The Occupational Safety, Health and Working Conditions Code, 2019 (Code),1 proposing to amalgamate, simplify and rationalize 29 Labour Acts, including the Factories Act, 1948, introduces the following under Section 2(zo):

"occupier" of a factory means the person who has ultimate control over the affairs of the factory:

Provided that:

(i) .........

(ii) in the case of a company, any one of the directors, except any independent director within the meaning of sub-section (6) of section 149 of the Companies Act, 2013"

This definition is more elaborate than the current one in the present Factories Act wherein it only states that, in case of a company, any one of the directors shall be deemed to be the occupier.

This begets an urge to analyse whether an Independent Director (ID) could have been otherwise appointed as "Occupier" of a factory in case of a company.

The Factories Act, 1948 (Factories Act) consolidates the laws regulating labour in factories. The Factories Act stipulates that every factory must have an "Occupier" – defined under its Section 2(n) as the person who has ultimate control over the affairs of the factory. A proviso was inserted in 1987 to the clause (n) that, in the case of a company, any one of the directors shall be deemed to be the Occupier. Keeping this in view, companies have since been appointing one of the directors as Occupier of one or more of factories of the company.

India Inc. still has a large number of family-owned companies which prefer to have only the family members as directors. But, in order to shirk the responsibility and liability of being an occupier under the Factories Act, they follow the practice of appointing a non-family person as director who is thereafter appointed as occupier. With the enforcement of the Companies Act, 2013 (Companies Act) w.e.f April 01, 2014 and SEBI (Listing Obligations and Disclosures) Regulations, 2015 (LODR) w.e.f. October 01, 2015, the appointment of Independent Director (ID) was made mandatory in listed and certain specified companies. The relevant provisions for appointment of ID under the Companies Act and LODR are contained as follows:


  • Section 149(6): Definition and meaning of Independent Director
  • Schedule IV: Code for Independent Directors


  • Reg. 16 (1)(b): Definition and meaning of Independent Director
  • Reg. 25: Obligations of Independent Directors, most of which are common with the Companies Act.

In essence, an ID is a non-executive director of a company, who helps the company in improving corporate credibility, governance and management standards. The sole intention for such an appointment is that the ID has no connection with the company's business and is free of its promoters' influence, hence, he remains unprejudiced in the independence of his judgment and concern in the company.

Many companies, presently in the absence of any provision, explanation or clarification in the Factories Act in this regard, have been appointing an ID as Occupier of a factory of the company. However, such an appointment creates a conflict between the

Companies Act and LODR on one hand and the Factories Act, on the other.

Under the Companies Act, coupled with the provisions of LODR, there is a big list of strict criteria for determining independence of the ID, including bar on holding any executive position in the company and protection from being held liable to any contravention under the Act, except for specific acts of omission or commission having been occurred with his knowledge, consent, connivance, in-diligence etc.

On the other hand, under the Factories Act, Occupier occupies a very important position, akin to the owner of a factory, and owes onerous responsibilities and duties supposedly having ultimate control over affairs of the factory. Contraventions attract punishment with fine and imprisonment. This results in a paradoxical situation for the Occupier-cum-Independent Director. Though this is a very important question whether an ID can be appointed as an Occupier under the Factories Act, it has never been discussed before any adjudicating authorities of the country. , a few judicial precedents bring clarity as to the eligibility, duties and responsibilities of an Occupier.

In the judgment delivered by the hon'ble Karnataka High Court in the matter of W.S. Industries (India) Ltd. and Anr. Vs. The Inspector of Factories, Bangalore & Others2 , it was observed:

"...So also, in the case of a company several financial institutions nominate directors who may have contributed their capital or advanced loans for the purpose of running the business of the company. In such cases those directors or partners cannot be held to be responsible in running the factory for they only know matters relating to finance and not those matters dealt with in the Act in question. It cannot be expected that certain professional men who are nominated on the Board for their skill in any specialised field can be taken to be in charge of the factory by reason of the definition. The proviso does not say that the nominated partner of a firm or that the nominated director of a company would be the occupier. The fact that the definition says that in the case of a firm or association of individuals any one of the individual partners or members there of or a director in the case of company shall be deemed to be the occupier, it gives no choice either to the firm or to the company."

However, in the later part of this judgment, the learned High Court took an opposite view, as taken by many other High Courts across the country, that is, the Director appointed as an Occupier is in addition to or a substitute of the person appointed as "Occupier" by the Board by passing a resolution.

This opposite view was finally settled in the landmark judgment pronounced by the hon'ble Supreme Court in the matter J.K. Industries Ltd. and Ors. vs. Chief Inspector of Factories and Boilers and Ors3 . The Apex Court, inter alia, observed and held:

"In the case of a company, which owns a factory, it is only one of the directors of the company who can be notified as the occupier of the factory for the purposes of the Act and the company cannot nominate any other employee to be the occupier of the factory"

The Court further clarified that:

"....Where it is the company which owns or runs such a factory, it is the company which has the ultimate control over the affairs of the factory, and, therefore, it would be the company which would be the occupier of that factory. However, since a company is a legal obstruction, it can act only through its agents who in fact control and determine the management and are the centre of its personality. Such agents are generally called the directors being the "directing mind and will" of the company. The deeming fiction under second proviso, therefore, only clarifies the position where company is the occupier of the factory. The legislature by providing the deeming fiction under second proviso did not detract from the generality of the main provision under section 2(n), but only clarified it. The directors are not the employees or servants of the company. They manage, control and direct the business of the company as "owners" (section 291 of the Companies Act). The Directors are often referred to as the "alter ego" of the company. Where the company owns or runs a factory, it is the company which is in the ultimate control of the affairs of the factory through its Directors. An employee or officer of the factory or of the company, even if authorised by the board of directors by a resolution to be a person "in the ultimate control of the affairs of the factory" cannot be so. Such an employee only carries out orders from above and it makes no difference that he has been given some measure of discretion also and has supervisory control. He can at best be treated to be in the immediate control of the affairs of the factory or having day to day control over the affairs of the factory, the ultimate control being retained by the company itself. The legislature did not designedly use the expression immediate or day to day or supervisory control instead of ultimate control in the main provision of section 2(n)."

