Labour Law

Steel Authority of India Ltd. & Ors. v. National Union Waterfront Workers & Ors.

(2001) 7 SCC 1; AIR 2001 SC 3527

Citation: (2001) 7 SCC 1; AIR 2001 SC 3527
Court: Supreme Court of India
Date: 30 August 2001
Bench: Constitution Bench (5) - B.N. Kirpal, S.S.M. Quadri, M.B. Shah, Ruma Pal and K.G. Balakrishnan, JJ.

Facts

Steel Authority of India employed contract labour for handling materials at several stockyards.
The appropriate Government issued a notification under Section 10(1) of the Contract Labour (Regulation and Abolition) Act, 1970, prohibiting contract labour in specified operations.
Contract workers claimed that abolition automatically made them direct employees of SAIL.
The Calcutta High Court ordered their absorption.
Similar disputes existed across public-sector and private establishments.
Earlier Supreme Court decisions conflicted on:
identification of the “appropriate Government”; and
whether abolition of contract labour automatically resulted in absorption.
A Constitution Bench considered:
the statutory scheme;
the correctness of Air India Statutory Corporation; and
the treatment of sham contractor arrangements.

Which Government is the appropriate Government under the Contract Labour Act.
Whether a Section 10 prohibition notification automatically absorbs contract workers into the principal establishment.
What remedy exists where the contract is sham or camouflage.
Whether earlier automatic-absorption precedent was correct.

The appropriate Government is determined according to the statutory relationship governing the concerned establishment, not merely because the employer is a government company.
Prohibition under Section 10 means that the principal employer may no longer employ contract labour in the notified process.
The Act does not expressly provide that abolition automatically creates direct employment.
Courts cannot insert an absorption consequence omitted by Parliament.
Where the contractor arrangement is genuine:
workers remain employees of the contractor;
subject to the prohibition and available statutory remedies.
Where the contract is a sham, nominal or camouflage:
the industrial adjudicator may find that the principal employer was always the real employer;
the workers may then receive appropriate direct-employment relief.
Air India Statutory Corporation was overruled on automatic absorption.

The Court separated two situations.
First, a genuine contractor may recruit, pay, supervise and discipline workers while supplying a service to the principal employer.
Abolition prevents future use of that arrangement in the notified work, but it does not rewrite the past employment contract.
Automatic absorption could impose upon an establishment:
workers it did not recruit;
numbers exceeding its requirement;
persons lacking qualifications; and
obligations not stated in the Act.
Second, some employers may use a contractor only on paper while:
directly selecting workers;
controlling their work;
paying through the intermediary; and
using the arrangement to avoid labour obligations.
In that case, the tribunal may lift the veil and declare the workers direct employees.
The Court did not leave workers wholly unprotected.
On abolition, the principal employer requiring regular workers for the activity should ordinarily give preference to experienced former contract labour, subject to suitability.
Existing final relief granted under the overruled precedent was protected to avoid unnecessary disruption.
In the SAIL matters, automatic absorption solely from the notification could not be sustained without a finding that the contracts were sham.

The Constitution Bench held that abolition of contract labour does not automatically result in absorption by the principal employer.
Air India Statutory Corporation was overruled to that extent.
Workers could still establish direct employment by proving that the contractor arrangement was a camouflage.
Use this case for: statutory abolition and factual sham employment are distinct; direct absorption follows only from legislation or proof that the principal employer was the real employer.