Holding

The abolition of the contractor system created a direct employer‑employee relationship, making the workers workmen of the corporation; the subsequent re‑introduction of the contractor without the required notice under Section 9A was an illegal change and void, so the workers remained employees of the corporation.

Summary

The case concerned 464 labourers at the Food Corporation of India's Siliguri depot who were originally employed through a contractor. In 1973 the corporation abolished the contractor and introduced a direct payment system, paying wages directly to the workers via Sardar/Mondal agents. The corporation later, in 1975, reinstated the contractor without giving the statutory notice required under Section 9A of the Industrial Disputes Act, thereby terminating the workers' service. The Supreme Court held that the introduction of the direct payment system created a master‑servant relationship, making the workers employees of the corporation; consequently, the later re‑introduction of the contractor without notice was an illegal change and amounted to unlawful termination. The Tribunal’s award dismissing the workers' claim was set aside and the appeal was allowed, restoring the workers’ status as corporation employees.

Issues considered

Whether the abolition of the contractor system and introduction of a direct payment system in 1973 transformed the status of the workers into workmen of the Food Corporation of India.
Whether the re‑introduction of the contractor system in 1975 without giving notice under Section 9A of the Industrial Disputes Act constitutes an illegal change, discharge or retrenchment.
Whether notice under Section 9A is a condition precedent to any alteration in wages or mode of payment.
Whether the termination of service without compliance with the Standing Orders and Section 9A is void.
Effect of the non‑issuance of notice on the legality of the change.

Legislation cited

Constitution of Indias. Art.12, s. Art.14
Contract Labour (Regulation and Abolition) Act, 1970
Food Corporations Act, 1964
Industrial Disputes Act, 1947s. 25F, s. 31(2), s. 9A
Industrial Employment (Standing Orders) Act, 1946

Subjects

industrial disputeworkmen definitiondirect payment systemcontract labourSection 9Anotice of changetermination of serviceretrenchmentstanding ordersFood Corporation of Indiacontract labour abolition

Judgment

1065

WORKMEN OF THE FOOD CORPORATION OF INDIA A
.'
v.

M/S. FOOD CORPORATION OF INDIA

February 28, 1985. B
(D.A. DESAI, V. BALAKRISHNA ERADI AND V. KHALID. JJ.]

Industrial Disputes Act, 1947, sec. 9A-Contract System abofished-
lntroduction of direct payment system ejfectof-Whetker reintrodiiction of contract
system amounts to discharge, termination of service or retrenchment <Jf workmen-
Whether notice u/s. 9A is a condition precedent to such change-Effect of non~ C
issuance of such notice.

There were 464 workmen designated as handling Mazdoors for hand ..
ling foodgrains at Siliguri Depot set up by the respondedt"'Food Corporation
of India in West Bengal. Prior to January 2, 1973, the work of handling
foodgrains at the said depot was entrusted by the respondent to a contractor
who used to engage workmen and the workmen received their salaries or D
wages or remuneration from the contractor as determined by the contractor
or as agreed between the Contractor and the workmen. The respondent
introduced direct payment system with effect from January 2, 1973 pur·
suant to an agreement arrived at between the parties and the intermediary
contractor disappeared from the picture. The method adopted was that
the bills for the piece rate wag.es payable to handling Mazdoors were
E
prepared by the Depot staff. The work rendered by each workmen had to
be entered into a muster roll register. The rCspondeot-Corpora..
tion distributed the wages calculated on piece rate to each
workman through Sardars/Mondals and each workman was required
to be a party to the acquittance roll to be retained by the respondent.
The Sardars/Mondals used to accept payment and sign bills on behalf of
the aforesaid workmen. The respondent changed this method of direct F
payment with effect from March 10, 1975 superseding the direct payment
system and reintroducing contractor system and that too without giving
any notice of change to the Workmen's Union-appellant herein as contemp·
lated by section 9(A) of the Industrial Disputes Act 1947 (l.D. Act, for
short). Consequently the respondent discontinued employment of the
J aforesaid 464 workmen and brought in the in' ermediary contractor and G
treated the workmen as the workmen employed by the contractor. The
appellant~Uoion raised an industrial dispute as to whether the disconti.
nuance of employment of 464 workers of their Silliguri Depot w.e.f. 21st
July 1974 by the respondent is lawful and justified and the same was
referred to the tribunal which negatived the claim of the appe\lant ..union
and held that the discontinuance of contractor system in the year 1973 and H
1066 SUPREME COURT REPORTS (1985] 2 s.c.a.

A introduction a direct payment system did not bring about any change in the
status of the workmen and therefore they never became the workmen of
the respondent.Corporation. As a corrollary, it further held that reintro-
duction of the contractor system in 1975 did not constitute discontinuance
of the services of the affected workmen. Hence this appeal by special
leave.

B The appellant-Union contended (il that even though the workmen
were initially engaged by the contractor when the work of handling food·
grains brought to Silliguri Depot was entrusted to a contractor, but subse-
quently at least from April 1973, the intermediary contractor was removed
and they became the workmen directly employed by the Corporation and
were therefore_, the workmen of the respondent; and unless their services
were legally terminated, they cannot be discontinued from service of the
Corporation and some other master imposed upon them. (ii) that apart
c from being an unfair labour practice, the changeover was illegal and vindic··
tive and malicious in character and that the respondent was legaHy bound
to give a notice of the said change to the Union as contemplated u/s. 9A
of the I.D. Act. On the other hand, the respondent·Corporation argued
(i) that even when the so called direct payment system was introduced after
removing the contractor, it was basically a spill over of the old contract
system save and except that the contractor was replaci::d by Sardars/Mondals
D to whom total payment on piece rate was made and who distributed tbe
wages to the individual workmen, the rate of payment remaining the san1e
as ·was in vogue at the time the contractor handled the work;ind therefore
at no point of time, the concerned workman ever became the direct work-
men of the Corporation and no question of giving a notice of change arose
as required by section 9(A) of the r.D. Act.
E
Allowing the appeal,