The apex court further observed that the word 'ultimate' in common parlance means last or final. The Oxford Advanced Learner's Dictionary of Current English Encyclopedic Edition (1992), defines the word 'ultimate' to mean:

"beyond which no other exists or is possible; last or final; from which everything is derived; basic or fundamental; that cannot be surpassed or improved upon; greatest etc"

Furthermore, in Employees' State Insurance Corporation and Ors.Vs. G.N. Mathur and Ors4 , it was observed:

"The expression 'ultimate control' connotes that the person must have right to take policy decision in respect of running of the Mills. Respondent No. 1 was an employee who was merely designated as Technical Director, obviously for the purpose of nomination under Sub-section (2) of Section 100 and consequently can never be considered as an occupier under Section 2(n) of the Factories Act and, therefore, was not 'principal employer' as contemplated under Section 2(17)(i) of the Act. It also cannot be overlooked that notice served upon Respondent No. 1 demands employers' contribution for the period commencing from January 1977 and ending with September 1983 and in any event, Respondent No. 1 was not even a Technical Director for the entire period. Respondent No. 1 was Technical Director from May 1980 to October 31, 1983. The Employees' State Insurance Court rightly pointed out the Corporations' claim in the affidavit filed in petitions filed by the Directors in this Court that Ashok kumar Jalan, Director of the Company was in overall charge of the affairs of the Company and not respondent No. 1. The assertion of the Corporation clearly establishes that respondent No. 1 was not occupier under Section 2(n) of the Factories Act and consequently not the principal employer under Section 2(17)(i) of the Act. A faint effort was made by Mr. Mehta to suggest that respondent No. 1 can be treated as principal employer under Section 2(17)(iii) of the Act but the submission is misconceived as the Corporation failed to produce any material to establish that respondent No. 1 was responsible for supervision and control over the establishment."

The critical study of the above rulings and the provisions of the Companies Act, LODR and the Factories Act strive to arrive at a foremost inference, which is, while Factories Act expects the Director-cum-Occupier of a factory to control the affairs and exercise executive powers to ensure compliance of provisions under the Factories Act, failing which the Occupier becomes liable to face prosecution and punishment with imprisonment and fine; the Companies Act and LODR provisions expect only guidance, assistance, moderation, arbitration, ascertainment, strive in the affairs of the company from the ID and grants general immunity from punishment for any wrongdoing by the company. The "ultimate control" in no way vests with the ID of the Company

The Occupational Safety, Health and Working Conditions Code, 2019 proposing to amalgamate, simplify and rationalize various Labour Acts has been introduced in the Lok Sabha. Some of the labour laws to be consumed are the Factories Act, the Mines Act, 1952, the Plantations Labour Act, 1951 and more. As seen in the beginning of this article, the Code makes specific provision to exclude an Independent Director from being appointed / treated as Occupier

In the Fourth Report of the Standing Committee on 'The Occupational Safety, Health and Working Conditions Code, 2019' relating to the Ministry of Labour and Employment (2019-20), Joint Secretary, Ministry of Labour and Employment observed the following:

"The definition of 'occupier' was changed after 1987 Bhopal Gas Tragedy because at that time, it was realised that Mr. Anderson could not be properly tried in India and he could not have been tried in India also because we did not have this 'ultimate control' concept. So, we have retained this concept. We have not changed it. What has been changed is the change in the Board of Directors. There are Official Directors; there are Executive Directors; and there are Independent Directors. Independent Directors are only for the purpose of advice. There are Government Directors. Their liability has been reduced. Otherwise, anybody who is a Director on the Board of Directors of a company, is liable for the safety and all these things as also violation and punishment. Except Independent Directors and the Government Directors, they have exempted the rest. The entire liability happens to be with the Board of Directors. However, it may still take a long time for the Bill of 2019 to become a real Statute.


Bearing in mind the current law, judicial precedents and the proposed amendments, it may be safe to infer, that an Independent Director is not eligible to be appointed as an Occupier in a factory. Companies are liable to appoint only such directors who exercise executive functions and are involved in day-to-day affairs of the company and the factory. It is important that the Occupier is answerable for the mishaps and any malfunctioning of the factory/ies. Pinning the blame and responsibility of the working and breakdown of a factory on an Independent Director is not only in conflict with the provisions of the Companies Act and LODR, but also unwarranted. This does bring to question the legality and desirability of appointment of various independent directors as occupiers by the companies and if this necessitates any probe by the regulatory authorities.


1 Pending in the Parliament, introduced in Lok Sabha on 23.07.2019

2 (1991) II LLJ, 480

3 MANU/SC/1293/1996

4 MANU/MH/0444/1993

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