Holding

The appropriate Government is the Central Government only when the industry is carried on by or under its authority; the 1976 notification is invalid for procedural non‑compliance; and the CLRA Act does not provide for automatic absorption of contract labour upon prohibition.

Summary

The Supreme Court examined three questions: the meaning of "appropriate Government" under the Contract Labour (Regulation and Abolition) Act, 1970; the validity of the Central Government's 9 December 1976 notification prohibiting contract labour in Central Government companies; and whether such a prohibition automatically obliges the principal employer to absorb the contract labour as regular employees. The Court held that "appropriate Government" is determined by whether the industry is carried on by or under the authority of the Central Government, applying the pre‑1986 test before the amendment and the Industrial Disputes Act test thereafter. The 1976 notification was quashed prospectively for failing to comply with the procedural requirements of Section 10 of the Act, showing a lack of application of mind. The Court further ruled that the CLRA Act contains no provision, express or implied, for automatic absorption of contract labour upon issuance of a prohibition notification. Consequently, directions for absorption in earlier judgments, including Air India, were overruled. The appeals were allowed in part, confirming the State Government as the appropriate Government for certain establishments and setting aside orders directing absorption of contract labour.

Issues considered

What is the true import of the expression "appropriate Government" under Section 2(1)(a) of the Contract Labour (Regulation and Abolition) Act, 1970?
Whether the Central Government's notification dated 9 December 1976 issued under Section 10(1) of the Act is valid and applicable to all Central Government companies?
Does a valid prohibition notification under Section 10(1) of the Act automatically result in the absorption of contract labour as regular employees of the principal employer?

Legislation cited

Constitution of Indias. Article 12, s. Article 14, s. Article 23, s. Article 38, s. Article 39, s. Article 43A, s. Preamble
Contract Labour (Regulation and Abolition) Act, 1970s. 10, s. 1(4), s. 1(5), s. 16, s. 17, s. 18, s. 19, s. 20, s. 21, s. 2(1)(a), s. 2(1)(b), s. 2(1)(c), s. 2(1)(e), s. 2(1)(g), s. 2(1)(i), s. 22, s. 23, s. 24, s. 25, s. 7, s. 8, s. 9
Industrial Disputes Act, 1947s. Section 2(a)

Subjects

contract labourappropriate governmentautomatic absorptionprohibition notificationstatutory interpretationindustrial disputesmaster-servant relationshipcentral governmentstate governmentlabour law

Judgment

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

AUGUST 30, 2001
B
[B.N. KIRPAL, SYED SHAH MOHAMMED QUADRI, M.B. SHAH,
RUMA PAL AND K.G. BALAKRISHNAN, JJ.]

Contract Labour (Regulation and Abolition) Act, 1970 :
c
Sections 1(4) & (5), 2(1) (a) (Before and After 1986 Amendment) 2 (1)
fb) (c) (e) (g) & (i), 7 to 9, JO, 16 to 21 and 23 to 25.

Contract Labour (Regulation and Abolition) Rules, 1971 :

Rules 21 (2), 25(2) (VJ (a), 72 to 77, 81(3) 82(2) Forms LIL lll, JV. VJ, D
X!L XIV and llv.

'Appropriate Government'-Correct import of expression-Government
Company-Appropriate Government in respect of-Who is-Determination of
appropriate Government-Test laid down for pre-amendment and post- E
amendment period.

"Appropriate Government"-Expression 'Any Industry carried on by or
under the authority of the Central Government'-Scope and meaning of-Test
to determine whether an industry was being carried out under the authority
of Central Government laid down-The fact of being an instrumentality of p
State is not determinative in this regard.

Contract Labour-Central Government-Notification dated December
9, 1976 issued under Section 10(1)-Prohibition of employment of contract
labour under the Notification-Notification held invalid for non-compliance
with requirements o.f Section I 0-Held there was non-application of mind by G
Central Government-Notification quashed prospectively.

Contract labour-Absorption-Issue of a valid Notification prohibiting
contract labour-Effect of-Held provisions of Act neither expressly nor
impliedly provide for automatic absorption of contract labour on issuance of
343
H
344 SUPREME COURT REPORTS [2001 J SUPP. 2 S.C.R.

A a Notification-Position in this regard before and after enactment of the Ac/-
Discussed-Consequences ofprohibition Notification issued under Section I 0-
Discussed.

Constitution of India, 1950 : Articles 12, 14, 23, 38, 39, 43A and
Preamble.
B
State-Duty and obligation to improve the lot of the work force.

Industrial Disputes Act, 1947: Section 2(a)-Scope of-Object of Act.

Interpretation ofstatute-Duty ofCourt to give effect to clear and explicit
C language-Rule of literal interpretation-Distinction between public law and
private law-Held not relevant in regard to interpretation of statutes-
Applicability of Mischief Rule-Principle of liberal construction of beneficial
legislation-Applicability of

Public law-Private law-Distinction between-Held not relevant in
D regard to interpretation of statutes.

Labour law-Principles of contract law-Applicability to labour law.

Words and Phrases :

E 'Authority'-Meaning of-Jn the context a/Section 2(1) (a) of the Contract
Labour (Regulation and Abolition) Act, 1970.

In these appeals the following questions arose for consideration :

(i) What is the true and correct import of the expression 'appropriate
Government' as defined in clause (a) of sub-section (I) of Section 2 of the
F Contract Labour (Regulation and Abolition) Act, 1970;

(ii) Whether the Notification dated December 9, 1976 issued by the
Central Government under Section IO (I) of the C.L.R.A. Act prohibiting
employment of contract labour in all establishments of the Central
G Government companies is valid and applies to all Central Government
companies; and

(iii) Whether automatic absorption of contract labour, working in the
establishment of the principal employer as regular employees, follows on
issuance of a valid notification under Section 10(1) of the C.L.R.A. Acl,
H prohibiting the contract labour in the concerned establishment.
STEEL AUTHORITY OF INDIA LTD. 11. NA TI ON AL UNION WATER FRONT WORKERS 345
Disposing of the appeals, the Court A
HELD : 1. Clause (a) of sub-section (1) of Section 2 of the contract
Labour (Regulation and Abolition) Act, 1970 defines the expression
'appropriate Government'. This clause was substituted by the Contract
Labour (Regulation and Abolition) Amendment Act, 1986 with effect from
January 28, 1986. The phrase "any industry carried on by or under the B
authority of the Central Government" is a common factor in both the
unamended as well as the amended. definitions. 1364-E; 366-GJ

2. Before January 28, 1986 the determination of the question whether
Central Government or the State Government is the appi:opriate Government
in relation to an establishment, will depend, in view of the definition of the C
expression "appropriate Government" as it stood in the C.L.R.A. Act, on the
answer to a further question, is the industry under consideration carried on
by or under the authority of the Central Government or does it pertain to
any specified controlled industry; or the establishment of any railway,
cantonment board, major port, mine or oil field or the establishment of D
banking or insurance company ? If the answer is in the affirmative, the
Central Government will be the appropriate Government, otherwise in
relation to any other establishment the Government of the State in which that
other establishment is situated, will be the appropriate Government 1412-E-F]

3. After the said date in view of the new definition of that expression, E
the answer to the question has to be found in clause (a) of Section 2 of the
Industrial Disputes Act; if (i) the concerned Central Government company/
undertaking or any undertaking is included therein eo nomine, or (ii) any
industry is carried on (a) by or under the authority of the Central
Government, or (b) by railway company; or (c) by specified controlled
industry, then the Central Government will be the appropriate Government F
otherwise in relation to any other establishment, the Government of the State
in which that other establishment is situated, will be the appropriate
Government. [412-G-H, 413-A]

4. The key word in the expression 'under the authority of the Central G
Government' is 'authority'. This word is frequently used to express derivative
power; and in this sense, it may be used as meaning instructions, permission,
power delegated by one person to another, the result of the manifestations
by the former to the latter of the former's consent that the latter shall act for
him, authority in this sense has been similarly used as designating or meaning
an agency for the purpose of carrying out a state duty or function : some one H
346 SUPREME COURT REPORTS [2001] SUPP. 2 S.C.R.

A to whom by law a power has been given. It follows that the phrase "any _..,
industry carried on under the authority of the Central Government" implies
an industry which is carried on by virtue of, pursuant to, conferment of, grant
of, or delegation of power or permission by the Central Government to a
Central Government Company or other Government company/undertaking.

B (368-G, 369-Cj

Concise Oxford Dictionary; Black's Law Dictionary; Corp~ Juris Secundum
p.1290; Words and Phrases p.603, 606, 612 and 613, referred to.

5. The function of the Court is to interpret the statute to ascertain the
C intent of the legislature-Parliament. Where the language of the Statute is clear
and explicit the Court must give effect to it because in that case words of the
Statute unequivocally speak the intention of the legislature. This rule of literal
interpretation has to be adhered to and a provision in the Statute has to be
understood in its ordinary natural sense unless the Court finds that the
provision sought to be interpreted is vague or obscurely worded in which event
D the other principles of interpretation may be called in aid. A plain reading of
the phrase "any industry carried on by or under the authority of Central
Government" under interpretation, shows that it is lucid and clear. There is
no obscurity, no ambiguity and no abstruseness. Therefore, the words used
therein must be construed in their natural ordinary meaning as commonly
E understood. (366-H; 367-A]

6. For purposes of enforcement of fundamental rights guaranteed in
Part III of the Constitution the question whether a Government Company
or undertaking is 'State' within the meaning of Article 12 is germane. The
word 'State' is defined in Article 12. However, the fact of being instrumentality
of a Central/State Government or being 'State' within the meaning of Article
F 12 of the Constitution cannot be determinative of the question as to whether
an industry carried on by a Company/corporation or an instrumentality of
the Government is by or under the authority of the Central Government for
the purpose of or within the meaning of the definition of 'appropriate t-
-~
Government' in the Act. [369-E-F; ~72-D-E]
G
7. The definition of 'establishment' in the Act takes in its fold purely
private undertakings which cannot be brought within the meaning of Article
12 of the Constitution. In such a case how is 'appropriate Government'
determined for the purposes of C.L.RA. Act or Industrial Disputes Act ? The
criterion is whether an undertaking/instrumentality of Government is carrying
H on an industry under the authority of the Central Government and not
STEEL AUTHORITY OF INDIA LTD •·. NATIONAL UNION WATER FRONT WORKERS 347

·whether the undertaking is instrumentality or agency of the Government for A
purposes of Article 12 of the Constitution, be it of Central Government or
State Government. [372-H; 373-A-B]

Sukhdev Singh and Ors. v. Bhagatram Sardar Singh Raghuvanshi and Anr.,
[1975] 3 SCR 619; Ramanna Dayaram Shetty v. The international Airport
Authority of India and Ors., [1979] 3 SCR 1014; Managing Director U.P. B
Warehousing Corporation and Anr. v. Vinay Narayan Vajpayee, [1980) 2 SCR
773; Ajay Hasia etc. v. Khalid Mujib Sehravardi and Ors. etc., [1981] 2 SCR
79; Delhi Transport Corpn. v. D. TC. Mazdoor Congress and Ors., [1991) Suppl.
l SCC 600; Som Prakash Rakhi v. Union of India and Anr., [1981] l SCC 449;
Manmohan Singh Jaitla etc. v. Commr. Union Territory ofChandigarh and Ors. C
etc., (1984] Suppl. SCC 540; P.K. Ramachandra Iyer and Ors. etc. v. Union of
India and Ors. etc., [1984) 2 SCC 141; A.L.Kalra v. Project and Equipment Corpn.
of India Ltd, [1984) 3 SCC 316; Central Inland Water Transport Corpn. Ltd
and Anr. etc. v. Brojo Nath Ganguly and Anr. etc., [1986) 3 SCC 156; C. V. Raman
v. Management of Bank of India and Anr. etc., [1988) 3 SCC 105; Lucknow
Development Authority v. MK. Gupta, [1994] 1 SCC 243; Mis. Star Enterprises D
and Ors. v. City and Industrial Development Corpn. ofMaharashtra Ltd and Ors.
[1990[ 3 SCC 280; LIC of India and Anr. v. Consumer Education and Research
Centre and Ors., (1995] 5 SCC 482; G.B. Mahajan and Ors. v. Jalagaon
Municipal Council and Ors., [1991] 3 SCC 91, distinguished.

8. There cannot be any dispute that all the Central Government E
companies in question are not and cannot be equated to Central Government
though they may be 'State' within the meaning of Article 12 of the
Constitution. Being the instrumentality or agency of the Central Government
would not by itself amount to having the authority of the Central Government
to carry on that particular industry. The Central Government will be the , p
"appropriate Government" under the C.L.RA. Act and the 1.D. Act provided
the industry in question is carried on by a Central Government company/an
undertaking under the authority of the Central Government. Such an
authority may be conferred, either by a Statute or by virtue of relationship
of principal and agent or delegation of power. Where the authority, to carry
on any industry for or on behalfofthe Central Government, is conferred on G
the Government company/any undertaking by the Statute under which it is
created, no further question arises. Bilt, if it is not so, the question that arises
is whether there is any conferment of authority on the Government company/
any undertaking by the Central Government to carry on the industry in
question. This is a question of factand lias to be ascertained on the facts and H
348 SUPREME COURT REPORTS [2001] SUPP. 2 S.C.R.

A in the circumstances of each case. [373-C-G]

Heavy Engineering Mazdoor Union v. State of Bihar and Ors., (1969( I
SCC 765; Mis. Hindustan Aeronautics Ltd v. The Workmen and Ors., [1975) 4
SCC 679; Rashtriya Mill Mazdoor Sangh, Nagpur v. Model Mills, Nagpur and
Anr. [1984) Suppl. SCC 443 and Food Corpn. of India, Bombay and Ors. v.
B Transport and Dock Workers Union and Ors., [1999] 7 SCC 59, referred fo.

Air India Statutory Corpn. and Ors. v. United Labour Union and Ors.,
[1997] 9 sec 377, overruled prospectively.

9. The principle, while discharging public functions and duties the
C Government companies/corporations/societies which are instrumentalities or
agencies of the Government must be subjected to the same limitations in the
field of public law-Constitutional or administrative law-as the Government
itself, does not lead to the inference that they become agents of the Central/
State Government for all purposes so as to bind such Government for all their
acts, liabilities and obligations under various Central and/or State Acts or
D under private law. [372-C)

IO. The contention that in construing the provisions of the C.L.R.A. Act,
the principle of literal interpretation has to be discarded as it represents
common law approach applicable only to private law field and has no
relevance when tested on the anvil of Article 14, and instead the principle of
E public law interpretation should be adopted, cannot be accepted. To accept I
that contention would amount to abandoning a straight route and oft treaded
road in an attempt to create a pathway in a wilderness which can only lead
astray. This C~urt has not come across any principles of public law
interpretation as opposed to private law interpretation for interpreting a
statute either in any authoritative treatise on interpretation of statutes or in
F pronouncement of any court. However, there does exist a distinction between
the public law and private law. The divide between the public law and private
law is material in regard to the remedies which could be availed when
enforcing the rights, public or private, but not in regard to interpretation of
the statutes. [376-C, D, GI
G O'Reilly v. Mackman, 1983 (2) Appeal Cases 237 held inapplicable.
Lord Woolf, The Second Harry Street Lecture, referred to.
II. The definition of 'establishment' is given in Section 2(e) of the Act.
Reading the definition of 'establishment' the position that emerges is that
H before issuing a notification under Section 10(1) an appropriate Government
STEEL AUTHORITY OF INDIA LTD."· NATIONAL UNION WATER FRONT WORKERS 349

is required to : (i) consult the Central Board/State Board; (ii) consider the A
conditions of work and benefits provided for the contract labour and (iii) take
note of the factors such as mentioned in clauses (a) to (d) of sub-section (2) of
Section 10, with reference to any office or department of the Government or
local authority or any place where any industry, trade, business, manufacture
or occupation is carried on. (380-F-G]
B
12. A glance through the impugned notification, makes it manifest that
with effect from March 1, 1977, it prohibits employment of contract labour
for sweeping, cleaning, dusting and watching of buildings owned or occupied
by establishment in respect of which the appropriate Government under the
said Act is the Central Government. This clearly indicates that the Central C
Government had not adverted to any of the essentials, required under Section
10, except the requirement of consultation with the Central Advisory Board.
Consideration of the essential factors has to be in respect of each
establishment, whether individually or collectively, in respect of which
notification under sub-section I of Section 10 is proposed to be issued. The
impugned notification apart from being an omnibus notification does not D
reveal compliance with sub-section (2) of Section 10. This is exfacie contrary.
to the. postulates of Section 10 of the Act. Besides it also exhibits non- .
application of mind by the Central Government. Therefore, the impugned
notification dated December 9, 1976 issued by the Central Government cannot
be sustained. It is quashed prospectively, i.e. from the date of this judgment E
and subject to the clarification that on the basis of this judgment no order
passed or no action taken giving effect to the said notification on or before
the date of this judgment, shall be called in question in any tribunal-court
including a High Court if it has otherwise attained finality and/or it has been
implemented. (381-D-F; 413-E, F]

13. Neither Section 10 of the C.L.R.A. Act nor any other provision in
F
the Act, whether expressly or by necessary implication, provides for automatic
absorption of contract labour on issuing a notification by appropriate
Government under sub-section (1) of Section 10, prohibiting employment of
contract labour, in any process, operation or other work in any establishment.
Consequently the principal employer cannot be required to order absorption G
of the contract labour, working in the concerned establishment. (413-G]

14. On issuance of prohibitation notification under Section 10 of the
C.L.R.A. Act prohibiting employment of contract labour or otherwise, in an
industrial dispute brought before it by any contract labour in regard to
conditions of service, the industrial adjudicator will have to consider the H
350 SUPREME COURT REPORTS (2001) SUPP. 2 S.C.R.

