Sharma & Ors Vs. M/S Artificial Limbs Manufacturing Corpn. & Ors 
Insc 624 (26 November
Babu & Ruma Pal Ruma Pal, J.
respondent No. 1 is a Government of India undertaking. It was incorporated
under the Companies Act, 1956 on 30th November 1972. One of the main objects for which
the respondent No. 1 was established was to promote, encourage and develop the
availability, use, supply and distribution at reasonable cost in the country of
artificial limbs to needy persons particularly disabled defence personnel. For
this purpose the respondent No. 1 set up a factory where more than 700 persons
are employed. The respondent No. 1 also set up a canteen for its employees.
time to time agreements were entered into between the respondent No. 1 and
different contractors by which the contractor agreed to prepare and serve food
stuffs and other refreshments at the canteen. At the relevant time the
concerned contractor was Aditya Shukla, the respondent No.2 herein.
to the appellants, they were employed by several of the contractors and had
been serving in the canteen for several years. During the pendency of the
contract with the respondent No.2, the appellants raised an industrial dispute
claiming to be regular workmen of the respondent No. 1. The dispute was
referred by the State Government to the Labour Court. The Labour
Court considered the
evidence, both oral and documentary, and by an award dated 10th May 1996, came to the conclusion that the
appellants were not the employees of respondent No. 1 but were employees of
respondent No. 2. Being aggrieved with the award, the appellants filed a writ
petition before the High Court at Allahabad. The High Court was of the view that the appellants claim was primarily
for abolition of contract labour in canteens and consequent absorption of the
contract labourers as employees of the principal employer, in this case the
respondent No. 1. The High Court rejected the submission and dismissed the writ
us learned counsel for the appellant submitted that the High Court had wholly
misdirected itself. According to the appellants, the issue was not whether the Labour
Court could have directed abolition of contract labour but the issue was
whether the Labour Court was bound, on the basis of the decision of this Court
in Parimal Chandra Raha and others v. Life Insurance Corporation of India and
Others 1995 Supp (2) SCC 611, to hold that the appellants were in fact regular
employees of the respondent No.1. It was submitted that the respondent No.1 was
bound by Section 46 of the Factories Act, 1948 to set up the canteen. It was
also submitted that the State Government had by notification specified the
factory of the respondent No.1 under the provisions of Section 46(1) of the
Factories Act. It was contended that since the respondent No.1 was statutorily
obliged to provide and maintain a canteen for the use of its employees, the
canteen was part of the respondent No.1s establishment and therefore the
appellants who were employed in such canteen were the employees of the
respondent No.1. It is the appellants case that the various terms in the
contract between the contractor and the respondent No.1 clearly showed that the
appellants were under the direct supervision and control of respondent No.1.
together with the fact that the appellants had continued to be employed in the
canteen despite several changes of contractors, showed that the appellants were
in fact the respondent No.1s employees.
counsel for the respondent No.1 submitted that the appellants had never
challenged the contract between the respondent No.1 and the contractor as being
a sham document to camouflage the fact that the appellants were really the
respondent No.1s employees. It was contended that in the absence of such a
challenge, there was no scope for the appellants to claim to be regular
employees of the respondent no.1. Furthermore, according to the respondent
No.1, the Labour Court had duly considered the terms of the contract and the
oral and documentary evidence adduced including the evidence of the contractor
himself, and had come to a categorical finding that the appellants were not the
employees of the respondent No.1. Finally, it was submitted that in any event
the facts on record clearly showed that the appellants were the employees of
the contractor and that the respondent No.1 exercised no control over the
appointment, continuation or dismissal from service of the appellants.
submission of the appellants that because the canteen had been set up pursuant
to a statutory obligation under Section 46 of the Factories Act therefore the
employees in the canteen were the employees of respondent No.1, is
unacceptable. First, the respondent No. 1 has disputed that Section 46 of the
Factories Act at all applies to it. Indeed, the High Court has noted that this
was never the case of the appellants either before the Labour Court or the High Court. Second, assuming
that Section 46 of the Factories Act was applicable to the respondent No. 1, it
cannot be said as an absolute proposition of law that whenever in discharge of
a statutory mandate, a canteen is set up or other facility provided by an
establishment, the employees of the canteen or such other facility become the
employees of that establishment. It would depend on how the obligation is
discharged by the establishment. It may be carried out wholly or substantially
by the establishment itself or the burden may be delegated to an independent
is nothing in Section 46 of the Factories Act, nor has any provision of any
other statute been pointed out to us by the appellants, which provides for the
mode in which the specified establishment must set up a canteen. Where it is
left to the discretion of the concerned establishment to discharge its
obligation of setting up a canteen either by way of direct recruitment or by
employment of a contractor, it cannot be postulated that in the latter event,
the persons working in the canteen would be the employees of the establishment.
