
Mukadam supervisors now known as contractors of the Board. The con-
tractors come and go but the workmen are working throughout since the
E inception of the Thermal Power Station. The control, direction and initia-
tion of these workmen are in the hands of the supervisors and technical
staff of the Thermal Power Station. It is also alleged in the said paragraph
that the so-called contractors are not the contractors as none of them have
taken licence. It is also averred there that it is abundantly clear that the
F workmen employed to perform the permanent and perennial nature of
duties are the employees of the Board. In paragraph 10 of the statement
of claim, it is prayed that the Tribunal should hold and declare that the
workers deployed in the Thermal Power Station under the garb of contrac-
tor are the permanent employees of the Thermal Power Station managed
and controlled by the appellant-Board". In paragraph 6 of the application
G for interim relief which was filed on behalf of the workmen, it was averred
that the Board was through different agreements showing the workmen as
if they were working under some intermediaries and the said intermediaries
are !!make-believe trappings11 and are 11dubious 11 in nature and it was only
to deprive the workmen of the benefits which are available to the
H employees of the Board that the said "make-believe trappings" were
'· GUJ. ELECIBICITYBOARDv. HIND MAZDOORSABHA [SAWANT,J.] 223

employed by the Board. It is therefore not correct to say that the present A
reference was for the abolition of the contract. The reference on the other
hand, was for a declaration that the workmen were in fact and in law the
employees of the appellant-Board and that they should be given the service
conditions as are available to the direct employees of the Board.

B
It was then contended by the learned counsel that the Industrial
Tribunal has nowhere recorded a finding that the contract in question was
sham, camouflage, make-believe or a subterfuge. On the contrary, accord-
ing to him, the Tribunal has held that the contract labour of each of the
contractors must be deemed to be the employees of the appellant-Board,
firstly because the Board and the contractors had not produced valid proof C
of the registration certificate and the licences respectively, relying on the
decisions of the Madras and Karnataka High Courts, and secondly, be-
cause of the nature of the work. He submitted that the decisions of the
Madras and Karnataka High Courts have been expressly overruled by this
Court in Dena Nath case [supra]. As regards the nature of work, the D
exclusive jurisdiction to record a finding in that behalf is of the appropriate
Government under Section 10 of the Act and the Tribunal is precluded
from recording a finding in that behalf and abolishing the contract on the
basis of such finding. In fact, the Tribunal has no jurisdiction to abolish the
contract.
E
In the first instance, we find that the contention that the Tribunal has
held that the workmen in question are the employees of the Board only
because of the non-production of the valid proof of the certificate and the
licences in question, is not correct. The Tribunal has, on the basis of the
evidence on record, come to the conclusions, among others, that (i) the F
work was being done on the premises of the Board itself as the coal was
being used for the purposes of the Board, viz., generation of electricity; (ii)
the workmen were broadly under the control of the Board; (iii) there was
overall supervision of the work by the officers of the Board; (iv) the work
was of a continuous nature and (v) the work was an integral part of the G
overall work to be executed for the purposes of the generation of the
electricity and that it had to be performed within specified time limits as
part of the integrated process. The Tribunal has also in this connection
referred to a decision of this Court reported in Hussainbhai, Calicut case
[1978] 4 sec 257 to support its conclusion that in the aforesaid circumstan-
ces found by it, the workmen in question were the employees of the Board. H
224 SUPREME COURT REPORTS [1995] SUPP. 1 S.C.R. •.

A It is true that the Tribunal has not in so many words recorded a finding
that the contract was sham or bogus or a camouflage to conceal th~ real
facts. It is also true that the Tribunal has referred to the decisions of the
Madras and Karnataka High Courts and on its finding that the Board and
the contractors had not produced valid proof of the registration certificate
B and the licences for the relevant period has held that the workmen should
be deemed to be the employees of the Board. However, the decision of the
Tribunal has to be read as a whole. Thus read, the decision makes it clear
that the Tribunal has based its conclusion both on the ground that the
workmen were in fact engaged by the appellant-Board and not by the
contractors who were merely intermediaries set up by the Board and also
C on the ground that there was no valid proof of the registration certificate
and the licences in the possession of the Board and the contractors
respectively. It is not, therefore, correct to say that the decision of the
Tribunal is based only on the latter ground. We are of the view that there
is a factual finding recorded by the Tribunal that the labour contracts in
D question were not genuine and the decision of the Tribunal is based on this
ground as well.