A question whether the contractor has been interposed either on the ground of
having undertaken to produce any given result for the establishment or for
supply of contract labour for work of the establishment under a genuine
contract or is a mere ruse/camouflage to evade compliance of various
beneficial legislations so as to deprive the workers of the benefit thereunder.
If the contract is found to be not genuine but a mere camouflage, the so-called
B contract labour will have to be treated as employees of the principal employer
who shall be directed to regularise the services of the contract labour in the
concerned establishment subject to the conditions as may be specified by it
for that purpose in the light of para hereunder. (414-C-E]

C
.
15. If the contract is found to be genuine and prohibition notification
under Section 10(1) of the C.L.R.A. Act in respect of the concerned
establishment has been issued by the appropriate Government, prohibiting
employment of contract labour in any process, operation or other work of
any establishment and where in such process, operation or other work of the
establishment and the principal employer intends to employ regular workman
D he shall give preference to the erstwhile contract labour, if otherwise found
suitable and, if necessary, by relaxing the condition as to maximum age
appropriately taking into consideration the age of the workers at the time of
their initial employment by the contractor and also relaxing the condition as
to academic qualifications other than technical qualifications. [414-F-G]

E 16. The expression "industrial adjudicator" has been used by design
as determination of the questions aforementioned requires inquiry into
disputed questions of facts which cannot conveniently be made by High Courts
in exercise of Jurisdiction: under Article 226 of the Constitution. Therefore,
in such cases the appropriate authority to go into those issues will be industrial
F tribunal/court whose determination will be amenable to judicial review.
[414-H; 415-AJ

17. By definition the term 'contract labour's is a species of workman.
Where a workman is hired in or in connection with the work of an
establishment by the principal employer through a contractor, he merely acts
G as an agent so there will be master and servant relationship between the
principal employer and the workman. But where a workman is hired in or
in connection with the work of an establishment by a contractor either because
he has undertaken to produce a given result for the establishment or because
he supplies workman for any work of the establishment, a question might
arise whether the contractor is a mere camouflage. If the answer is in the
H affirmative, the workman will be in fact an employee of the principal employer
STEEL AUTHORITY OF INDIA LTD. '·NATIONAL UNION WATER FRONT WORKERS ) 51

but if the answer is in the negative, the workman will be a contract labour. A
[391-E, G, H; 392-H]

Hussainbhai Calicut v. The Alath Factory Thozhilali Union, Kozhikode and
Ors., [19781 4 SCC 257 and Indian Petrochemicals Corporation Ltd and Anr.
v. Shramik Sena and Ors., [19991 6, SCC 439, referred to.
B
18. For interpretation of relevant provisions of the Act reference to
Mischief Rule is apposite.

Craise on Statute Law 6th Edition, by S.G.G. Edgar p. 96, referred to.

Re mayfair Property Co. 1898 (2) Ch 28, Heydon's case 1584 (3) Co.Rep. C
7A, referred to.

19. The C.L.R.A. Act was enacted by the Parliament to deal with the
abuses of contract labour system. The Parliament has adopted twin measures
to curb the abuses of employment of contract labour-the first is to regulate
employment of contract labour suitably and the second is to abolish it in D
certain circumstances. This approach is clearly discernible from the provisions
of the C.L.R.A. Act. (360-EI

20. The consequence of prohibition notification under Section 10(1) of
the C.L.R.A. Act prohibiting employment of contract labour, is neither spelt E
out in Section 10 nor indicated anywhere in the Act. The following
consequences follow on issuing a notification under Section 10(1) of the
C.L.R.A. Act : (1) Contract labour working in the concerned establishment
at the time of issue of notification will cease to function; (ii) the contract of
principal employer with the contractor in regard to the contract labour comes
to an end; (iii) no contract labour can be employed by the principal employer F
in any process, operation or other work in the establishment to which the
notification relates at any time thereafter; (iv) the contract labour is not
rendered unemployed as is generally assumed but continues in the
employment of the contractor as the notification does not sever the relationship
of master and servant between the contractor and the contract labour; (v) G
the contractor can utilise the services of the contract labojir in any other
establishment in respect of which no notification under Section 10(1) has been
issued where all the benefits under the C.L.R.A. Act which were being enjoyed
by it, will be available; (vi) if a contractor intends to retrench his contract
labour he can do so only in conformity with the provisions of the ID Act.
[390-F, G-H; 391-A-C] H
352 SUPREME COURT REPORTS [2001] SUPP. 2 S.C.R.

A 21. The problems and the abuses resulting from engagement of contract
labour had attracted the attention of the Government from time to time. In
1931 the Royal Commission (also known as 'Whitley Commission') submitted
its report mentioning about existence of intermediary named "jobber", and
recommended certain measures to reduce the influence of the 'jobber'.
B Nothing substantial turned on that. In 1946 Rage Committee recognised need
for contract labour yet urged for its abolition where it was possible and
recommended for regulating conditions of service where its continuance was
unavoidable. A careful reading of the recommendation made in 1956 by the
second Planning Commission shows that though it was not unmindful of the
fact that abolition of the contract labour system would result in displacement
C of labour, yet what it thought fit to recommend was alternative employment
and not absorption in the establishment where the contract labour was
working. In 1969, the National Commission submitted its report recording
the finding that the contract labour system should be abolished. In its report
the Commission noticed the fact of introduction of 'The Contract Labour
(Regulation and Abolition) Bill, 1967, in the Parliament, which incorporated
D to a great extent its recommendations. The Bill later became the C.L.R.A.
Act. Inspite of absence of a provision for absorption of contract labour in the
Bill (on issuance of notification under Section 10(1) of the C.L.R.A. Act
prohibiting engagement of contract labour), the National Commission
endorsed that measure. Neither in the main report of the Joint Committee of
E the Parliament on the said Bill nor in the dissent note, there is any reference
to the automatic absorption of the contract labour. [394-E-G; 395-E; 396-D[

22. The Statement of objects and reasons of the Act also does not allude
to the concept of automatic absorption of the contract labour on issuance of
notification for prohibition of the employment of the contract labour. The
F provisions of the Act clearly bespeak treatment of contract labour as
employees of the contractor and not of the principal employer.
(396-H; 398-A]
-
23. The eloquence of the Act in not spelling out the consequence of
abolition of contract labour system appears to be that the Parliament intended
G to create a bar on engaging contract labour in the establishment covered by
the prohibition notification by a principal employer so as to leave no option
with him except to employ the workers as regular employees directly. Section
10 is intended to work as a permanent solution to the problem rather than to
provide a one time measure by departmentalizing the existing contract labour
H who may, by a fortuitous circumstance be in a given establishment for a very
STEEL AUTHORITY OF INDIA LTD. v. NATIONAL UNION WATER FRONT WORKERS 353
short time as on the date of the prohibition notification. It could as well be A
that a contractor and his contract labour who were with an establishment
for a number of years were changed just before the issuance of prohibition
notification. In such a case there could be no justification to prefer the contract
labour engaged on the relevant date over the contract labour employed for
longer period earlier. Therefore, it cannot be received that in Section 10 there B
is any implicit requirement of automatic absorption of contract labour by the
principal employer in the concerned establishment on issuance of notification
by the appropriate Government under Section 10(1) prohibiting employment
of contract labour in a given establishment [398-B, E, F)

The Standard-Vacuum Refining Co. ofIndia Ltd. v. Its Workman and Ors., C
[1960] 3 SCR 466, explained and distinguished.

Vegoils Pvt. Ltd. v. The Workmen, (1971] 2 SCC 724 and Mis. Gammon
India Ltd. and Ors. v. Union of India and Ors., (1974) l SCC 596; R.K. Panda
and Ors. v. Steel Authority of India and Ors., [1994) 5 SCC 304, distinguished.

Dena Nath and Ors. v. National Fertilisers Ltd and Ors., (1992) l SCC D
695, followed.

B.H.E.L. Workers' Association, Hardwar and Ors. etc. v. Union of India
and Ors. etc., [1985] l SCC 630; Mathura Refinery Mazdoor Sangh through its
Secretary v. Indian Oil Corpn. Ltd, Mathura Refinery Project, Mathura and Anr.,
(1991) 2 SCC 176; National Federation ofRailway Porters, Vendors and Bearers E
v. Union of India and Ors., [1995) Supp. 3 SCC 152; Association of Chemical
Workers, Bombay v. A.L. Alaspurkar and Ors., [1993) Supp. 3 SCC 248 and
Gujarat Electricity Board, Thermal Power Station, Ukai, Gujarat v. Hind Mazdoor
Sabha and Ors., [1995) 5 SCC 27, referred to.

Air India Statutory Corpn. and Ors. v. United Labour Union and Ors., F
[1997) 9 sec 377, overruled prospectively.

24. The principle that a beneficial legislation needs to be construed
liberally in favour of the class for whose benefit it is intended, does not extend
to reading in the provisions of the Act what the legislature has not provided G
whether expressly or by necessary implication, or substituting remedy or
benefits for that provided by the legislature. The intendment of the Act is that
it regulates the conditions of service of the contract labour and authorises in
Section 10(1) prohibition of contract labour system by the appropriate
Government on consideration of factors enumerated in sub-section (2) of
Section IO of the Act among other relevant factors. But, the presence of some H
354 SUPREME COURT REPORTS [2001) SUPP. 2 S.C.R.

A of all those factors, provides no ground for absorption of contract labour on
issuing notification under sub-section (1) of Section IO. Admittedly when the
concept of automatic absorption of contract labour as a consequence of issuing
notification under Section IO(l) by the appropriate Government, is not alluded
to either in Section IO or at any other place in the Act and the consequence
B of violation of Sections 7 and 12 of the Act is explicitly provided in Sections
23 and 25 of the Act, it is not for the High Courts or this Court to read in
some unspecified remedy in Section IO or substitute for penal consequences
specified in Sections 23 and 25 a different sequel, be it absorption of contract
labour in the establishment of principal employer or a lesser or a harsher
punishment. Such an interpretation of the provisions of the statute will be
C far beyond the principle of ironing out the creases and the scope of
interpretative legislation and as such clearly impermissible. [405-B-E)

V.S. T Industries Ltd v. V.S. T Industries Workers' Union and Anr., [2001)
l SCC 298; G.B. Pant University of Agriculture and Technology, Pant Nagar,
Nainital v. State of UP. and Ors., [2000) 7 SCC I09; Union ofIndia and Ors. v.
D Mohammed Aslam and Ors., [2001] l SCC 720 and The Saraspur Mills Co. Ltd
v. Ramanlal Chimanlal and Ors., (1974] 3 SCC 66, distinguished.

25. There is no substance in the submission that a combined reading
of the definition of the terms' contract labour', 'establishment' and 'workman'
would show that a legal relationship between a person employed in an industry
E and the owner of the industry is created irrespective of the fact as to who
brought about such relationship. (410-8]

26. The word 'workman' is defined in wide terms. It is generic term
of which contract labour is a species. It is true that a combined reading of
the terms 'establishment' and 'workman' shows that a workman engaged in
F
an establishment would have direct relationship with the principal employer
as a servant of master. But what is true of a workman could not be correct
· of contract labour. [4IO-C]

27. The contention that a workman, who is not an out-worker, must
G be treated as a regular employee of the principal employer cannot be acceded
to. An out-worker falls within the exclusionary clause of the definition of
'workman'. The word 'out worker' connotes a person who carries out the type
of work, mentioned in sub-clause (C) of clause (i) of Section 2, of the principal
employer with the materials supplied to him by such employer either (i) at
his home or (ii) in some other premises not under the control and management
H of principal employer. A person who is not an out worker but satisfies the
STEEL AUTHORITY OF INDIA LTD. '·NATIONAL UNION WATER FRONT WORKERS ) 55
requirement of the first limb of the definition of 'workman' would by the very A
definition, fall within the meaning of the term 'workman'. Even so, if such a
workman is within the ambit of the contract labour, unless he falls within
the afore-mentiimed classes, he cannot be treated as a regular employee of
the principal employer. [410-E-F]

28. Neither the provisions of the C.L.RA. Act contemplate creation B
of direct relationship of master and servant between the principal employer
and the contract Jabour nor can such relationship be implied from the
provisions of the Act on issuing notification under Section 10(1) of the C.L.RA~
Act, afortiorari much less can such a relationship be found to exist from the
Rules and the Forms made thereunder. [410-H; 411-A]
c
The Maharashtra Sugar Mills Ltd v. The State of Bombay and Ors., AIR
(1961) SC 313; Shivnandan Sharma v. The Punjab National Bank Ltd, [1965] 1
SCR 1427; Basti Sugar Mills Ltd v. Ram Ujagar and Ors., [1964) 2 SCR 838
and Hussainbhai Calicut v. The Alath Factory Thezhilali Union, Kozhikode and
Ors., [1978] 4 SCC 257, explained and distinguished.
D
29. The contention that the principles of contract law stricto senso do
not apply to the labour and management is too broad to merit acceptance.
[411-8]

Western India Automobiles Assn. v. The Industrial Tribunal, Bombay and
Ors., AIR (36) (1949) Federal Court 1I I; The Bharat Bank Ltd Delhi v. E
Employees of the Bharat Bank Ltd. Delhi and Anr., (1950) SCR 459 and Bharat
Fritz Werner Ltd. etc. etc. v. State ofKarnatakaJ.T., (2001) 2 SC 376, referred
to.

Raj Bahadur Diwan Badri Das v. The Industrial Tribunal, Punjab, (1963]
3 SCR 930 and Uptron India Ltd v. Shammi Bhan and Anr., [1998] 6 SCC 538, F
distinguished.

30. The history of exploitation of labour is as old as the history of
civilization itself. There has been an ongoing struggle by labourers and their
organisations against such exploitation but it continues in one form or the G
other. The Industrial Disputes Act, 1947 is an important legislation in the
direction of attaining fair treatment to labour and industrial peace which are
sine qua non for sustained economic growth of any country. [359-D-E]

Life Insurance Co1poration of India v. D.J. Bahadur and Ors., [19811 l
sec 315, referred to. H
356 SUPREME COURT REPORTS [2001] SUPP. 2 S.C.R.

A 31. After the advent of the Constitution of India, the State is under
an obligation to improve the lot of the work force. For this purpose
Constitution of India contains various provisions. The Preamble to the
Constitution is the lodestar and guides those who find themselves in a grey
area while dealing with its provisions. In interpreting a beneficial legislation
B enacted to give effect to directive principles of the state policy which is
otherwise constitutionally valid, the consideration of the Court cannot be
divorced from those objectives. In a case of ambiguity in the language of a
beneficial labour legislation, the Courts have to resolve the quandary in favour
of conferment of, rather than denial of, a benefit on the labour by the
legislature but without rewriting and/or doing violence to the provisions of
C the enactment. 1359-H; 360-C-D]

CIVIL APPELLATE JURISDICTION Civil Appeal Nos. 6009-
6010 of 2001.

From the Judgment and Order dated 3.7.98 of the Calcutta High Court
D in W.P. No. 1773/94 and FMAT No. 1460 of 1994.
WITH
C.A. Nos. 6011, 6012/2001, T.C. No. 1, 5-7, 14, 17 and 18/2000 C.A.
Nos. 719-720/200 I, 5798-99/98, 6013-6022, 6023/200 I, 4188-94, 4195/98,
6024-6025/2001, T.P. (C) No. 169, 284-302/2000. C.A. Nos. 6029, 6030-
E 6034/2001, T.P. (C) No. 308-337 of 2000 and C.A. No. 14112001.

Harish N. Salve, Solicitor General, K.N. Raval, Additional Solicitor
General, G.L. Sanghi, Ms. Indira Jaisingh, K.K. Venugopal, B. Sen, C. S.
Vaidyanathan, Shanti Bhushan, Ranjit Kumar, Jitendra Sharma, K.K. Singhvi,
Ramesh P. Bhatt, T.R. Andhyarujina, P.S. Nair, Bhaskar P. Gupta, R.
F Venkataramani, Rajinder Sachar, Bhimrao Naik, Nageshwara Rao, Sunil Kr.
Jain, Vijay Hansaria, A.K. Sahi, M.P. Sharma, Manish Kumar, J.K. Bhatia,
K.P.S. Chani, Subra Jyoti Borthakur, Ms. Jaya Tomar, Amitesh Lal, Ms.
Sushma Sharma, K. Rajeev, Ajit Pudussery, Rakesh K. Khanna, Ms. Pallavi
Chaudhary, Ms. Anuradha Joshi, Surya Kant, M.B. Buch, J.K. Bhatia, K.V.
G Sreekumar, Ms. Asha Jain Madan, Mukesh Jain, Sushi! K. Pathak, S. Ravindra
Bhat, Bharat Sangal, Sanjay Ghosh, Ms. Manjula Gupta, Ms. Sangeeta
Panickar, Ms. Nina Gupta, Uday Gupta, Ms. Jaya Shrivastava, Ms. Aripta
Mahajan, Vineet Kumar, Ms. Chama Mookerji, Anupam Mookerji, Pranab
Kumar Mullick, Sanjay Kumar Pathak, Tara Chandra Sharma, Ajay Sharma,
Rajeev Sharma, Pijush K. Roy, Ranjan Mukherjee, D. Mahesh Babu, Ms.
H Meenakshi Vij, K.T. Anandaraman, P.N. Jha, Sanjay Kapur, Ms. Shubhra
STEEL AUTHORITY OF INDIA LTD. '"NA TI ON AL UNION WATER FRONT WORKERS [QUADRI, l.) J 57
Kapur, P.H. Parekh, E.R. Kumar, Zulfikar Kumar, S.K. Singhvi, Ms. Asha A
Pathak, Ms. Jane Cox, P.K. Manohar, A.S. Chahil, Ms. S. Janani; Vijayendra
Misra, Binay Kumar Das, Anil Kumar Jha, B.K. Satija, K.M. Patel, Ms.
Sangeeta Kumar, Anil Nauriya, Ms. Hemantika Wahi, Arvind Kumar Sharma,
(NP), S.R. Setia, K.V. Sree Kumar, Suresh S. Pakale, Ajay Majithia, Sanjay
Singhvi, B.N. Singhvi, Yash Pal Dhingra, Anil Sachthey, Ms. Sandhya Rajpal,
Arijit Prasad, Abhijit Sengupta, R.R. Chandrachud, A.N. Singh, Sanjay Parikh, B
Avijit Bhattacherjee, H. Devarajan, Rajiv Nanda, D.S. Mahra, Y.P. Mahajan,
B.V. Bairam Das, Rakesh Shukla, C. Radhakrishna, Praveen Kumar, Ms.
Anita Shenoy, Swapan Banerjee for the appearing parties.

