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R E P O R T A B L E  

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NOS. 10264-10266 OF 2013        

                                                          BALWANT RAI SALUJA & ANR.     .. APPELLANT(S)                   

VERSUS

AIR INDIA LTD. & ORS.     .. RESPONDENT(S)                                    

J U D G M E N T H.L. DATTU, J.

1. In  view  of  the  difference  of  opinion  by  two  learned Judges, and by referral order dated 13.11.2013 of  this Court, these Civil Appeals are placed before us for  our consideration and decision. The question before this  bench  is  whether  the  workmen  engaged  in  statutory  canteens,  through  a  contractor,  could  be  treated  as  employees of the principal establishment.   2. At the outset, it requires to be noticed that  the learned Judges differed in their opinion regarding  the liability of the principal employer running statutory  canteens and further regarding the status of the workmen  engaged  thereof.  The  learned  Judges  differed  on  the

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aspect of supervision and control which was exercised by  the  Air  India  Ltd.  (for  short,  “the  Air  India”)-  respondent No. 1, and the Hotel Corporations of India  Ltd. (for short, “the HCI”)-respondent No. 2, over the  said  workmen  employed  in  these  canteens.  The  learned  Judges  also  had  varying  interpretations  regarding  the  status of the HCI as a sham and camouflage subsidiary by  the Air India created mainly to deprive the legitimate  statutory and fundamental rights of the concerned workmen  and the necessity to pierce the veil to ascertain their  relation with the principal employer.

3. The  Two  Judge  bench  has  expressed  contrasting  opinions  on  the  prevalence  of  an  employer–employee  relationship  between  the  principal  employer  and  the  workers in the said canteen facility, based on,  inter  alia, issues surrounding the economic dependence of the  subsidiary  role  in  management  and  maintenance  of  the  canteen  premises,  representation  of  workers,  modes  of  appointment  and  termination  as  well  as  resolving  disciplinary  issues  among  workmen.  The  Bench  also  differed on the issue pertaining to whether such workmen  should be treated as employees of the principal employer

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only for the purposes of the Factories Act, 1948 (for  short, “the Act, 1948”) or for other purposes as well.

FACTS : 4. The present set of appeals came before a two- Judge Bench of this Court against a judgment and order  dated 02.05.2011 of a Division Bench of the High Court of  Delhi in LPA Nos. 388, 390 and 391 of 2010. The present  dispute finds origin in an industrial dispute which arose  between the Appellants-workmen herein of the statutory  canteen and Respondent No. 1-herein. The said industrial  dispute was referred by the Central Government, by its  order  dated  23.10.1996  to  the  Central  Government  Industrial  Tribunal  cum  Labour  Court  (for  short  “the  CGIT”). The question referred was whether the workmen as  employed by Respondent No. 3-herein, to provide canteen  services at the establishment of Respondent No. 1-herein,  could  be  treated  as  deemed  employees  of  the  said  Respondent No. 1. Vide order dated 05.05.2004, the CGIT  held that the workmen were employees of the Respondent  No.1-Air India and therefore their claim was justified.  Furthermore, the termination of services of the workmen  during  the  pendency  of  the  dispute  was  held  to  be

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illegal. 5. By  judgment  and  order  dated  08.04.2010,  the  learned Single Judge of the High Court of Delhi set aside  and  quashed  the  CGIT’s  award  and  held  that  the  said  workmen would not be entitled to be treated as or deemed  to be the employees of the Air India. The Division Bench  of the High Court of Delhi vide impugned order dated  02.04.2011 found no error in the order passed by the  learned Single Judge of the High Court. The appeal was  dismissed by the Division Bench confirming the order of  the  learned  Single  Judge  who  observed  that  the  responsibility to run the canteen was absolutely with the  HCI and that the Air India and the HCI shared an entirely  contractual  relationship.  Therefore,  the  claim  of  the  appellants to be treated as employees of the Air India  and to be regularized was rejected by the learned Single  Judge.

6. In the present set of appeals, the appellants  are workers who claim to be the deemed employees of the  management of Air India on the grounds, inter alia, that  they work in a canteen established on the premises of the  respondent No. 1-Air India and that too, for the benefit

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of the employees of the said respondent. It is urged that  since the canteen is maintained as a consequence of a  statutory obligation under Section 46 of the Act, 1948,  and  that  since  by  virtue  of  notification  dated  21.01.1991, Rules 65-70 of the Delhi Factory Rules, 1950  (for short, “the Rules, 1950”) have become applicable to  the respondent No. 1, the said workers should be held to  be the employees of the management of the corporation, on  which such statutory obligation is placed, that is, Air  India.

7. Respondent No. 1 is a company incorporated under  the Companies Act, 1956 and is owned by the Government of  India. The primary object of the said respondent is to  provide international air transport/travel services. It  has  Ground  Services  Department  at  Indira  Gandhi  International Airport, Delhi. The Labour Department vide  its notification dated 20.01.1991 under sub-rule (1) of  Rule 65 of the Rules, 1950, has enlisted the said M/s.  Air  India  Ground  Services  Department,  thereby  making  Rules 65 to 70, of the Rules, 1950 applicable to the  same.

8. Respondent  No.  2-HCI  is  also  a  company

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incorporated  under  the  Companies  Act,  1956  and  is  a  separate legal entity from the Air India. As per the  Memorandum of Association of Respondent No. 2, the same  is a wholly-owned subsidiary of the Air India. The main  objects  of  the  said  respondent,  inter  alia,  are  to  establish refreshment rooms, canteens, etc. for the sale  of food, beverages, etc.  

9. Respondent  No.  2  has  various  units  and  Respondent  No.  3,  being  Chefair  Flight  Catering  (for  short, “the Chefair”), provides flight catering services  to  various  airlines,  including  Air  India.  It  is  this  Chefair unit of HCI that operates and runs the canteen.  It requires to be noticed that the appellants-workmen are  engaged on a casual or temporary basis by the respondent  Nos. 2 and 3 to render canteen services on the premises  of respondent No.1 - Air India.

ISSUE : 10. The  main  issue  for  consideration  before  this  Court  in  the  present  reference  is  “whether  workers,  engaged on a casual or temporary basis by a contractor  (HCI) to operate and run a statutory canteen, under the  provisions of the Act, 1948, on the premises of a factory

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– Air India, can be said to be the workmen of the said  factory or corporation”.

SUBMISSIONS : 11. Shri Jayant Bhushan, learned Senior Counsel for  the appellants-workmen has two alternative submissions;  firstly, that in the event of a statutory requirement to  provide  for  a  canteen  or  any  other  facility,  the  employees of the said facility would automatically become  employees of the principal employer, irrespective of the  existence of any intermediary that may have been employed  to run that facility.  Secondly, the test of sufficient  control by the principal employer over the operation of  the canteen and consequently over the appellants-workmen,  should prevail. Therefore, the Court should pierce the  veil and take note of the fact that the contractor was a  mere camouflage, and the principal employer was in real  control of the canteen and its workmen. Reference is made  to the following cases in support of his submissions-  Saraspur Mills Co. Ltd. v. Ramanlal Chimanlal, (1974) 3  SCC 66;  Hussainbhai v. Alath Factory Thezhilali Union,  (1978) 4 SCC 257;  M.M.R. Khan v. Union of India,  1990  Supp SCC 191; and Parimal Chandra Raha v. LIC, 1995 Supp

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(2) SCC 611.

12. Shri Jayant Bhushan also submits that the issue  raised  in  these  appeals  is  squarely  covered  by  the  observations made by the Constitution Bench in the case  of  Steel  Authority  of  India  Ltd.  v.  National  Union  Waterfront Workers, (2001) 7 SCC 1.  

13. While  supporting  the  judgment  in  the  Steel  Authority  of  India’s case  (supra), Shri  C.U.  Singh,  learned Senior Counsel for Respondent No. 1- Air India  would  contend  that  the  issue  that  came  up  for  consideration before the Constitution Bench is entirely  different  and,  therefore,  the  said  decision  has  no  bearing on the facts and the question of law raised in  the present set of appeals.  14. Shri C.U. Singh would then refer to the various  case laws cited by the learned counsel for the appellants  to show that they are not only distinguishable on facts,  but are inapplicable to the facts of the present case. He  would also refer to the three-Judge Bench decision of  this Court in the case of  Indian Petrochemicals Corpn.  Ltd. v. Shramik Sena,  (1999) 6 SCC 439, and then would  submit  that  the  proposition  of  law  enunciated  in  the

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Indian Petrochemicals  case (supra) is followed by this  Court in  Hari Shankar Sharma v. Artificial Limbs Mfg.  Corpn.,  (2002) 1 SCC 337;  Workmen v. Coates of India  Ltd., (2004) 3 SCC 547; Haldia Refinery Canteen Employees  Union v. Indian Oil Corpn. Ltd.,  (2005) 5 SCC 51; and  Karnataka  v.  KGSD  Canteen  Employees’  Welfare  Assn.,  

(2006) 1 SCC 567.