HELD : (1) 'Workmen' has been defined in the Industrial disputes
Act to mean 'any person (including an apprentice) employed in any industry
to do ..•... 11 • The expression 'employed bas at least two known conaota-
tions but as used in the definition, the context would indicate that it is
used in the sense of a relationship brought about by express or implied
F contract of service io \Yhich the employee renders service for which he is
engaged by the employer and the latter agrees to pay him in cash or kind
as agreed between them or statutorily prescribed. It discloses a relation-
ship of command and obedience. The essential condition of a person being
a workman within the terms of the definition is that he should be employed
to do the work in that industry and that there should be, in other words,
an employment of his by the employer and that there should be a relation-
G
ship between the employer and him as between employer and employee or
master and servant. Unless a person is thus employed there can be no
question of bis being a 'workman' within the definition of the term as
contained in the l.D. Act. [1075F-H; !076A·B]

Dharangadhara Chemical Works Ltd. v. State of Saurashtra, [1957]
l! SCR IS2; roferred to.
WORKMEN v. FOOD CORPN. 106'7
i
(2) No employer since the introduction of the J.D. Act, 1947 and A
contrary to its Certified Standing Orders as statutorily required to be
drawn up under the Industrial Employment (Standing Orders) Act, 1946
can dispei::ise with the service of any workman without complying with the
law in force. Any termination of service contrary to the provisions of the
Standing Orders and the provisions of the l.D. Act, 1947 would be void.
It is not necessary to call in aid precedents to substantiate this too obvious
and well-established proposition. Section 9A also makes it obligatory
upon an employer who proposes to effeot any change in the conditions of B
service applicable to any workman in respect of any matter specified in the
Fourth Schedule to give a notice of desired or intended cb~1nge. It cannot
do so without giving to the workman likely to be affected by the change
a notice in the prescribed manner of the nature of the change proposed to
be effected and within 21 days of giving such notice.
[IOSOB-C; !082H; 1083A-B]
3(i) It is nowhere suggested that Sardars/Monda1s were contractors.
c
They were mere1y the agents of the Corporation for distributing the salary/
wages earned by each workman as set out in the register to be maintained
in respect of each workman by his name and tho wages earned by him at
the piece rate. Once the rate remained unchanged even after the removal
of the contractor, the qualitative change in the position of workmen conse· D
quently would be, that the workmen's earnings at piece rate accelerated
upward because the contractor's commission whatever be retained unto
himself became available to the workmen and they benefitted. Therefore,
the abolition of the contract system and the introduction of direct payment
system brought about a basic qualitative change in the relationship between
• the Corporation and the workmen engaged for handling foodgrains in that
on the disappearance of the intermediary contractor, a direct re~ationship E
of master and servant came into existence between the contractor anu the
workmen. [ I078D-G]

3(ii) MoreoverJ it was obligatory for the Corporation to arrange for
handling the bags of foodgrains. The workmen handled the foodgrains
for the Corporation and none else. For this service rendered, the Corpo-
ration agreed to pay and paid wages at piece rate to each workman whose
name appeared in the register to be maintained for the purpose as per the F
directions given by the District Manager. If the pay packets were actually
distaibuted by Sardars/Moodals, they can be said to be doing clerical work
on behalf of the Corporation in the same manner as a clerk in the Accounts
Department prepares and distributes pay packets for each employee of the
Corporation month to month. If the clerk cannot be said to be the
emloyer, ipso facto the Sardars/Mondals could not be clothed \\'ith the
status of the replaced contractor. The intermediary screen having dis-
appeared, the direct relationship came into existence and the conclusion is G
inescapable that since the introduction of the direct payment system, the
workmen became the workmen of the Corporation and a direct master
servant relationship came into existence. [1079A-C]

3(iii) The finding of the tribunal when it observed something
but it
contrary to record that the contractor system was not discontinued
ll
1068 SUPREME COUllT REPORTS (1985] 2 S.C.R.

A was really snatched away by the Mazdoors from the contractor apart from
being perverse is contrary to record and overlooks two important lettors
dated January 18, 1973 and April 28, i977 by wbich the Union and tho
Manaaing Director respectively affirmed the voluntary settlement arrived
at between the parties, both for abolishing the contract system and intro-
ducing the direct payment system. The Tribunal feel into a serious error
in overlooking relevant evidence and drawing surmises contrary to the
B record. Tnerefore, the award of the Tribunal rejecting the reference and •
denying the benefit must be quashed and set aside and an a'ward be made
that the aforementioned 464 workmen who had become the ·workmen of
the Corpcration continued to be the workmen employed by the Corporation
and shall be entitled to all ~he rights1 liabilities, obligations and dutie& as
prescribed for the workmen by the Corporation. [10790-E; 10830-H]

