REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO(s). 8081­8082 OF 2011

THE DIRECTOR STEEL AUTHORITY OF INDIA LTD. …..Appellant(s)

VERSUS

ISPAT KHANDAN JANTA MAZDOOR UNION …..Respondent(s)

WITH

CIVIL APPEAL NO(s). 8084 OF 2011

J U D G M E N T

Rastogi, J.

1. These appeals arise from the judgment dated 6th September,

2010 passed by the Division Bench of the High Court of Madhya

Pradesh in Writ Petition No. 10963 of 2009 and 12485 of 2009

setting aside the award passed by the Central Government

Industrial Tribunal(CGIT), Jabalpur dated 16th September, 2009

answering the reference in the affirmative form and directing the

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contract labourers  who  were in the employment  of  SAIL from

1993 till 1996(17th March, 1993 to April 1996) to be reinstated,

and their  cases be considered for regularisation  in accordance

with Para 125 of the Judgment of this Court in Steel Authority

of India Ltd. and  Others Vs. National Union  Waterfront

Workers and Others   1  declining to grant them back wages.  

2. The case involves a chequered history and almost after four

rounds of litigation, the matter has reached at a stage where the

reference was made by the appropriate Government under

Section 10(1) of the Industrial Disputes Act, 1947 to decide the

industrial  dispute raised  by the  Union,  namely, Ispat  Khadan

Janta Mazdoor Union vide notification dated 27th January, 2003

followed with 22nd February, 2005.   

3. The seminal facts in brief  which may be relevant for the

present purpose are that the appellant Steel Authority of India

Limited (hereinafter being referred to as “SAIL”) is a Government

of India undertaking and is a State within the meaning of Article

12 of the Constitution of India and has steel plants in different

1 2001(7) SCC 1

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parts of India.   SAIL has one of the captive lime stone and

dolomite mines in Kuteshwar in the District of Katni of Madhya

Pradesh.   Limestone and Dolomite are necessary ingredients for

manufacture of steel.   The SAIL did blasting work as this work

had been departmentalised vide Notification dated 15th

December, 1979 w.e.f. 22nd June, 1980.   The contract labour of

the contractors at Kuteshwar Lime Stone Mines were doing the

same jobs as enumerated in schedule of the prohibition

Notification No. S.O. 707 dated 17th March, 1993 issued under

Section 10(1) of the Contract Labour(Regulation & Abolition) Act,

1970(hereinafter referred to as “CLRA Act”).

4. It is not disputed that the establishment of the

appellant(SAIL) is the registered establishment in terms of

Section 7 of the CLRA Act and the contractors through whom the

contract  labour was engaged were also holding a valid  licence

under Section 12 of the CLRA Act and the workmen engaged as

contract labour  by the  contractor in the  establishment  of the

appellant(SAIL)  were paid  their  due wages  in  terms of the  tri­

partite agreement entered into from time to time not less than the

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rates so prescribed by the authority under the Minimum Wages

Act, 1948.

5.   The appropriate Government at a later stage issued a

prohibition notification of employment of contract labour for the

establishment wherein their services hired by the appellant SAIL

under Section 10(1) of the CLRA Act dated 17th March, 1993, the

extract of which is referred to hereunder:­

“4.   The  Notification  No.S.O.707  dated  17­3­93  was issued and published by the Government of India whereby prohibited with effect from the date of publication of this notification, the employment of Contract Labour in the works specified in the following schedule in the Lime Stone and Dolomite Mines in the country namely:

SCHEDULE

a. Raising of minerals including breaking sizing sorting of Lime Stone Dolomite and,

b. Transportation  of limestone and dolomite which includes loading and unloading from trucks, dumpers, conveyors and transportation from mine site to factory.”

6. Pursuant to a prohibition notification issued by the

appropriate Government under Section 10(1) of the CLRA Act, the

relationship of contractor and contract labour stands ceased and

by legal fiction, contract comes to extinct and the indisputed fact

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which has come on record  is that  no  fresh agreement, in the

interregnum period, was executed and the existing agreement to

whom the appellant & contract labour is a signatory was

extended from time to time by the competent authority and the

contract labour was allowed to continue on the same terms and

conditions till their services were terminated by the contractor in

the month of April, 1996.

7. Prior to the judgment of the  Constitution  Bench of this

Court[Steel  Authority of India  Ltd. and  Others(supra)], the

three Judge Bench of this Court in  Air India Statutory

Corporation and Others  Vs.  United Labour Union and

Others   2  discussed the legal consequence of the prohibition

notification under Section 10(1) of the CLRA Act prohibiting

employment of contract labour, it was held that on abolition of

contract labour system from any establishment under Section 10

of the Act by the appropriate Government, the logical and

legitimate consequences were that the erstwhile regulated

contract labourer covered by the sweep of such abolition for the

activities concerned  would be entitled to be treated as direct

2 1997(9) SCC 377

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employee of the employer on  whose establishment they  were

earlier working and they would be entitled to be treated as

regular  employees from the  day  on which  the  contract labour

system in the establishment for the work which they were doing

gets abolished.   