It is also not correct to say that to arrive at the finding as to whether
the labour contracts are genuine or not, the Court or the industrial ad-
judicator cannot investigate the factors mentioned in Section 2 (a) to (d)
E of Section 10(2) of the Act. The explanation to Section 10(2) makes the
decision of the appropriate Government final only on the question whether
the process or operation or the work in question is of a perennial nature
or not, and that too when a dispute arises with regard to the same. If no
such question arises, the finding recorded by the Court or the Tribunal in
F that behalf is not ineffective or invalid. Further, in all such cases, the
Tribunal is called upon to record a finding on the factors in question not
for abolishing the contract but to find out whether the contract is sham or
otherwise. The contract may be genuine even where all the said factors are _
present. What is prohibited by Section 10 is the abolition of the contract
except by the appropriate Government, after taking into consideration the
G said factors, and not the recording of the finding on the basis of the said
factors, that the contract is sham or bogus.

21. The next contention of the learned counsel that the reference with
regard to he abolition of the contract labour was not maintainable after the
H coming into force of the Act has been sufficiently answered by us earlier
GUJ. ELECfRICITY BOARD v. HIND MAZDOOR SABHA [SAWANT, J.J 225

while discussing and recording our conclusions on the position of law in A
that behalf. Even on facts, we have pointed out that the present reference
was not for the abolition of contract labour but for a declaration that the
workmen were in law the employees of the appellant- Board. The industrial
adjudicator has undoubtedly no jurisdiction to abolish a genuine labour
contract in view of the provisions of Section 10 of the Act. However, it is B
not correct to say that the reference for the abolition of the contract, itself
stands barred. It is the terms of the reference which will determine the
jurisdiction of the industrial adjudicator to entertain and decide the refer-
ence. The dispute as to whether the labour contract is genuine or not can
be agitated by the workmen and the industrial adjudicator has jurisdiction
to examine the controversy. If the contract is held to be genuine, the C
dispute if it is espoused by the direct workmen of the principal employer
can be kept pending by the industrial adjudicator and the workmen may
be referred by him to the appropriate Government for the abolition of the
contract. If the appropriate Government abolishes the contract, the in-
dustrial adjudicator can thereafter grant further relief, if claimed, viz., of D
the absorption of the workmen of the erstwhile contractor in the principal
establishment. If, however, the appropriate Governn1ent does not abolish
the contract, the industrial adjudicator may reject the reference, as stated
earlier. It is not, therefore, correct to say that the reference of an industrial
dispute seeking to abolish the contract is per se barred, as contended by
the learned counsel. E

22. It was also contended by him that the industrial Tribunal cannot
make recruitment and create contract against third parties, and for this
purpose, reliance was placed by him on the decisions reported in Indian
General Navigation and Railway Company Ltd. & Anr. v. Their Workmen, F
{1966) 1 LU 735; Krishna Kurup v. General Manager, Gujarat, Refinery,
Baroda, [1986] 4 SCC 375 and Gurmail Singh & Ors. v. State of Punjab &
Ors., [1991] 1SCC189.

In Indian General Navigation and Railway Company Ltd. and Anr. v.
Their Workmen (supra), the facts were that the appellant company carried G
on business of Inland Water Transport in north-east India between various
river stations in Bengal and Assam and for this purpose, it maintained a
number of ghats or stations on the river Brahmaputra in Assam. The
company did not employ any workmen at any of the river stations for the
work of cargo-handling and left all such work to be carried on by different H
226 SUPREME COURT REPORTS [1995] SUPP. 1 S.C.R.