15. In  so  far  as  the  second  submission  of  the  learned counsel for the appellants is concerned,  Shri  C.U.  Singh  would  submit  that  it  is  not  the  test  of  sufficient  control,  but  the  test  of  effective  and  absolute control which would be relevant, and that if the  said test, in the given facts is applied, the appellants  would  fail  to  establish  the  employer  and  employee  relationship. In aid of his submissions, he refers to  Bengal Nagpur Cotton Mills  v. Bharat Lal, (2011) 1 SCC  635;  International  Airport  Authority  of  India v.  International  Air  Cargo  Workers’  Union,  (2009)  13  SCC  374; and  National Aluminium Co. Ltd.  v. Ananta Kishore  Rout & Ors., (2014) 6 SCC 756.

RELEVANT PROVISIONS :

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16. To appreciate the point of view of the parties  to  the  present  lis,  it  is  necessary  to  notice  the  relevant provisions.  

17. Section 46 of the Act, 1948 statutorily places  an obligation on the occupier of a factory to provide and  maintain a canteen in the factory where more than two  hundred and fifty workers are employed. There is nothing  in the said provision which provides for the mode in  which the factory must set up a canteen. It appears to be  left to the discretion of the concerned factory to either  discharge the said obligation of setting up a canteen  either  by  way  of  direct  involvement  or  through  a  contractor or any other third party. The provision reads  as under:

“46. Canteens.-(1) The State Government may make  rules  requiring  that  in  any  specified  factory  wherein more than two hundred and fifty workers  are  ordinarily  employed,  a  canteen  or  canteens  shall be provided and maintained by the occupier  for the use of the workers. (2) Without prejudice in the generality of the  foregoing power, such rules may provide for - (a)  the  date  by  which  such  canteen  shall  be  provided;

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(b)  the  standard  in  respect  of  construction,  accommodation, furniture and other equipment of  the canteen; (c) the foodstuffs to be served therein and the  charges which may be made therefor; (d) the constitution of a managing committee for  the canteen and representation of the workers in  the management of the canteen; (dd) the items of expenditure in the running of  the  canteen  which  are  not  to  be  taken  into  account  in  fixing  the  cost  of  foodstuffs  and  which shall be borne by the employer; (e) the delegation to Chief Inspector subject to  such  conditions  as  may  be  prescribed,  of  the  power to make rules under clause (c).”

18. By  virtue  of  Notification  No.  27(12)89- CIF/Lab/464  dated  21.01.1991,  rules  65  to  70  of  the  Rules, 1950 were made applicable to M/s. Air India Ground  Services Department. The rules impose obligations upon  the occupier of the factory as regards providing for and  maintaining the said canteen.  

19. Rules  65  to  70  of  the  Rules,  1950  are  in  furtherance  of  the  duty  prescribed  on  the  State  Government to run statutory canteens as per Section 46 of  the  Act,  1948.  Rule  65,  inter  alia,  provides  for  an  official  notification  and  approval  of  the  occupier

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canteen  facility  as  well  as  additional  guidelines  regarding  the  construction,  accommodation,  hygiene,  ventilation, sanitation and other maintenance works. Rule  66 prescribes for setting up a dining hall, with adequate  space  and  furniture  along  with  reservation  of  dining  space  for  women  employees.  Rule  67  enumerates  the  requisite equipment such as utensils, furniture, uniforms  for the canteen staff and other equipment to be purchased  and maintained in a hygienic manner. Rule 68 prescribes  that the prices to be charged on foodstuffs and other  items will be on a non-profit basis, as approved by the  Canteen  Managing  Committee.  Rule  69  illustrates  the  procedure for handling the auditing of accounts, under  the supervision of the Canteen Managing Committee as well  as Inspector of Factories. Lastly, Rule 70 enumerates the  consultative role of the Managing Committee regarding,  inter  alia,  the  quality  and  quantity  of  foodstuffs  served, arrangement of menus, duration for meals, etc. It  also prescribes that such a Committee must have equal  representation of persons nominated by the occupier and  elected  members  by  the  workers  of  the  factory.  The  Manager is entrusted with determining and supervising the  procedure for conducting such elections and dissolving

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the Committee at the expiry of its two year statutory  term.

DISCUSSION :

20. Before we deal with the issue that arises for  consideration,  it  would  be  necessary  to  consider  the  applicability of the Constitution Bench decision in the  Steel Authority of India  case (supra). Learned counsel  refers to paragraphs 106 and 107 of the said judgment to  contend  that  the  observations  made  therein  is  the  expression of the Court on the question of law and since  it is the decision of the Constitution Bench, the same  would  be  binding  on  this  Court.  To  appreciate  the  submission  of  the  learned  counsel,  we  notice  the  aforesaid paragraphs:

“106. We have gone through the decisions of this  Court in  VST Industries case (2001) 1 SCC 298,  G.B. Pant University case (2000) 7 SCC 109 and  M.  Aslam  case (2001)  1  SCC  720.  All  of  them  relate  to  statutory  liability  to  maintain  the  canteen  by  the  principal  employer  in  the   factory/establishment.  That  is  why  in  those  cases, as in Saraspur Mills case (1974) 3 SCC 66  the contract labour working in the canteen were  treated  as  workers  of  the  principal  employer.

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These cases stand on a different footing and it  is not possible to deduce from them the broad  principle  of  law  that  on  the  contract  labour  system being abolished under sub-section (1) of  Section 10 of the CLRA Act the contract labour  working  in  the  establishment  of  the  principal  employer  have  to  be  absorbed  as  regular  employees of the establishment. 107. An analysis of the cases, discussed above,  shows that they fall in three classes: (i) where  contract labour is engaged in or in connection  with the work of an establishment and employment  of contract labour is prohibited either because  the  industrial  adjudicator/court  ordered  abolition  of  contract  labourer  because  the  appropriate Government issued notification under  Section  10(1)  of  the  CLRA  Act,  no  automatic  absorption of the contract labour working in the  establishment  was  ordered;  (ii)  where  the  contract was found to be a sham and nominal,  rather a camouflage, in which case the contract  labour  working  in  the  establishment  of  the  principal  employer  were  held,  in  fact  and  in  reality, the employees of the principal employer  himself.  Indeed,  such  cases  do  not  relate  to  abolition  of  contract  labour  but  present  instances wherein the Court pierced the veil and  declared the correct position as a fact at the  stage after employment of contract labour stood  prohibited;  (iii)  where  in  discharge  of  a  statutory obligation of maintaining a canteen in

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an establishment the principal employer availed  the  services  of  a  contractor  the  courts  have  held that the contract labour would indeed be  the employees of the principal employer.”

21. By  placing  his  fingers  on  Clause  (iii)  of  paragraph 107, the learned counsel would contend that the  said observation is the  ratio of the Court’s decision  and, therefore, it is binding on all other Courts. We do  not agree. The Constitution Bench in Steel Authority of  India’s case  (supra)  was  primarily  concerned  with  the  meaning  of  the  expression  “appropriate  Government”  in  Section 2(1)(a) of the Contract Labour (Regulation and  Abolition)  Act,  1970  and  in  Section  2(a)  of  the  Industrial Disputes Act, 1947 and the other issue was  automatic  absorption  of  the  contract  labour  in  the  establishment of the principal employer as a consequence  of an abolition notification issued under Section 10(1)  of the Contract Labour (Regulation and Abolition) Act.  The Court while over-ruling the judgment in  Air India  Statutory Corporation vs. United Labour Union (1997) 9  SCC 377, prospectively, held that neither Section 10 of  the Contract Labour (Regulation and Abolition) Act nor  any other provision in the Act, whether expressly or by

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necessary implication, provides for automatic absorption  of contract labour on issue of notification under the  said  section,  prohibiting  contract  labour  and  consequently the principal employer is not required to  absorb  the  contract  labour  working  in  the  concerned  establishment.

In the aforesaid decision, firstly, the issue whether  contract labourers working in statutory canteen(s) would  fall within the meaning of expression “workmen” under the  Act,  1948  and  therefore  they  are  employees  of  the  principal employer and  secondly, whether the principal  employer to fulfil its obligation under Section 46 of the  Act,  1948  engages  a  contractor,  the  employees  of  the  contractor can claim regularisation and extension of the  service  conditions  extended  to  the  employees  of  the  principal  employer  did  not  remotely  arise  for  consideration of the Court.  

