Holding

The respondents were not workmen; the agreements were genuine contract labour, no settlement existed, and the termination did not amount to retrenchment.

Summary

Mis Indian Drugs & Pharmaceuticals Ltd., a public sector undertaking, gave contract work to the widows and dependents of employees who died in harness after a union demand, without any compassionate appointment scheme. The contracts were later terminated in 1998 due to the company's severe financial distress, prompting the respondents to claim they were workmen entitled to regularisation and compensation. The Labour Court and the Uttar Pradesh High Court held that the respondents were workmen, that the termination amounted to retrenchment in violation of Section 6N of the UP Industrial Disputes Act, and that a settlement under Section 2(p) of the Industrial Disputes Act existed. The Supreme Court examined the nature of the agreements, the absence of any statutory scheme for compassionate appointments, and the company's financial condition, concluding that the contracts were genuine job contracts and no settlement existed. Consequently, the termination did not constitute retrenchment and the respondents could not be treated as workmen. The Court set aside the award of the Labour Court and the judgment of the High Court, allowing the appeals.

Issues considered

The nature of the engagement of widows/dependents on contract basis: whether they qualify as workmen under the Industrial Disputes Act, 1947.
Whether the termination of such contracts amounts to retrenchment prohibited by Section 6N of the Uttar Pradesh Industrial Disputes Act, 1947.
Whether a settlement under Section 2(p) of the Industrial Disputes Act and Rule 58 of the Industrial Disputes (Central) Rules, 1957, was effected in the 12‑8‑1988 meeting.
Whether compassionate appointment can be claimed as a statutory right in the absence of a specific rule or scheme.

Legislation cited

Industrial Disputes Act, 1947s. 18(1), s. 2(p), s. 6N
Industrial Disputes (Central) Rules, 1957s. Rule 58
Uttar Pradesh Industrial Disputes Act, 1947s. 6N

Subjects

compassionate appointmentcontract labourworkmen definitionretrenchmentindustrial disputepublic sector undertakingdie‑in‑harnessSection 6NIndustrial Disputes Actsettlement

Judgment

MIS. INDIAN DRUGS AND PHARMACEUTICALS LTD. A
v.
DEVKI DEVI AND ORS.

JULY 5, 2006

[ARIJIT PASAYAT AND TARUN CHATTERJEE, JJ.] B

Labour Laws:
(

Job contract-Several workers of a public sector company died in
harness-Company gave job work to their widows/dependants i.e. Respondents C
on contract basis-Language ofcontract clear and unambiguous-No material
to conclude that compassionate appointment had been given since Company
had no rule or scheme therefor-Consequently, Respondents cannot be
considered as workmen-Cessation of their work pursuant to subsequent
termination of the contracts by Company in view of financial stringency did D
not amount to retrenchment-UP. Industrial Disputes Act. 1947-Section 6N
and Sections 2(p) and 18(1) rlw Rule 58 of the Industrial Disputes (Central)
Rules, 1957.

Appellant is a public sector undertaking fully owned and controlled
by the Government of India. Several of its workers died in harness. The E
Workers' Union demanded employment for .the widows and dependants
of the deceased workmen i.e. the Respondents. Appellant agreed to
consider the claim sympathetically but later decided to give job work to
the Respondents on contract basis. Ten years later Appellant terminated
the contracts in view of financial stringency. Respondents raised industrial F
dispute. Labour Court passed award against the Appellant on the ground
that the Respondents were workmen and therefore entitled to be
regularised. It held that cessation of their work amounted to retrenchment
which was in violation of Section 6N of the UP Industrial Disputes Act,
1947. High Court upheld the award on grounds that the Respondents were
engaged pursuant to a settlement between the appellant and the Workers' G
union, and that what was projected by the Appellant as job contract is
nothing but employment given under dying in harness scheme. Hence the
present appeals.

Allowing the appeals, the Court
279 H
280 SUPREME COURT REPORTS (2006] SUPP. 3 S.C.R.