c
(4) When workmen working under an employer are told that they
have ceased to be the workmen of that employer, and have become work-
men of another employer namely, the contractor in this case, in legal
parlance such an act of the first employer constitutes discharge, termination
of service or retrenchment by whatsoever name called and a fresh employ-
ment by another employer namely, the contractor. If the termination of
D service by the first employer is contrary to the wel1 estabHshed legal position
the effect of the employment by the second employer is wholly irrelevant.
No attempt was made to justify the termination of service of the afore-
mentioned workers of the Corporation by the subtle device of introducing
a contractor so as to bring about a cessation of contract of employment
between the workmen and the Corporation and a fresh contract of employ-
ment between the workmen and the contractor. If what was intended to
E be done was retrenchment, ex facle the action is contrary to the provisions of
Sec. 25F of the I.D. Act, 1947. Viewed from either angle, the action of
introducing so as to displace tho contract of service bet"een the Corporation
and the workmen would be illegal and invalid and ab initio void and such
action would not alter, change or have any effect on ti:lc status of the
afore-mentioned 464 workmen who have become the workmen of the
Corporation. [I080C-F]
F
(S) If the workmen Jikely to be affected by the change are persons
to whom the Fundamental and Supplementary Rules, Civil Services (Classi-
fication, Control and appeal) Rules, Civil Services (Temporary Ser.vice)
Rules, Revised Leave RUies, Civil Setvice Regulations, Civilians in Defence
Services (Classification Control and Appeal) Rules or the Indian Railway
G' Establishment Code or any otber rules or regulations that may be noti-
fied in this behalf by the appropriate Government _in the Official Gazette,
apply ao notice of change would be necessary before effecting a chaage.
No attempt was made on behalf of the respoodent·Corporation to urge
that any of the aforementioned rules would govern the conditions of service
of the workmen involved in the dispute. Now after introducing the direct
payment system agreed to between the parties, if the Corporation of the '
employer wanted to introduce a change in respect of any of the matters
set out in Fourth Schedule, it was obligatory to give a notice of change.
H Item I in the Fourth Schedule provides : 'wages, including the period and
WORKMEN v. FOOD CORPN. (Desai, J.) 1069

mode of payment'. By cancelling the direct payment system and intro· A
ducing the contractor, both the wages and the mode of payment are being
altered to the disadvantage of the workmen. Therefore, obviously a notice
of change was a must before introducing the change, otherwise it would be
an illegal change. Any such illegal change invites a penalty under Sec. 31
(2) of the I.D. Act, 1947. Such a chance which is punish:ible as a criminal
offence would obviously be an illegal change. It must be held that without
anything more such an illegal change would be wholly ineffective. [1083C-F] B

(6) The Food Corporation of India was set up under the Food
Corporations Act 1964. The scheme of Lhe Food Corporations Act would
not permit the Corporation an instrumentality of the State, to act in a
manner thoroughly arbitrary by first keeping a contractor, removing him
and reinducting him without a semblance of consideration for the fate of
the working for it or for its benefit or for some work connected with the c
functions of the Corporation. Therefore, the scheme of the Act has hardly
any relavance save and except that its action is likely to be struck down as
arbitrary being violative of Art. 14, but it is not necessary to go so far
because the relief under the Industrial Disputes Act is readily available
to the workmen. While the trend is in the direction of abolition of
contract labour, this public sector undertaking appears to be completely
oblivious to the trend and the p.:ice-setter as enacted by the Parliament D
in the Contract Labour (Regulation and Abolition) Act, 1970. The Act
was enacted with a view to abolishing wherever possible or practicable,
the employment of contract labour. The Corporation attempted by its
action to reverse that trend which docs not credit to it. Where the law
helps, sucb anti.Jabour practices must be thwarted or nipped in the bud.
(108IG-H;1082C-D] E
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1055 (NL)
of 1981.

From the Award of Central Government Industrial Tribunal,
Calcutta dated 29 8.1980 in Reference No. 13 of 1977 dated
27.9.1980. F

T.S. Krishnamurthi, S.K. Nandy and C.S. Vaidyanathan, for
the Appellants.

S.N. Kacker, S. Chatterjee aud A.K. Panda, for the Respon-
dents. G
The judgment of the Court was delivered by

DESAI, J. Vacillation on the part of a public sector un~er
taking has pushed this trivial dispute to the Apex Court addmg
h anxiety and misery on the part of lowest grade workmen
~ t e ....
and wasteful eipenditure on futile 1lt1gat1on.
H
10'70 SUPREME COURT REPORTS {1985) 2 S.C.R.

A Food Corporation of India ('Corporation' for short) was
set up under an Act of Parliament being the Food Corporations
Act, 1964 ('Act' for short) to provide, amongst other, for the
establishment of Food Corporations for the purpose of trading
in food-grains and other food·stuffs and for matters connected
therewith and incidental thereto. For performance of the func-
8 tions statutorily prescribed under Sec 13 of the Act namely, to
undertake the purchase, storage, movement. transport, distri-
•
bution and sale of foodgrains and other foodstuffs, the
Corporation has to set up godowns/depots and other storage
facilities and to engage Jabour for handling foodgrains at the
c godowns ·or in transit. The Corporation adopted different
methods at different places for employing labour for handling
foodgrains. One sue!: depot has been setup by the Corporation
at Siliguri in West Bengal State. Number of workmen designated
as handling Mazdoor were employed at Siliguri Depot. At the
relevant time, 464 workmen were attached to this depot. It
D appears initia!ly a contractor was engaged by the Corporation
for handling storage and transit of foodgrains at Siliguri Depot.
Subsequently, by negotiations and settlements. the contract system
was abolished and the workmen were directly paid the wages,
presumably at piece rate for the service rendered by them by the
Corporation. A forther attempt was made to bring about a
E basic change in the system by reinducting the intermediary
contractor. This attempt to change the status of the workmen
from being workmen of the Corporation to becoming the Jabour
employed by the contractor was resisted by 'Food Corporation of
India Workers' Union ·-appellant herein-('Union' for short)
and it Jed to negotiations between the Corporation and the Union
F resulting i·l a settlement as evidenced by Union's letter dated
January 18, 1973. Two terms of the settlement may be noticed
here. They read as under :

"(i) the FCI management agrees to take a final deci-
sion by 1.4 73 on the demand of the Union for
departmentalisation of the workers working in the
G Corporations' permanent owned large-size go-
downs, where work goes on al! the year ronnd in
West Bengal, Bihar, Orissa, Assam and New
Delhi.