The Judgment of the Court was delivered by
c
SYED SHAH MOHAMMED QUADRI, J. Leave is granted in the
Special Leave petitions.

In Food Corporation ofIndia. Bombay and Ors. v. Transport and Dock
Workers Union and Ors., 1 a two-Judge Bench of this Court, having noticed
the conflict of opinion between different Benches including two three-Judge D
Benches of this Court on the interpretation of the expression "appropriate
Government" in Section 2(1)(a) of the Contract Labour (Regulation and
Abolition) Act, I 970 (for short, 'the CLRA Act') and in Section 2(a) of the
Industrial Disputes Act, 1947 (for short, 'the LO.Act') and having regard to
the importance of the question of automatic absorption of the contract labour E
in the establishment of the principal employer as a consequence of an abolition
notification issued under Section 10( 1) of the CLRA Act, referred these cases
to a larger Bench. The other cases were tagged with the said case as the same
questions arise in them also. That is how these cases have come up before us.

To comprehend the controversy in these cases, it will suffice to refer F
to the facts in Civil Appeal Nos. 6009-10 of 2001@ S.L.P. Nos. 12657-
12658 of 1998 which are preferred from the judgment and order of the
Calcutta High Court in W.P.No. 1773of1994 and FMAT No.1460of1994
dated July 3, 1998. The appellants, a Central Government Company and its
branch manager, are engaged in the manufacture and sale of various types of
iron and steel materials in its plants located in various States of India. The G
business of the appellants includes import and export of several products and
bye-products through Central Marketing Organisation, a marketing unit of
the appellant, having network of branches in different parts of India. The
work of handling the goods in the stockyards of the appellants, was being
1. [I 999) 1 sec 59. H
358 SUPREME COURT REPORTS (2001] SUPP. 2 S.C.R.

A entrusted to contractors after calling for tenders in that behalf. The Government
of West Bengal issued notification dated July 15, 1989 under Section 10(1)
of the CLRA Act (referred to in this judgment as 'the prohibition notification')
prohibiting the employment of contract labour in four specified stockyards of
the appellants at Calcutta. On the representation of the appellants, the
B Government of West Bengal kept in abeyance the said notification initially
for a period of six months by notification dated August 28, 1989 and thereafter
extended that period from time to time. It appears that the State Government
did not, however, extend the period beyond August 31, 1994.

The first respondent-Union representing the cause of 353 contract
C labourers filed Writ Petition No. I 0 I 08/89 in the Calcutta High Court seeking
a direction to the appellants to absorb the contract labour in their regular
establishment in view of the prohibition notification of the State Government
dated July 15, 1989 and further praying that the notification dated August 28,
1989, keeping the prohibition notification in abeyance, be quashed. A learned
Single Judge of the High Court allowed the writ petition, set aside the
D notification dated August 28, 1989 and all subsequent notifications extending
the period and directed that the contract labour be absorbed and regularised
from the date of prohibition notification - July 15, 1989 - within six months
from the date of the judgment i.e., April 25, 1994.

The appellants adopted a two-pronged attack strategy. Assailing the
E said judgment of the learned Single Judge, they filed writ appeal (FMAT
No.1460 of 1994) and challenging the prohibition notification of July 15,
1989 they filed Writ Petition No.1733 of 1994 in the Calcutta High Court.
While these cases were pending before the High Court, this Court delivered
judgment in Air India Statuto1y Corporation and Ors. v. United Labour
Union and Ors. 1 holding, inter alia, that in case of Central Government
F Companies the appropriate Government is the Central Government and thus
upheld the validity of the notification dated December 9, 1976 issued by the
Central Government under Section I 0( I) of the CLRA Act prohibiting
employment of contract labour in all establishments of the Central Government
Companies. On July 3, 1998, a Division Bench of the High Court nonetheless
G dismissed the writ appeal as well as the writ petition filed by the appellants
taking-the view that on the relevant date "the appropriate Government" was
the State Government. The legality of that judgment and order is under
challenge in these appeals.

Three points arise for determination in these appeals :
H 2. [t997J 9 sec 377
STEEL AUTHORITY OF INDIA LTD.'· NA TI ON AL UNION WATER FRONT WORKERS [QUADRI, J.] J 59

(i) what is the true and correct import of the expression "appropriate A
government" as defined in clause (a) of sub-section (I) of Section 2
of the CLRA Act;

(ii) whether the notification dated December 9, 1976 issued by the
Central Government under Section 10(1) of the CLRA Act is valid
and applies to all Central Government companies; and B
(iii) whether automatic absorption of contract labour, working in the
establishment of the principal employer as regular employees, follows
on issuance of a valid notification under Section 10(1) of the CLRA
Act, prohibiting the contract labour in the concerned establishment.
c
Inasmuch as in some appeals the principal employers are the appellants
and in some others the contract labour or the union of employees is in appeal,
we shall refer to the parties in this judgment as the principal employer and
the contract labour.

Before taking up these points, it needs to be noticed that the history of D
exploitation of labour is as old as the history of civilisation itself. There has
been an ongoing struggle by labourers and their organisations against such
exploitation but it continues in one form or the other.

The Industrial Disputes Ac,t, 1947 is an important legislation in the
direction of attaining fair treatment to labour and industrial peace which are E
sine qua non for sustained economic growth of any c.ountry. The best
description pf that Act is given by Krishna Iyer, J, speaking for a three-Judge
Bench of this Court in Life Insurance Corporation of India v. D.J. Bahadur
and Ors.,' thus :

"The Industrial Disputes Act is a benign measure which seeks to pre- F
empt industrial tensions, provide the mechanics of dispute-resolutions
and set up the necessary infrastructure so that the energies of partners
in production may not be dissipated in counter-productive battles and
assurance of industrial 'justice may create a climate of goodwill".
G
After the advent of ihe Constitution of India, the State is under an
obligation to improve the lot of the work force.· Article 23 prohibits, inter
alia, begar and other similar forms of forced labour. The Directive Principle
of State Policy incorporated in Article 38 mandates the State to secure a

3. 11998] 1 sec 315. H
360 SUPREME COURT REPORTS [2001] SUPP. 2 S.C.R.

A social order for promotion of welfare of the people and to establish an
egalitarian society. Article 39 enumerates the principles of policy of the State
which include welfare measures for the workers. The State policy embodied
in Article 43 mandates the State to endeavour to secure, by a suitable legislation
or economic organisation or in any other way for all workers, agricultural,
B industrial or otherwise, work, a living wage, conditions of work ensuring a
decent standard of life and full enjoyment of leisure and social and cultural
opportunities. Article 43A enjoins on the State to take steps by suitable
legislation or in any other way to secure the participation of workers in the
management of undertakings, establishment, or other organisations engaged
in any industry. The fundamental rights enshrined in Articles 14 and 16
C guarantee equality before law and equality of opportunity in public
employment. Of course, the preamble to the Constitution is the lodestar and
guides those who find themselves in a grey area while dealing with its
provisions. It is now well settled that in interpreting a beneficial legislation
enacted to give effect to directive principles of the state policy which is
otherwise constitutionally valid, the consideration of the Court cannot be
D divorced from those objectives. Jn a case of ambiguity in the language of a
beneficial labour legislation, the Courts have to resolve the quandary in favour
of conferment of, rather than denial of, a benefit on the labour by the legislature
but without rewriting and/or doing violence to the provisions of the enactment.

E The CLRA Act was enacted by the Parliament to deal with the abuses
of contract labour system.' It appears that the Parliament adopted twin measures
to curb the abuses of employment of contract labour - the first is to regulate
employment of contract labour suitably and the second is to abolish it in
certain circumstances. This approach is clearly discernible from the provisions
of the CLRA Act which came into force on February 10, 1971. A perusal of
F the Statement of Objects and Reasons shows that in respect of such categories
as may be notified by the appropriate Government, in the light of the prescribed
criteria, the contract labour will be abolished and in respect of the other
categories the service conditions of the contract labour will be regulated.
Before concentrating on the relevant provisions of the CLRA Act, it may be
G useful to have a bird's eye view of that Act. It contains seven chapters.
Chapter 1 has two sections; the first relates to the commencement and
application of the Act and the second defines the terms used therein. Chapter
II which has three sections provides for the constitution of a Central Advisory·
Board by the Central Government and a State Advisory Board by the State
Government and empowers the Boards to constitute various committees.
H Chapter Ill contains regulatory provisions for registration of establishments
STEEL AUTHORITY OF INDIA LTD. '· NATIONAL UNION WATER FRONT WORKERS [QUADRI, J.] J 61

which employ contract labour. Section I 0 which prohibits the employment of A
contract labour falls in this chapter; we shall revert to it presently. Chapter
IV contains provisions for purposes of licensing of Contractors to make sure
that those who undertake or execute any work through contract labour, adhere
to the terms and conditions of licences issued in that behalf. Power is reserved
for revocation, suspension and amendment of licenses by the Licensing Officer B
and a provision is also made for appeal against the order of the Licensing••
Officer. Chapter V takes care of the welfare and health of contract labour
obliging the appropriate Government to make rules to ensure that the
requirements of canteen, rest-rooms and other facilities like sufficient supply
of wholesome drinking water at convenient places, sufficient number of latrines
and urinals accessible to the contract labour in the establishment, washing C
facilities and the first aid facilities, are complied with by the contractor.
Where the contractor fails to provide these facilities the principal employer
is enjoined to provide canteen, rest-rooms etc., mentioned above, for the
benefit of the contract labour. Though the contractor is made responsible for
payment of wages to each worker employed by him as contract labour before
the prescribed period yet for effective implementation of this requirement, D
care is taken to ensure presence of a nominee of the principal employer at the
time of the disbursement of wages. Here again, it is prescribed that if the
contractor fails to pay the wages to the contract labour, the principal employer
shall pay the full wages or unpaid wages, as the case may be, to the contract
labour and a right is conferred on him to recover the same from the amount E
payable to the contractor; if however, no amount is payable to him then such
amount is treated as a debt due by the contractor to the principal employer.
Chapter VI deals with the contravention of the provisions of the Act, prescribes
offences and lays down the procedure for prosecution of the offenders. Chapter
VII is titled 'miscellaneous' and it contains eight sections which need not be
elaborated here. F
Now we shall advert to point No. I.

The learned Solicitor General for the appellant - principal employer -
has conceded that the State Government is the appropriate Government in
respect of the establishments of the Central Government companies in question. G
Mr. Shanti Bhushan, the learned senior counsel appearing for the respondents
- contract labour in these appeals, submitted that in view of the concession
made by the learned Solicitor General, he would not address the Court on
that aspect and prayed that the judgment and order of the High Court, under
appeal, be confirmed. }{
362 SUPREME COURT REPORTS [2001] SUPP. 2 S.C.R.

A Mr. G.L. Sanghi, the learned senior counsel appearing for the appellants
in the appeals filed by the Food Corporation oflndia (FCI)- principal employer-
and Mr. K.K. Venugopal, the learned senior counsel for the appellant - the
principal employer - in the appeals filed by the Oil and Natural Gas
Commission (ONGC) among others sail with the learned Solicitor General,
B submitted that the appropriate Government on the relevant date was the State
Government and for that reason the notification issued by the Central
Government on December 9, 1976 was never sought to be applied to the
establishments of FCl and ONGC but in view of the amendment of the
definition of the expression, "appropriate Government" with effect from
January 28, I986, the Central Government would thereafter be the appropriate
C Government. The learned Additional Solicitor General who appeared for Indian
Farmers and Fertiliser Co-operative Ltd. ( IFFCO) and Mr. B. Sen, the learned
senior counsel appearing for the appellant, adopted the arguments of the
learned Solicitor General on this point.

Ms. Indira Jaisingh, the learned senior counsel appearing for the contract
D labour (respondents in the appeals filed by FCI), argued that in the case of
FCI the appropriate Government before and after the notification issued by
the Central Government on January 28, 1986, was the Central Government.

Mr. K.K. Singhvi, the learned senior counsel for the contract labour
(respondents in the appeal of ONGC), has argued that all Central Government
E Undertakings which fall within the meaning of "other authorities" in Article
12 are agents or instrumentalities of the State functioning under the authority
of the Central Government, as such the Central Government will be the
appropriate Government; the Heavy Engineering's case was wrongly decided
by the two Judge Bench of this Court which was followed by a three-Judge
F Bench in the cases of Hindustan Aeronautics Ltd and Rashtriya Mill Mazdoor
Sangh; in those cases the judgments of this Court in Sukhdev Singh's case,
Ajay Hasia's case, Central Inland Water Transport Corporation's case, C. V.
Raman's case and R.D. Shetty International Airport's case were not considered;
the approach of the Court in the Heavy Engineering's case was based on
private law interpretation and that the approach of the Court ought to be
G based on public law interpretation. It is submitted that in a catena of decisions
of this Court, it has been held that where there is deep and pervasive control,
a company registered under the Companies Act or a society registered under
the Societiei; Act would be 'State' and, therefore, it would satisfy the
requirement of the definition of "appropriate Government". He contended
H that in Air India's case (supra) a three-Judge Bench of this Court had correctly
STEEL AUTHORITY OF INDIA LTD." NA TI ON AL UNION WATER FRONT WORKERS (QUADRI. J.] 363

decided that for all the establishments of the Air India the Central Government A
was the appropriate Government, which deserved to be confirmed by us.

Notwithstanding the concession made by the learned Solicitor General
which has the support of Mr. Shanti Bhushan, we cannot give a quietus to
this issue as the other learned counsel strenuously canvassed to the contra.
We, therefore, propose to decide this point in the light of the contentions put B
forth by the other learned counsel.

To begin with the relevant provisions of Section I of the CLRA Act
which deals, inter alia, with its extent and application, may be noticed here:

"Section I - c
(I) to (3) *** *** ***
(4) - It applies -

(a) to every establishment in which twenty or more workmen are
employed or were employed on any day of the preceding twelve D
months as contract Jabour;

(b) to every contractor who employs or who employed on any day of
the preceding twelve months twenty or more workmen :
Provided that the appropriate Government may, after giving not E
less than two months' notice of its intention so to do, by notification
in the Official Gazette, apply the provisions of this Act to any
establishment or contractor employing such number of workmen
less than twenty as may be specified in the notification.
(5) (a) It shall not apply to establishments in which work only of an
intermittent or casual nature is performed.
F

(b) If a question arises whether work performed in an establishment
is of an intermittent or casual nature, the appropriate Government
shall decide the question after consultation with the Central Board
.,
or, as the case may be, a State Board, and its decision shall be
final. G
Explanation : For the purpose of this sub-section, work performed
in an establishment shall not be deemed to be of an intermittent
nature --
(i) if it was performed for more than one hundred and twenty days H
364 SUPREME COURT REPORTS (2001] SUPP. 2 S.C.R.

A in the preceding twelve months, or
(ii) if it is of a seasonal character and is performed for more than
sixty days in a year."

A perusal of this section brings out that CLRA Act applies to every
B establishment and every contractor of the specified description. However, the
establishments in which work only of an intermittent or casual nature is
performed are excluded from the purview of the Act.

We shall also refer to definitions of relevant terms in sub-section (I) of
Section 2 which contains interpretation clauses. Clause (a) defines the
C expression "appropriate Government" thus : "2(1) In this Act, unless the
context otherwise requires-

(a) "appropriate Government" means -
(i) in relation to an establishment in respect of which the
appropriate Government under the Industrial Disputes Act, 1947
D (14of1947) is the Central Government, the Central Government;
(ii) in relation to any other establishment, the Government of the
State in which that other establishment is situated."

Addressing to the definition of "appropriate Government", it may be
E pointed out that clause (a) of Section 2(1) was substituted by the Contract
Labour (Regulation and Abolition) Amendment Act, 1986 with effect from
January 28, 1986. Before the said amendment, the definition read as under:

"2(1). (a) "appropriate Government" means-
(i) in relation to any establishment pertaining to any industry
F
carried on by or under the authority of the Central Government,
or pertaining to any such controlled industry as may be specified
in this behalf by the Central Government; or
(ii) any establishment of any railway, Cantonment Board, major
port, mine or oil-field, or
G
(iii) any establishment of a banking or insurance company, the
Central Government,
(2) in relation to any other establishment the Government of the State
in which that other establishment is situated."
IH
STEEL AUTHORITY OF INDIA LTD. "·NATIONAL UNION WATER FRONT WORKERS [QUADRI, J J J 65

A plain reading of the unamended definition shows that the Central A
Government will be the appropriate Government if the establishment in
question answers the description given in sub-clauses (i) to (iii). And in
relation to any other establishment, the Government of the State, in which the
establishment in question is situated, will be the appropriate Government. So
far as sub-clauses (ii) and (iii) are concerned, they present no difficulty. The B
discussion has centred round sub-clause (i). It may be seen that sub-clause (i)
has two limbs. The first limb takes in an establishment pertaining to any
industry carried on by or under the authority of the Central Government and
the second limb embraces such controlled industries as may be specified in
that behalf by the Central Government.