8. The effect of the prohibition notification under Section 10(1)

of  the CLRA Act  issued by the appropriate Government at the

later stage, came to be examined by the Constitution Bench of

this Court in Steel Authority of India Ltd. and Others (supra)

wherein it was held that there is no provision under CLRA Act

whether  expressly  or  necessary implication which provides for

automatic absorption of contract labour on issuance of a

notification by the appropriate Government under Section 10(1),

prohibiting   employment of contract labour in any process,

operation or other work in any other establishment and overruled

the judgment in  Air India Statutory Corporation and Others

(supra)  making  it  clear that  neither  Section 10 nor  any other

provision in the CLRA Act provides for automatic absorption of

contact labour on issuance of a notification by the appropriate

Government under Section 10(1) of the CLRA Act and

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consequently the principal employer is not required by operation

of law to absorb the contract labour working in the

establishment.  The exposition of law will  be discussed at  the

later stage.

9. It reveals from the record that after the Constitution Bench

Judgment of this Court, the matter was agitated by the workers

union before the appropriate Government and after failure of the

conciliation proceedings, the case of 3404 workmen was referred

for adjudication by the appropriate Government vide its

notification dated 27th  January, 2003 followed with 22nd

February, 2005 to the Central Government Industrial

Tribunal(CGIT) is reproduced hereunder:­

1. “The Government of India, Ministry of Labour vide its Notification No.L­29011/97/2002­IR(M) dated 27­1­ 2003  has referred the following dispute for adjudication by this tribunal:­

“I. “Whether the action of the Mines Manager, Koteshwar Lime Stone Mines of Steel Authority of India Ltd. in terminating services of 3404 (3380+24­ as per list attached) mine workers in April 1996 who ceased to be contract labour after prohibition of employment of contract labour in Lime Stone Mine vide Notification No.S.O.707 dated 17­3­93 was legal, fair and justified? If not, what relief the concerned workmen or heirs in case of deceased worker are entitled to?

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II. Whether the action of the Mines manager, Koteshwar Lime Stone Mines of Steel Authority of India ltd. in denying terminal benefits of gratuity retrenchment compensation and exgratia applicable to VRS seeking employees is fair and justified.   If not, to what relief these workers/heirs are entitled to?

III. Whether the action of the management of the Mines Manager, Koteshwar Lime Stone Mines of Steel Authority of India Ltd. in disregarding Clause­8 of Memorandum of Agreement signed between the Steel Authority of India, New Delhi and their Unions including HMS and employing workers through contractors on jobs of permanent and perennial nature in  Mines  between  5­20  years  even without  ensuring statutory wages and service conditions was legal, fair and justified? If not, to what relief concerned workmen/heirs are entitled?”

CORRIGENDUM

“Whether the employment of the  workmen mentioned in this  Ministry’s order of even number dated 27­1­2003 through contractors is sham and bogus and whether in effect there is  direct employment  by the company?   If so, to what relief the workmen concerned are entitled?”

10. The learned Tribunal(CGIT), as a fact finding authority,

taking note of the pleadings on record framed the following

issues:­

“I. Whether the reference R/40/03 is maintainable?

II. Whether the employment of the workmen through contractors is sham and bogus and whether the said employment is considered to be direct employment by the management?

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III.Whether the action of the Mines Manager, Kuteshwar Lime Stone Mines of the Steel Authority of India Ltd. in terminating the services of 3404(3380+24) as per list attached mine workers in April 1996 who ceased to be contract labour after prohibition of employment of contract labour in lime stone vide Notification No.S.O.707 dated 17­03­93 was legal, fair and justified?

IV.Whether the said contact workers/heirs are entitled the terminal Benefits of gratuity, retrenchment compensation and ex­gratia applicable to VRS from SAIL?

V. Whether Lime Stone Mines violated the provision of Clause­8 of the memorandum of agreement signed between the  SAIL,  New Delhi and their  Unions  and employing workers through contractors on jobs of permanent and  perennial nature  was justified, legal and fair?

VI.Whether the workmen/heirs are entitled to the wages to the  post in  which  they  were  engaged with parity of wages with that of regular employees of the management with all consequential benefits?

VII.Any other relief, the  workmen/heirs are entitled to?”

11. The parties to the reference were called upon to lay evidence

in support of their respective claim and after taking note of the

evidence(oral & documentary), the Tribunal recorded the facts in

seriatim emerging from the records as under:­

(1) The evidence shows that the respective contractors employed the contract labours for their own and they were the appointing authority.

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(2) Wage slips, wagesheets and the evidence of the witnesses clearly show that the contractors were paying wages to the contract labours.

(3) Exhibit M/8 filed in R721/05 and the evidence of the witnesses show that the contractor dismissed the employee and also transferred some of the employees from the place of work and had disciplinary authority.

(4) The contract papers entered into between the management and the contractors and the evidence of the  witnesses  clearly show  that  contractors  had  full control and supervision over the work.   The management had only to see that the labour laws were being implemented and specified approved grade of lime stone was being supplied.