Therefore, even assuming that the respondent No. 1 is a specified industry
within the meaning of Section 46 of the Factories Act, 1946, this by itself
would not lead to the inevitable conclusion that the employees in the canteen
are the employees of respondent No. 1.
observations in Parimal Chandra Rahas 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 Corporation Ltd. vs. Shramik Sena and
Others (1999) 6 SCC 439 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. (See also Barat Fritz Werner
Ltd. V. State of Karnatka 2001 (4) SCC 498, 504) It may be, and has been often
so found, that the employees of a contractor are de facto employees of the
establishment despite the existence of a written agreement between the
contractor and the establishment. To this end our attention was drawn to the
agreement between the contractor and the respondent No.1. From a scrutiny of
the agreement, it is clear that although the respondent No.1 had agreed to
provide the contractor with the basic infrastructure, the actual running of the
canteen was the responsibility of the contractor alone. For example, the
respondent No.1 was to give the furnishings, dining tables, chairs, curtains,
water coolers etc., but the contractor was liable to indemnify the respondent
No.1 for any loss or damage caused to these items due to any act of omission or
commission by the contractor or his employees. The cost of repairing and
maintaining all the equipment was also the contractors. It was also the contractors
obligation to provide the raw-material and ensure that such raw- material was
free from adulteration, contamination and was wholesome and fit for human
Clause 21, the contractor was obliged to provide all the facilities available
to the workers under various labour laws applicable to the respondent No. 1.
The Contractor was also required to abide by all the provision of labour laws
as applicable from time to time and was liable for financial obligations under
various labour laws as amended from time to time. In case the contractor
contravened any provisions of those laws and the respondent No. 1 suffered any
damage, loss or harm due to any act of commission or omission of the
contractor, the contractor was bound to indemnify the respondent No. 1.
Similarly, clause 31 of the agreement provided The Contractor shall be
responsible for discharge of legal liabilities towards his employees and also
for observing all Laws and Government Rules relating to Labour viz. EPF Act,
ESI Act, Payment of Wages Act, Minimum Wages Act and health in so far as they
relate to the canteen.
true that under clause 33, the respondent No. 1 agreed to pay to the contractor
service charges of Rs.73,372.48 per month upto 700 employees with the following
Rs.30,895.48 Salary and other statutory expenses
Rs.42,477.00 for neutrilising the price hike of the raw material.
this may have only ensured that the margin of profit of the contractor was
reasonable and fixed on relevant considerations.
the agreement must be construed in the background of the rules framed by the
State Government under Section 46 (2) of the Factories Act, 1948. Under Section
46 (2) itself State Government is empowered to lay down inter-alia : the
standard in respect of construction, accommodation , furniture and other
equipment of the canteen; and the foodstuffs to be served therein and the
charges which may be made therefor.
because there is compliance with the rules by the respondent No.1 (assuming
that the rules applied) by providing the equipment and for the rate at which
the foodstuffs would be sold at the canteen by the contractor would not
necessarily mean that the employer was running the canteen through the agency
of the contractor. There must be something more.
relevant to the crux of the matter is clause 43 of the agreement whereby the
contractor was given the discretion to employ the workers already working in
the canteen (like the appellants) but it was made clear that the contractor
could take action against the canteen workers. It is noteworthy that the
respondent No. 1 had no say as to who should be employed by the contractor nor
the method of recruitment to be followed by the contractor. There was no
obligation on the contractor to employ the persons who had served under earlier
contractors. Even if the agreement had contained a condition that the
contractor must retain the old employees, it would not necessarily mean that
those employees were the employees of the establishment. As was said in R.K.
Panda v. Steel Authority of India Ltd. (1994) 5 SCC 304:
clause in the contract which is benevolently inserted in the contract to
protect the continuance of the source of livelihood of the contract labour
cannot by itself give rise to a right to regularisation in the employment of
the principal employer. Whether the contract labourers have become the
employees of the principal employer in course of time and whether the
engagement and employment of labourers through a contractor is a mere
camouflage and a smokescreen, as has been urged in this case, is a question of
fact and has to be established by the contract labourers on the basis of the
requisite material. It is not possible for the High Court or this court, while
exercising writ jurisdiction or jurisdiction under Article 136 to decide such
questions, only on the basis of the affidavits.
issue is, therefore, primarily and ultimately one of fact to be determined by a
fact finding tribunal . In the case before us, the terms of the agreement are
the Labour Court the contractor stated in cross-
examination that he used to supervise and control his employees and pay their
salaries. Even the witnesses for the appellants stated that their salaries were
paid by the contractor. The appellants witnesses also said that the respondent
No. 2 brought the raw material. The respondent No. 1s witnesses said that the
respondent No. 1 had no hand in the selection of the employees of the canteen.
The prescribed procedure for appointing employees of the respondent No. 1 was
not applied to them. The respondent No. 1 did not record their attendance nor
paid them their salaries. The Labour Court also noted that the appellants
witnesses were unable to identify or name any officer of the respondent No. 1
who they claimed supervised their work.
Court found that the appellants were unable to prove that the respondent No. 1
exercised any control or supervision over the employees of the contractor.
After a detailed analysis of the evidence, the Labour Court concluded that the
appellants were not the employees of respondent No. 1. The finding cannot be
termed to be perverse. Given this, it would have been inappropriate for the
High Court under Article 226 to re-appreciate the evidence and come to a
different factual conclusion. The High court did not do that nor do we propose
to do so under Article 136.
accordingly dismiss the appeal but without any order as to costs.