Before embarking upon the discussion on the first limb, it will be apt
c
to advert to the amended definition of' appropriate Government' which be.ars
the same meaning as given in clause (a) of Section 2 of the Industrial Disputes
Act, quoted hereunder:

"2. (a) "appropriate Government" means- D
(i) in relation to any industrial disputes concerning any industry carried
on by or under the authority of the Central Government or by a
railway company [or concerning any such controlled industry as may
be specified in this behalf by the Central Government] or in relation
to an industrial dispute concerning [a Dock Labour Board established E·
under section 5-A of the Dock Workers (Regulation of Employment)
Act, 1948 (9of1948), or [the Industrial Finance Corporation oflndia
Limited formed and registered under the Compani~s Act, 1956 (I of
1956)], or the Employees' State Insurance Corporation established
under section 3 of the Employees' State Insurance Act, 1948 (34 of
1948), or the Board of Trustees constituted under section 3-A of the F
Coal Mines Provident Fund and Miscellaneous Provisions Act, 1948
(46 of 1948), or the Central Board of Trustees and the State Boards
of Trustees constituted under section 5-A and section 5-B, respectively,
of the Employees' Provident Fund and Miscellaneous Provisions Act,
1952 ( 19 of 1952), or the Life Insurance Corporation Act, 1956 (3 I G
of 1956), or [the Oil and Natural Gas Corporation Limited registered
under the Companies Act, 1956 (I of 1956)], or the Deposit Insurance
and Credit Insurance and Credit Guarantee Corporation established
under section 3 of the Deposit Insurance and Credit Guarantee
Corporation Act, 1961 (47 of 1961), or the Central Warehousing
Corporation established under section 3 of the Warehousing H
366 SUPREME COURT REPORTS [2001] SUPP. 2 S.C.R.

A Corporations Act, 1962 (58 of 1962), or the Unit Trust of India
established under section 3 of the Unit Trust of India Act, 1963 (52
of I963), or the Food Corporation of India established under section
3, or a Board of Management established for two or more contiguous
States under section 16 of the Food Corporations Act, 1964 (37 of
1964), or [the Airports Authority of India constituted under section
B 3 of the Airports Authority of India Act, 1994 (55 of 1994)], or a
Regional Rural Bank established under section 3 of the Regional
Rural Banks Act, 1976 (21 of 1976), or the Export Credit and
Guarantee Corporation Limited or the Industrial Reconstruction
Corporation of India Limited], or [the National Housing Bank
c established under section 3 of the National Housing Bank Act, 1987
(53 of 1987) or [the Banking Service Commission established under
section 3 of the Banking Service Commission Act, 1975,] or [an air
transport service, or a banking or an insurance company], a mine, an
oil field], (a Cantonment Board] or a major port, the Central
Government; and
D
(ii) in relation to any other industrial dispute, the State Government;"

An analysis of this provision shows that the Central Government will
be the appropriate Government in relation to an industrial dispute concerning:

E (I) any industry carried on by or under the authority of the Central
Government, or by a railway company; or
(2) any such controlled industry as may be specified in this behalf by
the Central Government; or
(3) the enumerated industries (which form part of the definition quoted
F above and need not be reproduced here). •
What is evident is that the phrase "any industry carried on by or under
the authority of the Central Government'' is a common factor in both the
unamended as well as the amended definition.
G It is a well-settled proposition of law that the function of the Court is
to interpret the Statute to ascertain the intent of the legislature-Parliament.
Where the language of the Statute is clear and explicit the Court must give
effect to it because in that case words of the Statute unequivocally speak the
intention of the legislature. This rule of literal interpretation has to be adhered
H to and a provision in the Statute has to be understood in its ordinary natural
STEEL AUTHORITY OF INDIA LTD v. NATIONAL UNION WATERFRONT WORKERS [QUADRI, J.J ) 67

, sense unless the Court finds that the provision sought to be interpreted is A
·vague or obscurely worded in which event the other principles of interpretation
·may be called in aid. A plain reading of the said phrase, under interpretation,
shows that it is lucid and clear. There is no obscurity, no ambiguity and no
abstruseness. Therefore· the words used therein must be construed in their
natural ordinary meaning as commonly understood.
B
We are afraid we cannot accept the contention that in construing that
expression or for that matter any of the provisions of the CLRA Act, the
principle of literal interpretation has to be discarded as it represents common
law approach applicable only to private law field and has no relevance when
tested on the anvil of Article 14, and instead the principle of public law C
interpretation should be adopted. To accept that contention, in our view,
would amount to abandoning a straight' route and oft treaded road in an
attempt to create a pathway in a wilderness which can only lead astray. We
.have not come across any principles of public law interpretation as opposed
to private law interpretation for interpreting a statute either in any authoritative
treatise on interpretation of statutes or in pronouncement of any Court nor is D
any authority of this Court or any other Court brought to our notice. We may,
however, mention that there does exist a distinction between public law and
private law. This has been succinctly brought out by the Rt. Hon. Sir Harry
Woolf (as he then was, now Lord Woolf) in The Second Harry Street Lecture
delivered in the University of Manchester on February 19, 1986. The learned E
Law Lord stated :

"I regard public law as being the system which enforces the proper
performance by public bodies of the duties which they owe to the
public. I regard private law as being the system which protects the
private rights of private individuals or the private rights of public F
bodies. The critical distinction arises out of the fact that it is the
public as a whole, or in the case of local government the public in the
locality, who are the beneficiaries of what is protected by public law
and it is the individuals or bodies entitled to the rights who are the
beneficiaries of the protection provided by private law." G

The divide between the public law and the private law is material in
regard to the remedies which could be availed when enforcing the rights,
public or private, but not in regard to interpretation of the Statutes. We are
not beset with the procedural mandate as in the R.S.C. Order 53 of 1977 of
·England which was the subject matter of consideration by the House of Lords ,H
368 SUPREME COURT REPORTS [2001] SUPP. 2 S.C.R.

A in O'Reilly v. Mackman. 4 In that case the appellant sought declaration by
ordinary action that the order passed by the Prison's Board of visitors awarding
penalty against him was void and of no effect. The House of Lords, dismissing
the appeal filed against the judgment of the Court of Appeal, held that where •
a public law issue arises, the proceedings should be brought by judicial
review under R.S.C. Order 53 and not by private law action which would be
B abuse of the process of court.
.....
Now, going back to the definition of the said expression, it combines
three alternatives, viz., (a) any industry carried on by the Central Government;
(b) any industry carried on under the authority of the Central Government;
and (c) any industry carried on by a railway company. Alternatives (a) and
c (c) indicate cases of any industry carried on directly by the Central Government
or a railway company. They are too clear to admit of any polemic. In regard
to alternative (b), surely, an industry being carried on under the authority of
the Central Government cannot be equated with any industry carried on by
the Central Government itself. This leaves us to construe the words "under
D the authority of the Central Government". The key word in them is ·authority'.

The relevant meaning of the word "authority" in the Concise Oxford
Dictionary is delegated power. In Black's Law Dictionary the meanings of
the word "authority" are: permission; right to exercise powers - often
, synonymous with power. The power delegated by a principal to his agent.
E The la11ful delegation of power by one person to another. Power of agent to
affect legal relations ofprincipal by acts done in accordance with principal's
manifestations of consent to agent. In Corpus Juris Secundum (at p.1290) the
following are the meanings of the term "authority": in its broad general
sense, the word has been defined as meaning control over; power; jurisdiction;
F power to act, whether original or delegated. The word is frequently used to
express derivative power; and in this sense, the word may be used as meaning
instructions, permission, power delegated by one person to another, the result
of the manifestations by the former to the latter of the farmer's consent that
the latter shall act for him, authority in this sense - in the laws of at least
one state, it has been similarly used as designating or meaning an agency for
G the purpose of carrying out a state duty or function; some one to whom by
law a power has been given. In ·Words and Phrases' we find various shades
of meaning of the word "authority" at pp.603, 606, 612 and 613: Authority,
as the word is used throughout the Restatement, is the power of one person
to affect the legal relations of another by acts done in accordance with the
H 4. [1983] 2 Appeal Cases 237
STEEL AUTHORITY OF INDIA LTD. v. NA TI ON AL UNION WATER FRONT WORKERS [QUA ORI. J.] 369
other's manifestations of consent to him; an agency of one or more participating A
governmental units created by statute for specific purpose of having delegated

- to it certain functions governmental in character; the lawful delegation of
power by one person to another; power of agent to affect legal relations of
principal by acts done in accordance with principal's manifestations of consent
to him.
B
From the above discussion, it follows that the phrase "any industry
carried on under the authority of the Central Government" implies an industry
which is carried on by virtue of, pursuant to, conferment of, grant of, or
delegation of power or permission by the Central Government to a Central
Government Company or other Govt. company/undertaking. To put it C
differently, if there is lack of conferment of power or permission by the
Central Government to a government company or undertaking, it would disable
such a company/undertaking to carry on the industry in question.

In interpreting the said phrase, support is sought to be drawn by the
learned counsel for the contract labour from the cases laying down the D
principles as to under what circumstances a Government company or
undertaking will fall within the meaning of "State or other authorities" in
Article 12 of the Constitution. We shall preface our discussion of those cases
by indicating that for purposes of enforcement of fundamental rights
guaranteed in Part Ill of the Constitution the question whether a Government
Company or undertaking is "State" within the meaning of Article 12 is E
germane. It is important to notice that in these cases the pertinent question
is appropriateness of the Government - which is the appropriate Government
within the meaning of CLRA Act; whether, the Central or the State
Government, is the appropriate Government in regard to the industry carried
on by the Central/State Government Company or any undertaking and not p
whether such Central/State Government company or undertaking come within
the meaning of Article 12. The word ·State' is defined in Article 12 5 which
is quoted in the footnote.

In Sukhdev Singh and Ors. v. Bhagatram Sardar Singh Raghuvanshi
and Anr.,' this Court, in the context whether service Regulations framed by G
5. "In !his part, unless the context otherwise requires, "the State" includes the Government
and Parliament of India and the Government and the Legislature of each of the States and
all local or other authorities within the territory of India or under the control of the
Government oflndia.''

6. 1975 (3) SCR 619. H
370 SUPREME COURT REPORTS (2001) SUPP. 2 S.C.R.

A statutory corporations have the force of law, by majority, held that the statutory
corporations, like ONGC, JFFCO, LIC established under different statutes
fell under "other authorities" and were, therefore, "State" within the meaning
of that term in Article 12 of the Constitution. The Court took into consideration
the following factors, (a) they were owned, managed and could also be
dissolved by the Central Government; (b) they were completely under the
-
B control of the Central Government and (c) they were performing public or
statutory duties for the benefit of the public and not for private profit; and
concluded that they were in effect acting as the agencies of the Central
Government and the service Regulations made by them had the force of law,
which would be enforced by the Court by declaring that the dismissal of an
C employee of the corporation in violation of the Regulations, was void.

In Ramanna Dayaram Shetty v. The International Airport of India and
Ors.,' a three-Judge Bench of this Court laid down that Corporations created
by the Government for setting up and management of public enterprises and
carrying out public functions, act as instrumentalities of the Government;
D they would be subject to the same limitations in the field of constitutional
and administrative laws as Government itself, though in the eye of law they
would be distinct and independent legal entities. There, this Court was
enforcing the mandate of Article 14 of the Constitution against the respondent
- a Central Govt. Corporation.
E Managing Director, U.P. Warehousing Corporation and Anr. v. Vinay
Narayan Va)payee' dealt with a case of dismissal of the respondent-employee
of the appellant-Corporation in violation of the principles of natural justice.
There also the Court held the Corporation to be an instrumentality of the
State and extended protection of Articles 14 and 16 of the Constitution to the
F employee taking the view that when the Government is bound to observe the
equality clause in the matter of employment the corporations set up and
owned by the Government are equally bound by the same discipline.

In Ajay Hasia etc. v. Khalid Mujib Sehravardi and Ors. etc.', the question
decided by a Constitution Bench of this Court was: whether Jammu & Kashmir
G Regional Engineering College, Srinagar, registered as a society under the
Jammu & Kashmir Registration of Societies Act, 1898, was 'State' within the
meaning of Article 12 of the Constitution so as to be amenable to writ

7. 1979 (3) SCR 1014
8. 1980 (2) SCR 773
H 9. 1981(2)SCR79
STEEL AUTHORITY OF INDIA LTD. v. NATIONAL UNION WATER FRONT WORKERS (QUADRl, I.] J 7J
jurisdiction of the High Court. Having examined the Memorandum of A
Association and the Rules of the Society, the Court decided that the control
of the State and the Central Government was deep and pervasive and the
society was a mere projection of the State and the Central Government and
it was, therefore, an instrumentality or agency of the State and Central
Government and as such an authority-state within the meaning of Article 12.
B
The principle laid down in the aforementioned cases that if the
government acting through its officers was subject to certain constitutional
limitations, a fortiorari the government acting through the instrumentality or
agency of a corporation should equally be subject to the same limitations,
was approved by the Constitution Bench and it was pointed out that otherwise
it would lead to considerable erosion of the efficiency of the Fundamental
c
Rights, for in that event the government would be enabled to override the
Fundamental Rights by adopting the stratagem of carrying out its function
through the instrumentality or agency of a corporation while retaining control
over it. That principle has been consistently followed and reiterated in all
subsequent cases- See Delhi Transport Corpn. v. D. T.C. Mazdoor Congress D
and Ors.,'° Som Prakash Rekhi v. Union of India and Anr.,1 1 Manmohan
Singh Jaitla etc. v. Commr., Union Territory of Chandigarh and Ors. etc., 12
P.K. Ramachandra Iyer and Ors. etc. v. Union of India and Ors. etc., 13 A.L.
Kalra v. Project and Equipment Corpn. Of India Ltd.," Central Inland Water
Transport Corpn. Ltd. and Anr. etc. v. Brojo Nath Ganguly and Anr. etc., 15
E
C. V. Raman v. Management of Bank" of India and Anr. etc., 16 Lucknow
Development Authority v. MK. Gupta,r Mis Star Enterprises and Ors. v.
City and Industrial Development Corpn. of Maharashtra Ltd. and Ors.,'" LIC
of India and Anr. v. Consumer Education and Research Centre and Ors. 19

- and G.B. Mahajan and Ors. v. Jalgaon Municipal Council and Ors. 10 We do
10.
11.
1991 Suppl. (I) sec 600
1931 (I) sec 449
F

12. 1984 suppl. sec 540
13. 1984 (2) sec 141
14. 1984 (3) sec 316
15. 1986 (3) sec 156 G
16. 1988 (3) sec 105
17. 1994 (I) sec 243
18. 1990 (3) sec 280
19. 1995 (5) sec 482
'
20. 1991 (3)SCC91 H
372 SUPREME COURT REPORTS [2001] SUPP. 2 S.C.R.

A not propose to burden this judgment by adding to the list and referring to
each case separately.

We wish to clear the air that the principle, while discharging public
functions and duties the Govt. Companies/Corporations/Societies which are
instrumentalities or agencies of the Government must be subjected to the
B same limitations in the field of public Jaw-constitutional or administrative
law-as the Government itself, does not lead to the inference that they become
agents of the Centre/State Government for all purposes so as to bind such
Government for all their acts, liabilities and obligations under various Central
and/or State Acts or under private law.
c From the above discussion, it follows that the fact of being
instrumentality of a Central/State Govt. or being ·State' within the meaning
of Article 12 of the Constitution cannot be determinative of the question as
to whether an industry carried on by a Company/Corporation or an
instrumentality of the Govt. is by or under the authority of the Central
D Government for the purpose of or within the meaning of the definition of
·appropriate Government' in the CLRA Act. Take the case of a State
Government corporation/company/undertaking set up and owned by the State
Government which is an instrumentality or agency of the State Government
and is engaged in carrying on an industry, can it be assumed that the industry
is carried on under the authority of the Central Government, and in relation
E to any industrial dispute concerning the industry can it be said that the
appropriate Government is the Central Government? We think the answer
must be in the negative. In the above example if, as a fact, any industry is
carried on by the State Government undertaking under the authority of the
Central Government, then in relation to any industrial dispute concerning that
F industry, the appropriate Government will be the Central Government. This ....
is so not because it is agency or instrumentality of the Central Government
but because the industry is carried on by the State Govt. Company/Corporation/
Undertaking under the authority of the Central Government. In our view, the
same reasoning applies to a Central Government undertaking as well. Further,
the definition of· establishment' in CLRA Act takes in its fold purely private
G undertakings which cannot be brought within the meaning of Article 12 of
the Constitution. In such a case how is ·appropriate Government' determined
for the purposes of CLRA Act or Industrial Disputes Act? In our view, the
test which is determinative is: whether the industry carried on by the
establishment in question is under the authority of the Central Govt? Obviously,
H there cannot be one test for one part of definition of ·establishment' and
STEEL AUTHORITY OF INDIA LTD.'- NATIONAL UNION WATER FRONT WORKERS (QUADRI, l I J73

another test for another part. Thus, it is clear that the criterion is whether an A
undertaking/instrumentality of Government is carrying on an industry under
the authority of the Central Government and not whether the undertaking is
instrumentality or agency of the Government for purposes of Article 12 of
the Constitution, be it of Central Government or State Government.