(5) The contract papers and the evidence show that the contractors had full control over the skilled and professional work.

(6) It is further  clear  from the contract  papers  that the SAIL had right to reject the  limestone, if it  was not within the specified approved grade as per terms and conditions of the agreement.

(7) The contract agreements further show that there was penal clause, if there was any breach of contract.

12. The Tribunal taking note of the evidence including oral and

documentary adduced in support of the reference held that the

contract between the Management(SAIL) and the contractors was

genuine and not sham and bogus and the contract workers were

allowed to continue even after the prohibition notification under

Section 10(1) dated 17th March, 1993 under the CLRA Act on the

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same terms and conditions and the services of the contract

labourer were terminated by the Contractor in April, 1996.   

13. It may be noted that status of the workers after the issuance

of notification dated 17th March, 1993 has also been examined by

the Tribunal and held as follows:­

(1) The contract labours after notification cease to function.

(2) The contract labours were still working in the establishment from 1993 to April 1996 under the umbrella of the contractors who may be called as agent of the Principal employer or were intermediary between the contract labours and the Principal Employer after the publication of notification.

(3) The contract between the Principal Employer and the contractors after publication of the notification ceases to exist and became not genuine.

(4) The wages were being paid to the contract labour by the so called contractors in the same  way as from before.

(5) The principal Employer was in need of the workers for the specified works even after the publication of the notification as same workers were continuing in work till April, 1996.

(6) There is no evidence on the record to show that the principal employer adopted the procedure of regularization and had intended to employ regular workers as has been directed by the  Hon’ble Apex Court at Para 125 sub­para­6 in the Constitution Bench Judgment in the case of SAIL versus National Union Water Front Workers (Supra) after the contract was found genuine before the notification.

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(7) There was no automatic absorption of contract labour on issuing the notification prohibiting the employment of contract labours.

(8) Contract labours were found employees of the respective contractors before notification.   

14. At the same time,  in para 85 of  the Award, the Tribunal

further  held that  after issuance  of the  prohibition  notification

dated 17th  March, 1993 in the instant case, the principal

employer(SAIL) was prohibited to employ any contract labour in

any process, operation or other work in the establishment and

when the contract with the contractors after prohibition

notification became void and not genuine and the extension of

the  period of  contract  of the  respective  contractors which has

been allowed to continue in the establishment by operation of law

became  ab­initio void and sham and  bogus.   Para 85 of the

Award is as under:­

“85. It  is an established fact that the notification dated 7­3­93 came to the effect prohibiting the employment  of  contract labours from the  date of its publication.  As such, in the light of the constitutional bench judgment in SAIL versus National Water Front Workers Union & others (Supra) the contract of Principal employer  with contractor in regard to the contract labour  comes to  an  end beyond shadow of doubts and  the contract  with regard  to the contract labours subsequently after the notification dated 17­3­

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1993 becomes not  genuine.  The Principal employer was prohibited to employ any contract labour in any process, operation or other work in the establishment in any process, operation or other work in the establishment to which the notification relates at any time thereafter.  It is evident that when the contract of the contractors after notification became itself void and not genuine, the extension of the period of contract of the respective contractors would be ab­initio void and sham and bogus.   Thus it is established that the contract of Principal employer with contractors in regard to the  contract labours  became subsequently sham and bogus  after the  notification  No.  S.O.  707 dated 17­3­1993 coming into the effect from the date of its publication.”  

15. The Tribunal finally held that the employment of the

contract labourer through contractors was not sham and bogus

before notification dated 17th March, 1993, but after publication

of the said notification, by operation of law, the contract through

contractors could not be considered to be genuine but became

void and sham as the contract labour was allowed to continue in

the establishment till April 1996.   It was further observed that

the Union is at liberty to take recourse of the penal consequences

as mandated under Section 23 to 25 of the CLRA Act.  Rest of the

issues framed by the Tribunal(Issue nos. 3,4, 5 & 6) have been

consequently decided accordingly under the Industrial Award

dated 16th September, 2009.

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16. The appellant(SAIL) and the workers Union both filed writ

petitions in the  High  Court of  Madhya Pradesh.   The  Union

assailed  the award dated 16th  September,  2009.  At the  same

time, SAIL challenged the finding which was recorded in

reference  to the  consequence of the  prohibition notification as

observed in Para 85 to that extent in the writ petition.  

17. The High Court in its limited scope of judicial review

examined the  matter as a  Court of Appeal reappreciated the

evidence threadbare and based on the same set of

evidence(oral/documentary) reversed the finding of fact recorded

by the Tribunal and observed that the contract to be sham and

bogus and observed as under:­

“41. As we have found the contract to be not genuine but mere camouflage in the facts and circumstances and considering prohibition notification under Section 10(1) of CLRA Act, inevitable conclusion is that the contract labours have to be treated as employees of the principal employer.