A handling contractors. On 3rd May, 1954, an agreement was entered into
between the company and its allied companies on the one hand and the
Indian National Trade Union Congress (INTUC) on the other. The·agree-
ment was that a tripartite conference would be held later to decide the
question of direct employment of workmen by the company. The said
B conference was held on 9th and 10th May, 1954 at which the company
agreed that it would progressively introduce the system of direct employ-
ment of labour in all transshipment ghats in Assam. Accordingly, direct
labour was employed by the company in some of the major ghats, but in
the smaller ghats the old contract labour continued. On 29th April, 1957,
a conciliation meeting was held to consider the demand made by the
C Sibsagar Transhipment Labour Union for direct employment of workmen
at three minor ghats. No decision was, however, reached and the contract
labour continued to work at the said ghats. Another tripartite meeting was
held on 10th November, 1959 and it was then agreed that the company
would employ direct labour in all the ghats on or before 1st April, 1960.
D Meanwhile, a material change in the circumstances of the company's
working took place in one sector of its operation. The company made
arrangements to open a ghat in May, 1960 as an all-the-year-round main·
line ghat replacing the current feeder service operation. This step repre·
sentcd a major advance in the improvement of transport facilities and also
E led to the closure of one of the ghats on 17th May, 1960. As a result, 56
workmen involved in the dispute in the appeal before the Court, came to .
be discharged by the payment of one month's basic pay. On these facts,
the dispute raised was whether the termination of the services of the 56
workmen was justified and whether they were entitled to reinstatement with
F continuity of service and full wages. It was contended by the company that
the said workmen were not its employees, and in the alternative, the ,
termination of the services of the workmen being the result of the closure
of the ghat in question, they were not entitled to any relief. The Industrial
Tribunal had made inconsistent findings. It had held that the relationship
of master and servant had been proved between the company and the
G workmen in question but had also added that no direct employment was
introduced, as was agreed to in the tripartite meeting held on 10th Novem-
ber, 1959. The Industrial Tribunal had found that the workmen in question
were the employees of the company and had also found that the closure
was bona fide and real and each of the workmen was entitled to compen-
H sation under sub-section (1) of Section 25FFF of the ID Act. On these
GUJ. ELECfRICITY BOARD v. HIND MAZDOORSABHA [SAWANf, J.] 227

facts, the Court held that the company had not directly employed the A
workmen at all and it is the contract labour which used lo work for the
company at the ghat in question. The Court further found that though the
company had guaranteed the payment at the prescribed rate to these
workmen and in that sense had undertaken the liability to pay that money
at that rate, the record showed that the money was paid to the contractor B
and the contractor paid it to the workmen from month to month until the
ghat in question was closed. Even one month's basic pay which was paid
to the workmen for retrenching them was paid to them through the
contractor. The Court, therefore, held that the Tribunal was in error in
coming to the conclusion that the workmen in question had been employed
by the company. The company was not the employer of the workmen in C
question and hence the Tribunal could give them no relief. The workmen
had claim, if any, against the contractor who was their employer.

In Krishna Kurnp v. General Manager, Gujarat Refinery, Baroda,
(supra), out of 187 workmen, whose s~rvices had been terminated by the D
respondent-company by an oral order, 105 employees, in respect of whom
the Gujarat High Court had recorded a finding for their absorption subject
to scrutiny, were absorbed by the company, pending the special leave
petition before this Court. Special leave was, therefore, granted for the
remaining the 82 workmen. The Court by its order of 16th January, 1986
directed the Labour Commissioner to enquire into as to whether hey could E
be considered to be the employees of the company having regard to the
nature of their employment, the period for which they had been employed
off and on and all other relevant factors. The Commissioner found that the
82 workmen were not the employees of the company, but were contract
labourers employed by the contractor. These findings were challenged on F
behalf of the workmen, and this Court accepted the said findings holding
that the appellant had failed to prove that the workmen in question were
direct employees of the company. The Court also observed that it was
difficult to decide for the Court whether 82 workmen were doing the same
work as was being done by the 105 workmen who were absorbed by the
company. The Court also relied upon the affidavit filed on behalf of the G
company that it had not been able to provide work to all 105 workmen who
were absorbed, and only 22 of them had been allotted work and the rest
83 had not been assigned any work whatsoever. The Court, therefore, held
that it would not be justified in directing the company to absorb the 82
workmen and dismissed the appeal. H
228 SUPREME COURT REPORTS [1995] SUPP. 1 S.C.R.

A In Gurmail Sin!fi & Ors. v. State of Punjab & Ors. (supra), the
appellants were in service as Tubewell Operators in the Irrigation Branch
of the Public Works Department of the Punjab State. The State took a
decision to transfer all the tubcwclls in the said Branch to the Punjab State
Tubewell Corporation, a company wholly owned and managed by the State
B of Punjab. Accordingly, the appellants were served with a notice on August
31, 1982, in terms of Section 25-F of the ID Act, terminating their services
with effect from November 30, 1982 and on that date a notification was
issued, abolishing the posts sanctioned for the Tubewell Circle, Irrigation
Branch with effect from March 1, 1983. The appellants, inter alia, con-
tended that in case the action of the Stale was upheld, the respondent
C company should be held to be under an obligation to employ the appellants
with continuity of service and under the same terms and conditions which
they were enjoying prior to the retrenchment from the service of the Stale.
The appellants also contended that the notices did not fulfill the require-
ments of clauses (b) and (c) of Section 25-F of the ID Act. The principal
D question before the Court, however, was whether in the circumstances the
State was under an obligation to protect the terms and conditions of service
of the Tubewcll Operators and whether there cannot be situations in which
the Court or the industrial adjudicator should, in the interest of justice,
fairplay and industrial peace, hold the employees entitled to continuity with
the successor without being compelled to be satisfied with compensation
E from the predecessor. On these facts, the Court held as follows :