(ii) ...................................... .
(iii) ·······································
I

WORKMEN v. ~·ooo CORPN. (Desai, J.) 1071

(iv) In the meantime the Food Corporation of India A
management agrees to introduce the direct pay-
ment system to the workers working in their
owned godowns as also in the hired godowns at
the same stations at which this system is introdu-
ced for the owned godowns in the aforesaid States.
.......................... ,, ....................................... . B

The payment to the workers will be made at the
rates at which the contractors are being paid
now".

These terms of settlement have been set out in the afore- c
mentioned letter of the Union. The Managing Director in his
reply dated January 20, 1973 confirmed the decision taken as
indicated in the Jetter under reply. It would thus appear that
the negotiations ended in a settlement. The Corporation addres ·
sed communication No. A-50(38)/72-Labour dated April 28,
1973 to its various Regional Managers in the aforementioned D
five States pointing out therein that the procedure in respect of
direct payment to labourers laid down in the communication
shall be followed. The method adopted is that the bills for the
piece rate wages payable to handling Mazdoors should be prepared
by the Depot Staff, and the Sardar/Mondal would accept pay-
ment and sign bills on their behalf and distribute the wages to E
the handling labour. A copy of this letter was also sent to the
Joint Secretary of the Union. By the letter dated October 29,
1973 of the District Manager of the Corporation at Siliguri
addressed to the Joint Secretary of the Union, the Union was
informed to advise the local representatives of the workmen 'to
F
submit the wage bill in time in which particulars of per head
out turn by name' was required to be mentioned. The expression
'per head out turn' means tbe quantum of work rendered by
each workman with his name so that his wage at piece rate e.an
be calculated and paid to him. This system of payment was
being implemented and was in vogue, till January 27, 197 5. On
account of some other industrial dispute, the members of the G
t Union who were workmen attached to Siliguri Depot went on
strike on and from January 28, 1975. This strike was called off
on March 9, 1975· The usual management response followed
and effective from March 10, 19 7 5 the Corporation changed the
method of payment superseding the direct payment system and
reintroducing contractor system and that too without giving any
"
1072 SUPREME COURT REPORTS [1985] 2 s.c.R..

A notice of change as contemplated by Sec. 9A of the Industrial
Disputes Act, 1947 ('I.D. Act' for short). As a direct conse-
quence of this change, the Corporation discontrnued employment
of 464 workmen attached to Siliguri Depot and brought in the
intermediary contractor and treated the afore-mentioned workmen
as the workmen employed by the contractor. The Union protes· •
B ted against this i!legal action alleging that apart from being an
unfair labour practice, the changeover was illegal and vindictive
and malacious in charactor. According to the Union these 464
workmen were already accepted as the workmen of the Corpo-
ration and unless their services were legally terminated, they
cannot be discontinued from service of the Corporation and some
c other master imposed upon them.

An industrial dispute in this behalf raised by the Union
was referred by the Central Government to the Central Govern-
ment Industrial Tri bun a\, Calcutta under Sec. 1O of the I.D. Act
D for adjudication. The reference was in the following terms :

"Whether the discontinuance of employment of
464 workers of their Si!iguri Depot with effect from
21-7-75 by the management of Food Corporation of
India is lawful and justified ? If not, to what relief
E are the workers entitled ?"

The Corporation contested the reference inter alia contend-
ing that ordinarily the handling of foodgrains at varions depots
was entrusted to a contractor who employs his own workmen and
that this system of employing the contractor was unavoidable
F because the receipt and distribution of foodgrains at various
depots is not a continuous process but solely depends upon the
transport system and work is of a fluctuating nature. It was
admitted that direct payment system was introduced at Siliguri
Depot and the contractors were replaced by workers working
under their Sardars and they were never accepted as direct work-
G men of the Corporations. It was contended that the Sardars
replaced the contractor but the system remains the same and
that the workers were paid the same rate as were paid to the
contractors and at no point of time the workmen ever became '
the direct workmen of the Corporation. A reference to the
strike of the workmen at the Siliguri Depot was made in the
Ill written statement and it was stated that the strike was not called
WORKMEN v. FOOD CORPN. (Desai. J.) 1073

A
off by the workmen unanimously but it had to be discontinued
on account of prohibitory order made by the appropriate Govern-
ment while exercising its power to make a reference of the exist-
ing industrial dispute under Sec. IO of the J.D. Act for adjudi-
cation. It was contended that Sec. 9-A of the J.D. Act is not
attt acted because tre1e was no change which necessitated a
• B
notice. The allegaticns of victimisation and unfair \abour
practice were denied.

The rival contentions and the nature of reference necessita-
ted a decision on the question : whether the workmen represented
by the union and attached to Si!iguri Depot were or had become C
at any point of time the workmen of the Corporation and whether
an illegal change made with regard to their conditions of service
by the Corporation ?

Chapter II-A was introduced in the Industrial Disputes
Act, 1947 by Sec. 6 of the Amending Act 36 of 1956 which
cam~ into force on March 10, 1957. Sec. 9A imposed an obli-
gation on the employer to give a notice of change, if he proposes
to effect any change in the conditions of service applicable to
any workman in respect of any matter specified in the Fourth
Schedule. Item No. 1 in the Fourth Schedule reads : 'wages, in_
E
' eluding the period and mode of payment'. Thus if mode of
payment in vogue is sought to be changed by the employer, Sec.
9A imposes an obligation to give a notice of change to the work-
men likely to be affected by such change in the prescribed manner
cogently setting out the nature of the change proposed to be
effected. Any change effected without following the procedure
prescribed in Sec. 9A will be punishable under Sec. 31 (2 of the F
I.D. Act.