A HELD: 1.1. The claim of person concerned for appointment on
compassionate ground is based on the premise that he was dependant on
the deceased-employee. Strictly this claim cannot be upheld on the
touchstone of Article 14 or 116 of the Constitution. However, such claim is
considered as reasonable and permissible on the basis of sudden crisis
B occurring in the family of such employee who has served the State and
dies while in service. That is why it is necessary for the authorities to frame
rules, regulations or to issue such administrative orders which can stand
the test of Articles 14 and 16. Appointment on compassionate ground
cannot be claimed as a matiter of right. Die-in-harness scheme cannot be
made applicable to all types; of posts irrespective of the nature of service
C rendered by the deceased-employee. 1284-E-G]

1.2. As a rule in public: service appointment should be made strictly
on the basis of open invitation of applications and merit. The appointment
on compassionate ground is not another source of recruitment but merely
an exception to the aforesaild requirement taking into consideration the
D fact of the death of employee while in service leaving his family without
any means of livelihood. In such cases the object is to enable the family to
get over sudden financial cr1isis. But such appointments on compassionate
ground have to be made in accordance with the rules, regulations or
administrative instructions taking into considtration the financial
E condition of the family of the deceased. Undisputedly the appellant-
company does not have any rule or scheme for compassionate
appointment. 1285-A-C; 2841-D]

State of Haryana and Ors. v. Rani Devi & Anr., AIR (1996) SC 2445;
Life Insurance Corporation of India v. Asha Ramchandra Ambekar (Mrs.) and
p Anr., (1994) 2 SCC 718; Smt. Sushma Gosain and Ors. v. Union ofIndia and
Ors., (19189) 4 SCC 468; Umesh Kumar Nagpal v. State of Haryana and Ors.,
(1994] 4 SCC 138; Phoolwati (Smt.) v. Union of India and Ors., 11991] Supp.
2 SCC 689; Union of India and Ors. v. Bhagwan Singh, 11995] 6 SCC 476;
Director of Education (Secondary) and Anr. v. Pushpendra Kumar and Ors.,
11998) 5 SCC 192; State of U.P. and Ors. v. Paras Nath, 11998) 2 SCC 412;
G Commissioner of Public Instructions and Ors. v. K.R. Vishwanath, (2005] 7
SCC 206 and State of U.P. and Ors. v. Paras Nath, (1998] 2 SCC 412, relied
on.

OJ/leers and Supervisors ofIDPL v. Chairman and MD., IDPL and Ors.,
H 120031 6 sec 490, referred to.
INDIAN DRUGS AND PHARMACEUTICALS LTD.». DEVK.I DEVI [PASAYAT, J] 28 J
2.1. Additionally, in an earlier case decided by this Court, the A
financial condition of the Appellant company had been noted in detail. No
production is going on in the company since 1994. These are factors which
have been completely lost sight of by the Labour Court and the High
Court. Both the Labour Court and the High Court held that there was a
settlement arrived at in the meeting dated 12-8-1998. On bare reading of B
the minutes of the meeting, it is clear that there was in fact no settlement.
1286-D]

2.2. To provide sustenance to the family members of the deceased
workmen certain job works were given. The cost of the contract, the nature
of the work and the time allowed have been clearly indicated in each of C
the contracts. It also clearly indicates the number of persons who are to
be engaged for carrying out the job contract work. There was no material
before the Labour Court to conclude that the contract was not a job
contract and in fact employment had been given. There is no foundation
for such a conclusion. (286-H; 287-A(
D
3. Above being the position, the Labour Court and the High Court
were not justified in holding that the respondent in each case was a
workman and/or that there was retrenchment involved. (287-B]

CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 2992-3004 E
of 2003.

From the Judgment and Order 17.7.2002 of the High Court of Uttranchal
at Nainitial in C.W.M.P. No. 61 (MS)/2001, 62(MS), 65(MS), 66(MS),
67(MS), 68(MS), 69(MS), 71(MS), 72(MS), 73(MS), 75(MS), 76(MS) and
77(MS) of 2001. F
Rakesh Khanna, Anjana Gosain, Jahanvi Warah, Surya Kant and D.S.
Chauhan for the Appellant.