''Section 25FF provides that where there is a transfer of an
undertaking by agreement or operation of law, an employee who
loses his job because of such transfer will have a right to compen-
F sation from the predecessor, except where he gets the benefit of
uninterrupted service with the new employer on no less favourable
terms than before and will be entitled to compensation in case he
should be retrenched later by the new employer. If a transfer is
fictitious or benami, Section 25-FF has no application at all. In
such a case, "there has been no change of ownership or manage-
G ment and despite an apparent transfer, the transferor employer
continues to be the real employer and there has to be continuity
of service under the same terms and conditions of service as before
and there can be no question of compensation". A second type of
cases is one in which there is in form, and perhaps also in law, a
H succession but the management continues to be in the hands of
GUJ. ELECIBICITYBOARDv. HINDMAZDOORSABHA[SAWANT.J.] '229

the same set of persons organised differently. In such cases, the A
transferee and transferor are virtually the same and the overriding
principle should be that no one should be able to frustrate the
intent and purpose of the law by drawing a corporate veil across
the eyes of the court Though these exceptions to the above rules
would still be operative, it is not necessary here to decide whether B
this principle will help to identify the transferee corporation with
the State Government for the present purposes, particularly as
there is a catena of cases which do not approve of such identifica-
tion. A third category of cases falling as an exception to the
principle behind Section 25-FF is where, as here, the transferor
and/or transferee is a State or a State instrumentality, which is C
required to act fairly and not arbitrarily and the court has a say as
to whether the terms and conditions on which it proposes to hand
over or take over an industrial undertaking embody the requisite
of "fairness in action" and could be upheld. In such circumstances,
it will be open to the Court to review overall aspects of transfer D
of the undertaking and the arrangement between the State Govern-
ment and the Corporation and to issue appropriate directions that
no injustice results from the changeover. Such directions could be
issued even if the elements of the transfer in the present case fall
short of a complete succession to the business or undertaking of
the State by the Corporation, as the principle sought to be applied E
is a constitutional principle flowing from the contours of Article
14 which the State and Corporation are obliged to adhere to.

x x x x x x x
F
x x x x x x x

Looking at the facts of this case in the above perspective, it
appears that the State Government has acted arbitrarily towards
the appellants. It has abridged the the rights of the appellants by G
purporting to transfer only the tubewells and retrenched the ap-
pellants from service as a consequence. The conduct of the govern-
ment in depriving the appellants of substantial benefits which have
accrued to them as a result of their long service with the govern-
ment, although the tubewells continue to be run at its cost by the
Corporation wholly owned by it, is something which is grossly H
230 SUPREME COURT REPORTS [1995] SUPP. 1 S.C.R.

A unfair and inequitable."

Holding thus, the Court directed the absorption of the workmen by
the Corporation, and granted them the benefit of their service with the
Government for the purposes of the computation of their salary, length of
B service and retirement benefits, but denied them the benefit to claim the
seniority over the employees of the Corporation engaged, since its com-
mencement in 1970. The Court further directed that the Corporation
should ensure that the workmen were not retrenched as surplus on account
of any close of any tubewells or other like reason until they retired or left
the service of the Corporation voluntarily for any reason.
c
Thus, it would be seen that these three decisions have not in any way
diluted the propositions of law laid down by this Court in Dimakuchi and
Standard Vacuum (supra), where the Court has approved of the jurisdic-
tion of the Tribunal to direct the principal employer to absorb the workmen
D of the erstwhile contractor as his direct employees depending upon the
satisfaction of the factors laid down therein and on terms that the Tribunal
on the basis of the material before it, may deem fit to fix in the circumstan-
ces of the case.