Secondly, in our considered view, the observations  made by the Constitution Bench in paragraph 107 of the  Judgment by no stretch of imagination can be considered  ‘the  law  declared’  by  the  Court.  We  say  so  for  the  reason, the Court after noticing several decisions which

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were  brought  to  its  notice,  has  summarised  the  view  expressed  in  those  decision  in  three  categories.  The  categorisation so made cannot be said the declaration of  law made by the Court which would be binding on all the  Courts within the territory of India as envisaged under  Article 141 of the Constitution of India.  This Court in  the  case  of  The  Commissioner  of  Income  Tax  v. Sun  Engineering  Works  (P)  Ltd., (1992)  4  SCC  363,  has  observed:

“39. It  is  neither  desirable  nor  permissible to pick out a word or a sentence  from the judgment of this Court divorced from  the context of the question under consideration  and treat it to be complete ‘law’ declared by  this  Court.   The  Judgment  must  be  read  as  a  whole  and  the  observations  from  the  judgment  have  to  be  considered  in  the  light  of  the  questions  which  were  before  this  Court.   A  decision of this Court takes its colour from the  questions involved in the case in which it was  rendered and while applying the decision to the  later case,  the Courts must carefully try to  ascertain the true principle laid down by the  decision of this Court and not pick out words or  sentences from the judgment, divorced from the  context of the questions under consideration by  this Court, to support their reasonings”

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22. Further, this Court in  Punjab Land Development  and Reclamation Corporation Ltd., Chandigarh v. Presiding  Officer, Labour Court, Chandigarh and Ors., (1990) 3 SCC  682, observed as follows:

“44. An  analysis  of  judicial  precedent,  ratio  decidendi and  the  ambit  of  earlier  and  later  decisions is to be found in the House of Lords’  decision  in  F.A.  &  A.B.  Ltd. v.  Lupton  (Inspector of Taxes), Lord Simon concerned with  the  decisions  in  Griffiths v.  J.P.  Harrison  (Watford) Ltd. and  Finsbury Securities Ltd. v.  Inland  Revenue  Commissioner with  their  interrelationship and with the question whether  Lupton’s  case fell  with-in  the  precedent  established by the one or the other case, said:  (AC p. 658)

‘...what constitutes binding precedent is  the ratio decidendi of a case, and this is  almost  always  to  be  ascertained  by  an  analysis of the material facts of the case —that is, generally, those facts which the  tribunal  whose  decision  is  in  question  itself holds, expressly or implicitly, to  be material.’ ”

23. It is stated therein that a judicial decision is  the  abstraction  of  the  principle  from  the  facts  and

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arguments of the case. It was further observed in the  Punjab Land Development case (supra), that:

“53. Lord Halsbury’s dicta in Quinn v. Leatham,  1901 AC 495: (AC p. 506)

“...every  judgment  must  be  read  as  applicable to the particular facts proved,  or  assumed  to  be  proved,  since  the  generality of the expressions which may be  found  there  are  not  intended  to  be  expositions of the whole law, but governed  and qualified by the particular facts of  the case in which such expressions are to  be found. The other is that a case is only  an  authority  for  what  it  actually  decides.”

This Court held in  State of Orissa v.  Sudhansu  Sekhar Misra (1968) 2 SCR 154, that a decision  is  only  an  authority  for  what  it  actually  decides. What is of the essence in a decision is  its  ratio  and  not  other  observation found  therein  nor  what  logically  follows  from  the  various observations made in it. ...”

24. A Constitution Bench of this Court in the case  of  State of Punjab  v. Baladev Singh, (1999) 6 SCC 172,  held that a judgment has to be considered in the context  in  which  it  was  rendered  and  that  a  decision  is  an  authority for what it decides and it is not everything

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said therein constitutes a precedent.  

25. In our view, the binding nature of a decision  would extend to only observations on points raised and  decided by the Court and neither on aspects which it has  not decided nor had occasion to express its opinion upon.  The  observation  made  in  a  prior  decision  on  a  legal  question  which  arose  in  a  manner  not  requiring  any  decision and which was to an extent unnecessary, ought to  be considered merely as an obiter dictum. We are further  of the view that a ratio of the judgment or the principle  upon which the question before the Court is decided must  be considered as binding to be applied as an appropriate  precedent.  

26. The  Constitution  Bench  in  Steel  Authority  of  India’s case  (supra),  decided  on  the  limited  issue  surrounding the absorption of contract workers into the  principal establishment pursuant to a notification issued  by the appropriate Government under Section 10 of the  Contract Labour (Abolition and Regulation) Act, 1970. The  conclusion in paragraph 125 of Steel Authority of India’s  case (supra),  inter alia, states that on issuance of a  notification  under  Section  10(1)  of  Contract  Labour

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(Abolition  and  Regulation)  Act,  1970  passed  by  the  appropriate  Government  would  not  entail  the  automatic  absorption  of  contract  workers  operating  in  the  establishment  and  the  principal  employer  will  not  be  burdened  with  any  liability  thereof.  The  issue  surrounding workmen employed in statutory canteens and  the liability of principal employer was neither argued  nor subject of dispute in the Steel Authority of India’s  case  (supra).   Therefore,  in  our  considered  view  the  decision on which reliance was placed by learned counsel  does not assist him in the facts of the present case.

27. The  Act, 1948  is a  social legislation  and it  provides for the health, safety, welfare, working hours,  leave  and  other  benefits  for  workers  employed  in  factories and it also provides for the improvement of  working conditions within the factory premises. Section 2  of the Act, 1948 is the interpretation clause. Apart from  others,  it  provides  the  definition  of  worker  under  Section 2(l) of the Act, 1948, to mean a person employed,  directly or through any other agency, whether for wages  or not, in any manufacturing or cleaning process. Section  46  of  the  Act,  1948  requires  the  establishment  of

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canteens in factories employing more than two hundred and  fifty workers. The State Government have been given power  under  the  Section  to  make  Rules  requiring  that  such  canteens to be provided in the factory under Sub Section  (2), the items for which rules are to be framed have been  specified.   The  Sub  Section  also  contemplates  the  delegation by the State Government the power to the Chief  Inspector to make rules in respect of the food to be  served in such canteens and their charges. In exercise of  rules  making  power,  the  Delhi  State  has  framed  and  notified the Rules, 1950, in which rules 65 to 70 are  incorporated to give effect to the purpose of Section 46  of the Act, 1948.

28. The question before us is “when the company is  admittedly required to run the canteen in compliance of  the statutory obligation under Section 46 of the Act,  1948,  whether  the  canteen  employees  employed  by  the  contractor are to be treated as the employees of the  company only for the purpose of Act 1948 or for all the  other purposes.”   

29. Before we advert to the aforesaid issue raised  and canvassed, we intend to notice some of the decisions

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of  this  Court  where  a  similar  issue  was  raised  and  answered. In Indian Petrochemicals case (supra), a three  Judge Bench of this Court has stated the law on the point  by holding that the employees of the statutory canteens  are covered within the definition of ‘workmen’ under the  Act, 1948 and not for all other purposes. The Court went  on to observe that the Act, 1948 does not govern the  rights  of  employees  with  reference  to  recruitment,  seniority, promotion, retirement benefits etc. They are  governed by other statutes, rules, contracts or policies.  30. The  aforesaid  viewpoint  is  reiterated  by  this  Court in the case of  Haldia Refinery Canteen Employees  Union and others v. Indian Oil Corporation Ltd. and ors.,  (2005) 5 SCC 51 and in Hari Shankar Sharma v. Artificial  Limbs  Manufacturing  Corporation,  (2002)  1  SCC  337. As  observed by the Constitution Bench of this Court in the  case of  Union of India  v. Raghubir Singh, 178 ITR 548  (SC), the pronouncement of law by a Division Bench of the  Supreme Court is binding on a Division Bench of the same  or a smaller number of Judges and in order that such  decision is binding, it is not necessary that it should  be a decision rendered by a Full Court or a Constitution  Bench of the Supreme Court. The  Indian Petrochemical’s

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case (supra) is decided by a three-Judge Bench of this  Court and the facts and the legal issues raised in the  present appeals are the same or similar as in  Indian  Petrochemicals  case  (supra),  and  since  we  are  not  persuaded to take a different view in the matter, the  observations made therein is binding on us.   

31. This  Court  in  the  Indian  Petrochemical  case  (supra), while explaining the decision in Parimal Chandra  Raha’s case (supra), has stated that in Raha’s case, the  Supreme Court did not specifically hold that the deemed  employment of the workers is for all purposes nor did it  specifically hold that it is only for the purposes of the  Act, 1948. However, a reading of the judgment in its  entirety makes it clear that the deemed employment is  only for the purpose of the Act, 1948.  Therefore, it has  to be held that the workmen of a statutory canteen would  be the workmen of the establishment for the purpose of  the Act, 1948 only and not for all other purposes.  To  arrive at this conclusion, the Court has followed the  view expressed by this Court in M.M.R Khan’s case (supra)  and Reserve Bank of India v. Workmen, (1996) 3 SCC 267.  

32. The  proposition  of  law  in  the  Indian

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Petrochemicals case (supra) has been reiterated in the  Hari  Shankar  Sharma’s  case  (supra). This  Court  stated  that:  

“6. The  observations  in  Parimal  Chandra  Raha  case relied  on  by  the  appellants  which  might  have supported the submission of the appellants  have been explained by a larger Bench in Indian  Petrochemicals Corpn. Ltd. v. Shramik Sena where  it was held, after considering the provisions of  the Factories Act and the previous decisions on  the  issue,  that  the  workmen  of  a  statutory  canteen  would  be  the  workmen  of  the  establishment  only  for  the  purpose  of  the  Factories  Act  and  not  for  all  other  purposes  unless  it  was  otherwise  proved  that  the  establishment exercised complete administrative  control  over  the  employees  serving  in  the  canteen.”