There cannot be any dispute that all the Central Government companies B
with which we are dealing here are not and cannot be equated to Central
Government though they may be 'State' within the meaning of Article 12 of
the Constitution. We have held above that being the instrumentality or agency
of the Central Government would not by itself amount to having the authority
of the Central Government to carry on that particular industry. Therefore, it C
will be incorrect to say that in relation to any establishment of a Central
Government Company/undertaking, the appropriate Government will be the
Central Government. To hold that the Central Government is "the appropriate
Government" in relation to an establishment, the court must be satisfied that
the particular industry in question is carried on by or under the authority of
the Central Government. If this aspect is kept in mind it would be clear that D
the Central Government will be the "appropriate Government'· under the
CLRA Act and the LO.Act provided the industry in question is carried on by
a Central Government company/an undertaking under the authority of the
Central Government. Such an authority may be conferred, either by a Statute
or by virtue of relationship of principal and agent or delegation of power. E
Where the authority, to carry on any industry for or on behalf of the Central
Government, is conferred on the Government company/any undertaking by
the. Statute under which it is created, no further question arises. But, if it is
not so, the question that arises is whether there is any conferment of authority
on the Government company/ any undertaking by the Central Government to
carry on the industry in question. This is a questi.~m of fact and has to be F
• ascertained on the facts and in the circumstances of each case. We shall refer
to the cases of this Court on this point.

In Heavy Engineering Mazdoor Union v. State of Bihar and Ors. 21 the
said expression (appropriate Government) came up for consideration. The
Heavy Engineering Corporation is a Central Government company. The G
President of India appoints Directors of the company and the Central
Government gives directions as regards the functioning of the company.
When disputes arose between the workmen and the management of the

21 !969(l)SCC 765 H
374 SUPREME COURT REPORTS [2001] SUPP. 2 S.C.R.

A company, the Government of Bihar referred the disputes to the Industrial
Tribunal for adjudication. The union of the workmen raised an objection that
the appropriate Government in that case was the Central Government, therefore,
reference of the disputes to the Industrial Tribunal for adjudication by the
State Government was incompetent. A two-Judge Bench of this Court
elaborately dealt with the question of appropriate Government and concluded
B that the mere fact that the entire share capital was contributed by the Central
Government and the fact that all its shares were held by the President of India
and certain officers of the Central Government, would not make any difference.
It was held that in the absence of a statutory provision, a commercial
corporation acting on its own behalf even though it was controlled, wholly
C or partially, by a Government Department would be ordinarily presumed not
to be a servant or agent of the State. It was, however, clarified that an
inference that the corporation was the agent of the Government might be
drawn where it was performing in substance Governmental and not commercial
functions. It mu.;t be mentioned here that in the light of the judgments of this
Court, referred to above, it is difficult to agree with the distinction between
D a governmental activity and commercial function of government companies
set up and owned by government, insofar as their function in the realm of
public law are concerned. However, the contention that the decision in that
case 22 is based on concession of the counsel for the appellant is misconceived.
This Court summed up the submission in para 4 thus :
E "The undertaking, therefore, is not one carried on directly by the
Central Government or by any one of its departments as in the case
of posts and telegraphs or the railways. It was, therefore, rightly
conceded both in the High Court as also before us that it is not an
industry carried on by the Central Government. That being the position,
F the question then is, is the undertaking carried on under the authority
of the Central Government?"

It is evident that the concession was with regard to the fact that it was not
an industry carried on by the Central Government and not in regard to "was
the undertaking carried on under the authority of the Central Government?'·
G Indeed that was the question decided by the Court on contest and it was held
that the undertaking was not carried on by the Central Government company
under the authcrity of the Central Government and that the appropriate
Government in that case was the State Government and not the Central

H 22 1969 (I) sec 765
STEEL AUTHORITY OF INDIA LTD. v. NATIONAL UNION WATER FRONT WORKERS (QUADRI, l J J75

Government. From the above discussion, it is evident that the Court correctly A
posed the question- whether the State Govt. or the Central Govt. was the
appropriate Government and rightly answered it.

In Mis. Hindustan Aeronautics Ltd v. The Workmen and Ors., 23 this
Court was called upon to decide the question as to whether the expression
"appropriate Government", as defined in Section 2(a)(i) of the Industrial B
Disputes Act, was the State Government or the Central Government. In that
case dispute arose between the management of the Barrackpore branch (West
Bengal) of the appellant and its employees. The Governor of West Bengal
referred the dispute to Industrial Tribunal under Section I 0 of the I.D. Act.
The competence of the State Government to make the reference was called C
in question. A three-Judge Bench of this Court, relying on the decision in
Heavy Engineering's case (supra), held that the reference was valid. The
Court took note of the factors, viz; if there is any disturbance of industrial
peace at Barrackpore where a considerable number of workmen were working,
the appropriate Government concerned in the maintenance of the industrial
peace was the West Bengal Government; that Barrackpore industry was a D
separate unit; the cause of action in relation to the industrial dispute arose at
Barrackpore. Having regard to the definitions of the terms 'appropriate
Government' and 'establishment', in Section 2 ofCLRA Act, it cannot be said
that the factors which weighed with the Court were irrelevant. It was also
pointed out therein that from time to time certain statutory corporations were E
included in the definition but no public company of which the shares were
exclusively owned by the Government, was roped in the definition. What we
have expressed above about Heavy Engineering's case (supra) will, equally
apply here.

The aforementioned phrase "an industry carried on by or under the F
authority of the Central Government" again fell for consideration of a three-
Judge Bench of this Court in Rashtriya Mill Mazdoor Sangh, Nagpur v .
. Model Mills, Nagpur and Anr-" The case arose in the context of Section

- 32(iv) of the Payment of Bonus Act, 1965, which provides that nothing in
that Act shall apply to employees employed by an establishment engaged in
any industry carried on by or under the authority of any department of the G
Central Government or a State Government or a local authority. Under Section
18-A of the Industries (Development and Regulation) Act, 1951, the Central
Government appointed an authorised Controller to replace the management
23. 1975 (4) sec 679
24. 1984 Suppl. sec 443 H
376 SUPREME COURT REPORTS [2001) SUPP. 2 S.C.R.

A of the respondent - Model Mills. That was done to give effect to the directives
issued by the Central Government under Section 16 of the said Act. On
behalf of the respondent it was contended that substitution of the management
by the Controller appointed under Section 18-A of the Industries (Development
and Regulation) Act would tantamount to the industry being run under the
B authority of the department of the Central Government. Negativing the
contention it was held :

"While exercising power of giving directions under Section 16 the
existing management is subjected to regulatory control, failing which
the management has to be replaced to carry out the directions. In
either case the industrial undertaking retains its identity, personality
c and status unchanged. On a pure grammatical construction of sub-
section (4) of Section 32, it cannot be said that on the appointment
of an authorised controller the industrial undertaking acquires the
status of being engaged in any industry carried on under the authority
of the department of the Central Government."
D
Food Corporation of India, Bombay's case (supra) is the only case
which arose directly under the CLRA Act. The Food Corporation of India
(FCI) engaged, inter alia, the contract labour for handling of foodgrains.
Complaining that their case for departmentalisation was not being considered
either by the Central Government or by the State Government, nor were they
E extended the benefits conferred by the CLRA Act, a representative action
was initiated in this Court by filing a writ petition under Article 32 of the
Constitution seeking a writ of mandamus against the Central/State Government
to abolish contract labour and to extend them the benefits under that Act. The
FCI resisted the claim for abolition of contract labour on the ground that the
F operations ofloading/unloading foodgrains were seasonal, sporadic and varied
from region to region. However, it pleaded that the State Government and
not the Central Government was the appropriate Government under the CLRA
Act. In view of the unamended definition of the expression "appropriate
Government" under CLRA Act, which was in force on the rdevant date, it
was pointed out that the FCI was not included in the definition by name as
G it was done under the Industrial Disputes Act. Following the judgment of this
Court in Heavy Engineering's case (supra) and referring to the decision of
this Court in Rashtriya Mill Mazdoor Sangh's case (supra), the Court took the
view that the same principle would govern the interpretation of the expression
"appropriate Government" in the CLRA Act and held that the State
H Government was the appropriate Government pertaining to the regional offices
STEEL AUTHORITY OF INDIA LTD '· NATIONAL UNION WATER FRONT WORKERS [QUADRI, l.J ) 77

and warehouses which were situate in various States. We find no illegality A
either in the approach or in the conclusion arrived at by the Court in these
cases.

It was in that background of the case law that the Air India's case
(supra) came to be decided by a three-Judge Bench of this Court. The Air
India Corporation engaged contract labour for sweeping, cleaning, dusting B
and watching of the buildings owned and occupied by it. The Central
Government having consulted the Central Advisory Board constituted under
Section 3(1) of the CLRA Act issued notification under Section 10(1) of the
Act prohibiting "employment of contract labour on and from 9.12.1976 for
sweeping, cleaning, dusting and watching of the buildings owned or occupied C
by the establishment in respect of which the appropriate Government under
the said Act is the Central Government". However, the Regional Labour
Commissioner, Bombay opined that the State Government was the appropriate
Government under the CLRA Act. The respondent-Union filed writ petition
in the High Court at Bombay seeking a writ of mandamus to the appellant
to enforce the said. notification prohibiting employment of contract labour D
and for a direction to absorb all the contract labour doing sweeping, cleaning,
dusting and watching of the buildings owned or occupied by the Air India
with effect from the respective dates of their joining as contract labour with
all consequential rights/benefits. A learned Single Judge of the High Court
allowed the writ petition on November 16, 1989 and directed that all the E
contract labour should be regularised as employees of the appellant from the
date of filing of the writ petition. On appeal, the Division Bench, by order
dated April 3, 1992, confirmed the judgment of the learned Single Judge and
dismissed the appeal. On further appeal to this Court, it was held that the
word "control" was required to be interpreted in the changing commercial
scenario broadly in keeping with the constitutional goals and perspectives; F
the interpretation must be based on some rational and relevant principles and
that' the public law interpretation is the basic tool of interpretation in that
behalf relegating common law principles to purely private Jaw field. In that
view of the matter, it concluded that the two-Judge Bench decision in Heavy
Engineering's case narrowly interpreted the expression "appropriate G
Government'' on the common law principles which would no longer bear
any relevance when it was tested on the anvil of Article 14. It noted that in
Hindustan Aeronautics Ltd., Rashtriya Mill Mazdoor Sangh and Food
Corporation of India, the ratio of Heavy Engineering formed the foundation
but in Hindustan Aeronautics Ltd there was no independent consideration
except repetition and approval of the ratio of Heavy Engineering case which H
378 SUPREME COURT REPORTS [2001] SUPP. 2 S.C.R.

A was based on concession; in Food Corporation of India, the Court proceeded
on the premise that warehouses of the corporation were situate within the
jurisdiction of the different State Governments and that led to conclude that
the appropriate Government would be the State Government. Thus,
distinguishing the aforementioned decisions, it was held therein (Air India's
B case) that from the inception of the CLRA Act the appropriate Government
was the Central Government.

We have held above that in the case of a Central Government company/
undertaking, an instrumentality of the Government, carrying on an industry,
the criteria to determine whether the Central Government is the appropriate
C Government within the meaning of the CLRA Act, is that the industry must
be carried on by or under the authority of the Central Government and not
that the company/undertaking is an instrumentality or an agency of the Central
Government for purposes of Article 12 of the Constitution; such an authority
may be conferred either by a statute or by virtue of relationship of principal
and agent or delegation of power and this fact has to be ascertained on the
D facts and in the circumstances of each case. In view of this conclusion, with
due respect, we are unable to agree with the view expressed by the learned
Judges on interpretation of the expression "appropriate Government" in Air
India's case (supra). Point No. I is answered accordingly.

Point No. 2 relates to the validity of the notification issued by the
E Central Government under Section I0(1) of the Contract Labour (Regulation
and Abolition) Act, 1970, dated December 9, 1976. The main contention
against the validity of the notification is that an omnibus notification like the
impugned notification would be contrary to the requirements of Section IO
of the CLRA Act and is illustrative of non-application of mind.
F
It would be profitable to refer to Section I0 of the Act :

"I 0. Prohibition of employment of contract labour -
(I) Notwithstanding anything contained in this Act, the appropriate
Government may, after consultation with the Central Board or, as
G 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.
(2) Before issuing any notification under sub-section (I) in relation
to an establishment, the appropriate Government shall have regard
H to the conditions of work and benefits provided for the contract
STEEL AUTHORITY OF INDIA LTD. ''·NATIONAL UNION WATER FRONT WORKERS [QUADRI, J.] J 79

labour in that establishment and other relevant factors, such as - A
(a) whether the process, operation or other work is incidental
to, or necessary for the industry, trade, business, manufacture
or occupation that is carried on in the establishment;

(b) whether it is of perennial nature, that is to say, it is of B
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 regular workmen in
that establishment or an establishment similar thereto; C
(d) whether it is sufficient to employ considerable number of
whole-time workmen.

Explanation : If a question arises whether any process or operation or
other work is of perennial nature, the decision of the appropriate
Government thereon shall be final." , D
A careful reading of Section I 0 makes it evident that sub-section (I)
commences with a non obstante clause and overrides the other provisions of
the CLRA Act in empowering the appropriate Government to prohibit by
notification in the Official Gazette, after consultation with Central Advisory E
Board/State Advisory Board, as the case may be, employment of contract
labour in any process, operation or other work in any establishment. Before
issuing notification under sub-section (I) in respect of an establishment the
appropriate Government is enjoined to have regard to: (i) the conditions of
work; (ii) the benefits provided for the contract labour; and (iii) other relevant
factors like those spe.cified in clauses (a) to (d) of sub-section (2). Under F
clause (a) the appropriate Government has to ascertain whether the process,
operation or other work proposed to be prohibited is incidental to, or necessary
for the industry, trade, business, manufacture or occupation that is carried on
in the establishment; clause (b) requires the appropriate Government to
determine whether it is of perennial nature, that is to say, it is of sufficient G
duration having regard to the nature of industry, trade, business, manufacture
or occupation carried on in that establishment; clause (c) contemplates a
verification by the appropriate Government as to whether that type of work
is done ordinarily through regular workmen in that establishment or an
establishment similar thereto; and clause (d) requires vNification as to whether
the work in that establishment is sufficient to employ considerable number of H
...
-
380 SUPREME COURT REPORTS (2001) SUPP. 2 S.C.R.

A whole-time workmen. The list is not exhaustive. The appropriate Government
may also take into consideration other relevant factors of the nature enumerated
in sub-section (2) of Section l 0 before issuing notification under Section
I 0(1) of the CLRA Act.

The definition of 'establishment' given in Section 2( e) of the CLRA
B Act is as follows:
"In clause (e) - "establishment" is defined to mean -

(i) any office or department of the Government or a local authority,
or
c (ii) any place where any industry, trade, business, manufacture or
occupation is carried on.'

The definition is in two parts : the first part takes in its fold any office
or department of the Government or local authority - the Government
D establishment; and the second part encompasses any place where any industry,
trade, business, manufacture or occupation is carried on - the non-Govt.
establishment. It is thus evident that there can be plurality of establishments
in regard to the Government or local authority and also in regard to any place
where any industry, trade, business, manufacture or occupation is carried on.

E Now, reading the definition of'establishment' in Section 10, the position
that emerges is that before issuing notification under sub-section (I) an
appropriate Government is required to: (i) consult the Central Board/State
Board; (ii) consider the conditions of work and benefits provided for the
contract labour and (iii) take note of the factors such as mentioned in clauses
(a) to (d) of sub-section (2) of Section I0, referred to above, with reference
F to any office or department of the Government or local authority or any place
where any industry, trade, business, manufacture or occupation is carried on.
These being the requirement of Section I0 of the Act, we shall examine
whether the impugned notification fulfils these essentials.

G The impugned notification issued by the Central Government on
December 9, 1976, reads as under :

"S.O.No.779(E) 8/9.12.76 in exercise of the power conferred by Sub-
section (I) of Section 10 of the Contract Labour (Regulation and
Abolition) Act, 1970 (37 of 1970) the Central Government after
H consultation with the Central Advisory Contract Labour Board hereby
STEEL AUTHORITY OF INDIA LTD.'· NATIONAL UNION WATER FRONT WORKERS [QUADRI,lj 38 J

prohibits employment of contract labour on and from the I st March, A
1977, for sweeping, cleaning, dusting and watching of buildings owned
or occupied by the establishments in respect of which the appropriate
Government under the said Act is the Central Government.

Provided that this notification shall not only apply to the outside
cleaning and other maintenance operations of multi-storeyed buildings B
• where such cleaning or maintenance operations cannot be carried out
except with specialised experience."

A glance through the said notification, makes it manifest that with effect
from March 1, 1977, it prohibits employment of contract labour for sweeping,
cleaning, dusting and watching of buildings owned or occupied by C
establishment in respect of which the appropriate Government under the said
Act is the Central Government. This clearly indicates that the Central
Government had not adverted to any of the essentials, referred to above,
except the requirement of consultation with the Central Advisory Board.
Consideration of the factors mentioned above has to be in respect of each D
establishment, whether individually or collectively, in respect of which
notification under sub-section 1 of Section 10 is proposed to be issued. The
impugned notification apart from being an omnibus notification does not
reveal compliance of sub-section (2) of Section I 0. This is ex facie contrary
to the postulates of Section I 0 of the Act. Besides it also exhibits non-
appucation of mind by the Central Government. We are, therefore, unable to E
sustain the said impugned notification dated December 9, 1976 issued by the
Central Government.

Point No. 3 remains to be considered. This is the moot point which
generated marathon debate and is indeed an important one. p
The learned Solicitor General contended that contract labour had been
in vogue for quite some time past; having regard to the abuses or'the contract
labour system, the CLRA Act was enacted by the Parliament to regulate the
employment of contract labour and to cause its abolition in an establishment
when the given circumstances exist; prior to the Act no mandamus could G
have been issued by courts creating relationship of employer and the employee
between the principal employer and the contract labour and the Act did not
alter that position. When the principal employer entrusts the work to a
contractor there will be principal to principal relationship between them as
such the work force of the contractor cannot be said to be the employees of H
382 SUPREME COURT REPORTS [2001] SUPP. 2 S.C.R.