It is also not correct to say that the Act is a complete Code by itself
E and, therefore, the industrial Tribunal has no jurisdiction to give a direction
to the principal employer to absorb the workmen in question. We have
already pointed out that the Act is silent on the question of the status of
the workmen of the erstwhile contractor once the contract is abolished by
the appropriate Government. Hence, as far as the question of deterrnina-
F tion of the status of the workmen is concerned, it remains open for decision
by the industrial adjudicator. There is nothing in the Act which can be
construed to have deprived the industrial adjudicator of the jurisdiction to
determine the same. So long as, therefore, the said jurisdiction has not been
taken away from the industrial adjudicator by any express provision of the
Act or of any other statute, it will have to be held that the said jurisdiction
G which, as pointed out above, has been recognised even by the decisions in
Dimakuchi and Standard Vacuum cases (supra) continues to exist. In the
exercise of the said jurisdiction, the industrial adjudicator can certainly
make a contract between the workmen of the ex-contractor and the prin-
cipal employer and direct the principal employer to absorb such of them
H and on such terms as the adjudicator may determine in the facts of each
GUJ. ELECTRICITY BOARD v. HIND MAZDOOR SABHA [SAW ANf, J.] 231

case. We find nothing in the decisions relied upon on behalf of the A
appellant which goes counter to this proposition of law. The decisions in
Indian General Navigation and Railway Company Ltd., Krishna Kump and
Gurmail Singh (supra) on which reliance is place on behalf of the appellant
for the purpose, have already been discussed by us above. The only
additional decision which is pressed into service in this behalf is Sanghi B
leevaraj Ghewar Chand & Ors. v. Secretary, Madras Chillies, Grains Kirana
Merchants Workers' Union and Anr., (1969] 1 SCR 366. By a common
decision in this case, two appeals were decided by this Court. In one
appeal, the establishment employed less than 20 employees and it was not
a factory; in the other appeal, the establishment was in the public sector.
By reason of exclusion under Section 1(3) of the Payment of Bonus Act, C
1965, the establishment in the first appeal was excluded from the applica-
tion of that Act whereas by reason of exemption under Section 32(x), the
establishment in the other appeal stood exempted from the operation of
the said Act. On these facts, the question was whether the employees of
this two establishments could claim bonus de hors the Payment of Bonus D
Act and the Court held, considering the history of the legislation, the
background and the circumstances in which the Bonus Act was enacted,
and the object of the Act and its scheme, that the Act was an exhaustive
Act, dealing comprehensively with the subject matter of bonus in all its
aspects, and the Parliament had not left it open to those to whom the Act
did not apply, by reason of its provisions either as to exclusion or exemp- E
lion, to raise a dispute with regard to bonus through industrial adjudication
under the ID Act or other corresponding law. The ID Act itself did not
provide for a statutory right for payment of bonus although it had provided
substantial rights for workmen with regard to lay off, retrenchment com-
pensation etc. It will thus be clear that the right to bonus which was spelt F
out by the judicial decisions was expressly denied by the Bonus Act to the
workmen in the establishment concerned in that case, and yet the workmen
claimed the bonus on the basis of the alleged provisions of the ID Act. In
the present case, there is nothing in the Act, as pointed out earlier, which
has either expressly or impliedly taken away the raising of an industrial
dispute to absorb the ex-contractor's workmen in the principal estab- G
lishment when the dispute has been espoused by the direct workmen or
the jurisdiction of the Tribunal to give a direction for the purpose, of
course, on such terms as it deems fit in the circumstances of each case.

For all these reasons, we are unable to accept the contention that the H
232 SUPREME COURT REPORTS [1995) SUPP. 1 S.C.R.

A industrial adjudicator cannot direct the principal employer to engage ex-
contractors' workmen as direct employees.

23. It was then contended that the bulk of the contract labour was
engaged by the contractors in the process of unloading coal, and since the
year 1989 the process of unloading coal had been fully mechanised at the
B Ukai thermal Power Plant with which we are concerned and as such, no
labour was required in the process of the unloading of coal. For this
purpose, reliance was placed on the contents of the additional affidavit
filed by the Board during the hearing of the present appeal. We are
concerned in the present appeal with the award of the Tribunal dated 22nd
C February, 1988. If a situation has, thereafter, arisen where the workmen
directed to be employed by the award have become surplus, it is open for
the appellant-Board to retrench them in accordance with the provisions of
law. However, the situation in 1989 cannot be pressed into service to
negative the award of 1988 by which the dispute raised in 1982 was
adjudicated.
D
24. The last argument was that the appellant-Board has several other
thermal power plants in the State where certain type of work is done
through contract labour only by contractor and the present Thermal Power
plant is only one of them. Any decision in the present appeal will have,
E therefore, according to the Board serious repercussions in the other plants.
It is contended that this might also result in total break-down of the
functioning of the Board which would not be in the interest of the workers
as a class. To say the least, the argument is one in te"orem and has only
to be stated to be rejected. The Board has to manage its affairs according
to the provisions of law. The Courts cannot grant it exemption form the
F law on the ground that it will not be in an position to run its affairs.