The dispute between the parties revolves round the status
of 464 workmen whose discontinuance from employment resulted
in the industrial dispute which was referred for adjudication. In
short the dispute is : whether the workmen covered by the refe-
rence were the workmen of the Corporation or employed by the
.. j contractor and were therefore, the workmen of the contractor ?
The Union contends that even though the workmen were initially
engaged by the contractor when the work of handling foodgrains
brought to Siliguri Depot was entrusted to a contractor but subse·
quently at least from April, 1973, the intermediary contractor H
1074 SUPREMB COURT REPORTS [1985) 2 S.C.R.

A was removed and they became the workmen directly employed
by the Corporation and were therefore, the workmen of the
Corporation. On the other band, the Corporation contends
that the work of handling foodgrains at Si!iguri Depot was
always entrnsted to a contractor because the work is of a fluctua-
ting and intermitent nature and therefore, it was not possible to
•
have regular work force for handling the same. According to the
Corporation. even when the rn-called dirett payment system was
introduced after removing the contractor, it was basica!Jy a spill
over of the old contract system save and except that the conractor
was replaced by Sardars/Mondals to whom total payment on
piece rate was made and who distributed the wages to the indh i-
c dual workman, the rate of payment remaining the same as was
in vogue at the time the contractor bandied the work. It was
therefore, submitted on behalf of the Corporation that at no
point of time, the concerned workmen ever became the direct
workmen of the Corporation and therefore, no question of giving
D a notice of change arose as required by Sec. 9A of the I,D. Act.

The Tribunal held that initially there was a contractor
engaged to undertake handling of foodgrains. The contractor
engaged the workmen for handling the foodgrains. It was how-
ever, held that prior to the introduction of 'direct payment system'
in January 197 3 at no point of time the handling of foodgrains
E which means loading and unloading from wagons, trncks and
then storing and stacking in the godowns, was ever Ul)dertaken
by the Corporation and always the work was entrusted to a
contract.or who engaged his own workmen. The Tribunal accep.
ted the contention of the Union that since January 2, 1973, the
F contractor system was discontinued and what is called the direct
payment system was introduced. The Tribunal however procee-
ded to observe that this did not bring about any change in the
status of the workmen and therefore, they never became the
workmen of the Corporation. As a coro!lary. the Tribunal held
that reintroduction of the contractor system in 197 5 did not
constitute discontinuance of the services of the affected workmen.
In accordance with these fii>dings, the Tribunal negatived the
claim of the workmen and made the award to that effect. Hence + •
c
this appeal by special Jeave.

The first and the foremost question is : what is the effect
I
of the introduction of direct payment system from January 2,
wo.,KMBN v. FOOD CORPN. (Desai, J.) 1075

1973 on the status of the workmen involved in the reference ?
The Tribunal proceeded to examine the evidence about the
e'!.isteoce of contractor system p1ior to January, 197 3. That is
hardly relevant. Pa1ties are agreed that prior to January 2, 1973
the work of handling foodgrains at SiJiguri Depot was entrusted
by the Corporation to a contractor and the contractor engaged
B
• the workmen and the workmen received their salaries or wages or
remuneration from the contractor as determined by the cont1 actor
or as agreed between the contractor and the workmen and there-
fore, the workmen were not the workmen. of the Corporation.
It ts merely adding to the length of the judgment to examine
evidence in respect of an admitted position. Correct approach is c
to accept this uncontroverted finding of the Tribunal.

It is not in dispute that since January 2, I 973 direct pay-
ment system was introduced. What does this direct payment
system imply ? Has it any impact on the relation between the
Corporation and the workmen to whom by the change introducing D
direct payment system. the Corporation removod the contractor,
took work from the workmen and agreed to pay each workman
by name on piece rate basis according to his out-turn work ?
Has it any bearing on the issne involved in the dispute, namely,
on the status of the workmen ?

Briefly stated, when Corporation engaged a contractor for
handling foodgrains at Si!iguri Depot, the Corporation had
nothing to do with the manner of handling work done by the
contractor, the labour force employed by him, payments made
by him etc. In such a fact situation. there was no privity of F
contract or employer and workmen between the Corporation and
the wo1kmen. 'Workman' has been defined (omitting the words
not necessary) in the Industrial disputes Act to mean 'any person
(including an apprentice .l employed in any industry to do ........... .'.
The expression employed has at least two known connotatioJ>s
but as used in the definition. the context would indicate that it is G
used in the sense of a relationship brought about by express or
implied contract of service in which the employee renders service
for which he is engaged by the employer and the latter agrees
to pay him in case or kind as agreed between them or statu·
torily prescribed. It discloses a relationship of command and
obedience. The essential condition of a person being a workman
within the te.rms of the definition is that he should be employed H
1076 SUPREME COURT REPORTS (1985] 2 s.c.R.

A to do the work in that industry and that there shonld be. in
other words, an employment of his by the employer and that
there should be a relationship between the employer and him as
between employer and employee or master and servant Unless a
person is thus employed there can be no question o; his being a
•workman' within the definition of the term as contained in the
B Act. (Dharangadhara Chemical Works Ltd. v. State of Saurashtra(l).
Now where a contractor employs a workman to do the work
•
which he contracted with a third person to accomplish on the
definition as it stands, the workman of the contractor would not
without something more become the v.orkman of that third person.
Therefore, when the contract system was in vogue, the workmen
c employed by the contractor were c1rtainly not the workmen of the
Corporation and no claim to that effect has been made by the
Umon.