Parmanand Gaur (N.P.) and Gopal Prasad (NP) for the Respondent.
G
The Judgment of the Court was delivered by

ARIJIT PASAYAT, J. These appeals involve identical issues and are,
therefore, disposed of by this common judgment.

.. Appellant calls in question legality of the judgment rendered by a learned
Single Judg<! of the Uttaranchal High Court. Several writ petitions were filed
H
282 SUPREME COURT REPORTS [2006) SUPP. 3 S.C.R.

A by the appellant questioning correctness of the award dated 23.12.1999 holding
that respondent No.2 in the writ petitions (respondent No. I in each of these
appeals) were entitled to re-instatement and compensation of Rs.5,000/- with
litigation expenses of Rs.500/- each. It was held by the Labour Court that
there was clear violation of the provisions of Section 6-N of the U.P. Industrial
B Disputes Act, 1947 (in short the 'Act') as cessation of their work amounted
to retrenchment which was in violation of the aforesaid provision.

Background facts in a nutshell are as follows:

Mis Indian Drugs & Pharmaceuticals Limited (for short IDPL), the
C appellant, is a public undertaking fully owned and controlled by the
Government of India. It has one of its units at Virbhadra, Rishikesh, District
Dehraclun. Several workers of the unit died in harness leaving behind the
widows and families. The IDPL Workers' Union took up their cause and
other disputes in a meeting held on 12.8.I988. In the said meeting as item
No.3 the Union demanded that the widows/dependants of deceased employees
D should be giver. employment in the plant. Till such time the decision for their
employment is received from the corporate office, the management should
employ them as contract labour. The management agreed to consider the
Union's suggestion sympathetically.

E However, appellant decided to give work to them on contract basis by
appointing them as contractor for maintenance of office records, cleaning
and mopping of floors etc. on a consolidated amount. As contractors they
were liable to pay provident fund and other statutory liabilities for the labourers
engaged by them to carry out the contracts. The respondents were appointed
as contractors from time to time. After the meeting which was held on
F I2.8.1988 the Head Offic1~ vide letter dated 27.5.I998 took a decision that
contract labour arrangement should cease. It was also decided that in view of
financial stringencies it has been decided to dispense with system forthwith
and existing contractual agreements were to be reviewed.

With effect from 1.8.1998 contracts with the respondents were
G terminated. Respondents raised industrial dispute which was referred to the
Labour Court U.P. Dehradun who gave the award against the appellant-
company on the ground that the said respondents were the workmen and they
were: entitled to be regularized. It applied the principle of lifting the veil of
contract to find out the c:orrect position.
H
INDIAN DRUGS AND PHARMACEUTICALS LTD. v. DEVKIDEVI [PASA YAT, l] 283
·<
Against the said order, the appellant-company filed Writ Petitions which A
were dismissed on the ground that the minutes of the meeting dated 12.8.1988
was a settlement between the parties in terms of Section 2(p) of the Industrial
Disputes Act, 1947 (in short the 'ID Act') read with Rule 58 of the Industrial
Disputes (Central) Rules, 1957 (in short the 'Central Rules'). High Court
recorded a finding that the settlement between the employer and employees B
acquired a statutory status, as a resu It of which the job contractors cannot be
said to be contract labourers. In fact they are workmen in view of their
engagement. Therefore, the respondents cannot be said to be contract labourers
but were in reality workmen.

It was noted by the High Court that there was settlement arrived at C
between the management of the Rishikesh Unit of the appellant-company and
the office bearers of the Union and since the respondent in each appeal was
given employment in furtherance of the policy of the appellant-company,
they were workmen. The High Court noted that the employment was given
to the dependants/widows of the workmen who had died in harness. Since the D
engagement was pursuant to a settlement in terms of Section 2(p) of the ID
Act, it was binding on the parties to the agreement in terms of Section 18( I)
of the ID Act. It was noted that the Memorandum of Settlement was arrived
at in terms of Rule 58 of the Central Rules. What was projected by the
appellant, according to the High Court, as job contract is nothing but
employment given under dying in harness scheme. Accordingly, the Labour E
Court's award was upheld.