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

The contentions of Mr. G.L. Sanghi for the principal employer are :
that there was never the relationship of master and servant between the F.C.I.
D and the contract labour; the various provisions of the Act which require the
contractor to maintain canteen, rest-rooms and other facilities like a sufficient
supply of wholesome drinking water at convenient places, sufficient number
of latrines and urinals accessible to the contract labour in the establishment,
washing facilities and the first aid facilities negative the existence of any
E direct relationship as sought to be made out. The responsibilities of the principal
employer under the CLRA Act arise only in the event of failure of the
contractor to fulfil his statutory obligations and in such an event he is bound
to reimburse the principal employer. Whenever a contractor undertakes to
produce a given result or to provide services to an establishment/undertaking
by engaging contract labour, the relationship of the master and servant exists
F between the contractor and the contract labour and not between the principal
employer and the contract labour. When. the Central Government/State
Government/local authority entrusts any work to a contractor who recruits
contract labour, in connection with that work, obviously the recruitment will
not be in conformity with the statutory service rules and the same position
G would obtain with regard to non-governmental organisations, factories, mines
etc. Further, having regard to the distinction between the principal employer
and the establishment, in the absence of conferment of any authority on the
manager by his principal employer to enter into a contract of employment on
his behalf, the manager by entrusting work to a contractor cannot make a
H contract of service between the principal employer and the contract labour;
STEEL AUTHORITY OF INDIA LTD.'· NATIONAL UNION WATER FRONT WORKERS (QUADRI, /.] 383

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

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

25. 1960 (3) SCR 466 H
384 SUPREME COURT REPORTS (2001] SUPP. 2 S.C.R.

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

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

Mr. Shanti Bhushan argued that a contractor employing contract labour
for any work of an establishment would, in law, create relationship of master
and servant between the establishment and the labour; he sought to derive
F suppo1t from judgments of this court in the following cases: The Maharashtra
Sugar Mills Ltd. v. The State of Bombay and Ors., 26 Shivnandan Sharma v.
The Punjab National Bank Ltd.,'- Basti Sugar Mills Ltd. v. Ram Ujagar and
Ors., 28 The Saraspur Mills Co. ltd. v. Raman/a/ Chiman/al and Ors. 29 and
Hussainbhai, Calicut v. The A/ath Factory Thezhi/a/i Union, Kozhikode and

G
26. AIR 1951 SC 313

27. 1955 (I) SCR 1427

28. 1964 (2) SCR 838

29. 1974 (3) sec 66
H
STEEL AUTHORITY OF INDIA LTD. '·NATIONAL UNION WATER FRONT WORKERS [QUADRI, !.] J 85
Ors., 30 His further contention is that a joint reading of definitions of "contract A
labour" in clause (b) and of "establishment" in clause (e) of Section 2 of the
CLRA Act would show that a legal relationship between a person employed
to work in an industry and the owner of the industry comes into existence
and it would not make any difference whether that relationship was brought
about by the act of the principal/master or by the act of his authorised agent; B
the very fact of being employed in connection with an industry, creates rights
in favour of the person employed and against the owner of the industry by
bringing into existence, in law, a relationship of employer and the employee
(master and servant) between them. He pointed out that the definition of the
expression "workman" in clause (i) excludes an out-worker, a person to
whom any articles and materials are given out by or on behalf of the principal C
employer to be made up, cleaned, washed, altered, ornamented, finished,
repaired, adapted or otherwise processed for sale for the purposes of the trade
or business of the principal employer when the process is to be carried out
either in the home oflhe out-worker or in some other premises not being
premises under the control and management of the principal employer and
argued that it would show that those who work at the place either of or under D
the Control and management of the principal employer, must be treated as
the workmen of the principal employer. It is further argued that where the
work is of a perennial nature, sub-section (2) of Section 10 of the CLRA Act
requires that the contract labour should be abolished so it would be an abuse
on the part of the employer to resort to employing contract labour in such a E
case. Reliance is also placed on Rules 21(2), 25(2)(V)(a), 72, 73, 74-Form
XII, Rules 75, 76, 77, 81(3), 82(2) and Forms I, II, lJJ and IV relating to
certificate of registration, Form VI relating to licence, Form XIV relating to
issue of employment card and Form XXV relating to annual returns of the
principal employer, to contend that the principal employer has to keep track
with the number of workmen employed, terms and conditions on which they F
are employed and, therefore, the employer cannot be permitted to plead that
no relationship of master and servant exists between the principal employer
and the contract labour. It is elaborated that under the CLRA Act, the action
of the contractor who is the agent of the principal employer to engage contract
labour, binds him and creates relationship of master and servant between G
them, therefore, the only consequence of notification under Section 10( I)
could be to remove the contractor (middle-man) and mature the relationship
which had already existed between the workman and the principal employer
into a completely direct relationship and that the effect of the notification

Jo. 1978 (4) sec 2s1 H
386 SUPREME COURT REPORTS (2001] SUPP. 2 S.C.R.

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

H 31 1995 (5) sec 21
STEEL AUTHORITY OF INDIA LTD. v. NATIONAL UNION WATER FRONT WORKERS [QUADRI, J.J J 87
Ms. Indira Jaisingh has contended that the primary object of the labour A
laws is to effectuate the Directive Principles of State policy and, therefore,
the provisions of CLRA Act have to be interpreted accordingly; the principles
of contract law are inapplicable in sricto senso to labour-management relations;
she relied on the following judgments of this Court: W~stern India Automobile
Association v. The Industrial Tribunal, Bombay and Ors.,32 The Bharat Bank B
Ltd, Delhi v. Employees of the Bharat Bank Ltd., Delhi and Anr.,31 Rai
Bahadur Diwan Badri Das v. The Industrial Tribunal," Punjab and Uptron
India Ltd v. Shammi Bhan and Anr. 15 Prior to the enactment of CLRA Act,
it is pointed out, the courts have ordered abolition of contract labour and their
departmentalisation in The Standard-Vacuum's case (supra) and Hussainbhai's
(supra). She has argued that the Statement of Objects and Reasons does not C
say that the CLRA Act is intended to alter the then existing law; it codifies
the existing law and confers quasi legislative power upon the government to
prohibit contract labour; it does not affect the powers of the court to direct
absorption of contract labour [see Baral Fritz Werner Ltd etc. etc. v. State
of Karnataka"; the abolition notification is issued after consideration of all D
the facts and circumstances so the consequence can only be that the contractor
is displaced and a direct relationship is established between the principal
employer and the contract labour; in Air India's case (supra), it was held that
the consequence of the abolition of contract labour, by necessary implication,
would result in the principal employer absorbing the contract labour; the
linkage between the contractor and the employee would be snapped and a E
direct relationship between the principal employer and the contract labour
would emerge to make them its employees; she invited our attention to Vegoils
Private Limited v. The Workmen, r Dena Nath and Ors. v. National Fertilisers
Ltd and Ors. and Gujarat Electricity's18 case (supra) and submitted that the
award proceedings stipulated in Gujarat Electricity's Case (supra) was
cumbersome procedure making the remedy "a teasing illusion", therefore, F

32. AIR (36) 1949 Federal Court 111

33. 1950 SCR 459

34. 1963 (3) SCR 930 G
35. 1998 (6) sec 538

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

37. 1911 (2) sec 724

38. 1992 (IJ sec 695 H
388 SUPREME COURT REPORTS [2001) SUPP. 2 S.C.R.

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

Mr. R. Venkatramani, the learned senior counsel appearing for the
respondents in the appeal filed by the O.N.G.C. submitted that though the
CLRA Act itself did not abolish the contract labour, it empowered the
C appropriate government to abolish the system in any establishment in the
given circumstances. His contention is that Section I 0 is intended to remove
the contractor from the picture and that it can not be read as leading to
removal of workers. He has also relied on the reasoning of Justice Majmudar
in Air India's case (supra) and added that ifthe contract labour is not absorbed
the remedy of the abolition of the contract labour would be worse than the
D mischief sought to be remedied. He submitted that this Court directed
absorption in V.S.T. Industries Ltd. v. V.S.T. Industries Workers' Union and
Anr., 39 G.B. Pant University of Agriculture and Technology, Pant Nagar,
Nainital v. State of UP. and Ors.!0 Union of India and Ors. v. Mohammed
Aslam and Ors., 41 Indian Petrochemicals Corporation Ltd. and Anr. v. Shramik
E Sena and Ors. 42

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

40. 2000 (7) sec 109

41. 200110 sec 120

H 42. 1999 (6) sec 439
STEEL AUTHORITY OF INDIA LTD. '·NATIONAL UNION WATER FRONT WORKERS [QUADRI, I.] 389
three situations: (1) where there has been notification for abolition of contact A
labour; (2) where in violation -of the notification, contract labour is employed;
and (3) where principal employer resorts to employing of contract labour
without getting itself registered or through a contractor who is not licensed.
He laid emphasis upon the Directive Principles contained in Articles 39, 41,
42 and 43 and urged for interpreting the beneficial legislation like CLRA Act B
to promote the intention of the legislature; he argued that the purpose of
abolition of the contract labour was to discontinue the exploitation of the
contract labour and to bring it on par with lhe regular workmen, therefore,
it was implicit that on abolition of the contact labour system, the concerned
workmen should be absorbed as regular employees of the principal employer;
relying upon the reasoning of Justice Majmudar in his concurring judgment C
in Air India's case (supra), it was submitted that in labour laws the development
had been on the basis of the judgments of the Courts and, therefore, we
should interpret Section 10 to hold that as a result of issuance of prohibition
notification, the contract labour working in an establishment at that time
should stand absorbed automatically.
D
Ms. Asha Jain Madan, the learned counsel appearing for the contract
labour (respondents in C.A. Nos. 6009-6010 of200\ @S.L.P. (C) Nos.12657-
12658 of 1998), adopted the argument of the other learned senior counsel;
she also relied on the concurring judgment of Justice Majmudar in Air India's
case (supra) in support of her contention that automatic absorption should E
follow prohibition ofcontract labour by the appropriate Government in any
given establishment.

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

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

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

For a proper examination of these issues, a reference to Section I 0
which provides for prohibition of employment of contract labour and Clauses
(b), (c), (e), (g) and (i) of Section 2 of CLRA Act which define the terms H
390 SUPREME COURT REPORTS [2001] SUPP. 2 S.C.R.

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

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

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

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

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

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

H 45. (1584 (3) Co. Rep. 7a)
STEEL AUTHORITY OF !NOIA LTD.'· NATIONAL UNION WATERFRONT WORKERS (QUADRl, l.J 39 J
between the contractor and the contract labour; (5) the contractor can A
utilise the services of the contract labour in any other establishment
in respect of which no notification under Section I 0 (I) has been
issued; where all the benefits under the CLRA Act which were being
enjoyed by it, will be available; (6) if a contractor intends to retrench
his contract labour he can do so only in conformity with the provisions B
of the LD. Act.

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

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

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

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

By definition the term ·contract labour' is a species of workman. A
workman shall be so deemed when he is hired in or in connection with the E
work of an establishment by or through a contractor, with or without the
knowledge of the principal employer. A w.orkman may be hired: (I) in an
establishment by the principal employer or by his agent with or without the
knowledge of the principal employer; or (2) in connection with the .work of
an establishment by the principal employer through a contractor or by a F
contractor with or without the knowledge of the principal employer. Where
a workman is hired in or in connection with the work of an establishment by
the principal employer through a contractor, he merely acts as an agent so
... there will be master and servant relationship between the principal employer
and the workman. But where a workman is hired in or in connection with the
work of an establishment by a contractor, either because he has undertaken G
to produce a given result for the establishment or because he supplies workman
for any work of the establishment, a question might arise whether the contractor
is a mere camouflage as in Hussainbhai Caiicut's case (supra) and in Indian
Petrochemicals Corporation's case (supra) etc.; if the answer is in the
affinnative, the workman will be in fact an employee of the principal employer; H
392 SUPREME COURT REPORTS [2001) SUPP. 2 S.C.R.

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

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

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

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

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

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

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

It contains four parts. Under the first part, the head of any office or
department or such other officer as the Government or the local authority, as
the case may be, may specify in that behalf, is called the 'principal employer'.
H The second part takes in the owner or occupier of the factory and where a
STEEL AUTHORITY OF INDIA LTD. '·NATIONAL UNION WATER FRONT WORKERS [QUADRI, J J 393

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

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

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

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

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

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

394 SUPREME COURT REPORTS [2001] SUPP. 2 S.C.R.

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

c Now we shall consider issue A:

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

D It would be useful to notice the historical perspective of the contract
labour system leading to the enactment of the CLRA Act for a proper
appreciation of the issue under examination. The problem; and the abuses
resu Iting from engagement of contract labour had attracted the attention of
the Government from time to time. In the pre-independence era, in 1929 a
Royal Commission was appointed by the then British Government to study
E and report all the aspects of labour. Suffice it to mention that in 1931 the
Royal Commission ( also known as 'Whitley Commission') submitted its
report mentioning about existence of intermediary named "jobber" and
recommended certain measures to reduce the influence of the 'jobber'. Nothing
substantial turned on that. In 1946 Rege Committee noted that in India
contractors would either supply labour or take on such portions of work as
F they could handle ..The Committee pointed out,. "whatever may be the grounds
advanced by employers, it is to be feared that the disadvantages of the system
are far more numerous and weightier than the advantages"; though the Rege
Committee recognised need for contract labour yet urged for its abolition
where it was possible and recommended for regulating conditions of service
G where its continuance was unavoidable.. In 1956 the Second Planning
Commission (of which the then Prime Minister Pandit Jawahar Lal Nehru
was the Chairman) observed that in the case of contract labour the major
problems relate to the regulations of working conditions and ensuring them
continuous employment and for that purposes suggested that it was necessary
to:
H .,..'
STEEL AUTHORITY OF !NOIA LTD "·NATIONAL UNION WATER FRONT WORKERS [QUADRI, J.] 395

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

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

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

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

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

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

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

Indeed, the National Commission which was chaired by Justice P.B.
G
Gajendragadkar who was a party to the judgment of this Court in The Standard
Vacuum's case (supra) possibly inspired by that judgment enumerated factors,
indicated therein which would justify dispensing with the contract labour
system, in para 29.11 of its report, which is reproduced hereunder.
H
396 SUPREME COURT REPORTS [2001] SUPP. 2 S.C.R.

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

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

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

We have already referred to the Statement of Objects and Reasons of
· the Act elsewhere in this judgment which also does not allude to the concept
H of automatic absorption of the contract labour on issuance of notification for
STEEL AUTHORITY OF INDJA LTD '·NATIONAL UNION WATER FRONT WORKERS [QUADRI, J.] ) 97

prohibition of employment of the contract labour. A
Now turning to the provisions of the Act, the scheme of the Act is to
regulate cond.itions of workers in contract labour system and to provide for
its abolition by the appropriate Government as provided in Section I 0 of the
CLRA Act. In regard to the regulatory measures, Section 7 requires the
principal employer of an establishment to get itself registered under the Act. B
Section 12 of the Act obliges every contractor to obtain licence under the
provisions of the Act. Section 9 of the Act places an embargo on the principal
employer of an establishment, which is either not registered or registration of
which has been revoked under Section 8, from employing contract labour in
the establishment. Similarly, Section 12(1) bars a contractor from undertaking C
. or executing any work through contract labour except under and in accordance
with a licence. Sections 23, 24 and 25 of the Act make contravention of the
provisions of the Act and other offences punishable thereunder. With regard
to the welfare measures intended for the contract labour, Section 16 imposes
an obligation on the appropriate Government to make rules to require the
contractor to provide canteen for the use of the contract labour. The contractor D
is also under an obligation to provide rest room as postulated under Section
17 of the Act. Section 18 imposes a duty on every contractor employing
contract labour in connection with the work of an establishment to make
arrangement for a sufficient supply of wholesome drinking water for the
contract labour at convenient places, a sufficient number of latrines and E
urinals of the prescribed type at convenient and accessible places for the
contract labour in the establishment, washing facilities etc. Section 19 requires
the contractor to provide and maintain a first aid box equipped with prescribed
contents at every place where contract labour is employed by him. Section
21 specifically says that a contractor shall be responsible for payment of
wages to workers employed by him as contract labour and such wages have F
to be paid before the expiry of such period as may be prescribed. The principal
employer is enjoined to have his representative present at the time of payment
of wages. In the event of the contractor failing to provide amenities mentioned
above, Section 20 imposes an obligation on the principal employer to provide
such amenities and to recover the cost and expenses incurred therefor from G
the contractor either by deducting from any amount payable to the contractor
or as a debt by the contractor. So also, Sub-Section (4) of Section 21 says
that in the case of the contractor failing to make payment of wages as
prescribed under Section 21, the principal employer shall be liable to make
payment of wages to the contract labour employed by the contractor and will
be entitled to recover the amount so paid from the contractor by deducting H
398 SUPREME COURT REPORTS (2001] SUPP. 2 S.C.R.

