India: Aspect Of Employer-Employee Relationship

Last Updated: 23 October 2014
Article by Rohit K. Gupta

Most Read Contributor in India, September 2016

Bench of Hon'ble Supreme Court comprising H.L. Dattu, R.K. Agrawal and Arun Mishra, JJ. vide its Judgment dated 25.08.2014 in the matter Balwant Rai Saluja & ANR. Vs. Air India Ltd. & Ors.1 held that it is not the test of sufficient control, but the test of effective and absolute control which would be relevant to decide the employer-employee relationship. The question before this bench was whether, the workmen engaged in statutory canteens, through a contractor, could be treated as employees of the principal establishment.

The present industrial dispute arose between the Appellants-workmen herein of the statutory canteen and Respondent No. 1 herein. The said industrial dispute was referred by the Central Government to the Central Government Industrial Tribunal cum Labour Court (for short "the CGIT"). The question referred was whether the workmen as employed by Respondent No. 3 herein, to provide canteen services at the establishment of Respondent No. 1, herein, could be treated as deemed employees of the said Respondent No. 1.

Vide order dated 05.05.2004, the CGIT held that the workmen were employees of the Respondent No.1-Air India and therefore their claim was justified. Furthermore, the termination of services of the workmen during the pendency of the dispute was held to be illegal. However, vide judgment and order dated 08.04.2010, the learned Single Judge of the High Court of Delhi set aside and quashed the CGIT's award and held that the said workmen would not be entitled to be treated as or deemed to be the employees of the Air India. The Division Bench of the High Court of Delhi vide impugned order dated 02.04.2011 found no error in the order passed by the learned Single Judge of the High Court. The appeal was dismissed by the Division Bench confirming the order of the learned Single Judge who observed that the responsibility to run the canteen was absolutely with the HCI (respondent no. 2) and that the Air India and the HCI shared an entirely contractual relationship. Therefore, the claim of the appellants to be treated as employees of the Air India and to be regularized was rejected by the learned Single Judge.

Here the appellants are workers who claim to be the deemed employees of the management of Air India on the grounds, inter alia, that they work in a canteen established on the premises of the respondent No. 1-Air India and that too, for the benefit of the employees of the said respondent. It is urged that since the canteen is maintained as a consequence of a statutory obligation under Section 46 of the Act, 1948, and that since by virtue of notification dated 21.01.1991, Rules 65-70 of the Delhi Factory Rules, 1950 (for short, "the Rules, 1950") have 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.

Senior Counsel for the appellants- workmen contentions was; firstly, that in the event of a statutory requirement to provide for a canteen or any other facility, the employees of the said facility would automatically become employees of the principal employer, irrespective of the existence of any intermediary that may have been employed to run that facility. Secondly, the test of sufficient control by the principal employer over the operation of the canteen and consequently over the appellants-workmen, should prevail.

Therefore, the Court should pierce the veil and take note of the fact that the contractor was a mere camouflage, and the principal employer was in real control of the canteen and its workmen. The appellant relied on the following cases in support of its submissions- Saraspur Mills Co. Ltd. v. Ramanlal Chimanlal2; Hussainbhai v. Alath Factory Thezhilali Union3; M.M.R. Khan v. Union of India4; and Parimal Chandra Raha v. LIC5. As per Appellant, the issue raised in these appeals is squarely covered by the observations made by the Constitution Bench in the case of Steel Authority of India Ltd. v. National Union Waterfront Workers6.

However, the above contentions of appellant-workmen were objected by the counsel for respondent and it was stated that the above case laws cited by the learned counsel for the appellants 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 Sena7, 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.8; Workmen v. Coates of India Ltd.9; Haldia Refinery Canteen Employees Union v. Indian Oil Corpn. Ltd.10; and Karnataka v. KGSD Canteen Employees' Welfare Assn.11. It was also contended and emphasized by the counsel for the respondent 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 submissions, he refers to Bengal Nagpur Cotton Mills v. Bharat Lal12; International Airport Authority of India v. International Air Cargo Workers' Union13; and National Aluminium Co. Ltd. v. Ananta Kishore Rout & Ors.14.

The main issue for consideration before this Court in the present reference is "whether workers, engaged on a casual or temporary basis by a contractor (HCI) to operate and run a statutory canteen, under the provisions of the Act, 1948, on the premises of a factory - Air India, can be said to be the workmen of the said factory or corporation".