On January 2, 1973 pursuant to the agreement arrived at
between the parties evidenced by the letter dated January 18, 1973,
D
the parties agreed to introduce and did introduce the direct payment
system to workmen working in the godowns owned by or hired by
the Corporation. Introduction of this system is confirmed by the
letter dated January 20, 1973 and was not disputed before us. What
constitutes direct payment system becomes clear from the letter
dated April 28, 1977 addressed by the Corporation to all its Regio-
E nal Managers working at Calcutta, Patna, Gauhati and Bhubaneswar.
As this has a direct bearing on the understanding of the concept of
direct payment in contra-distinction to the earlier prevailing system
of engaging contractor and in supersession of it, the same may be .
reproduced in extenso. Says the letter :
F "The procedure in respect of direct payment to
labourers laid down as under should be followed strictly :-

(I) The bills would be prepared by the Depot Staff.

(2) The Labour should authorise their Sardar/Mondal to
G accept payment and sign bills on their behalf and give
acquittance.

(3) The authorised Sardars/Mondals may then receive the
money after giving acquittance.
~
I.
.
!I (I) [1957] SCR 153
WORKMEN v. FOOD CORPN. <Desai, J.) 1077

(4) The bill with acquittance in original should be with A
FCI".

Further amplifying this method, the Corporation by its letter
dated October 22, 1973, directed as under:

"I have been directed by Zonal Manager (East) that B
the payment to be made to the workers directly by us after
the Direct Payment System.

You are therefore, requested to advise your local
representatives to submit the bill in time in which parti-
culars of per head out-turn by namf should be mentioned, c
so that we do not feel any difficulty to pass the bill and to
... pay the workers in time. If formalities as directed by
Zonal Manager are not observed we will not be able to
pay the workers from next fortnight."

D
Examining the system of direct payment as setout in the letter
dated April 28, 1973 further amplified by the letter dated October
29, 1973, it becomes crystal clear that name of every workman
engaged to handle foodgrains at Siliguri Depot will be mustered in
a register and his daily out-turn "'ill be specified. The payment
will be by piece rate as was in vogue at the time of contractor
system. The bill will be prepared s~tting out the names of the E
workmen and the out-turn of each. The pay bill will be prepared
by the Depot staff who are regular employees of the Corporation.
The payment will be made by the Corpora tion but will be distri-
buted to each workman according to the piece rate by whatare
called Sardar/Mondal. The bill with the acquittance in original
evidencing payment would be filed with the Corporation. It must F
at once be made clear that a salary or wages of a workman in an
industrial undertaking can be monthly rated which requires the
workmen to render service daily for specified number of hours but
the rate per month is fixed. It can be piece rate corelated to daily
production with an obligation to render service daily for specified
G
J number of hours, the monthly wage bill being worked out accor-
ding to production. Both the systems are known to be in vogue in
industrial employment. When the contractor system was in vogue,
the contractor was being paid in lump sum arrived at by multiplying
the rate per bag to total number of bags. What number of workmen
and for what length of time they were to be engaged for doing the H
1078 SUPllEMB COURT REPORTS [1985] 2 s.c.R.
....
A handling work was left to the discretion of the contractor. The
Corporation had nothing to do how many workmen were employed
nor the rate or method of payment by the contractor to the labour
force employed by him. Corporation was solely concerned with
the number of bags handled by the contractor. It was not a
contract for supply of labour but it was specifically a contract for
B
handling bags of foodgrains. When the ct.rec! payment system was
introduced, the intermediary contractor disappeared from the
picture. The work rendered by each workman had to be entered
into a muster ro~l register. The Corporation will distribute the
wages calulated on piece rate to each workman was required to be
c a party to the acquittance roll to be retained by the Corporation.
The wages were distributed by Sardars/Mondals.

Can there be any doubt about the relationship between the
Corporation and the workmen since the date of abolition of the
contract system and introduction of direct payment system as dis-
D cussed herein ? It is nowhere suggested that Sardars/Mondals were
contractors. They were merely the agents of the Corporation
for distributing the salary/wages earned by each workman as set
out in the register to be maintained in respect of each workman by
his name and the wages earned by him at the piece rate. Assuming
as was contended by Mr. K.acker on behalf of the respondent-
E
Corporation that once the rate remained unchanged even after the
removal of the contractor, direct payment system does not bring
about any qualitative change in the status of workmen, a fact that
stares into the eye and the one that cannot be overlooked is that
the contractor had not undertaken the contract obligation for some
F altruistic motives. He had done so for earning for profits. Now
accepting what Mr. Kacker and Mr. Pai submitted that the rates
remained unchanged the qualitative change in the position of work-
men consequently would be, that the workmen's earnings at piece
rate accelerated upward because the contractor's commission "hat-
ever he "retained unto himself became available to the workmen and
they benefitted. Therefore, the abolition of the contract system
G and the introduction of direct payment system hereinbefore discnss·
ed brought about a basic qualitative change in the relationship
between the Corporation and the workmen engaged for handling
food grains in that on the disappearance of the intermediary contrac-
tor, a direct relationship of master and servant came into existence
between the contractor and the workmen. To illustrate this point
succinctly, let it be made clear that it was obligatory for the Corpo-
H
WORKMEN v. FOOD COl\PN. (Desai, J.) 1079