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

If we may say so, the eloquence of the CLRA Act in not spelling out
the consequence of abolition of contract labour system, discerned in the light
B of various reports of the Commissions and the Committees and the Statement
of Objects and Reasons of the Act, appears to be that the Parliament intended
to create a bar on engaging contract labour in the establishment covered by
the prohibition notification, by a principal employer so as to leave no option
with him except to employ the workers as regular employees directly. Section
C I 0 is intended to work as' a permanent solution to the problem rather than to
provide a one time measure by departmentalizing the existing contract labour
who may, by a fortuitous circumstance be in a given establishment for a very
short time as on the date of the prohibition notification. It could as well be
that a contractor and his contract labour who were with an establishment for
a number of years were changed just before the issuance of prohibition
D notification. In such a case there could be no justification to prefer the contract
labour engaged on the relevant date over the contract labour employed for
longer period earlier. These may be some of the reasons as to why no specific
provision is made for automatic absorption of contract labour in the CLRA
Act.
E In the light of the above discussion we are unable to perceive in Section
I0 any implicit requirement of automatic absorption of contract labour by the
principal employer in the concerned establishment on issuance of notification
by the appropriate Government under Section 10(1) prohibiting employment
of contract labour in a given establishment.
F
Here we may also take note of the judicial approach in regard to
absorption of contract labour on issuing direction for its abolition, from the
cases decided before the enactment of CLRA Act. In The Standard Vacuum's
case (supra), the appellant-company engaged contractor for cleaning and
maintenance work at the refinery and plant belonging to it. The contract
G labour made a demand for abolition of contract labour system and for
absorption of the contract labour in the regular service of the company. The
dispute was referred to the Tribunal under the Industrial Disputes Act. The
appellant raised an objection to the competence of the reference, inter alia,
on the ground that there can be no dispute between it and the respondents as
H they were the workmen of a different employer namely, the contractor. The
STEEL AUTHORITY OF INDIA LTD. "· NATIONAL UNION WATER FRONT WORKERS [QUADRI,J.) 399

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

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

Now, it would be apt to notice the judicial approach after the enactment H
400 SUPREME COURT REPORTS (2001) SUPP. 2 S.C.R.

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

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

"The Act was passed to prevent the exploitation of contract labour
-----
H 47. 1974(1)SCC 596
STEEL AUTHORITY OF INDIA LTD. v. NATIONAL UNION WATER FRONT WORKERS [QUADRI, l.j 40}

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

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

In the case of R.K. Panda and Ors. v. Steel Authority of India and H
402 SUPREME COURT REPORTS [2001] SUPP. 2 S.C.R.

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

G 48. 1994 (5) sec 304
49. 1985 (I) sec 630

50. 1991 (2) sec 116

51. 1995 Supp. (3) sec 152

H 52. 1993 Supp. (3) sec 248
STEEL AUTHORITY OF INDIA LTD.'· NATIONAL UNION WATER FRONT WORKERS (QUADRI, l.J 4QJ

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

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

In Association of Chemical Workers, Bombay v. A.L. Alaspurkar and D
52
Ors. a three-Judge Bench of this Court declined to go into the correctness
of the pronouncement in Dena Nath's case (supra) that automatic absorption
does not follow on prohibition of contract labour but directed the principal
employer to consider the contract labour, by giving them preference, in
appointment.
E
In Gujarat Electricity Board's case (supra), a two-Judge Bench of this
Court has held that ifthere is a genuine labour contract between the principal
employer and the contractor, the authority to abolish the contract labour vests
in the appropriate Government and not in any court including industrial
adjudicator. If the appropriate Government abolishes the contract labour system F
in respect of an establishment the industrial adjudicator would, after giving
opportunity to the parties to place material before it, decide whether the
workmen be absorbed by the principal employer, if so, how many of them
and on what terms, but if the appropriate Government declines to abolish the
contract labour the industrial adjudicator has to reject the reference. If, G
however, the so-called contract is not genuine but is sham and camouflage
to hide the reality, Section 10 would not apply and the workmen can raise
an industrial dispute for relief that they should be deemed to be the employees
of the principal employer. The court or the industrial adjudicator would have
jurisdiction to entertain such a dispute and grant necessary relief.
H
404 SUPREME COURT REPORTS (2001) SUPP. 2 S.C.R.

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

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

H The principle that a beneficial legislation needs to be construed liberally
STEEL AUTHORITY OF INDIA LTD. '·NATIONAL UNION WATER FRONT WORKERS (QUADRI, !.] 405

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

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

An analysis of the cases, discussed above, shows that they fall in three
classes; (i) where contract labour is engaged in or in connection with the H
406 SUPREME COURT REPORTS [2001] SUPP. 2 S.C.R.

A work of an establishment and employment of contract labour is prohibited
either because the Industrial adjudicator/Court ordered abolition of contract
labour or because the appropriate Government issued notification under Section
10(1) of the CLRA Act, no automatic absorption of the contract labour working
in the establishment was ordered; (ii) where the contract was found to be
B sham and nominal rather a camouflage in which case the contract labour
working in the establishment of the principal employer was held, in fact and
in reality, the employees of the principal employer himself. Indeed, such
cases do not relate to abolition of contract labour but present instances wherein
the Court pierced the veil and declared the correct position as a fact at the
stage after employment of contract labour stood prohibited; (iii) where in
C discharge of a statutory obligation of maintaining canteen in an establishment
the principal employer availed the services of a contractor and the courts
have held that the contract labour would indeed be the employees of the
principal employer.

The next issue that remains to be dealt with is:
D
B. Whether on a contractor engaging contract labour in connection
with the work entrusted to him by a principal employer, the
relationship of master and servant between him (the principal
employer) and the contract labour emerges.
E Mr. Shanti Bhushan alone has taken this extreme stand that by virtue
of engagement of contract labour by the contractor in any work of or in
connection with the work of an establishment, the relationship of master and
servant is created between the principal employer and the contract labour.
We are afraid, we are unable to accept this contention of the learned counsel.
F A careful survey of the cases relied upon by him shows that they do not
support his proposition.

In The Maharashtra Sugar Mil/s's case (supra), the question that fell
for consideration of this court was whether the contract labour was covered
by the definition of ·employee' under the Bombay Industrial Relations Act,
G 1946 and, therefore, should be treated as employees of the appellant-sugar
mills. There contractors were engaged by the appellant for carrying on certain
operations in its establishment. The contractors were to employ contract labour
(workers) for carrying out the work undertaken but they should have the
approval of the appellant, although it was the obligation of the contractors to
H pay wages to the workers. However, the contract labour engaged by the
STEEL AUTHORITY OF !NOIA LTD. '· NATIONAL UNION WATER FRONT WORKERS [QUADRI, J ] 407

contractors got the same amenities from the appellant as were available to its A
muster roll workers. An industrial dispute arose in respect of the payment of
wages to the contract labour engaged by the contractors which, along with
other disputes, was referred to the Industrial Court by the Government. The
reference was contested, as being not maintainable, by the appellant on the
plea that the contractors' workers were not 'employees' within the meaning . B
of the said Act. The term 'employee' is defined in the said Act to mean 'any
person employed to do any skilled or unskilled manual or clerical work for
hire or reward in any industry and includes a person employed by a contractor
to do any work for him in execution of a contract with an employer within
the meaning of sub-clause (3) of clause 14'. It was on the basis of the definitions
of the tenns "the employer" and "the employee'', the contract labour engaged C
by the contractors was held to be employees of the appellant. The decision
in that case cannot be read as holding that when a contractor engages contract
labour in connection with the work of the principal employer, the relationship
of master and servant is created between the principal employer and the
contract labour.
D
In Shivnandan Shanna's case (supra), the respondent-Bank entrusted
its cash department under a contract to the treasurers who appointed cashiers,
including the appellant - the head cashier. The question before the three-
Judge Bench of this Court was: was the appellant an employee of the Bank?
On the construction of the agreement entered into between the Bank and the E
treasurers, it was held that the treasurers were under the employment of the
Bank on a monthly basis for an indefinite term as they were under the
complete control and direction of the Bank through its manager or other
functionaries and, therefore, the appointees including the appellant (nominees)
of the treasurers, were also the employees of the Bank. This Court laid down,
F
"if a master employs a servant and authorises him to employ a
number of persons to do a particular job and to guarantee their fidelity
and efficiency for a cash consideration, the employees thus appointed
by the servant would be equally with the employer, servants of the
master''.
G
We do not think that the principle, quoted above, supports the proposition
canvassed by the learned counsel.

The decision of the Constitution Bench of this Court in Basti Sugar
Mills' case (supra) was given in the context of reference of an industrial. 'H
408 SUPREME COURT REPORTS [2001J SUPP. 2 S.C.R.

A dispute under the Uttar Pradesh Industrial Disputes Act, 1947. The appellant-
Sugar Mills entrusted the work of removal of press mud to a contractor who
engaged the respondents therein (contract labour) in connection with that
work. The services of the respondents were terminated by the contractor and
they claimed that they should be re-instated in the service of the appellant.
B The Constitution Bench held,

"The words of the definition of workmen in Section 2(z) to mean
"any person (including an apprentice) employed in any industry to do
any skilled or unskilled, manual, supervisory, technical or clerical
work for hire or reward, whether the terms of employment be express
c or implied" are by themselves sufficiently wide to bring in persons
doing work in an industry whether the employment was by the
management or by the contractor of the management. Unless however
the definition of the word "employer" included the management of
the industry even when the employment was by the contractor the
workmen employed by the contractor could not get the benefit of the
D Act since a dispute between them and the management would not be
an industrial dispute between "employer" and workmen. It was with
a view to remove this difficulty in the way of workmen employed by
contractors that the definition of employer has been extended by sub-
clause (iv) of Section 2(i). The position thus is: (a) that the respondents
E are workmen within the meaning of Section 2(z), being persons
employed in the industry to do manual work for reward, and (b) they
were employed by a contractor with whom the appellant company
had contracted in the course of conducting the industry for the
execution by the said contractor of the work of removal of press-mud
which is ordinarily a part of the industry. It follows therefore from
F Section 2(z) read with sub-clause (iv) of Section 2(i) of the Act that
they are workmen of the appellant company and the appellant company
is their employer."

It is evident that the decision in that case also turned on the wide
G language of statutory definitions of the terms "workmen·' and "employer'·.
So it does not advance the case pleaded by the learned counsel.

In The Saraspur Mills' case (supra), the question was whether the
respondents engaged for working in the canteen run by the co-operative
society for the appellant-company were the employees of the appellant-Mills.
H The respondents initiated proceedings under Section 79 of the Bombay
STEEL AUTHORITY OF !NOIA LTD. '· NATIONAL UNION WATER FRONT WORKERS [QUADRI, J.j 409

Industrial Relations Act, 1946 for payment of D.A. in terms of the award of A
the Industrial Court. The appellant contested the claim on the ground that the
respondents were emp'loyees of the co-operative society and not of the
appellant. A two-Judge Bench of this Court approached the question from the
point of view of statutory liability of the appellant to run the canteen in the
factory and having construed the language employed in the definitions of
"employee" and "employer" in sub-sections (13) and (14), respectively, of B
Section 3 of the Act, and the definition of "worker" contained in Section 2(i)
of the Factories Act and having referred to the Basti Sugar Mills' case (supra),
held that even though in pursuance of a statutory liability the appellant was
to run the canteen in the factory, it was run by the co-operative society as
such the workers in the canteen (the respondents) would be the employees of C
the appellant. This case falls in class (iii) mentioned above.

In a three-Judge Bench decision of this Court in Hussainbhai's case
(supra), the petitioner who was manufacturing ropes entrusted the work to
the contractors who engaged their own workers. When, after some time, the
workers were not engaged, they raised an industrial dispute· that they were D
denied employment. On reference of that dispute by the State Government,
they succeeded in obtaining an award against the petitioner who unsuccessfully
challenged the same in the High Court and then in the Supreme Court. On
examining various factors and applying the effective control test, this court
held that though there was no direct relationship between the petitioner and E
the respondent yet on lifting the veil and looking at the conspectus of factors
governing employment, the naked truth, though draped in different perfect
paper arrangement, was that the real employer was the management not the
immediate contractor. Speaking for the Court, Justice Krishna Iyer observed
thus :-
F
"Myriad devices, half-hidden in fold after fold of legal form depending
on the degree of concealment needed, the type of industry, the local
conditions and the like may be resorted to wheil labour legislation
casts welfare obligations on the real employer, based on Articles 38,
39, 42, 43, and 43-A of the Constitution. The court must be astute to
avoid the mischief and achieve the purpose of the law and not be G
misled by the maya of legal appearances ............ .

Of course, if there is total dissociation in fact between the disowning
Management and the aggrieved workmen, the employment is, in
substance and in real-life terms, by another. The Management's
adventitious connections cannot ripen into real employment." H
410 SUPREME COURT REPORTS (2001] SUPP. 2 S.C.R.

A This case falls in class (ii) mentioned above.

The above discussion amply justifies rejection of the contentions of Mr.
Shanti Bhushan by us.

We find no substance in the next submission of Mr. Shanti Bhushan
B that a combined reading of the definition of the terms 'contract labour',
'establishment' and 'workman' would show that a legal relationship between
a person employed in an industry and the owner of the industry is created
irrespective of the fact as to who has brought about such relationship.

C We have quoted the definitions of these terms above and elucidated
their import. The word 'workman' is defined in wide terms. It is a generic
term of which contract labour is a species. It is true that a combined reading
of the terms 'establishment' and 'workman' shows that a workman engaged
in an establishment would have direct relationship with the principal employer
as a servant of master. But what is true of a workman could not be correct
D of contract labour. The circumstances under which contract labour could be
treated as direct workman of the principal employer have already been pointed
out above.

We are not persuaded to accede to the contention that a workman, who
E is not an out-worker, must be treated as a regular employee of the principal
employer. It has been noticed above that an out-worker falls within the
exclusionary clause of the definition of 'workman'. The word 'out worker'
connotes a person who carries out the type of work, mentioned in sub-clause
(C) of clause (i) of Section 2, of the principal employer with the materials
supplied to him by such employer either (i) at his home or (ii) in some other
F premises not under the control and management of the principal employer.
A person who is not an out worker but satisfies the requirement of the first
limb of the definition of 'workman' would, by the very definition, fall within
the meaning of the term 'workman'. Even so, if such a w0rkman is within the
ambit of the contract labour, unless he falls within the afore-mentioned classes,
G he cannot be treated as a regular employee of the principal employer.

We have also perused all the Rules and Forms prescribed thereunder.
It is clear that at various stages there is involvement of the principal employer.
On exhaustive consideration of the provisions of the CLRA Act we have held
above that neither they contemplate creation of direct relationship of master
H and servant between the principal employer and the contract labour nor can
STEEL AUTHORITY OF INDIA LTD.•. NATIONAL UNION WATER FRONT WORKERS (QUADRI, l.J 4JJ

such relationship be implied from the provisions of the Act on issuing A
notification under Section 10( I) of the CLRA Act, a fortiorari much less can
such a relationship be found to exist from the Rules and the Forms made
thereunder.

The leftover contention of Ms. Indira Jaisingh may be dealt with here.
The contention of Ms. Indira Jaisingh that the principles of contract law B
sticto senso do not apply to the labour and management is too broad to merit
acceptance.

In Rai Bahadur's case (supra), the industrial dispute referred to the
Industrial Tribunal was: whether all the employees of the appellant should be C
allowed 30 days' earned leave with full wages for every 11 months' service
without discrimination. The appellant framed the rules on July I, 1956
providing that every workman employed on or before that date would be
entitled to 30 days' earned leave with full wages for every 11 months' service.
The contention of the employer was that those who were employed after that
date were not entitled to the same period of leave. It was contended that the D
appellant was entitled to fix the terms of employment on which it would
employ the workmen and it was open for the workman to accept or not to
accept those terms so the Tribunal was not justified in interfering with such
matter. A three-Judge Bench of this Court, by majority, held that the Tribunal
was justified in directing the appellant to provide the same uniform rules as
to earned leave for all its employees that the doctrine of absolute freedom of E
contract had to yield to the higher claims for social justice and had to be so
regulated. After referring to Western India's case (supra) and The Bharat
Bank's case (supra), Justice P.B. Gaiendragadkar speaking for the majority
observed:
F
"in order that industrial adjudication should be free from the tyranny
of dogmas or the sub-conscious pressure of pre-conceived notions, it
is important that the temptation to lay down broad principles should
be avoided. Accordingly, it is not necessary to decide the broad
contention whether industrial adjudication can interfere with the
contract between the employers and the employees." G
It is apparent that the case was decided on the ground that there could
be no discrimination of the employees in regard to their entitlement for
earned leave on the basis of a fixed date and that no general principle was
laid down that the contract laws are inapplicable to labour-management
relation. H

t
412 SUPREME COURT REPORTS [2001] SUPP. 2 S.C.R.

A In the case of Uptron India (supra), the controversy related to the
tennination of the services of the workmen for unauthorised absence. The
Industrial Employment (Standing Orders) Act, 1946 provided that a workman
is liable to automatic termination on the ground of unauthorised absence. It
is in that context that this Court has observed that the general principles of
the Contract Act, 1872 applicable to an agreement between two persons
B having capacity to contract, are also applicable to a contract of industrial
employment but relationship so created is partly contractual and partly non-
contractual as the States have already, by legislation, prescribed positive
obligations for the employer towards his workmen, as for example, tenns,
conditions and obligations prescribed by the Payment of Wages Act, 1936;
C Industrial Employment (Standing Orders) Act, 1946; Minimum Wages Act,
1948; Payment of Bonus Act, 1965; Payment of Gratuity Act, 1972 etc. In
our view, the iaw has been correctly laid down therein. The judgment in that
case cannot be read as laying down a principle of law that the provisions of
the Contract Act are not applicable to relation between the labour and the
management.
D
The upshot of the above discussion is outlined thus:

(I) (a) Before January 28, 1986, the determimttion of the question
whether Central Government or the State Government, is the
appropriate Government in relation to an establishment, will
E depend, in view of the definition of the expression "appropriate
Government" as stood in the CLRA Act, on the answer to a
further question, is the industry under consideration carried on by
or under the authority of the Central Government or does it pertain
to any specified controlled industry; or the establishment of any
F railway, cantonment board, major port, mine or oilfield or the
establishment of banking or insurance company? If the answer is
in the affirmative, the Central Government will be the appropriate
Government; otherwise in relation to any other establishment the
Government of the State in which the establishment was situated,
would be the appropriate Government,
G
(b) After the said date in view of the new definition of that expression,
the answer to the question referred to above, has to be found in
clause (a) of Section 2 of the Industrial Disputes Act; if (i) the
concerned Central Government company/undertaking or any
-
undertaking is included therein eo nomine, or (ii) any industry is
H carried on (a) by or under the authority of the Central Government,
STEEL AUTHORITY OF INDIA LTD.'· NATIONAL UNION WATER FRONT WORKERS [QUADRI, !.] 413

or (b) by railway company; or (c) by specified controlled industry, A
then the Central Government will be the appropriate Government
otherwise in relation to any other establishment, the Government
of the State in which that other establishment is situated, will be
the appropriate Government.