In support of the appeals, learned counsel for the appellant submitted
that the Labour Court and the High Court have clearly lost sight of various
relevant factors. The appellant is a sick company and is before Board of F
Industrial and Financial Reconstruction (in short 'BIFR') since 1992. There
is no rule or scheme for providing appointment on compassionate ground.
The appellant has never employed the concerned respondents on compassionate
ground and in any event the company was not in a position to employ such
persons. The bleak financial position of the company has been considered by
ttris Court in Officers & Supervisors of IDPL v. Chairman & M.D., IDPL and G
Ors., [2003] 6 SCC 490. Originally more than 6500 employees were employed
and out of them 6171 have taken retirement and only 421 employees are
working throughout the country. The appellant-company is not functional
and is trying to further reduce the number of employees. In the absence of
any rule or scheme for compassionate employment, no direction could have H
284 SUPREME COURT REPORTS [2006] SUPP. 3 S.C.R.

A been given by the Labour Court and the High Court erroneously held that
there was a settlement arrived at. The Minutes of the meeting dated 12.8.1988
clearly show that there was no settlement. On the other hand, the minutes
show that only demands of the Union and the agreement of the management
to consider the suggestions sympathetically were accorded. This cannot by
B · any stretch of imagination be considered a Memorandum of Settlement in
terms of Section 2(p) of the ID Act or Rule 58 of the Central Rules. The
Labour Court erroneously held that the labour contract given was in fact not
a contract but an appointment of the respondents as workmen. The language
of the contract is clear and unambiguous.

c In response, in the counter affidavit and the notes of submissions it has
been mentioned by learned counsel for the respondents that the orders of the
Labour Court and the High Court do not warrant interference. It is stated that
though contracts were purportedly entered into for all practical purposes, the
respondents were detained as employees by the appellant-company.
D The undisputed position is that the appellant-company does not have
any rule or scheme for compassionate appointment.

As was observed in State of Haryana and Ors. v. Rani Devi & Anr.,
AIR ( 1996) SC 2445, it need not be pointed out that the claim of person
E concerned for appointment on compassionate ground is based on the premise
that he was de;iendant on the deceased-employee. Strictly this claim cannot
be upheld on the touchstone of Article 14 or 16 of the Constitution of India.
However, such claim is considered as reasonable and permissible on the basis
of sudden crisis occurring in the family of such employee who has served the
F State and dies while in service. That is why it is necessary for the authorities
to frame rules, regulations or to issue such administrative orders which can
stand the test of Articles 14 and 16. Appointment on compassionate ground
cannot be claimed as a matter of right. Die-in harness Scheme cannot be
made applicable to all types of posts irrespective of the nature of service
rendered by the deceased-employee. In Rani Devi's case (supra) it was held
G that scheme regarding appointment on compassionate ground if extended to
all types of casual or ad hoc employees including those who worked as
apprentices cannot be justified on constitutional grounds. In life Insurance
Corporation of India v. Asha Ramchandra Ambekar (Mrs.) and Anr., [ 1994]
2 SCC 718, it was pointed out that High Courts and Administrative Tribunals
H cannot confer benediction impelled by sympathetic considerations to make
INDIAN DRUGS AND PHARMACEUTICALS LTD. r. DEVKI DEVi[PASA YAT, J.] 285
appointments on compassionate grounds when the regulations framed in respect A
thereof do not cover and contemplate such appointments. It was noted in
Umesh Kumar Nagpal v. State of Haryana and Ors., [1994] 4 SCC 138, that
as a rule in public service appointment should be made strictly on the basis
:· of open invitation of applications and merit. The appointment on compassionate
ground is not another source of recruitment but merely an exception to the
aforesaid requirement taking into consideration the fact of the death of B
employee while in service leaving his family without any means of livelihood.
In such cases the object is to enable the family to get over sudden financial
crisis. But such appointments on compassionate ground have to be made in
c accordance with the rules, regulations or administrative instructions taking
into consideration the financial condition of the family of the deceased. c
In Smt. Sushma Gosain and Ors. v. Union of India and Ors., [1989] 4
sec 468, it was observed that in all claims of appointment on compassionate
grounds, there should not be any delay in appointment. The purpose of
providing appointment on compassionate ground is to mitigate the hardship
due to death of the bread-earner in the family. Such appointments should, D
therefore, be provided immediately to redeem the family in distress. The fact
that the ward was a minor at the time of death of his father is no ground,
unless the scheme itself envisage specifically otherwise, to state that as and
when such minor becomes a major he can be appointed without any time
consciousness or limit. The above view was reiterated in Phoolwati (Smt.) v.
E
Union of India and Ors., [1991] Supp 2 SCC 689, and Union of India and
Ors. v. Bhagwan Singh, [1995] 6 SCC 476. In Director of Education
(Secondary~ and Anr. v. Pushpendra Kumar and Ors., [1998] 5 SCC 192, it
was observed that in matter of compassionate appointment there cannot be
insistence for a particular post.. Out of purely humanitarian consideration and
having regard to the fact that unless some source of livelihood is provided F
the family would not be able to make both ends meet, provisions are made
for giving appointment to one of the dependants of the deceased who may
be eligible for appointment. Care has, however, to be taken that provision for
ground of compassionate employment which is in the nature of an exception
to the general provisions does not unduly interfere with the right of those
other persons who are eligible for appointment to seek appointment against
G
,.... the post which would have been available, but for the provision enabling
appointment being made on compassionate grounds of the dependant of the
deceased-employee. As it is in the nature of exception to the general provisions
it cannot substitute the provision to which it is an exception and thereby
.., nullify the main provision by taking away completely the right conferred by H
286 SUPREME COURT REPORTS [2006) SUPP. 3 S.C.R.
J
A the main provision.
Jn State of U.P. and Ors. v. Paras Nath, [ 1998] 2 SCC 412, it was held
that the purpose of providing employment to the dependant of a Government
servant dying-in-harness in preference to anybody else is to mitigate hardship
caused to the family of the deceased on account of his unexpected death
B while in service. To alleviate the distress of the family, such appointments
are permissible on compassionate grounds provided there are Rules providing
for such appointments.