33. The aforesaid principle has also been applied in  Haldia’s case (supra); KGSD Canteen case (supra); Indian  Overseas Bank  v. I.O.B. Staff Canteen Workers’ Union &  Anr., (2000) 4 SCC 245; and  Barat Fritz Werner Ltd.  v.  State of Karnataka, 2001 (4) SCC 498.   

34. The  Coates  of  India  Ltd.’s  case  (supra)  was  regarding a dispute over the status of the appellant- workmen therein who were hired by a contractor to work in

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a canteen run on the premises of the respondent company.  This Court observed that merely some requirement under  the Act, 1948 of providing a canteen in the industrial  establishment is by itself not conclusive of the question  or  sufficient  to  determine  the  status  of  the  persons  employed in the canteen. The Industrial Court and the  learned Single Judge of the High Court held in favour of  the  workmen.  However,  the  Division  Bench  of  the  High  Court held in favour of the respondent-company therein.  This Court took note of the relevant finding of fact by  the  learned  Single  Judge  therein  and  upheld  the  conclusion of the Division Bench of the High Court, that  the workmen were employed only by the contractor to run  the  canteen,  and  they  were  not  employees  of  the  respondent Company. The Court went on to observe that  since the canteen employees were not directly appointed  by the Company nor had they ever moved the Company for  leave or other benefits enjoyed by the regular employees  of the Company, and further that the canteen employees  got  their  wages  from  the  respective  contractors  and,  therefore, they are not employees of the Company.

35. The Haldia case (supra) was similar to the facts

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of the present case. In that case, the appellant-workmen  were  working  in  the  statutory  canteen  run  by  the  respondent through a contractor in its factory. It was  contended  therein  that  the  factory  of  the  respondent  where  the  workmen  were  employed  was  governed  by  the  provisions of the Act, 1948 and the canteen where the  said workmen were employed would be a statutory canteen  and  the  same  was  maintained  for  the  benefit  of  the  workmen employed in the factory. It was alleged therein  that  the  respondent  had  direct  control  over  the  said  workmen  and  the  contractor  had  no  control  over  the  management, administration and functioning of the said  canteen. Therefore, writ applications were filed seeking  issuance  of  mandamus  to  the  respondent  to  absorb  the  appellants in the service of the respondent therein and  to  regularize  them  as  such.  This  Court  then  made  a  detailed  reference  to  the  Parimal  Chandra  Raha  case  (supra),  the  MMR  Khan  case  (supra)  and  the  Indian  Petrochemicals  case (supra). The Court then extensively  referred  to  the  terms  and  conditions  of  the  contract  between  the  canteen  contractor  and  the  respondent  to  ascertain whether there was any control of the respondent  company therein over the workers in the canteen, and if

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so  what  was  the  nature  of  the  said  control.  It  was  observed as follows:

“14.  No  doubt,  the  respondent  management  does  exercise effective control over the contractor  on certain matters in regard to the running of  the canteen but such control is being exercised  to  ensure  that  the  canteen  is  run  in  an  efficient  manner  and  to  provide  wholesome  and  healthy  food  to  the  workmen  of  the  establishment. This, however, does not mean that  the employees working in the canteen have become  the employees of the management. 15. A free hand has been given to the contractor  with regard to the engagement of the employees  working in the canteen. There is no clause in  the  agreement  stipulating  that  the  canteen  contractor  unlike  in  the  case  of  Indian  Petrochemicals  Corpn.  Ltd. shall  retain  and  engage  compulsorily  the  employees  who  were  already  working  in  the  canteen  under  the  previous contractor. There is no stipulation of  the contract that the employees working in the  canteen at the time of the commencement of the  contract must be retained by the contractor. The  management  unlike  in  Indian  Petrochemicals  Corpn. Ltd. case is not reimbursing the wages of  the workmen engaged in the canteen. Rather the  contractor has been made liable to pay provident  fund  contribution,  leave  salary,  medical  benefits  to  his  employees  and  to  observe

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statutory working hours. The contractor has also  been made responsible for the proper maintenance  of  registers,  records  and  accounts  so  far  as  compliance  with  any  statutory  provisions/obligations is concerned. A duty has  been  cast  on  the  contractor  to  keep  proper  records pertaining to payment of wages, etc. and  also  for  depositing  the  provident  fund  contributions  with  the  authorities  concerned.  The contractor has been made liable to defend,  indemnify  and  hold  harmless  the  employer  from  any liability or penalty which may be imposed by  the  Central,  State  or  local  authorities  by  reason  of  any  violation  by  the  contractor  of  such laws, regulations and also from all claims,  suits or proceedings that may be brought against  the management arising under or incidental to or  by  reason  of  the  work  provided/assigned  under  the  contract  brought  by  the  employees  of  the  contractor,  third  party  or  by  the  Central  or  State Government authorities.”

36. As regards the nature of control exercised by  the  management  over  the  workmen  employed  by  the  contractor to work in the said canteen, it was observed  by this Court in the Haldia case (supra) that the control  was of a supervisory nature and that there was no control  over disciplinary action or dismissal. Such control was  held not to be determinative of the alleged fact that the

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workmen were under the control of the management. This  Court observed as follows:

“16. The management has kept with it the right  to  test,  interview  or  otherwise  assess  or  determine the quality of the employees/workers  with regard to their level of skills, knowledge,  proficiency,  capability,  etc.  so  as  to  ensure  that  the  employees/workers  are  competent  and  qualified and suitable for efficient performance  of  the  work  covered  under  the  contract.  This  control has been kept by the management to keep  a check over the quality of service provided to  its employees. It has nothing to do with either  the appointment or taking disciplinary action or  dismissal or removal from service of the workmen  working  in  the  canteen.  Only  because  the  management exercises such control does not mean  that the employees working in the canteen are  the  employees  of  the  management.  Such  supervisory  control  is  being  exercised  by  the  management to ensure that the workers employed  are  well  qualified  and  capable  of  rendering  proper  service  to  the  employees  of  the  management.”  

37. The last case that we intend to refer on this  point is that of KGSD Canteen case (supra), wherein this  Court was required to answer the question as to whether  the employees of the canteen are employees of the State

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or  whether  their  services  should  be  directed  to  be  regularized or not. However, in the said case, the State  had  no  statutory  compulsion  to  run  and  maintain  any  canteen for its employees. This Court made reference to  numerous cases on this issue,  inter alia, the  Saraspur  Mills  case  (supra),  the  Parimal  Chandra  Raha  case  (supra),  the  MMR  Khan  case  (supra),  the  Indian  Petrochemicals  case  (supra),  the  Constitution  Bench  decision in the  Steel Authority of India  case (supra),  the Hari Shankar Sharma case (supra), and the Haldia case  (supra).  

38. We  conclude  that  the  question  as  regards  the  status of workmen hired by a contractor to work in a  statutory canteen established under the provisions of the  Act, 1948 has been well settled by a catena of decisions  of  this  Court.   This  Court  is  in  agreement  with  the  principle  laid  down  in  the  Indian  Petrochemicals  case  (supra)  wherein  it  was  held  that  the  workmen  of  a  statutory  canteen  would  be  the  workmen  of  the  establishment for the purpose of the Act, 1948 only and  not for all other purposes.  We add that the statutory  obligation created under Section 46 of the Act, 1948,

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although establishes certain liability of the principal  employer  towards  the  workers  employed  in  the  given  canteen facility, this must be restricted only to the  Act, 1948 and it does not govern the rights of employees  with  reference  to  appointment,  seniority,  promotion,  dismissal,  disciplinary  actions,  retirement  benefits,  etc.,  which  are  the  subject  matter  of  various  other  legislations, policies, etc. Therefore, we cannot accept  the submission of Shri Jayant Bhushan, learned counsel  that the employees of the statutory Canteen  ipso-facto  become the employees of the principal employer.   

39. We may now refer to the various decisions, cited  by learned counsel, Shri Jayant Bhushan.  

40. The Saraspur Mills case (supra) came before this  Court  as  a  result  of  a  dispute  under  the  Bombay  Industrial  Relations  Act,  1946. In  that  case,  the  appellant-Company  was  responsible  for  maintaining  the  canteen under the provisions of Section 46 of the Act,  1948 and the rules made thereunder. The appellant-therein  had handed over the task of running the said canteen to a  cooperative society. The society employed the respondent- workmen in the canteen.  One of the issues that came up

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for consideration before this Court was that, whether the  employees of the said cooperative society could be said  to be the employees of the appellant-company. The case of  the workmen was that the appellant-company was running  the canteen to fulfill its statutory obligations and thus  the running of the said canteen would be part of the  undertaking of the appellant although the appellant did  not run itself the canteen but handed over the premises  to the     co-operative society to run it for the use and  welfare of the Company’s employees and to discharge its  legal obligation. The appellant-company had resisted the  claim  by  contending  that  the  workmen  had  never  been  employed by it but by the co-operative society which was  its licensee. This Court after referring to the amended  definition of employee and employer in Section 3(13) and  3(14) of Bombay Industrial Relation Act, 1946 and the  definition  of  `Worker’  under  the  Act,  1948,  and  also  referring to earlier decision in Basti Sugar Mills Ltd.  v. Ram Ujagar and Ors., (1964) 2 SCR 838, held that since  under Act, 1948, it was the duty of the appellant-company  to run and maintain the canteen for use of its employees,  the ratio of the decision in  Ahmedabad Mfg. and Calico  Printing Co. Ltd.,  v. Their Workmen  (1953) II LLJ 647

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would  be  fully  applicable  in  which  the  very  same  provision of the Act, 1948 were considered and confirmed  the finding of the Industrial Court.  