During arguments, Hon'ble Apex Court observed that 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. 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. Respondent No. 2 has various units and Respondent No. 3, being Chef air Flight Catering (for short, "the Chefair"), provides flight catering services to various airlines, including Air India. It is this Chefair unit of HCI that operates and runs the canteen. It requires to be noticed that the appellants-workmen are engaged on a casual or temporary basis by the respondent Nos. 2 and 3 to render canteen services on the premises of Respondent No.1 - Air India.

It was observed that there is requirement to ascertain whether workmen, engaged on a casual or temporary basis by a contractor to operate and run a statutory canteen on the premises of a factory or corporation, can be said to be the workmen of the said factory or corporation. It was noticed that workmen hired by a contractor to work in a statutory canteen established under the provisions of the Act, 1948 would be the said workmen of the given factory or corporation, but for the purpose of the Act, 1948 only and not for all other purposes. Therefore, the appellants-workmen, in the present case, in light of the settled principle of law, would be workmen of the Air India, but 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.

To ascertain whether the appellants-herein would be entitled to other benefits and rights such as regularization, the test of employer-employee relationship as noticed hereinabove was applied. For the said purpose Memorandum of Association and the Articles of Association of the HCI was referred 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:

  1. To carry on the business of hotel, motel, restaurant, café, tavern, flight kitchen, refreshment room and boarding and lodging, house-keepers, licensed victuallers, etc.;
  2. To provide lodging and boarding and other facilities to the public;
  3. To purchase, erect, take on lease or otherwise acquire, equip and manage hotels;
  4. To establish shops, kitchens, refreshment rooms, canteens and depots for the sale of various food and beverages.

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...."

It was observed by the Hon'ble Court that the primary objects of the HCI have no direct relation with the Air India. It is only one of the many incidental or ancillary objects of the HCI that make a direct reference to assisting Air India. The argument that the HCI runs the canteen solely for Air India's purpose and benefit could not succeed in this light. The HCI has several primary objects, which include the running of hotels, motels, etc., in addition to establishing shops, kitchens, canteens and refreshment rooms. The Air India only finds mention under HCI's ancillary objects. It cannot be said that the Memorandum of Association of the HCI provides that HCI functions only for Air India. Nor can it be said that the fundamental activity of the HCI is to run and operate the said statutory canteen for the Air India.

The Hon'ble Apex Court was not agreed with the contention that the HCI shall be a wholly-owned subsidiary of the Air India and that its share capital shall be held by the Air India and/or its nominees. Furthermore, the said Articles included provisions whereby Air India controls the composition of the Board of Directors of the HCI, including the power to remove any such director or even the Chairman of the Board. Further, Air India has the right to issue directions to the HCI, which the latter is bound to comply with. In this regard, it may be contended that the Air India has effective and absolute control over the HCI and that therefore latter is merely a veil between the appellants-workmen and Air India. The Apex Court held 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.

It has been held that 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.

Therefore, the only consideration which Hon'ble Court noticed is the nature of control that the Air India may have over the HCI, and whether such control may be called effective and absolute control. Such control over the HCI would be required to be established to show that the appellants-workmen were in fact the employees of the Air India.

The Hon'ble Apex Court opined that such control would have nothing to do with 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.

It was observed that there is no parity in the nature of work, mode of appointment experience, qualifications, etc., between the regular employees of the Air India and the workers of the given canteen. Therefore, the appellants-workmen cannot be placed at the same footing as the Air India's regular employees, and thereby claim the same benefits as bestowed upon the latter. It would also be gainsaid to note the fact that the appellants-herein made no claim or prayer against either of the other respondents, that is, the HCI or the Chefair. Accordingly, It has been held that, 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 statutory canteen. Issues regarding appointment of the said workmen, their dismissal, payment of their salaries, etc. are within the control of the HCI. It cannot be then said that the appellants are the workmen of Air India and therefore are entitled to regularization of their services.

In terms of the above, it was held that 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. Accordingly, appeals dismissed.


1. Civil Appeal Nos. 10264-10266 of 2013

2. (1974) 3 SCC 66

3. (1978) 4 SCC 257

4. 1990 Supp SCC 191

5. 1995 Supp (2) SCC 611

6. (2001) 7 SCC 1

7. (1999) 6 SCC 439

8. (2002) 1 SCC 337

9. (2004) 3 SCC 547

10. (2005) 5 SCC 51

11. (2006) 1 SCC 567

12. (2011) 1 SCC 635

13. (2009) 13 SCC 374

14. (2014) 6 SCC 756

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