ration to arrange for handling the bags of foodgrains. The work- A
men handled the foodgrains for the Corporation and none else. For
this service rendered, the Corporation agreed to pay and paid wages
at piece rate ta each workman whose name appeared in the register
to be maintained for the purpose as per the directions given by the
District l\!anager. If the pay packets were actually distributed by
Sardars/Mondals, they can be said to be doing clerical work on B
behalf of the Corporation in the same manner as a clerk in the
Accounts Department prepares and distributes pay packet for each
employee of the Corporation month to month If the clerk cannot
be said to be the employer, ipso facto the Sardars/Mondals could not
be clothed with the status of the replaced contractor. 1he inter-
mediary screen having disappeared, the direct relationship came into c
existence and the conclusion is inescapable that since the introduc-
tion of the direct payment system, the workmen became the work-
men of the Corporation and a direct master servant relationship
came into existence.
D
The Tribunal fell into error when it failed to draw the logical
and inescapable conclusion from the facts hereinbefore discussed
and completely misdirected itself when it observed something
contrary to record that 'the contractor system was not discontinued
but it was really snatched away by the Mazdoors from the contrac-
tor'. The finding apart from being perverse is contrary to record
and overlooks two important letters dated January 18, 1973 and E
April 28, 1977 by which the Union and the Managing Director
respectively affirmed the voluntary settlement arrived at between
the parties, both for abolishing the contract system and introducing
the direct payment system. Therefore, the Tribunal fell into
a serious error in overlooking relnant evidence and draw-
ing surmises contrary to the record. Its finding, therefore, becomes F
unsustainable and cannot be upheld.

The next question to which we must address ourselves is
whether once on the introduction of the direct payment system, the
workmen acquired the status of the workmen of the Corporation,
was it open to the Corporation to unilaterally discontinue the system G
without the consent of the workmen and reinduct contractor so as
) to again introduce a smoke-screen which may on paper effectively
deny the status of being the workmen of the Corporation, acquired
by these workmen. And on discontinuance of the system of direct
payment, without ordering retrenchment of their services by the
H
1080 SUPllllMB COURT llllPOllTS (1985] 2 S.C.ll.

A Corporation, they obtained a fresh employment under the Contractor.
Is it legally permissible ? The question provides its own correct
and effective answer. No employer since the introduction of the
l.D. Act, 1947 and contrary to its Certified Standing Orders as
statutorily required to be drawn up under the Industrial Employment
B (Standing Orders) Act, 1946 can dispense with the service of any
workman without complying with the law in force. Any termina-
'
tion of service contrary to the provisions of the Standing Orders and
the provisions of the I.D. Act, 1947 would be void. It is not
necessary to call in aid precedents to substantiate this too obvious
and well-established proposition. When workmen working under
c an employer are told that they have ceased to be the workmen
of that employer, and have become workmen of another employer
namely, the contractor in this case, in legal parlance such an act of
the first employer constitutes discharge, termination of service or
retrenchment by whatsoever name called and a fresh employment by
another employer namely, the contractor. If the termination of
D service by the first employer is contrary to the well-established legal
position, the effect of the employment by the second employer is
wholly irrelevant. No attempt was made to justify the termination
of service of the afore-mentioned workers of the Corporation by the
subtle device of introducing a contractor so as to bring about a
cessation of contract of employment between the workmen and the
E Corporation and a fresh contract of employment between the work-
men and the contractor. If what was intended to be done was
retrenchment, exfacie the action is contrary to the provisions of Sec.
25F of the I.D. Act, 1947. Viewed from either angle, the action
of introducing so as to displace the contract of service between the
Corporation and the workmen would be illegal and invalid and ab
F
initio void and such action would not alter, charge or have any
L
effect on the status of the afore-mentioned 464 workmen who bad
become the workmen of the Corporation.

Mr. Kacker and Mr. Pai, learned counsel on behalf of the
Corporation urged that haYing regard to the functions for which the
G Food Corporation of India was set up under the Food Corporations
Act, 1964, it can without incurring the. liability of employing work-
men where work is of an intermittant nature, employ a contractor
for supply of labour ()r for handling certain works of the Corpora-·
tion. Without in any way reflecting upon the bona fides of a public
sector Corporation to engage a contractor for supply of labour
H treating it as a commodity, we may assume tbat the Corporation can
WORKMEN v. FOOD CORPN. (Desai, J.) 1081

engage a contractor for supply of labour, the question is whether it A
has done so. The long title of the Act shows that the Act was
enacted to provide for the establishment of Food Corporations for
the purpose of trading in foodgrains and other foodstuffs and for
matters connecte<l therewith and incidental thereto. By Sec. 3 the
Central Government was authorised to establish a Corporation to
be known as the Food Corporation of India. Sec. 5 provides for B
... the initial capital and for acquiring power to increase the capital
in such manner as the Central Government or the State Government
as the case may be may determine, initial capital being provided by
Central Government. Sec. 7 provides for the constitution of the
Board of Directors. The management of the Corporation is to vest
in a Board of Directors and the Board of Directors in discharging
c
its functions shall act amongst others according to the instructions
on questions of policy as may be given by the Central Government.
The annual net profit of the Food Corporation of India has to be
paid to the Central Government (Sec. 33). Every Food Corporation
has to submit to the Central Government an annual report of its D
working and affairs and the same has to be laid before the Houses
of Parliament. Sec. 45 confers power on the food Corporation to
make regulations not inconsistent with the Act and the rules mad
thereunder to provide for all matters for which provision is necessary
or expedient for the purpose of giving effect to the provisions of
the Act. Without prejudice to the generality of the power conferred E
by Sec. 45(1) the regulations must provide for, amongst others, the
methods of appointment, the conditions of service and the scales of
pay of the officers and employees of a Food Corporation other than
the Secretary of the Food Corporation of India.