42. Considering the large number of workers involved in the instant case and the notification issued under Section 10 of CLRA Act, the regular workmen have to be ultimately employed by the SAIL.  We decline to grant the backwages to the workers in the instant case.  It would not be appropriate to saddle the huge liability of back wages. However, we direct that the SAIL to start the process of regular employment. The workers who were in the employment from 1993 till 1996 are ordered to be reinstated, and their cases

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be considered for regularization in accordance with the directions issued  by the  Apex  Court in  para  125 of Steel  Authority of India Ltd.  and others vs.  National Union Waterfront Workers and others (supra).”

18. The judgment of the High Court dated 6th September, 2010

is a subject matter of challenge before us in these appeals.

19. Sh. Ranjit Kumar and Sh. Parag P. Tripathi, learned senior

counsel for the appellant submit that the CGIT in its award dated

16th September, 2009 has not only extensively considered the oral

and documentary evidence placed on record but also took note of

the judgment of the Constitution Bench of this Court in  Steel

Authority of India Ltd. and Others(supra) and being the

appropriate industrial adjudicator, after going into merits and the

evidence  led  by  the  respective  parties to the  contract  between

management SAIL and contractors, arrived to the conclusion that

the  contract  was genuine  and not  sham and bogus under its

award dated 16th  September, 2009 and the finding of fact

recorded  by the  Tribunal  has  attained  finality  and unless the

approach of the Tribunal was wholly perverse in the sense that

the Tribunal has acted on no evidence, it was not justified for the

High Court to interfere over the award of the industrial

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adjudicator sitting as a Court of First Appeal to reappreciate the

evidence and even if on the basis of the material on record, two

views are possible and one view has been expressed by the

Tribunal it was not open for the High Court to substitute its view

under the limited scope of judicial review under Sections 226 and

227 of the Constitution of India.  In the given circumstances, the

finding of fact which has been reversed by the High Court under

its impugned judgment holding the contract is not genuine but a

mere camouflage, is legally not sustainable and deserves to be

interfered by this Court.

20. Learned counsel further submits that normally the

industrial adjudicator is the final Court of facts and on its

extensive discussion based on the material available on record, it

was held  that  there  is  no employer and employee relationship

between the appellant and respondent workmen and, therefore,

the question of compliance of Section 25(n) of the Act does not

arise and it was the contractor who had terminated their services

in April 1996 and it was the contractor who had full control and

supervision over the work of the labourers.  It has also concluded

after examining the witness and appraisal  of the documentary

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evidence on record that the wage slips and identity cards were

issued to them by the respective contractors  and it  were the

contractors who paid wages to the contract labour and few of the

witnesses have also supported payment through contractors.

21. Thus, the conclusion  which  has been arrived at by the

Tribunal that the contractors were exercising exclusive control

over the contract labours and tools and equipment were supplied

by the contractors as per the terms of the contract and payment

was made by respective contractors to the contract labourers and

not by the principal  employer and  it  was  the contractors who

terminated the services of  the contract  labourers because they

proceeded on illegal strike in April 1996 and all the agreements

between the management and the contractors entered into are of

prior to the notification dated 17th  March, 1993 prohibiting

employment of contract labour and subsequently it  was only

extended by the competent authority from time to time until the

services of the contract labour were terminated, holding

disciplinary powers against the contract labour being supported

by the cogent evidence on record was not open for the High Court

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to sit as a Court of Appeal and reappraised the evidence under its

impugned judgment.

22. Learned  counsel  placed reliance  on the judgment  of this

Court in Dena Nath and Others Vs. National Fertilisers Ltd.

and Others   3 and submits that mere violation of the prohibition

notification under Section 10(1) of the CLRA Act would not entail

absorption of the contract labour and at the best could be

considered as further continuation to be illegal resulting in penal

consequences envisaged under Section 23 to 25 of the Act.

23. Per contra, Sh. Colin Gonsalves, learned senior counsel for

the respondent, on the other hand, while supporting the finding

recorded by the High Court in the impugned judgment further

submits that the Tribunal has committed a manifest error in not

appreciating the documentary/oral evidence on record and thus

on reappraisal  of the  evidence, the  High Court  was convinced

that the finding of fact recorded by the Tribunal under its award

dated 16th  September, 2009, being perverse, based on no

evidence, has rightly interfered and recorded a finding that the

3 1992(1) SCC 695

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contract  was  sham and bogus  and  in  consequence thereof in

terms of the  Constitution  Bench judgment of this  Court, the

workmen became employee of the principal  employer  (SAIL) in

the instant case and entitled for the wages payable to the regular

employee of the appellant SAIL and be considered for

regularisation of service.  

24. Learned counsel further submits that the employees are

entitled for the back wages which has been wrongly denied by the

High Court without any justiciable reasons and as they are

contesting their claim immediately after their services were

terminated, the delay in fact has caused because of  3­4 rounds

of litigation and was also due to the fact that earlier it was held

by this Court in Air India Statutory Corporation and Others

case  (supra) that immediately on the issuance of a prohibition

notification under Section 10(1)  of the CLRA Act, the contract

labour become entitled for automatic absorption in the

establishment wherein he was working prior to passing of the

notification under Section 10(1) of the CLRA Act, which has been

although overruled by the Constitution Bench of  this Court in

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Steel Authority of India Ltd. and Others(supra) at a later point

of time  but at least there are  no latches on the part of the

employees  and they  are entitled for  wages  for the  period  they

have worked and discharged their duties in the establishment of

SAIL and denial of their actual wages by the High Court in the

impugned judgment is legally not sustainable.