41. It would be relevant to note that the primary  reasoning of the Court in the Saraspur Mills case (supra)  to  hold  that  the  workers  of  the  canteen  run  by  a  cooperative society to be the employees of the appellant- company therein, was in view of the amended definition of  “employer”  and  “employee”  as  found  under  the  Bombay  Industrial  Relations  Act,  1946  and  definition  of  `Workmen’ under the Act, 1948. Since no such expansive  definition finds mention neither in the Act, 1948 nor in  the facts of the present case, it would not be proper to  place reliance on the given case as a precedent herein.

42. In  the  Hussainbhai  case  (supra),  the  dispute  arose between workmen hired by a contractor to make ropes  within  the  factory  premises  on  one  hand,  and  the  petitioner who was the factory owner manufacturing ropes  who had engaged such contractor, on the other hand. The  issue therein pertained to whether such workmen would be  that of the contactor or the petitioner. In the said  case,  the  Court  went  into  the  concept  of  employer-

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employee relationship from the point of view of economic  realities. It was observed, by a three-Judge Bench, that:

“5.  The  true  test  may,  with  brevity,  be  indicated once again. Where a worker or group of  workers labours to produce goods or services and  these goods or services are for the business of  another, that other is, in fact, the employer.  He  has  economic  control  over  the  workers’  subsistence, skill, and continued employment. If  he, for any reason, chokes off, the worker is,  virtually,  laid  off.  The  presence  of  intermediate  contractors  with  whom  alone  the  workers have immediate or direct relationship ex  contractu is of no consequence when, on lifting  the veil or looking at the conspectus of factors  governing  employment,  we  discern  the  naked  truth, though draped in different perfect paper  arrangement,  that  the  real  employer  is  the  Management, not the immediate contractor. ...”

43. The  Hussainbhai  case (supra) did not deal with  the  Act,  1948,  much  less  any  statutory  obligation  thereunder. The case proceeded on the test of employer- employee relationship to ascertain the actual employer.  The  Court  gave  due  weight  and  consideration  to  the  concept of ‘economic control’ in this regard. It may only  be appropriate for the Court in the present case to refer  to  this  judgment  as  regards  determining  the  employer-

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employee relationship.  

44. The case of  M.M.R. Khan  (supra), also came up  for  consideration  before  a  three-Judge  Bench  of  this  Court. It related to the workers employed in canteens run  in  the  different  railway  establishments.  The  relief  claimed was that the workers concerned should be treated  as railway employees and should be extended all service  benefits  which  are  available  to  the  said  railway  employees. The Court was concerned, in the said case,  with three types of canteens:-    (i) Statutory Canteens;  (ii) Non-Statutory, Recognized Canteens; and (iii) Non- Statutory, Non-Recognized Canteens. As regards statutory  canteens, the Court noticed that under Section 46 of the  Act, 1948, the occupier of a factory was not only obliged  to provide for and maintain a canteen where more than 250  workers are employed, but was also obliged to abide by  the  rules  which  the  concerned  Government  may  make,  including  the  rules  for  constitution  of  a  managing  committee for running the canteen and for representation  of the workers in the management of the canteen. In other  words, the whole working and functioning of the canteen  has  to  conform  to  the  statutory  rules  made  in  that

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behalf.  

45. It would be relevant to notice the facts noted  by this Court in the MMR Khan’s case (supra). This Court  had made an explicit reference to the relevant provisions  of  the  Railway  Establishment  Manual  and  the  Administrative Instructions on Departmental Canteens in  Offices and Industrial Establishments of the Government  as issued by the Department of Personnel and Training,  Ministry of Personnel, Public Grievances and Pensions of  the Government of India, which dealt with the canteens  and had express provisions thereunder that were integral  to the final decision of this Court. The issue that arose  before  the  Court  was  whether  the  employees  of  the  statutory canteen could be said to be the employees of  the railway administration as well. This Court observed  that:

“25. Since in terms of the Rules made by the  State Governments under Section 46 of the Act,  it is obligatory on the railway administration  to  provide  a  canteen,  and  the  canteens  in  question have been established pursuant to the  said provision there is no difficulty in holding  that the canteens are incidental to or connected  with the manufacturing process or the subject of

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the manufacturing process. The provision of the  canteen is deemed by the statute as a necessary  concomitant  of  the  manufacturing  activity.  Paragraph  2829  of  the  Railway  Establishment  Manual recognizes the obligation on the railway  Administration created by the Act and as pointed  out earlier paragraph 2834 makes provision for  meeting the cost of the canteens. Paragraph 2832  acknowledges  that  although  the  railway  administration may employ anyone such as a staff  committee  or  a  co-operative  society  for  the  management  of  the  canteens,  the  legal  responsibility for the proper management rests  not with such agency but solely with the railway  administration. If the management of the canteen  is handed over to a consumer cooperative society  the bye-laws of such society have to be amended  suitably to provide for an overall control by  the railway administration. 26. In fact as has been pointed out earlier the  Administrative  Instructions  on  departmental  canteens in terms state that even those canteens  which are not governed by the said Act have to  be  under  a  complete  administrative  control  of  the  concerned  department  and  the  recruitment,  service  conditions  and  the  disciplinary  proceedings  to  be  taken  against  the  employees  have to be taken according to the rules made in  that  behalf  by  the  said  department.  In  the  circumstances,  even  where  the  employees  are

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appointed  by  the  staff  committee/cooperative  society  it  will  have  to  be  held  that  their  appointment  is  made  by  the  department  through  the agency of the committee/society as the case  may be. ...”  

46. We are in agreement with the view expressed in  MMR  Khan  case  (supra).  We  further  observe  that  the  reasoning of the Court, as noticed hereinabove, was based  on  the  Railway  Establishment  Rules  and  the  relevant  Administrative instructions issued by the Government of  India.  By  virtue  of  the  aforesaid  Rules  and  Administrative instructions, it was made mandatory that  the  complete  administrative  control  of  the  canteen  be  given  to  the  Railway  Administration.  Such  mandatory  obligations are not present in the instant case. In light  of  the  same,  the  given  case  cannot  be  said  to  be  a  precedent  on  the  general  proposition  as  regards  the  status of employees of a statutory canteen established  under the Act, 1948. 47. We have already referred to the decision of this  Court  in  Parimal  Chandra  Raha  case  (supra),  and,  therefore, we are not referring to the said decision once  over again.  However, we add that in the Parimal Chandra  Raha case (supra), this Court made a general observation

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that  under  the  provisions  of  the  Act,  1948,  it  is  statutorily  obligatory  on  the  employer  to  provide  and  maintain a canteen for the use of his employees. As a  consequence,  the  Court  stated  that,  the  canteen  would  become  a  part  of  the  principal  establishment  and,  therefore, the workers employed in such canteen would be  the employees of the said establishment. This Court went  on  to  observe  that  the  canteen  was  a  part  of  the  establishment of the Corporation, that the contractors  engaged were only a veil between the Corporation and the  canteen workers and therefore, the canteen workers were  the  employees  of  the  Corporation.  This  Court,  while  arriving  at  the  said  conclusion  laid  emphasis  on  the  contract  between  the  corporation  and  the  contractor,  whereby it was shown that the terms of the said contract  were in the nature of directions to the contractor about  the manner in which the canteen should be run and the  canteen  services  should  be  rendered  to  the  employees.  Furthermore, it was found that majority of the workers  had been working in the said canteen continuously for a  long  time,  whereas  the  intermediaries  were  changed  on  numerous occasions.

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48. In light of the above discussion, in our view,  the case laws on which the reliance is placed by learned  counsel would not assist him to drive home the point  canvassed.

49. To  ascertain  whether  the  workers  of  the  Contractor can be treated as the employees of the factory  or company on whose premises they run the said statutory  canteen,  this  Court  must  apply  the  test  of  complete  administrative  control.  Furthermore,  it  would  be  necessary to show that there exists an employer-employee  relationship between the factory and the workmen working  in the canteen. In this regard, the following cases would  be relevant to be noticed.

50. This  Court  would  first  refer  to  the  relevant  pronouncements  by  various  English  Courts  in  order  to  analyze  their  approach  regarding  employer-employee  relationship. In the case of  Ready Mix Concrete (South  East)  Ltd  v.  Minister  of  Pensions  and  National  

Insurance, [1968] 2 QB 497, McKenna J. laid down three  conditions for the existence of a contract of service. As  provided at p.515 in the Ready Mix Concrete case (supra),  the conditions are as follows:

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“(i) The servant agrees that, in consideration  of a wage or other remuneration, he will provide  his own work and skill in the performance of  some  service  for  his  master;  (ii)  he  agrees,  expressly or impliedly, that in the performance  of  that  service  he  will  be  subject  to  the  other's control in a sufficient degree to make  that other master; (iii) the other provisions of  the  contract  are  consistent  with  its  being  a  contract of service.”