The above position was highlighted in Commissioner of Public
C Instructions and Ors. v. KR. Vishwanath, [2005] 7 SCC 206.

Additionally, in Offic:ers and Supervisors of IDPL 's case (supra) the
financial condition of the appellant company had been noted in detail. No
production is going on in tlhe company since 1994. These are factors which
have been completely lost sight of by the Labour Court and the High Court.
D Both the Labour Court and the High Court held that there was a settlement
arrived at in the meeting dated 12.8.1988. On bare reading of the minutes of
the meeting it is clear that there was in fact no settlement. The relevant
portion reads as follows:

"The Union demanded that the widows/dependants of deceased
E employees should be given employment in the plant as was done
earlier. They have written several letters in this regard but no fruitful
result has come out. The widows/dependants are waiting for
employment for the last 2 years and are at the verge of starvation. Till
such time, the dedsion for their employment is received from the
corporation office, the management should employ them as contract
F labour so that they may earn their bread and avoid starvation. Further,
the management should ensure payment of minimum wages. The
number of such needy widows/dependants of deceased employees is
about thirteen.

The management agreed to consider the Union suggestion
G sympathetically. On the request of Union the Management informed
that this will be done in a week's time."

To provide sustenance to the family members of the deceased workmen
certain job works were given. The agreements have been placed on record.
H The cost of the contract, the nature of the work and the time allowed have
INDIAN DRUGS AND PHARMACEUTICALS LTD.,._ DEVKI DEVI [PASA YAT,J.] 287

been clearly indicated in each of the contracts. It also clearly indicates the A
number of persons who are to be engaged for carrying out the job contract
work. There was no material before the Labour Court to conclude that the
contract was not a job contract and in fact employment had been given.
There is no foundation for such a conclusion.

Above being the P.osition, the Labour Court and the High Court were B
not justified in holding that the respondent in each case was a workman and/
or that there was retrenchment involved. The award of the Labour Court and
the judgment of the High Court are therefore set aside

The appeals are allowed but with no order as to costs.
c
B.B.B. Appeals allowed.