25. Learned counsel further submits that High Court has taken

note of various tests for determining nature of contract which has

been laid down from time to time by the judicial pronouncements

i.e. supervision and control, effective and absolute control,

disciplinary action, payment of wages etc., the primary tests as

the determining factor in arriving to a conclusion as to whether

any contract entered in contradistinction  to the tests laid down,

if any, between the contractor and the contract labour that

indeed is sham and bogus. The High Court on appraisal of the

evidence recorded  its  satisfaction on all the  tests  cumulatively

and rightly held that the contract between the contract labour

and the contractor was sham and bogus and once the finding has

been recorded under the impugned judgment, the consequence is

restoring the relationship of the principal employer and of

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contract labour as an employer and employee and this makes the

respondent entitled for their regularisation  of service and the

difference of  salary which has been paid to their  counterparts

who were regular in employment of the appellant establishment

which indeed could not have been denied to the respondent.  In

the given facts and circumstances, no error has been committed

by the High Court in the impugned judgment which may call for

any interference.  

26. Learned counsel for the respondent contended that the

judgment in Dena Nath and Others (supra) is not applicable for

the reason that it was of much prior to the Constitution Bench

Judgment of this Court and it has no application for the further

reason that it was a case where the effect of failure of compliance

of Section 7 and 12 of the CLRA Act was a question and there

was no such prohibition notification under Section 10(1) of the

CLRA Act which came into consideration.   Thus, what has been

expressed  by this  Court  may  not  be  of  any  assistance to the

appellant.    

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27. We have considered the rival submissions  made by the

parties and with their assistance perused the materials available

on record.  

28. Before  we proceed  to  examine  the  question raised  in  the

instant appeals any further, it may be apposite to take note of the

indisputed facts which has come on record and take a note of the

facts recorded by the High Court in the impugned judgment.

29. It is not disputed that the appellant SAIL is a Government of

India undertaking and a State within the meaning of Article 12 of

the Constitution of India and has its steel plants in the different

parts of India.   SAIL has one of the captive lime stone and

dolomite mines in Kuteshwar in the District of Katni of Madhya

Pradesh.   Limestone and Dolomite are necessary ingredients for

manufacture of steel.   The SAIL did blasting work as this work

had been departmentalised by Notification dated 15th December,

1979 w.e.f.  22nd  June,  1980 and various tripartite  agreements

were executed between the principal employer(SAIL), contractor

and contract labour and from time to time wages to which the

contract labour was entitled for in terms of tripartite agreement

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which indisputedly was higher  in comparison to the minimum

wages notified by the appropriate Government from time to time

under the Minimum Wages Act,  1948 was paid to each of the

contract labour  who  had  worked in the establishment of the

appellant.

30. It is  also  not  disputed  that the  contract labour  which  is

represented through  union  had  worked in the schedule  work

which has been prohibited by the appropriate Government under

its notification issued under Section 10(1) of the CLRA Act, dated

17th  March, 1993 and there  is  no challenge to the prohibition

notification dated 17th  March, 1993 at least in the instant

proceedings.  

31. After 3­4 rounds of litigation, a reference was made by the

Government of India,  Ministry of Labour vide its notification

dated 27th  January, 2003 followed by 22nd  February, 2005

wherein respective claims with supporting oral and documentary

evidence were placed by the contesting parties. CGIT under its

award dated 16th  September, 2009 recorded a finding of fact

holding that the contract was not sham and bogus and if, at all,

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there was any violation  in continuation of the contract  labour

after  issuance of  the prohibition notification dated 17th  March,

1973 that entail penal   consequences as referred to under

Sections 23  to  25 of the  CLRA Act  and  further  held that the

respondent  workmen  were not entitled for reinstatement and

answered the reference accordingly under  its award dated 16th

September, 2009. The finding of fact in return came to be

overturned  by the  High  Court in its limited scope of judicial

review under Article 226 & 227 of the Constitution of India under

the impugned judgment dated 6th September, 2010.

32. Before we may advert to examine the question in the instant

appeals any further, it will be apposite to take note of the legal

effect  of the  prohibition  notification issued  by the  appropriate

Government in exercise of power under Section 10(1) of the CLRA

Act and its exposition by the Constitution Bench of this Court in

Steel Authority of India Ltd. and Others (supra) overruling the

judgment in  Air India Statutory Corporation and Others

(supra). The legal consequence of Section 10(1) of the CLRA Act,

has been noticed in paragraph 68, 88, 105 and 125 as follows:­

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“68. We have extracted above Section 10 of the CLRA Act  which  empowers 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 sub­section (1) 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 out in Section 10 nor indicated anywhere in the Act. In our view, the following consequences follow on issuing a notification under Section 10(1) of the CLRA Act:

(1) contract labour working in the establishment concerned at the time of issue of notification will cease to function;

(2) the contract of 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 notification does not sever the relationship of master and servant between the contractor and the contract labour;

(5) the contractor can utilise the services of the contract labour in any other establishment in respect of which no notification under Section 10(1) has been issued where all the benefits under the CLRA Act which were being enjoyed by  it,  will  be available;

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(6) if a contractor intends to retrench his contract labour, he can do so only in conformity with the provisions of the ID Act.