51. In the Ready Mix Concrete case (supra), McKenna  J. further elaborated upon the above-quoted conditions.  As regards the first, he stated that there must be wages  or  remuneration;  else  there  is  no  consideration  and  therefore no contract of any kind. As regards the second  condition, he stated that control would include the power  of deciding the thing to be done, the way in which it  shall be done, the means to be employed in doing it, the  time  when  and  the  place  where  it  shall  be  done.  Furthermore, to establish a master-servant relationship,  such control must be existent in a sufficient degree.

52. McKenna J. further referred to Lord Thankerton's  “four indicia” of a contract of service said in Short v.

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J. and W. Henderson Ltd. (1946) 62 TLR 427. The J. and W.  Henderson case (supra) at p.429, observes as follows:

“(a)  The  master's  power  of  selection  of  his  servant;  (b)  the  payment  of  wages  or  other  remuneration; (c) the master's right to control  the  method  of  doing  the  work;  and  (d)  the  master's right of suspension or dismissal.”

53. A recent decision by the Queen’s Bench, in  JGE  v. The Trustees of Portsmouth Roman Catholic Diocesan  Trust,  [2012]  EWCA  Civ  938,  Lord  Justice  Ward,  while  discussing  the  hallmarks  of  the  employer-employee  relationship, observed that  an employee works under the  supervision  and  direction  of  his  employer,  whereas  an  independent contractor is his own master bound by his  contract but not by his employer's orders. Lord Justice  Ward followed the observations made by McKenna J. in the  Ready Mix Concrete case (supra) as mentioned above. The  JGE  case (supra), further noted that ‘control’ was an  important  factor  in  determining  an  employer-employee  relationship. It was held, after referring to numerous  judicial  decisions,  that  there  was  no  single  test  to  determine such a relationship. Therefore what would be  needed to be done is to marshal various tests, which

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should  cumulatively  point  either  towards  an  employer- employee relationship or away from one.

54. The case of  Short  v. J. and W. Henderson Ltd.,  as cited in the  Ready Mix Concrete  case (supra) and in  the JGE case (supra), was also referred to in the four- Judge  Bench  decision  of  this  Court  in  Dhrangadhra  Chemical Works Ltd. v. State of Saurashtra, AIR 1957 SC  274. In the Dhrangadhra Chemical Works case (supra), it  was  observed  that  the  prima  facie test  for  the  determination  of  the  relationship  between  master  and  servant is the existence of the right in the master to  supervise and control the work done by the servant not  only in the matter of directing what work the servant is  to do but also the manner in which he shall do his work.  

55. In  Ram  Singh  v. Union  Territory,  Chandigarh,  (2004) 1 SCC 126, as regards the concept of control in an  employer-employee relationship, observed as follows:

“15. In determining the relationship of employer  and employee, no doubt, “control” is one of the  important tests but is not to be taken as the  sole  test.  In  determining  the  relationship  of  employer and employee, all other relevant facts  and circumstances are required to be considered

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including  the  terms  and  conditions  of  the  contract.  It  is  necessary  to  take  a  multiple  pragmatic approach weighing up all the factors  for and against an employment instead of going  by  the  sole  “test  of  control”.  An  integrated  approach is needed. “Integration” test is one of  the relevant tests. It is applied by examining  whether the person was fully integrated into the  employer’s  concern  or  remained  apart  from  and  independent of it. The other factors which may  be relevant are — who has the power to select  and  dismiss,  to  pay  remuneration,  deduct  insurance  contributions,  organize  the  work,  supply  tools  and  materials  and  what  are  the  “mutual  obligations”  between  them.  (See  Industrial Law, 3rd Edn., by I.T. Smith and J.C.  Wood, at pp. 8 to 10.)”

56. In the case of  Bengal Nagpur Cotton Mills  case  (supra), this Court observed that:  

“9. In this case, the industrial adjudicator has  granted relief to the first respondent in view  of its finding that he should be deemed to be a  direct employee of the appellant. The question  for  consideration  is  whether  the  said  finding  was justified. 10. It  is  now  well  settled  that  if  the  industrial adjudicator finds that the contract  between  the  principal  employer  and  the  contractor to be a sham, nominal or merely a

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camouflage  to  deny  employment  benefits  to  the  employee and that there was in fact a direct  employment, it can grant relief to the employee  by  holding  that  the  workman  is  the  direct  employee of the principal employer. Two of the  well-recognized  tests  to  find  out  whether  the  contract labourers are the direct employees of  the  principal  employer  are:  (i)  whether  the  principal  employer  pays  the  salary  instead  of  the contractor; and (ii) whether the principal  employer controls and supervises the work of the  employee.  In  this  case,  the  Industrial  Court  answered both questions in the affirmative and  as a consequence held that the first respondent  is a direct employee of the appellant.”  

57. Further, the above case made reference to the  case of the International Airport Authority of India case  (supra) wherein the expression “control and supervision”  in the context of contract labour was explained by this  Court. The relevant part of the  International Airport  Authority  of  India case  (supra),  as  quoted  in  Bengal  Nagpur Cotton Mills case (supra) is as follows:

“38.  ...  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

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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.”

58. A recent decision concerned with the employer- employee relationship was that of the NALCO case (supra).  In this case, the appellant had established two schools  for the benefit of the wards of its employees. The Writ  Petitions were filed by the employees of each school for  a declaration that they be treated as the employees of

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the  appellant-company  on  grounds  of,  inter  alia,  real  control and supervision by the latter. This Court, while  answering the issue canvassed was of the opinion that the  proper approach would be to ascertain whether there was  complete  control  and  supervision  by  the  appellant- therein. In this regard, reference was made to the case  of  Dhrangadhra Chemical Works  case (supra) wherein this  Court had observed that:

“14.  The  principle  which  emerges  from  these  authorities is that the prima facie test for the  determination of the relationship between master  and servant is the existence of the right in the  master to supervise and control the work done by  the servant not only in the matter of directing  what  work  the  servant  is  to  do  but  also  the  manner  in  which  he  shall  do  his  work,  or  to  borrow  the  words  of  Lord  Uthwatt  at  p.23  in  Mersey  Docks  and  Harbour  Board v.  Coggins  &  Griffith (Liverpool)  Ltd., (1952) SCR 696 “The  proper  test  is  whether  or  not  the  hirer  had  authority to control the manner of execution of  the act in question”.”

59. The NALCO case (supra) further made reference to  the case of Workmen of Nilgiri Coop. Mkt. Society Ltd. v.  State of T.N., (2004) 3 SCC 514, wherein this Court had  observed as follows:

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“37. The control test and the organization test,  therefore, are not the only factors which can be  said to be decisive. With a view to elicit the  answer,  the  Court  is  required  to  consider  several factors which would have a bearing on  the result: (a) who is the appointing authority;  (b) who is the paymaster; (c) who can dismiss;  (d) how long alternative service lasts; (e) the  extent  of  control  and  supervision;  (f)  the  nature  of  the  job  e.g.  whether  it  is  professional  or  skilled  work;  (g)  nature  of  establishment; (h) the right to reject. 38. With a view to find out reasonable solution  in a problematic case of this nature, what is  needed is an integrated approach meaning thereby  integration  of  the  relevant  tests  wherefor  it  may be necessary to examine as to whether the  workman concerned was fully integrated into the  employer’s  concern  meaning  thereby  independent  of  the  concern  although  attached  therewith  to  some extent.”

60. It was concluded by this Court in the NALCO case  (supra) that there may have been some element of control  with NALCO because its officials were nominated to the  Managing Committee of the said schools.  However, it was  observed that the above-said fact was only to ensure that  the schools run smoothly and properly. In this regard,  the Court observed as follows:

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“30. ... However, this kind of “remote control”  would  not  make  NALCO  the  employer  of  these  workers.  This  only  shows  that  since  NALCO  is  shouldering and meeting financial deficits, it  wants to ensure that the money is spent for the  rightful purposes.”

61. Thus,  it  can  be  concluded  that  the  relevant  factors to be taken into consideration to establish an  employer-employee relationship would include, inter alia,  (i)  who  appoints  the  workers;  (ii)  who  pays  the  salary/remuneration;  (iii)  who  has  the  authority  to  dismiss;  (iv)  who  can  take  disciplinary  action;  (v)  whether there is continuity of service; and (vi) extent  of  control  and  supervision,  i.e. whether  there  exists  complete control and supervision. As regards, extent of  control and supervision, we have already taken note of  the  observations  in  Bengal  Nagpur  Cotton  Mills  case  (supra),  the  International  Airport  Authority  of  India  case (supra) and the NALCO case (supra).

62. In the present set of appeals, it is an admitted  fact that the HCI is a wholly owned subsidiary of the Air  India. It has been urged by the learned counsel for the  appellants that this Court should pierce the veil and

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declare  that  the  HCI  is  a  sham  and  a  camouflage.  Therefore, the liability regarding the appellants herein  would  fall  upon  the  Air  India,  not  the  HCI.  In  this  regard,  it  would  be  pertinent  to  elaborate  upon  the  concept  of  a  subsidiary  company  and  the  principle  of  lifting the corporate veil.

