Latest Judicial Interpretation
By J Kanakiah

The system of contract labour and out sourcing of various goods and services is quite common and wide spread all over the world. Even though this system has been in vogue in India from the inception, the nature of problems relating to it have undergone changes over the years, both qualitatively and quantitatively. Various Commissions and Committees have condemned the practice of labour through contractors. The Government after considering all the relevant aspects, enacted the Contract Labour (Regulation and abolition, Act 1970 which came into force from February 10, 1971. The object of the Act was to prevent exploitation of contract labour and also to introduce better conditions of work. The underlying policy of the Act was to abolish contract labour wherever possible and feasible and where it cannot be abolished altogether, the policy of the Act is that the working conditions of the contract labour should be so regulated to ensure payments of minimum wages and provision of essential amenities.

The views of the Act were challenged before the Supreme Court of India in the well known case of Gammon India Ltd. V s. Union of India (1974-3-SCR-665) and the Apex Court upheld the constitutional validity of all the provisions of the Act and Rules made thereunder. 

Although there has been no amendment to the Act and all the provisions continue to be the same, the judicial interpretation has been fluctuating from 'time to time and the Constitution Bench of the Supreme Court in the latest case of Steel Authority of India Ltd. and others (pronounced on 30th August 2001) has finally set right the law and paved way to labour reforms.

The Judicial pronouncements in the cases of Gujarat Electricity Board vs Hind Mazdoor Sabha (1995 LLR 5525C) and Air India Statutory corporation vs United India Labour Union (AIR 1997-5C-645) have brought in a sea-change in the understanding and the application of C.L.(R&A) Act. In the case of Gujarat Electricity Board the Apex Court held that although the authority to abolish contract labour system is vested exclusively with the appropriate Government in genuine contracts, but in the case of sham contracts, the union operating in the establishment of the principal employer, can raise an Industrial dispute for declaring that the contract labour are the employees of the principal employer and for claiming appropriate service conditions. It was further held that in genuine contracts also the Tribunal would have the powers to decide about the absorption of the workers of the erstwhile contractors on abolition of the contract labour system under section 10 of the Act by the appropriate government.

In the case of Air India statutory Corporation case the Apex Court held that there is no necessity for raising a dispute for absorption of contract labour and the contract labour of the erstwhile contractor stand absorbed on the rolls of the Principal employer on abolition of contract labour system by appropriate Government under section 10 of the Act from the date of issue of notification. Another important change that has been brought in by the Supreme Court is regarding the appropriate govt. in respect of central public sector undertakings. Earlier, as per the decision of the Apex Court in the case of Heavy Engineering Corporation (1970 Lab IC 212) State Government was the appropriate Government in respect of most of the Central public sector undertakings. The Supreme Court in the case of Air India, over ruled the above decision and brought all the central public sector undertakings into the central sphere from the inception of the Act and made notification dated 9.12.1976 issued by the Government of India applicable to all central public sector understanding.

These two judicial pronouncements, had raised the expectations of the contract Labour and opened the flood gates of litigation. Thousands of write petitions have been filed before the High Courts, seeking absorption of contract labour as well as abolition of contract labour system in works of perennial nature. Substantial number of industrial disputes have also been raised before conciliation Officers and they are all pending either before Conciliation officers or adjudicatory bodies. Thousands of contract workers became entitled for their absorption as regular employees. 

The Air India had absorbed over 2000 contract workers over the past five years. Airports Authority of India has been facing absorption of over 4000 contract labourers. For absorbing over 11000 contract labour, the extra burden of SAIL before wage revision was about Rs. 80 crore. Many other public sector undertakings, such as Indian Oil Corporation, FCI and BHEL have been facing the problem of absorption of contract labour. 

Being aggrieved by the decision of the Division Bench of Kolkata High Court, Steel Authority of India filed SLP in the Supreme Court. FCI, ONGC, IFFCO followed SAIL after similar directions from different High Courts. The SLPs were decided on 30th August 2001 in Steel Authority of India Ltd. and others vs National Union Water Front Workers and others (2001 LLR 961 SC) by the Constitution Bench of the Supreme Court, reversing its own judgement in the case of Air India and quashing the Notification dated 9th December, 1976 relating to prohibiting the employment of contract labour in sweeping, cleaning, dusting and watching of the buildings in central sphere.

As regards the appropriate Government the constitution Bench held that the criteria to determine whether the Central Government is the appropriate Government within the meaning of the C.L. (R.A.) Act, is that the industry must be carried on by or under the authority of the central Government and not that the company/undertaking is an instrumentality or an agency of the Central Government for the purpose of Article J 2 of the Constitution. Such an authority may be conferred either by a statute or by virtue of relationship of principal and agent or delegation of power and this fact has to be ascertained on the facts and circumstances of each case. The Supreme Court thus overruled its earlier decision in the case of Air India and held that State Government would be the appropriate Government in respect of central public sector undertakings (not listed in the definition u/s 2(a) of LD Act 1947). The constitution Bench of the Apex Court quashed the notification dated December 1976 issued by the Government of India on the ground that the provisions of section 10(2) of the Act have not been taken into consideration while issuing such an omnibus notification. It was also held that the notification is ex facie contrary to the postulates of section 10 of the Act. It was further held that it exhibits non-application of mind by the central Government. 

As regards the moot point of absorption of contract labour of erstwhile contractor on abolition of contract labour system by the principal employer, the Supreme Court held that, section 10 does not provide for automatic absorption of contract labour by the principal employer in the concerned establishment. On issuance of notification by the appropriate Government under S 1 0(1) prohibiting employment of contract labour in a given establishment, it is for the contractor to provide work to his labour in other establishments, where the contract labour system is not prohibited.

With the result, when the contract labour system is prohibited, the principal employer is not required to absorb the contract labour on abolition of the contract labour system. Although the public sector undertakings principal employer will have no obligation to absorb contract labourers of erstwhile contractors, the Supreme Court has made it clear that the effect of this judgement will be prospectively and the contract labour who had already been absorbed shall be continued and the orders of the High courts in this regard shall not be set aside, altered or modified on the basis of the latest judgement.

(By Arrangement with Kaleidoscope)