The point now under consideration is: whether automatic absorption of contract labour working in an establishment, is implied in Section 10 of the CLRA Act and follows as a consequence on issuance of the prohibition notification thereunder. We shall revert to this aspect shortly.

88. 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 of various reports of the Commissions and the Committees and the Statement of Objects and Reasons of the Act, appears to be that 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 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 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 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 a 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.

105. 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 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

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authorizes in Section 10(1) prohibition of contract labour system by the appropriate Government on consideration of factors enumerated in sub­section (2) of Section 10 of the Act among other relevant factors. But, the presence of some or all those factors, in our view, provides  no ground for absorption of contract labour on issuing notification under sub­section (1) of Section 10. Admittedly, when the concept of automatic absorption of contract labour as a consequence of issuing notification under Section 10(1) 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 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 Parliament intended absorption of contract labour on issue of abolition notification under Section 10(1) of the CLRA Act.

125.The upshot of the above discussion is outlined thus:

 (1)(a) Before 28­1­1986, the determination of the question whether the Central Government or the State Government is the appropriate Government in relation to an establishment, will 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 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

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the establishment was situated, would be the appropriate Government;

(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 Central Government company/undertaking  concerned  or  any  undertaking concerned  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 a railway company; or  (c) by a specified controlled industry, 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 employment of contract labour in any process, operation or other work in any establishment has to be issued by the appropriate Government:

(1) after consulting with the Central Advisory Board or the  State  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

(ii)  other relevant  factors including those mentioned in sub­section (2) of Section 10;

(b) Inasmuch as the impugned notification issued by the Central Government on 9­12­1976 does not satisfy the aforesaid requirements of Section 10, 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  judgment no order passed or no action taken giving effect to the said notification on or before

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the date of this judgment, shall be called in question in any tribunal or court including a High Court if it has otherwise attained finality and/or it has been implemented.

(3) Neither Section 10 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 the appropriate Government under sub­section (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 of the contract labour working in the establishment concerned.

(4) We overrule the judgment of this Court in Air India case [(1997) 9 SCC 377] prospectively and declare that any direction issued by any industrial adjudicator/any court including the High Court, for absorption of contract labour following the judgment in Air India case [(1997) 9 SCC 377] 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 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 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 with 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 so­called 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 establishment concerned subject to the  conditions  as  may be  specified  by it for that purpose in the light of para 6 hereunder.

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(6) If the contract is found to be genuine and prohibition notification under Section 10(1) of the CLRA Act in respect  of the establishment  concerned 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 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 employment by the contractor and also relaxing the condition as to academic qualifications other than technical qualifications.”

33. The exposition of the judgment of the Constitution Bench of

this   Court made it clear that neither Section 10 nor any other

provision in the CLRA Act provides for automatic absorption of

contract labour on issuing a notification by the appropriate

Government under Section 10(1) of the CLRA Act, and

consequently the principal employer is not required or is under

legal obligation by operation of law to absorb the contract labour

working in the establishment.

34. This court in  Steel Authority of India Ltd. and Others

(supra) further held that on a issuance of notification  under

Section 10(1) of the CLRA Act, prohibiting employment of

contract  labour  in any process,  operation or other work, if  an

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industrial dispute is raised by any contract labour in regard to

condition of service, it is for the industrial adjudicator to consider

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 as a mere

ruse/camouflage to evade compliance with various beneficial

legislations so as to deprive the workers of statutory benefits.  If

the contract is found to be sham, nominal or camouflage, then

the so­called labour will have to be treated as direct employee of

the principal employer and the industrial adjudicator should

direct the principal employer to regularise their services in the

establishment subject  to such conditions as  it  may specify  for

that purpose in the facts and circumstances of the case.

35. On the other hand, if the contract is found to be genuine

and a prohibition  notification  has been issued  under  Section

10(1) of the CLRA Act, in respect of the establishment, the

principal employer intending to employ regular workmen for the

process, operation or other work of the establishment in regard to

which the prohibition notification has been issued, it shall give

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preference to the erstwhile contract labour if otherwise found

suitable, if necessary by giving relaxation of age as it appears to

be in fulfilment of the mandate of Section 25(H) of the Industrial

Disputes Act, 1947.

36. It may be noted that the learned counsel for the respondent

has  placed  reliance  on  the judgments  of this  Court in  Silver

Jubilee Tailoring House and Others  Vs.  Chief Inspector of

Shops and Establishments and Another   4;  Hussainbhai,

Calicut  Vs.  Alath Factory Thezhilali Union, Kozhikode and

Others   5;  Indian Petrochemicals Corporation Ltd. and

Another Vs. Shramik Sena    and Others   6 and these cases have

been considered by the Constitution Bench of this Court in Steel

Authority of India Ltd. and Others(supra) of which a detailed

reference has been made by us.