63. The  Companies  Act  in  India  and  all  over  the  world have statutorily recognized subsidiary company as a  separate  legal  entity.  Section  2(47)  of  the  Companies  Act, 1956 (for short “the Act, 1956”) defines ‘subsidiary  company’ or ‘subsidiary’, to mean a subsidiary company  within the meaning of Section 4 of the Act, 1956.  For  the purpose of the Act, 1956, a company shall be, subject  to the provisions of sub-section (3) of Section 4, of the  Act, 1956, deemed to be subsidiary of another. Clause (1)  of Section 4 of the Act, 1956 further imposes certain  preconditions  for  a  company  to  be  a  subsidiary  of  another.  The  other  such  company  must  exercise  control  over the composition of the Board of Directors of the  subsidiary company, and have a controlling interest of  over 50% of the equity shares and voting rights of the  given subsidiary company.

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64. In  a  concurring  judgment  by  K.S.P.  Radhakrishnan, J., in the case of Vodafone International  Holdings BV  v. Union of India,  (2012) 6 SCC 613, the  following was observed:

“Holding company and subsidiary company .... 257.  The  legal  relationship  between  a  holding  company and WOS is that they are two distinct  legal persons and the holding company does not  own the assets of the subsidiary and, in law,  the management of the business of the subsidiary  also vests in its Board of Directors. ... 258.  Holding  company,  of  course,  if  the  subsidiary is a WOS, may appoint or remove any  Director if it so desires by a resolution in the  general body meeting of the subsidiary. Holding  companies and subsidiaries can be considered as  single economic entity and consolidated balance  sheet is the accounting relationship between the  holding  company  and  subsidiary  company,  which  shows  the  status  of  the  entire  business  enterprises. Shares of stock in the subsidiary  company are held as assets on the books of the  parent company and can be issued as collateral  for additional debt financing.  Holding company  and subsidiary company are, however, considered  as  separate  legal  entities,  and  subsidiary  is  allowed  decentralized  management.  Each  subsidiary  can  reform  its  own  management

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personnel and holding company may also provide  expert, efficient and competent services for the  benefit of the subsidiaries.”

65. The  Vodafone  case  (supra),  further  made  reference to a decision of the US Supreme Court in United  States v. Bestfoods [141 L Ed 2d 43: 524 US 51 (1998)].  In that case, the US Supreme Court explained that as a  general principle of corporate law a parent corporation  is not liable for the acts of its subsidiary.  The US  Supreme Court went on to explain that corporate veil can  be pierced and the parent company can be held liable for  the conduct of its subsidiary, only if it is shown that  the  corporal  form  is  misused  to  accomplish  certain  wrongful purposes, and further that the parent company is  directly a participant in the wrong complained of. Mere  ownership,  parental  control,  management,  etc.  of  a  subsidiary was held not to be sufficient to pierce the  status of their relationship and, to hold parent company  liable.  

66. The  doctrine  of  ‘piercing  the  corporate  veil’  stands as an exception to the principle that a company is  a  legal  entity  separate  and  distinct  from  its  shareholders with its own legal rights and obligations.

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It seeks to disregard the separate personality of the  company and attribute the acts of the company to those  who are allegedly in direct control of its operation. The  starting  point  of  this  doctrine  was  discussed  in  the  celebrated case of Salomon v. A Salomon & Co Ltd., [1897]  AC 22. Lord Halsbury LC (paragraphs 31–33), negating the  applicability of this doctrine to the facts of the case,  stated that:  

“...a  company  must  be  treated  like  any  other  independent  person  with  its  rights  and  liabilities legally appropriate to itself ...,  whatever may have been the ideas or schemes of  those who brought it into existence.”

67. Most of the cases subsequent to the Salomon case  (supra), attributed the doctrine of piercing the veil to  the fact that the company was a ‘sham’ or a  ‘façade’.  However, there was yet to be any clarity on applicability  of the said doctrine.

68. In recent times, the law has been crystallized  around the six principles formulated by Munby J. in Ben  Hashem  v. Ali Shayif, [2008] EWHC 2380 (Fam). The six  principles, as found at paragraphs 159– 164 of the case  are as follows-    (i) ownership and control of a company

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were not enough to justify piercing the corporate veil;  (ii) the Court cannot pierce the corporate veil, even in  the  absence  of  third  party  interests  in  the  company,  merely  because  it  is  thought  to  be  necessary  in  the  interests of justice; (iii) the corporate veil can be  pierced  only  if  there  is  some  impropriety;  (iv)  the  impropriety in question must be linked to the use of the  company structure to avoid or conceal liability; (v) to  justify piercing the corporate veil, there must be both  control  of  the  company  by  the  wrongdoer(s)  and  impropriety, that is use or misuse of the company by them  as a device or facade to conceal their wrongdoing; and  (vi) the company may be a ‘façade’ even though it was not  originally  incorporated  with  any  deceptive  intent,  provided  that  it  is  being  used  for  the  purpose  of  deception at the time of the relevant transactions. The  Court would, however, pierce the corporate veil only so  far as it was necessary in order to provide a remedy for  the particular wrong which those controlling the company  had done.

69. The principles laid down by the Ben Hashem case  (supra) have been reiterated by UK Supreme Court by Lord

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Neuberger  in  Prest  v.  Petrodel  Resources  Limited  and  others, [2013] UKSC 34, at paragraph 64. Lord Sumption,  in the Prest case (supra), finally observed as follows:

“35.  I  conclude  that  there  is  a  limited  principle of English law which applies when a  person is under an existing legal obligation or  liability  or  subject  to  an  existing  legal  restriction  which  he  deliberately  evades  or  whose enforcement he deliberately frustrates by  interposing  a  company  under  his  control.  The  Court may then pierce the corporate veil for the  purpose, and only for the purpose, of depriving  the company or its controller of the advantage  that they would otherwise have obtained by the  company's  separate  legal  personality.  The  principle  is  properly  described  as  a  limited  one, because in almost every case where the test  is  satisfied,  the  facts  will  in  practice  disclose  a  legal  relationship  between  the  company and its controller which will make it  unnecessary to pierce the corporate veil.”

70. The position of law regarding this principle in  India  has  been  enumerated  in  various  decisions.  A  Constitution  Bench  of  this  Court  in  Life  Insurance  Corporation of India v. Escorts Ltd. & Ors., (1986) 1 SCC  264,  while  discussing  the  doctrine  of  corporate  veil,  held that:

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“90. ... Generally and broadly speaking, we may  say that the corporate veil may be lifted where  a statute itself contemplates lifting the veil,  or fraud or improper conduct is intended to be  prevented, or a taxing statute or a beneficent  statute  is  sought  to  be  evaded  or  where  associated companies are inextricably connected  as to be, in reality, part of one concern. It is  neither necessary nor desirable to enumerate the  classes  of  cases  where  lifting  the  veil  is  permissible, since that must necessarily depend  on the relevant statutory or other provisions,  the object sought to be achieved, the impugned  conduct, the involvement of the element of the  public interest, the effect on parties who may  be affected etc.”

71. Thus, on relying upon the aforesaid decisions,  the doctrine of piercing the veil allows the Court to  disregard the separate legal personality of a company and  impose liability upon the persons exercising real control  over the said company. However, this principle has been  and should be applied in a restrictive manner, that is,  only in scenarios wherein it is evident that the company  was a mere camouflage or sham deliberately created by the  persons exercising control over the said company for the  purpose of avoiding liability. The intent of piercing the

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veil must be such that would seek to remedy a wrong done  by the persons controlling the company.  The application  would  thus  depend  upon  the  peculiar  facts  and  circumstances of each case.

72. Having  considered  the  relevant  judicial  decisions  and  the  well  established  and  settled  principles, it would be appropriate to revert back to the  controversy as found in the present factual matrix.

73. In the present reference, this Court is required  to  ascertain  whether  workmen,  engaged  on  a  casual  or  temporary basis by a contractor to operate and run a  statutory  canteen  on  the  premises  of  a  factory  or  corporation, can be said to be the workmen of the said  factory or corporation.

74.  It has been noticed above that workmen hired by  a contractor to work in a statutory canteen established  under the provisions of the Act, 1948 would be the said  workmen of the given factory or corporation, but for the  purpose  of  the  Act,  1948  only  and  not  for  all  other  purposes.  Therefore,  the  appellants-workmen,  in  the  present case, in light of the settled principle of law,

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would  be  workmen  of  the  Air  India,  but  only  for  the  purposes of the Act, 1948.  Solely by virtue of this  deemed status under the Act, 1948, the said workers would  not be able to claim regularization in their employment  from the Air India. As has been observed in the  Indian  Petrochemicals  case  (supra),  the  Act,  1948  does  not  govern  the  rights  of  employees  with  reference  to  recruitment, seniority, promotion, retirement benefits,  etc.  These  are  governed  by  other  statutes,  rules,  contracts or policies.

