Balwant Rai Saluja v. Air India Ltd.

Supreme Court of India · 25 August 2014 · 3 judges

Workers engaged by a contractor to run a statutory canteen are workers of the factory only for the Factories Act, 1948; to be its employees for all purposes, the employer must exercise effective and absolute control over them.

Facts

Air India, a Government-owned company, had to maintain a canteen at its Ground Services Department at Indira Gandhi International Airport, Delhi, after Rules 65 to 70 of the Delhi Factory Rules, 1950 were made applicable to it in 1991. The canteen was run by Chefair Flight Catering, a unit of Hotel Corporation of India (HCI), a wholly owned subsidiary of Air India, which engaged the appellants on a casual or temporary basis. On a reference of an industrial dispute, the Central Government Industrial Tribunal held on 05.05.2004 that the workmen were employees of Air India and that their termination was illegal. A Single Judge of the Delhi High Court set aside the award, and a Division Bench dismissed the appeals. In the Supreme Court the two Judges hearing the appeals differed, and the matter was referred to a larger Bench.

Questions before the Court

Whether workers engaged on a casual or temporary basis by a contractor to run a statutory canteen under the Factories Act, 1948 on the premises of a factory are workmen of that factory, and if so, whether only for the purposes of that Act or for all purposes.
Whether paragraph 107 of the Constitution Bench decision in Steel Authority of India Ltd. v. National Union Waterfront Workers is binding law that contract labour in statutory canteens are employees of the principal employer.
Whether the corporate veil of HCI, a wholly owned subsidiary of Air India, should be pierced so as to treat the appellants as employees of Air India.

What the Court held

Agreeing with Indian Petrochemicals Corpn. Ltd. v. Shramik Sena, workmen of a statutory canteen are workmen of the establishment for the purpose of the Factories Act, 1948 only. Section 46 does not govern appointment, seniority, promotion, dismissal, discipline or retirement benefits, so canteen workers do not ipso facto become employees of the principal employer.
Paragraph 107 of Steel Authority of India only grouped earlier decisions into three categories and is not law declared under Article 141. That case decided absorption of contract labour after a notification under Section 10 of the Contract Labour Act; the status of statutory canteen workers was neither argued nor decided there.
To be employees for all purposes, the workers must satisfy the employer-employee test. Relevant factors include who appoints, who pays, who can dismiss, who takes disciplinary action, continuity of service, and whether there is complete control and supervision.
The corporate veil is to be pierced sparingly, only where a company is a sham or camouflage deliberately created to avoid liability; ownership and control alone are not enough. HCI, though wholly owned by Air India, is a distinct legal entity, and nothing showed it was a facade to deprive the workmen of their rights.
Air India's control over subsidies, menus, prices and uniforms was supervisory and largely flowed from the Delhi Factory Rules; appointment, dismissal, discipline and pay lay with HCI. The appellants were not Air India's employees, could not claim regularisation, and the appeals were dismissed.

Why it matters

The judgment answers a reference on contract workers in statutory canteens. It affirms Indian Petrochemicals: deemed status under the Factories Act, 1948 does not make such workers employees of the principal employer for other purposes such as regularisation. It lists the factors for an employer-employee relationship and requires effective and absolute control. It also explains that a summary of earlier cases in Steel Authority of India is not law declared under Article 141, and confines piercing the veil of a wholly owned subsidiary to sham arrangements.

In the Court's words

Copied from the official judgment; each passage links to its page.

“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 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.”

H.L. Dattu, J.Page 67 of the judgment

“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, 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.”

H.L. Dattu, J.Page 31 of the judgment

“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.”

H.L. Dattu, J.Page 20 of the judgment

“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 veil must be such that would seek to remedy a wrong done by the persons controlling the company.”

H.L. Dattu, J.Page 57 of the judgment

Provisions interpreted

Section 46, Factories Act, 1948
Rules 65 to 70, Delhi Factory Rules, 1950
Article 141, Constitution

Related judgments

Follows Union of India v. Raghubir Singh (1989)“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” (page 23)
Follows Life Insurance Corporation of India v. Escorts Ltd. (1985)“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” (page 57)

Case and bench

Parties: Balwant Rai Saluja v. Air India Ltd.
Case: Civil Appeal Nos. 10264-10266 of 2013
Decided: 25 August 2014
Bench: H.L. Dattu, R.K. Agrawal, Arun Mishra
Opinions: Unanimous. Judgment of a three-Judge Bench delivered by H.L. Dattu, J., answering a reference made by order dated 13.11.2013 after two Judges of this Court differed.

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