37. Tests which are to be applied to find out whether the person

is an employee or an independent contractor in finding out

whether the contract  labour agreement  is  sham, nominal  or a

4 1974(3) SCC 498 5 1978(4) SCC 257 6 1999(6) SCC 439

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mere camouflage has been examined by this Court in

International  Airport  Authority  of India  Vs.  International

Air Cargo  Workers’ Union and  Another   7  by the two­judge

Bench of this Court.  The relevant paras are as under:­  

“38. The tests that are applied to find out whether a person  is an employee or an  independent contractor may not automatically apply in finding out whether the contract labour agreement is a sham, nominal and is a mere camouflage.  For example, if the contract is for supply of  labour, necessarily, the labour supplied by the contractor will work under the directions, supervision and control of the principal employer but that would not make the worker a direct employee of the principal employer, if the salary is paid by a contractor, if the right to regulate the employment is with the contractor, and the ultimate supervision and control lies with the contractor.

39. The principal  employer  only  controls  and directs the work to be done by a contract labour, when such labour is assigned/allotted/sent to him. But it is the contractor as employer, who chooses whether the worker is to be assigned/allotted to the principal employer or used otherwise. In short, worker being the employee  of the  contractor, the  ultimate  supervision and control lies with the contractor as he decides where the  employee  will  work  and how  long  he  will work and subject to what conditions. Only when the contractor assigns/sends the worker to work under the principal employer, the worker works under the supervision and control of the principal employer but that is secondary control. The primary control is with the contractor.”

38. These are the broad tests which have been laid down by this

Court in examining the nature and control of the employer and

7 2009 (13) SCC 374

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whether the agreement pursuant to which contract labour has

been engaged through contractor can be said to be sham,

nominal and camouflage.  

39. It  was not disputed  in the  instant case that the contract

labourer  who  were  working  under  a tripartite  agreement  were

allowed to continue under the self­same agreement executed

prior to the prohibition notification dated 17th March, 1993 and

extended from time to time by the competent authority even after

issuance of the prohibition notification and the services of  the

contract workers were terminated by the contractor through

whom they were engaged after they proceeded on strike in April,

1996.  

40. The Tribunal in its award dated 16th September, 2009 has

recorded a finding of fact based on oral and documentary

evidence placed by the respective parties on record in reference to

the fact whether the contract was sham and bogus which was a

primary cause of adjudication and it was observed that the

contractors employed the contract labour on their own and they

were the  appointing  authority.  Witnesses  Mangal  and  Kodulal

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(contract labourer) were examined and in their cross­examination

they have stated that before the issuance of  notification dated

17th  March, 1993, they were workers of the contractor and

payment was made to them by the contractors, wage slips also

show that the wages were being paid by the contractors. Other

witnesses also in cross­examination have supported that half of

the PF amount of the workers were deposited by their respective

contractors.   Exh.  W/39 to  W/54 submitted by the contract

labours are the photocopies of the identity cards, pay slips, PF

slips etc. These pay slips and identity cards do not show that all

3079 workers were working after the notification dated 17th

March, 1993 without break because number of these documents

are of prior to the notification. It further observed that all the

agreements  between the  management  and the contractors  are

entered into prior to the notification dated 17th  March, 1993

prohibiting employment of contract labour and only extended

thereafter from time to time. It goes to show that there was no

fresh contract thereafter ever entered between the parties. Exh.

M/8 filed in R­721/05 and the evidence of the witnesses shows

that the contractor had terminated the services of the contract

labour in April 1996 and transferred some of the contract

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labourers from the place of work and was the disciplinary

authority.   

41. It was further observed that the contractors had full control

over the skilled and professional work and the SAIL had right to

reject the limestone, if it was not within the specified approved

grade as per terms and conditions of the agreement and after

extensive appreciation of the oral/documentary evidence on

record, CGIT recorded a finding of fact holding that the contract

was not sham and bogus at least up to the date of issuance of the

prohibition notification dated 17th  March, 1993. Although in

paragraph 85 of the award the Tribunal has recorded a finding

that after the issuance of prohibition notification dated 17th

March, 1993 by operation of law, it became sham and bogus but

in our considered view, such a finding recorded in para 85 of the

Award dated 16th September, 2009 is not sustainable in law for

the simple reason that mere issuance of the prohibition

notification under CLRA Act will not make the

contract/agreement to be  void ab initio or bad in law and if the

employees are allowed to continue in terms of the earlier

agreement after the prohibition notification under CLRA Act has

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come into force, it may be illegal and continuance of service in

the absence of any contract which stands extinguished by virtue

of prohibition notification has to face the penal consequences as

embedded under the scheme of CLRA Act.  

42. The High Court has taken note of the various provisions of

Mines  Creche  Rules,  1966,  Maternity  Benefits  Act,  Mines  Act,

1952 and Metalliferous Mines Regulations, 1961 and other

statutory measures which are applicable over the establishment

of the appellant including various welfare schemes which provide

safety and security of the workers. To say so, every establishment

is under obligation to  implement the mandate of law but that

could not be a determining factor/denominator to test the

contract agreement entered between the parties in arriving to a

conclusion that such an agreement is sham, nominal or

camouflage as held by the High Court in its impugned judgment.