75. To ascertain whether the appellants-herein would  be  entitled  to  other  benefits  and  rights  such  as  regularization, this Court would have to apply the test  of employer-employee relationship as noticed hereinabove.  For the said purpose, it would be necessary to refer to  the  Memorandum  of  Association  and  the  Articles  of  Association of the HCI to look into the nature of the  activities  it  undertakes.  The  objects  of  the  HCI,  as  provided under its Memorandum of Association, inter alia,  include the following:

(i)  To  carry  on  the  business  of  hotel,  motel,  restaurant,  café,  tavern,  flight  kitchen,

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refreshment room and boarding and lodging, house- keepers, licensed victuallers, etc.; (ii)  To  provide  lodging  and  boarding  and  other  facilities to the public; (iii) To purchase, erect, take on lease or otherwise  acquire, equip and manage hotels; (iv)  To  establish  shops,  kitchens,  refreshment  rooms, canteens and depots for the sale of various  food and beverages.

76. The objects incidental or ancillary to the main  objects include, inter alia:

“... (5)  To  carry  on  any  business  by  means  of  operating  hotels  etc.  or  other  activity  which  would  tend  to  promote  or  assist  Air-India’s  business as an international air carrier. ...”

77. It  can  be  noticed  from  the  above,  that  the  primary objects of the HCI have no direct relation with  the Air India. It is only one of the many incidental or  ancillary objects of the HCI that make a direct reference  to assisting Air India. The argument that the HCI runs  the canteen solely for Air India’s purpose and benefit

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could not succeed in this light. The HCI has several  primary  objects,  which  include  the  running  of  hotels,  motels,  etc.,  in  addition  to  establishing  shops,  kitchens, canteens and refreshment rooms. The Air India  only  finds  mention  under  HCI’s  ancillary  objects.  It  cannot be said that the Memorandum of Association of the  HCI provides that HCI functions only for Air India. Nor  can it be said that the fundamental activity of the HCI  is to run and operate the said statutory canteen for the  Air India.

78. As regards HCI’s Articles of Association, it is  stated  therein  that  the  HCI  shall  be  a  wholly-owned  subsidiary of the Air India and that its share capital  shall  be  held  by  the  Air  India  and/or  its  nominees.  Furthermore,  the  said  Articles  included  provisions  whereby Air India controls the composition of the Board  of Directors of the HCI, including the power to remove  any such director or even the Chairman of the Board.  Further, Air India has the right to issue directions to  the HCI, which the latter is bound to comply with. In  this regard, it may be contended that the Air India has  effective  and  absolute  control  over  the  HCI  and  that

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therefore latter is merely a veil between the appellants- workmen  and  Air  India.  We  do  not  agree  with  this  contention.

79. In support of the above we find that nothing has  been  brought  before  this  Court  to  show  that  such  provisions in the Articles of Association are either bad  in law or would impose some liability upon the Air India,  in terms of calling the appellants to be its own workers.  In our view, the said Articles are not impermissible in  law. It is our considered opinion that the doctrine of  piercing the veil cannot be applied in the given factual  scenario. Despite being a wholly owned subsidiary of the  Air India, Respondent No. 1 and Respondent No. 2 are  distinct legal entities. The management of business of  the HCI is under its own Board of Directors. The issue  relating to the appointment of the Board of Directors of  the  HCI  by  the  Air  India  would  be  a  consequence  of  statutory obligations of a wholly owned subsidiary under  the Act, 1956.  

80. The present facts would not be a fit case to  pierce  the  veil,  which  as  enumerated  above,  must  be  exercised sparingly by the Courts. Further, for piercing

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the veil of incorporation, mere ownership and control is  not a sufficient ground. It should be established that  the control and impropriety by the Air India resulted in  depriving the Appellants-workmen herein of their legal  rights.   As  regards  the  question  of  impropriety,  the  Division Bench of the High Court of Delhi in the impugned  order  dated  02.05.2011,  noted  that  there  has  been  no  advertence on merit, in respect of the workmen’s rights  qua  HCI, and the claim to the said right may still be  open to the workmen as per law against the HCI. Thus, it  cannot be concluded that the controller ‘Air India’ has  avoided any obligation which the workmen may be legally  entitled to. Further, on perusal of the Memorandum of  Association and Articles of Association of the HCI, it  cannot be said that the Air India intended to create HCI  as a mere façade for the purpose of avoiding liability  towards the Appellants-workmen herein.

81. Therefore,  the  only  consideration  before  this  Court is the nature of control that the Air India may  have over the HCI, and whether such control may be called  effective and absolute control. Such control over the HCI  would be required to be established to show that the

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appellants-workmen were in fact the employees of the Air  India.

82. It  may  be  noticed  again  that  the  NALCO  case  (supra) dealt with a similar issue. In that case, the  Court had observed that the day-to-day functioning of the  school as setup by the appellant therein was not under  NALCO, but under a managing committee therein. Further,  the said Managing Committee was a separate and distinct  legal entity from NALCO, and was solely responsible for  recruitment,  disciplinary  action,  termination,  etc.  of  its  staff.  The  Court  therefore  had  held  that  the  respondents therein could not be said to be employed by  NALCO.  In  the  present  case,  HCI  is  a  separate  legal  entity incorporated under the Act, 1956 and is carrying  out the activity of operating and running of the given  canteen. The said Articles of Association of the HCI, in  no way give control of running the said canteen to the  Air  India.  The  functions  of  appointment,  dismissal,  disciplinary  action,  etc.  of  the  canteen  staff,  are  retained with the HCI. Thus, the exercise of control by  the HCI clearly indicated that the said respondent No. 2  is not a sham or camouflage created by respondent No. 1

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to avoid certain statutory liabilities.

83. Reference was also made by the learned counsel  for the Appellants to certain documents such as minutes  of  meetings,  etc.  to  show  that  the  Air  India  was  exercising control over the HCI in matters relating to  transfer of workmen in the canteen, rates of subsidies,  items on the menu, uniforms of the canteen staff, etc.  On a perusal of the said documents, it is found that the  said matters were, again, in the nature of supervision.  In  fact,  most  of  these  were  as  a  consequence  of  the  obligations  imposed  under  the  Rules,  1950.  Air  India,  being the entity bearing the financial burden, would give  suggestions on the running of the canteen. Furthermore,  in light of complaints, issues or even suggestions raised  by its own employees who would avail the said canteen  services, Air India would put forth recommendations or  requests to ensure the redressal of said complaints or  grievances. As regards discussions over uniforms, prices,  subsidies,  etc.,  it  may  be  noted  that  the  same  are  obligations under the Rules, 1950 as applicable to Air  India.

84. In  our  considered  view,  and  in  light  of  the

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principles  applied  in  the  Haldia  case  (supra),  such  control would  have  nothing  to  do  with  either  the  appointment, dismissal or removal from service, or the  taking of disciplinary action against the workmen working  in the canteen. The mere fact that the Air India has a  certain degree of control over the HCI, does not mean  that the employees working in the canteen are the Air  India’s employees. The Air India exercises control that  is  in  the  nature  of  supervision.  Being  the  primary  shareholder in the HCI and shouldering certain financial  burdens such as providing with the subsidies as required  by  law,  the  Air  India  would  be  entitled  to  have  an  opinion or a say in ensuring effective utilization of  resources, monetary or otherwise. The said supervision or  control  would  appear  to  be  merely  to  ensure  due  maintenance of standards and quality in the said canteen.

85. Therefore, in our considered view and in light  of the above, the appellants-workmen could not be said to  be under the effective and absolute control of Air India.  The Air India merely has control of supervision over the  working of the given statutory canteen. Issues regarding  appointment of the said workmen, their dismissal, payment

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of their salaries, etc. are within the control of the  HCI. It cannot be then said that the appellants are the  workmen  of  Air  India  and  therefore  are  entitled  to  regularization of their services.  

86. It would be pertinent to mention, at this stage,  that there is no parity in the nature of work, mode of  appointment,  experience,  qualifications,  etc.,  between  the regular employees of the Air India and the workers of  the  given  canteen.  Therefore,  the  appellants-workmen  cannot be placed at the same footing as the Air India’s  regular employees, and thereby claim the same benefits as  bestowed upon the latter. It would also be gainsaid to  note the fact that the appellants-herein made no claim or  prayer against either of the other respondents, that is,  the HCI or the Chefair.

87. In terms of the above, the reference is answered  as follows :

    The workers engaged by a contractor to work in  the statutory canteen of a factory would be the workers  of the said factory, but only for the purposes of the  Act, 1948, and not for other purposes, and further for  the  said  workers,  to  be  called  the  employees  of  the

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factory for all purposes, they would need to satisfy the  test  of  employer-employee  relationship  and  it  must  be  shown that the employer exercises absolute and effective  control over the said workers.  

88. In  view  of  the  above,  while  answering  the  referral order, we dismiss these appeals.  No order as to  costs.

Ordered accordingly.   

   ....................J. [ H.L. DATTU ]

                                                  ....................J.

[ R.K. AGRAWAL ]   

                        ....................J. [ ARUN MISHRA ]

NEW DELHI, AUGUST 25, 2014.