From the perusal of the scheme of the Act, it is undeniable F
that the Food Corporation of India is an instrumentality of the
State comprehended in the expression 'other authority' in Art 12
of the Constitution and is subject amongst other things to Part III
of the Constitution. If so, it must act fairly so as not to violate
Art. 14 of the Constitution. Now we fail to understand how this
scheme of the Act would permit the Corporation, an instrumentality G
of the State, to act in a manner thoroughly arbitrary by first keeping
a contractor, removing him and reinducting him without a semblance
J of consideration for the fate of the workmen working for it or for
its benefit or for some work connected with the functions of the
Corporation. Therefore, the scheme of the Act has hardly any
relevance save and except th~t its action is likely to be struck down
H
A
l(i82 SUPREMil COURT REPORTS (1985) 2 S.C.R.

as arbitrary being violative of Art. 14, but it is not necessary to go
.,..
so far because the relief under the Indu<trial Disputes Act is readily
available to the workmen.

The submission that it was open to the Corporation to engage
a contractor for handling of foodgrains may be true or legally
B acceptable ; the question, however, is whether once some workmen •
became the workmen of the Corporation as herein before discussed,
was it open to the Corporation to induct a contractor and treat its
workmen as workmen of the contractor. The answer is in the
negative, for the reasons bereinbefore discussed. The agony conse-
quent upon such submission may be unmasked. While the trend is
c
in the direction of abolition of-contract labour, this public sector
undertaking appears to be completely oblivious to the trend and the
pace-setter as enacted by the Parliament in the Contract Labour
(Regulation and Abolition) Act, 1970. An assertion in the State-
ment of Objects and Reasons accompanying the Bill, which was
•
D enacted into the law, may help the Corporation in freeing itself from
the traditional master-servant relation>bip and help it in becoming
an ideal employer where exploitation in any form is wholly eschewed.
The statement reads as under :

'·The system of employment of contract labour lends
itself to various abuses. The question of its abolition bas
E been under the consideration of government for a long
time. In the Second Five Year Plan, the Phnnrng Commi-
ssion made certain recommendations, namely, undertaking
of studies to ascertain the extent of the problem of contract
labour, progressive abolition of system and improvement of
service, conditions of contract labour where the abolition
F was not possible."

The Act was enacted with a view to abolishing wherever
possible or practicable, the employment of contract labour. The
proposed Bill aimed at abolition of contract labour in respect of
such categories as may be notified. The Corporation attempted by
its action to reverse that trend which does no credit to it. We say
G
no more save and except ,aying that where the law helps, such anti-
labour practices must be thwarted or nipped in the bud.
,,
It is at this stage necessary to examine the implication of Sec.
9A oftbe J.D. Act, 1947. As bereinbefore pointed out, Sec. 9A
WORKMEN v. FOOD CORPN. (Desai, J.) 1083

A
makes it obligatory upon an employer who proposes to effect any
change in the conditions of service applicable to any workman in
respect of any matter specified in the Fourth Schedule to give a
notice of desired or intended change. It cannot do so without
giving to the workman likely to be affected by the change, a notice
in the prescribed manner of the nature of the change proposed to B
be effected and within 21 days of giving such notice. There is a
• proviso to Sec. 9A which has no relevance here. However. inciden-
tally it may be pointed out that if the workmen likely to be affected
by the change are persons to whom the Fundamental and Supple-
mentary Rules, Civil Services (Classification, Control and Appeal)
Rules, Civil Services (Temporary Service) Rules, Revised Leave c
Rules, Civil Service Regulations, Civilians in Defence Services
(Classification, Control and Appeal) Rulos or the Indian Railway
Establishment Code or any other rules or regulations that may be
notified in this behalf by the appropriat.e Government in the Official
Gazette, apply no notice of change would be necessary before
effecting a change. No attempt was made on behalf of the respon- D
dent-Corporation to urge that any of the aforementioned rules would
govern the conditions of service of the workmen involved in the
dispute. Now after introducing the direct payment system agreed
to between the parties, if the Corporation or the employer wanted
to introduce a change in respect of any of the matters set out in
Fourth Schedule, it was obligatory to give a notice of change. Item
E
I in the Fourth Schedule provides : 'wages, including the period
and mode of payment'. By cancelling the direct payment system
and introducing the contractor, both the wages and the mode of
payment are being altered to the disadvantage of the workmen.
Therefore, obviously a notice of change was a must before introduc,
ing the change, otherwise it would be an illegal change. Any such F
illegal change invites a penalty under Sec. 31(2) of the T.D. Act,
!947. Such a change which is punishable as a criminal offence
would obviously be an illegal change. It must be held that without
anything more such an illegal change would be wholly ineffective.

In view of the discussion, this appeal has to be allowed and G
the award of the Tribunal rejecting the reference and denying the
benefit must be quashed and set aside and an a ward be made that
J the aforementioned 464 workmen who had become the workmen of
the Corp~ration continued to be the workmen employed by the
Corporat10n and shall be entitled to all the rights, liabilities, obli-
IOS4 SUPRBMB COURT REPORTS (1985) 2 S.C.R.

A gations and duties as prescribed for the workmen by the Corpora·
tion. A formal award to that effect shall be made by the Tribunal.

As it was stated before this Court that these workmen conti-
B nued to be employed, undoubtedly under the contractor since the •
illegal change was introduced, the question of paying backwages •
does not arise. The Tribunal, however, must satisfy itself before
making the final award whether any workman was denied work and
conseqnently wages. The Corporation shall pay costs quantified at
c Rs. 10,0lJO to the appellant-Union.

M.L.A. Appeal allowed

•

{

''