43. The High Court appears to be primarily persuaded with the

issuance of a prohibition notification under Section 10(1) of the

CLRA Act as one of the salient factor to indicate that the

committee constituted  under the  Act, after examining various

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factors including perennial nature of work, under the CLRA Act

has recommended for abolition of contract labour and accepted

by the  Central  Government coupled  with the continuation of

employment of contract labour after issuance of the prohibition

notification under Section 10(1) of the CLRA Act in holding that

the action of the establishment was opposed to the public policy

principles enshrined under Section 23 of the Indian Contract Act

and taking work from the contract labour was in violation of the

statutory notification dated 17th March, 1993 and that appears to

be the reason which persuaded to hold that the finding recorded

by the Tribunal that contractors had full control and supervision

over the work in view of the functioning of the scheme of mines

was unsustainable, instead holding the total control and

supervision was that  of  management of the  appellant  and the

contract was sham and bogus and also the fact that in all the

agreements executed between the parties, there was a provision

of abolition of contract labour in the matter of work of a perennial

in nature and certain other conditions of agreement in recording

its satisfaction that the contract was sham and bogus.

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44. In our considered view,  the  finding recorded by  the High

Court under the impugned judgment is not sustainable for the

reason that  effect  of the prohibition notification under Section

10(1) of CLRA Act has been settled by the Constitution Bench of

this Court in Steel Authority of India Ltd. and Others (supra)

and this Court has made it clear that neither Section 10 nor any

provision in the CLRA Act provides for automatic absorption of

contract labour on issuance of  prohibition  notification  by the

appropriate Government under Section 10(1) of the CLRA Act and

the Tribunal in the first place being the fact finding authority has

extensively examined the documentary and oral evidence which

came on record and also the relationship of principal employer,

contractor and contract labour and the fact that their services

were terminated by the contractor after the contract labour

proceeded on a strike in April 1996.

45. The Tribunal also considered various other factors in

extenso regarding the wage slips, identity cards and the nature of

work being discharged by the contract labour subsequent to the

prohibition notification dated 17th  March, 1993 and other

documentary evidence which came on record and recorded the

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finding in return that the contract between the contractor and

the employee was not sham and bogus and the workmen were

not entitled for their absorption in service of the principal

employer.

46. To test it further, apart from the statutory compliance which

every principal establishment  is under an obligation to comply

with, its non­compliance or breach may at best entail in penal

consequences which is always for the safety and security of the

employee/workmen which has been hired  for  discharge of the

nature of job in a particular establishment.  The exposition of law

has been further considered in International Airport Authority

of India case(supra) where the contract was to supply of labour

and necessary labour was supplied by the contractor who worked

under the  directions, supervision  and control of the  principal

employer, that in itself  will not in any  manner construe the

contract entered between the contractor and contract labour to

be sham and bogus per se.

47. Thus, in our considered view, if the scheme of the CLRA Act

and other legislative enactments which the principal

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establishment has to comply with under the mandate of law and

taking note of the oral and documentary evidence which came on

record, the finding which has been recorded by the CGIT under

its award dated 16th September, 2009 in absence of the finding of

fact recorded being perverse or being of no evidence and even if

there are two views which could possibly be arrived at, the view

expressed by the Tribunal ordinarily was not open to be

interfered  with by the  High  Court under its limited scope of

judicial review under Article 226/227 of the Constitution of India

and this exposition has been settled by this Court in its various

judicial precedents.  

48. It is true that judgment in Dena Nath and Others  (supra)

is in reference to failure of compliance of Section 7 and 12 and

not in reference to Section 10(1) of the CLRA Act but if we look

into the scheme of CLRA Act which is a complete code in itself,

non­compliance or violation or breach of the provisions of the

CLRA Act, it result into penal consequences as has been referred

to in Sections 23 to 25 of the Act and there is no provision which

would entail any other consequence other than provided under

Section 23 to 25 of the Act.  

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49. In our considered view, the Tribunal under its award dated

16th  September, 2009 has rightly arrived to the conclusion that

the  contract  was  not sham and  bogus  and  there  shall  be  no

automatic absorption of contract labour on issuance of a

prohibition notification under the CLRA Act and the High Court

of Madhya Pradesh has committed a manifest error in reversing

the finding of fact in return under its impugned judgment dated

6th  September, 2010 which, in our view, is not sustainable and

deserves to be set aside.

50. The appeals are accordingly disposed of and the impugned

judgment of the High Court dated 6th September, 2010 is hereby

set aside.  The respondent is at liberty to avail remedy for alleged

breach of the provisions of the CLRA Act, if so advised, in

accordance with law.  No costs.

51. Pending application(s), if any, also stand disposed of.

…………………………………J. (A.M. KHANWILKAR)

…………………………………J. (AJAY RASTOGI)

New Delhi July 05, 2019

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