TaxTMI 
TaxTMI 
2014 (8) TMI 1084
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....en 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 of this Court against a judgment and order dated 02.05.2011 of a Division Be....
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....e 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 Respondent No. 3, being Chefair Flight Catering (for short, "the Chefair"), provides flight c....
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....t 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 applied, the appellants would fail to establish the employer and employee relationship. In aid of his subm....
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....ed 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 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 Commi....
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....f 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 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....
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....t 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 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 -tha....
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....ragraph 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 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 age....
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....ecessary 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 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.....
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....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. 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 th....
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.... 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 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....
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....t, 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 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) a....
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....n 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 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 t....
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....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 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 ....
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.... 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 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....
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.... 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 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....
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....tor 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 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 appellanttherein. 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 o....
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....clude, 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 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 t....
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.... 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. 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 independen....
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.... 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: "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 ....
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....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 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 ....
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....iary 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 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 ....
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....es, 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 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 s....