TaxTMI 
TaxTMI 
2014 (8) TMI 1084
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....a 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 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 o....
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....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 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 Respon....
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....ore, 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 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 app....
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....n 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 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 Man....
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....o 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 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 Ind....
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....tions 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" 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 ....
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....ue 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 (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 con....
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....ase 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 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....
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....mployees 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 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. T....
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....so 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 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 qu....
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....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 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 employ....
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....off, the worker is, virtually, laid off. The presence of intermediate contractors with whom alone the workers have immediate or direct relationship ex contract 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 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 ext....
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....at 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 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 w....
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....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: "(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 o....
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.... 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 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 conc....
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.... 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 the appellant-company on grounds of, inter alia, real control and supervision by the latter. This Court, while....
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....this regard, the Court observed as follows: "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 v....
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.... Each subsidiary can reform its own management 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 ....
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....3] 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 th....
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.... 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, refreshment room and boarding and lodging, housekeepers, licensed victuallers, etc.; (ii) To provide lodging ....
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....ts 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 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....
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....ost 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 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 burde....