(2) (a) A notification under Section 10(1) of the CLRA Act prohibiting B
employment of contract labour in any process, operation or other
work in any establishment has to be issued by the appropriate
Government :

(I) after consulting with the Central Advisory Board or the State C
Advisory Board, as the case may be, and;

(2) having regard to

(i) conditions of work and benefits provided for the contract
labour in the establishment in question; and D

(ii) other relevant factors including those mentioned in sub-
section (2) of Section 1O;

(b) inasmuch as the impugned notification issued by the Central E
Government on December 9, 1976 does not satisfy the afore-said
requirements of Section I 0, it is quashed but we do so
prospectively i.e. from the date of this judgment and subject to
the clarification that on the basis of this jtidgment no order passed
or no action taken giving effect to the said notification on or
before the date of this judgment, shall be called in question in any F
tribunal or court including a High Court if it has otherwise attained
finality and/or it has been implemented.

(3) Neither Section I 0 of the CLRA Act nor any other provision in
the Act, whether expressly or by necessary implication, provides for
automatic absorption of contract labour on issuing a notification by G
appropriate Government under sub-section (I) of Section I 0,
prohibiting employment of contract labour, in any process, operation
or other work in any establishment. Consequently the principal
employer cannot be required to order absorption of the contract labour
working in the concerned establishment; H
414 SUPREME COURT REPORTS [2001] SUPP.·2 S.C.R.

A (4) We over-rule the judgment of this court in Air India's case (supra)
prospectively and declare that any direction issued by any industrial
adjudicator/any court including High Court, for absorption of contract
labour following the judgment in Air India's case (supra), shall hold
good and that the same shall not be set aside, altered or modified on
the basis of this judgment in cases where such a direction has been
B given effect to and it has become final.

(5) On issuance of prohibition notification under Section 10(1) of the
CLRA Act prohibiting employment of contract labour or otherwise,
in an industrial dispute brought before it by any contract labour in
C regard to conditions of service, the industrial adjudicator will have to
consider the question whether the contractor has been interposed either
on the ground of having undertaken to produce any given result for
the establishment or for supply of contract labour for work of the
establishment under a genuine contract or is a mere ruse/camouflage
to evade compliance of various beneficial legislations so as to deprive
D the workers of the benefit thereunder. If the contract is found to be
not genuine but a mere camouflage, the so-called contract labour will
have to be treated as employees of the principal employer who shall
be directed to regularise the services of the contract labour in the
concerned establishment subject to the conditions as may be specified
by it for that purpose in the light of para 6 hereunder.
E
(6) If the contract is found to be genuine and prohibition notification
under Section I0( I) of the CLRA Act in respect of the concerned
establishment has been issued by the appropriate Government,
prohibiting employment of contract l~bour in any process, operation
F or other work of any establishment and where in such process,
operation or other work of the establishment the principal employer
intends to employ regular workmen he shall give preference to the
erstwhile contract labour, if otherwise found suitable and, if necessary,
by relaxing the condition as to maximum age appropriately taking
into consideration the age of the workers at the time of their initial
G employment by the contractor and also relaxing the condition as to
academic qualifications other than technical qualifications.

We have used the expression "industrial adjudicator" by design as
determination of the questions afore-mentioned requires inquiry into disputed
H questions of facts which cannot conveniently be made by High Courts in
STEEL AUTHORITY OF INDIA LTD. o. NATIONAL UNION WATER FRONT WORKERS [QUADRI, J.] 4 J5

exercise of jurisdiction under Article 226 of the Constitution. Therefore, in A
such cases the appropriate authority to go into those issues will be industrial
tribunal/court whose determination will be agienable to judicial review.

In the resu It :

CA.Nos.6009-601012001 @S.L.P. (C) Nos. 12657-58198 B
The order of the High Court at Calcutta, under challenge, insofar as it
relates to holding that the West Bengal Government is the appropriate
Government within the meaning of the CLRA Act, is confirmed but the
direction that the contract labour shall be absorbed and treated on par with C
the regular employees of the appellants, is set aside. The appeals are
accordingly allowed in part.

CA.No.601112001@ SLP(C)No.20926198

In the impugned order of the High Court of Judicature, Madhya Pradesh, D
Bench at Jabalpur in C.P. 14.3 of 1998 dated October 14,1998, 'it was held
that no contempt of the High Court was committed. In view of this finding,
no interference of this Court is warranted. The appeal is accordingly dismissed.

T.CNo. 112000
E
W.A.No. 80/J 998 on the file of the High Court of Judicature at Andhra
Pradesh was transferred to this Court and numbered as TC. 1/2000. The writ
appeal is directed against the order of the learned Single Judge dismissing
W.P.No.29865/1998 on 13. 11.J 997. The petitioner questioned the competence
of the State Government to make reference of the industrial dispute to the
Labour Court at Visakhapatnam. It will be open to the Labour Court to F
Q
decide the question whether the reference was made by the appropriate
Government on the basis of the main judgment. Transferred Case No. 112000
( W.A.80/1998) is dismissed accordingly.

T.C Nos.5-712000
G
Civil Writ Petition Nos.1329/97, 655/97 and 1453/97 on the file of the
High Court of Delhi were transferred to this Court and numbered as TC. 51
2000, TC. 612000 and TC. 7/2000 respectively. The petitioners therein prayed
for a writ of mandamus directing the respondents to absorb them as regular
employees in the establishment in which they were working at the relevant H
416 SUPREME COURT REPORTS [2001] SUPP. 2 S.C.R

A time. Their claim is based on the impugned notification dated December 9,
1976 issued by the Central Government. In view of the finding recorded by
us that the notification is illegal and it is not issued by the appropriate
Government.under the CLRA Act in relation to the establishment in question,
the petitioners in writ petitions cannot get any relief. However, we leave it
B open to the appropriate Government to issue the notification under Section
I 0(1) of the CLRA Act in respect of the concerned establishment of the
petitioners. Subject to the above observation the transferred cases are dismissed.

T.C.Nos. 1712000 and 1812000

C L.P.A. Nos. 326/97 and 18/98 on the file of the High Court of Judicature,
Madhya Pradesh, Bench at Jabalpur were transferred and numbered as TC.Nos.
17/2000 and 18/2000. The Letter Patent Appeals were directed against the
order of a learned Single Judge allowing the writ petitions and directing
absorption of the members of the respondent-union. The claim of the petitioners
was based on a notification issued by the Central Government on 17.3.1993
D prohibiting; with effect from the date of publication of the notification the
employment of contract labour in the limestone and dolomite mines in the
country, in the works specified in the Schedule to the notification. The points
that arise in these cases are: (i) the validity of the notification and (ii) the
consequential orders that may be passed on issue of the abolition notification.
E Having regard to the facts of these cases, we consider it appropriate to direct
that the cases be transferred back to the High Court to be decided by the High
Court in the light of the main judgment. Transferred cases are disposed of
accordingly.

C.A.No.60121200/@SLP(C) No. 956812000
F
This appeal arises from the order of the High Court of Judicature at
Jabalpur in LPA No.418/1999 dated l.5.2000. The High Court declined to
pass any order and dismissed the LPA as this Court had stayed proceedings
in the connected LPA Nos. 326/97 and 18/98 on August 17, 1998. Inasmuch
we have now transferred back those LPAs, we consider it appropriate to
G transfer this case also back to the High Court to be heard and decided along
with the said cases. The appeal is accordingly disposed of.

CA.Nos. 719-72012001

H These appeals arise from the judgment and order of a Division Bench
STEEL AUTHORITY OF INDIA LTD '·NATIONAL UNION WATER FRONT WORKERS [QUADRI, J.] 4 J7

of the High Court of Judicature at Calcutta in MAT Nos. 1704 and 1705 of A
1999 dated August 12, 1999. A learned Single Judge of the High Court
directed, inter alia, absorption of contract labour on the ground that the type
of work in which the contract labour was engaged was prohibited in view of
the notification issued by the Central Government on February 9, 1980 under
Section 10(1) of the CLRA Act. The appellants filed the application against B
the notification on the ground that the respondents are not covered by the
notification. Be that as it may, the Central Government issued a further
notification on 14.10.1999 which appears to cover the respondents herein.
The Division Bench maintained the directions under appeals with modification
in regard to interim order. In view of the fact that we have over-ruled the
judgment of this Court in Air India's case (supra) which covered the field C
when the order of the High Court was passed, we set aside the order of the
High Court under challenge. Appeals are accordingly allowed.

T.C.No. 1412000

M.A.T. No.1592/1997 pending before the Division Bench of the High D
Court of Calcutta which was filed against the order of a learned Single Judge
dated 9.5.1997 in C.O. No.6545(w) of 1996, holding that having regard to
the impugned notification of the Central Government dated December 9,
1976 issued under Section 10(1) of the CLRA Act prohibiting employment
of contract labour, the appellants are bound to absorb the contra1;t labour as E
regular employees of the appellants. In view of the main judgment, the order
of the learned Single Judge cannot be sustained. It is accordingly set aside
and the transferred case is allowed.

C.A.Nos. 5798-9911998
F
In these appeals, the Food Corporation of India is the appellant. Having
regard to the un-amended definition of the appropriate Government which
was in force till 28.1.1986, the appropriate Government within the meaning
of CLRA Act was the government of the State in which the concerned
establishment of FCI was situated. With effect from 28.1.1986, the amended
definition of that expression under the CLRA Act came into force. G
Consequently, the definition of that expression as given in the Industrial
Disputes Act would apply for purposes of the CLRA Act also. FCI is included
within the definition of appropriate Government in sub-clause (I) of clause
(a) of Section 2 of the Industrial Disputes Act. It follows that for any
establishment of FCI for the purposes of the CLRA Act, the appropriate H
418 SUPREME COURT REPORTS [2001] SUPP. 2 S.C.R.

A Government will be the Central Government.

In these appeals, prohibition notification was issued on March 26, 1991
under Section I0(1) of the CLRA Act prohibiting employment of contract
labour in the concerned establishment in the process, operation or work of
handling of foodgrains including loading and unloading from any means of
B transport, storing and stocking. The respondents claimed absorptitm of contract
labour in the concerned establishment of the appellant. A Division Bench of ,,.
the High Court of Bombay following the judgment of this Court in Air
India's case (supra) directed the appellant to absorb the contract labour engaged
in the depots of the appellant in Jalgaon, Srirampur and Ahmednagar
C (Khedgaon). Inasmuch we have over-ruled the judgment in Air India's case
(supra), the appeals deserve to be allowed. We, accordingly, set aside the
judgment of the High Court under challenge and allow these appeals leaving
it open to the contract labour to seek appropriate relief in terms of the main
judgment.
-
D C.A.Nos.6013-221200/@SLP(C) Nos. 16122-16131198

These appeals by FCI from the judgment of a Division Bench of the
Karnataka High Court in W.A. Nos. 345-354/97 dated April 17, 1998
confirming the judgment of a learned Single Judge passed in W.P. N0.22485/
E 94 and batch dated 22.11.1996. The learned Single Judge directed absorption
of the contract labour with effect from 29.1.1996. Inasmuch as the impugned
judgment, under challenge, was passed following the judgment in Air India's
case (supra) which has since been over-ruled, we set aside the judgment of
the High Court and allow these appeals accordingly, leaving it open to the
contract labour to seek appropriate relief in tenns of the main judgment.
F
CA.Nos. 4188-94198 and 4195198

These appeals arise from a common judgment of the High Court of
Karnataka in W.A.Nos. 228-229, 231, 233-236/97 and 1742/97 dated 17.4.98
are filed by union of workmen and workmen of FCI. The Division Bench
G confirmed the judgment of the learned Single Judge directing absorption of
contract labour in the concerned establishment of the appellants w.e.f. 29.1.96.
The grievance of the appellants is that they should have been absorbed with
effect from the date of the prohibition notification dated November I, 1990.
Inasmuch as in the connected civil appeals we have set aside the judgment
H of Division Bench passed following the judgment of this Court in Air India's
STEEL AUTHORITY OF INDIA LTD. "·NA TI ON AL UNION WATER FRONT WORKERS [QUADRI, l.] 4 J9

case (supra) which has since been over-ruled, the appellants are not entitled A
to any relief in these appeals. Accordingly, these appeals are dismissed.

T.P(C) Nos. 284-30212000 and 308-33712000

In these transfer petitions, the petitioners prayed for transfer of various
writ petitions/writ appeals pending in the High Court of Andhra Pradesh B
mentioned in para (a) of prayer on the ground that the question involved in
those cases is pending consideration of this Constitution Bench in SLP (C)
Nos. 12657-58/98. Notice has been ordered in these cases but the cases are
not transferred. Inasmuch as we have already pronounced the judgment in the
above-mentioned cases, we are not inclined to allow these transfer petitions. C
The High Court will now proceed to decide those cases in accordance with
the main judgment. Transfer petitions are dismissed accordingly.

CA.No. 602912001@SLP(C)No. I 634612000

The order under challenge in this appeal is the judgment of a Division D
Bench of the High Court of Bombay in W.P.No. 4050199 dated 2.8.2000. On
the ground that the members of respondent union (employees of ONGC) are
covered by the notification issued by the Central Government on December
9, 1976, the High Court ordered absorption of the workers employed as
contract labour. Inasmuch as the Central Government became the appropriate E
Government, for an establishment of ONGC after the amended definition of
the appropriate Government came into force under the CLRA Act w.e.f.
28.1.1986 whereunder the definition of the said expression under the Industrial
Disputes Act is adopted in the CLRA Act, therefore, the Central Government
will be the appropriate Government for ONGC w.e.f. 28.1.1986. It follows
that the notification issued on December 9, 1976 would not cover the F
establishments of the appellant. However, as the High Court directed absorption
of the contract labour in the establishments of the appellant following the
judgment of this Court in Air India's case (supra) and that judgment has since
been over-ruled, both on the question of appropriate Government as well as
on the point of automatic absorption, we set aside the order under challenge G
and accordingly allow this appeal.

These appeals are directed against the order of the High Court of Andhra
Pradesh in W.A. Nos. 1652-1655/99 and 1959/99 dated 22.11.99. The Division H

/
420 SUPREME COURT REPORTS [2001] SUPP. 2 S.C.R.

A Bench of the High Court took note of the fact that the order of the learned
Single Judge had been given effect to and on the facts declined to condone
the delay of 353 days in filing the writ appeals. In our view, having regard
to the facts and circumstances of the case, no interference with the impugned
order, is warranted. The appeals are, therefore, dismissed.

B CA.Nos. 6024-251200 l@SLP(C)Nos. 8282-8312000

These appeals are from the order of the Division Bench of the High
Court of Gujarat in LP.A.No. I I 8/2000 dated I 9.4.2000 which was directed
against the interim order passed by a learned Single Judge. Inasmuch as the
C writ petitions are pending before the High Court, we are not inclined to
interfere with the orders impugned in the appeals. We leave it open to the
High Court to dispose of the writ petitions in terms of the main judgment.
The appeals are accordingly dismissed.

TP. (C)No. 16912000
D
In this transfer petition, the petitioner seeks transfer of S.C.A.No.5 I92/
99 pending in the High Court of Gujarat. Notice has been issued but the case
is not transferred. In view of the fact that we have pronounced the judgment
in the connected cases, we are not inclined to order transfer of the case from
the High Court. We leave it open to the High Court to dispose of the said
E appeal in accordance with the main judgment of this Court. Transfer petition
is dismissed accordingly.

CA.No. 60231200/@SLP(C)No.1939 l/99

F This appeal arises from the judgment and order dated I 9.8.1999 of the
High Court of Patn'I, Ranchi Bench, Ranchi, in LP.A.No. 214/99 (R). The
Division Bench declined to interfere with the order of the learned Single
Judge dismissing the writ petition filed by the appellant.

The case arose out of the award dated October 3, 1996 passed by the
G Central Government Indust~ial Tribunal No.1 directing the appellant to absorb
the contract labour. The Tribunal, on appreciation of the evidence, found that
the contract labourers were not regularised to deprive them from the due
wages and other benefits on par with the regular employees under sham
paper work by virtue of the sham transaction. It was also pointed out that the
H workmen in other coal washery were regularised. The claim of the appellant
STEEL AUTHORITY OF INDIA LTD. "· NATIONAL UNION WATER FRONT WORKERS [QUADRI, J.] 421

that the washery was given to the purchaser was not accepted as being a A
sham transaction to camouflage the real facts. The learned Single Judge on
consideration of the entire material confirmed the award and the Division
Bench declined to interfere in the LPA. We find no reason to interfere with
the order under challenge. The appeal is, therefore, dismissed with costs.

C.A.No. 141/2001 B

This appeal arises from the judgment of the High Court of Judicature
at Bombay passed in W.P.No. 2616/99 dated 23.12.99. The employment of
contract labour in the concerned establishment of the appellant was prohibited
by the notification issued by the Central Government under Section I 0( I) of C
the CLRA Act on 16.11.99. Following the judgment of this Court in Air
India's case (supra), the High Court directed the appellant to absorb the
contract labour. Inasmuch as we have over-ruled the judgment of this Court
in Air India's case (supra), the direction given by the High Court cannot be
sustained. We, however, leave it open to the respondent-union to seek
appropriate relief in terms of the main judgment. The order, under challenge, D
is set aside. The appeal is accordingly allowed.

In all these cases except in C.A.6023/200 l@SLP(C)No. 19391/99, the
parties are directed to bear their own costs.

T.N.A . Appeals and T.C. dismissed/disposed of/allowed. E

•