For the above reasons, we confirm the decision of the High Court
and the award of the Tribunal and dismiss the appeal with costs.

G CA.5498-02 & 5503/95 @SLP(C) No. 9310-9314 and 9315 of 1991.
25. These appeals arise out of the decision of the High Court in a
writ petition filed by the appellant-Union under Article 226 of the Con-
stitution. In view of what we have held above, the decision of the High
Court that the workmen concerned do not become the direct employees
H of the respondent-enterprises merely because there are no registration
GUJ. ELECI'RICITY BOARD v. HIND MAZDOOR SABHA [SAWANT, J.] 233

certificates and licences with the respondent undertakings and the con- A
cerned contractors respectively, has to be upheld. The decisions relied
upon by Shri Mukhoty on behalf of the workmen, viz., D.S. Nakara & Ors.
v. Union of India, [1983] 1 SCC 305;Delhi Transport Corporation v. D. T.C.
Mazdoor Co,ngress, [1991] Suppl.1 SCC 600 and The State of Haryana v.
Piara Singh, [1992] 4 SCC 118 are inapplicable to the issues involved in B
these appeals.

The remedy of the workmen is to raise a proper industrial dispute
as indicated earlier for appropriate reliefs. If and when such dispute is
raised, the Government should make the reference within two months of
the receipt of the dispute and the industrial adjudicator should dispose of C
the same as far as possible within six months thereafter.

Civil Appeals are therefore dismissed but with no order as to costs.

CA. 5504/95
@S.L.P.(C) No. 13520 of 1991. D
26. In this case, the Labour Court has given relief of reinstatement
with back-wages to the workmen. There is no finding recorded by the Court
whether the industrial dispute was raised by the direct employees of the
appellant-Society and whether the labour contract was genuine or not. The
Labour Court has proceeded to grant the relief to the workmen only on E
the basis that the registration certificate and the licences under the Act
were not produced by the Society and the contractors concerned respec-
tively and, therefore, the workers should be deemed to be the employees
of the Society.

In view of what we have held above, the award of the Labour Court F
and the decision of the High Court are set aside. The workers are free to
raise a fresh proper industrial dispute and claim appropriate relief. If and
when such dispute is raised, the Government should make the reference
within two months of the receipt of the dispute and the industrial ad-
judicator should dispose of the same, as far as possible, within six months G
thereafter.

Civil appeal is, therefore, allowed but with no order as to costs.

27. While parting with these matters, we cannot help expressing our_
dismay over the fact that even the undertakings in the public sector have H
234 SUPREME COURT REPORTS [1995] SUPP. 1 S.C.R.

A been indulging in unfair labour practice by engaging contract labour when
workmen can be employed directly even according to the test laid down by
Section 10 (2) of the Act. The only ostensible purpose in engaging the ...
contract labour instead of the direct employees is the monetary advantage
by reducing the expenditure. Apart from the fact that it is an unfair labour
B practice, it is also an economically short-sighted and unsound policy, both
from the point of view of the undertaking concerned and the country as a
whole. The economic growth is not to be measured only in terms of
production and profits. It has to be gauged primarily in terms of employ-
ment and earnings of the people. Man has to be the focal point of
development. The attitude adopted by the undertakings is inconsistent with
C the need to reduce unemployment and the Government policy declared
from time to time, to give jobs to the unemployed. This is apart from the

D
mandate of the directive principles contained in Articles 38, 39, 41, 42, 43
and 47 of our Constitution. We, therefore, recommend that -

[a] all undertakings which are employing the contract labour sys-
tem in any process, operation or work which satisfies the factors
mentioned in clauses [a] to [d] of Section 10[2] of the Act, should
-
on their own, discontinue the contract labour and absorb as many
of the labour as is feasible as their direct employees;

[b] both the Central and the State Governments should appoint a
E
Committee to investigate the establishments in which the contract
labour is engaged and where on the basis of the criteria laid down
in clauses [a] to [d] of Section 10 [2] of the Act, the contract labour
system can be abolished and direct employment can be given to
the contract labour. The appropriate Government on its own
F should take initiative to abolish the labour contracts in the estab-
lishments concerned by following the procedure laid down under
the Act.

[c] the Central Government should amend the Act by incorporat-
ing a suitable provision to refer to the industrial adjudicator the
G
question of the direct employment of the workers of the ex-con-
tractor in the principal establishment, when the appropriate
Government abolishes the contract labour.

T.N.A. Appeals disposed of.

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