IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HON'BLE THE CHIEF JUSTICE MR.J.CHELAMESWAR & THE HONOURABLE MR. JUSTICE P.R.RAMACHANDRA MENON FRIDAY, THE 22ND AUGUST, 2011 / 31ST SRAVANA 1933 WA.No. 1810 of 2008() --------------------- AGAINST THE JUDGEMENT/ORDER IN OP.9076/1999 Dated 13/06/2008 .................... APPELLANT(S): RESPONDENTS 1 AND 2 --------------------------------- 1. CHAIRMAN & MANAGING DIRECTOR, KERALA ELECTRICAL & ALLIED ENGINEERING CO.LTD., KERALA HOUSING BOARD BUILDING, PANAMPILLY NAGAR, ERNAKULAM, KOCHI - 36. 2. THE GENERAL MANAGER, KERALA ELECTRICAL & ALLIED ENGINEERING CO.LTD., KUNDARA. BY ADV. SRI.S.SREEKUMAR RESPONDENT(S): PETITIONER AND RESPONDENTS 3 & 4 ----------------------------------------------- 1. GENERAL SECRETARY, QUILON DISTRICT HOTEL & TEA SHOP WORKERS UNION (AITUC), KADAPPAKKADA KOLLAM - 8. 2. SRI.LEENS D'CRUZ, CONTRACTOR, KUNNUBUNGLAVIL HOUSE, KANJIRACODE, KUNDARA. 3. THE LABOUR COURT, KOLLAM. ADV. SMT.AYSHA YOUSEFF FOR R1 SMT.MOLLY JACOB FOR R1 SMT.RABIA BEEGAM T.K. FOR R1 SRI.JOBI.A.THAMPI FOR R1 SRI.FOUSIYA SATHAR FOR R1 SMT.M.KABANI DINESH FOR R1 THIS WRIT APPEAL HAVING BEEN FINALLY HEARD ON 22/07/2011 ALONG WITH WA NO. 2060 OF 2008, THE COURT ON 22/08/2011 DELIVERED THE FOLLOWING: WA.No. 1810 of 2008() APPELLANTS' ANNEXURE: ANNEXURE -1 COPY OF AGREEMENT BETWEEN R2 AND 1ST APPELLANT. /TRUE COPY/ P.S. TO JUDGE. cl [CR] J. CHELAMESWAR, C.J. & P.R. RAMACHANDRA MENON, J. ........................................... W.A.NO.1810 OF 2008 & W.A.NO.2060 of 2008 ............................................. Dated this the 22nd day of August, 2011. JUDGMENT P.R. RAMACHANDRA MENON, J. Engagement of workers in a statutory canteen maintained by the appellants in terms of Section 46 of the Factories Act, 1948, through contractors and denial of employment after continuance in such service for several years, on change in contract w.e.f 1.6.1994, is the issue involved. 2. The sequence of events is as follows: The appellant is a Company incorporated under the Indian Companies Act, 1956, fully owned by the State Government. The Company is having a Unit at Kundara (besides several other units elsewhere) where more than 250 workers are engaged and as such, has a statutory duty to provide and maintain a 'Canteen' as stipulated under Section 46 of the Factories Act, for the benefit of the W.A.NO.1810 OF 2008 & W.A.NO.2060 of 2008 : 2 : workers. It is the common case that such canteen was being maintained by the Company through contractors engaged on an yearly basis. The stand of the Company is that the earlier system of assigning the entire works in running and maintaining the canteen, to be effected by the contractors was put an end to in the year 1993, when it was noted that the food items/raw materials purchased by the contractors were of substandard quality. To meet the situation, the Company thought it fit to purchase and provide all the raw materials, assigning the task of 'cooking and serving' alone to the contractor. As per the terms of the contract, it was for the contractor to bring in employees of his choice and to meet all statutory obligations with regard to their engagement. The Company agreed to provide furniture, utensils, all raw materials, fuels, electricity etc and also a pre-determined sum towards 'expenses' for engaging the workers; making it clear that enhancement of rate will not be allowed during the period of licence. W.A.NO.1810 OF 2008 & W.A.NO.2060 of 2008 : 3 : 3. While so, the workers engaged in the canteen were denied employment with effect from 1.6.1994, when the existing contractor did not turn to be successful in the bid and the task of running the canteen from 1.6.1994 to 31.5.1995 was assigned to the first respondent in the appeals. This engagement was terminated during the midst of the contract and the same was re-tendered in favour of the second respondent in the appeals. It is stated that, even though it was open for any contractor to have engaged the employees of the previous contractor, the subsequent contractor chose to engage his own workers and as such, the workers involved herein engaged by the previous contractor happened to be denied entry to the premises, which led to the industrial dispute. 4. The denial of employment was sought to be challenged by filing O.P.No.16817/1994 before this Court, which was disposed of, to have the matter pursued before the authorities under the ID Act. Since the conciliation W.A.NO.1810 OF 2008 & W.A.NO.2060 of 2008 : 4 : did not turn to be fruitful, even at the hands of Regional Joint Labour Commissioner, the issue was referred to the Labour Court, Kollam for adjudication. After considering the rival pleadings and evidence let in, the Labour Court passed an Award on 31st July, 1998 in ID.No.111/1995 declaring that the concerned workers having continuous service of 240 days as on 31.5.1994 (among the total of 16) were to be reinstated, giving consequential rights/benefits to the extent specified therein. Being aggrieved by the said verdict, the Management challenged the Award by filing O.P.No.4755/1999, while the Union sought to challenge it, to the extent the desired benefit was not extended in full, by filing O.P.No.9076/1999. Both these matters were considered together by the learned Single Judge and as per the common judgment dated 13.6.2008, the original petition preferred by the Management was dismissed and the other one preferred by the Union was allowed in part, holding that the workmen were entitled for reinstatement with continuity of service and all attendant benefits; also granting 25% back wages to W.A.NO.1810 OF 2008 & W.A.NO.2060 of 2008 : 5 : those among the total 16 workmen who were willing to be reinstated in service, as specified. The said judgment is under challenge in both these appeals preferred by the Management Company, on various grounds. 5. Sri. S. Sreekumar, the learned counsel appearing for the appellant Company submitted that the Award passed by the Labour Court and the verdict passed by the learned Single Judge are not correct or not sustainable, being contrary to the law declared by the Apex Court in Indian Petrochemicals Corporation Ltd. v. Shramik Sena & Others (1999 (6) SCC 439), Haldia Refinery Canteen Employees Union v. Indian Oil Corporation Ltd. (2005 (5) SCC 51) and State of Karnataka v. KGSD Canteen Employees' Welfare Assn. (2006 (1) SCC 567). The points raised in this regard were sought to be rebutted by Smt. Molly Jacob, the learned counsel appearing for the Union. 6. As mentioned herein before, the crucial question to W.A.NO.1810 OF 2008 & W.A.NO.2060 of 2008 : 6 : be considered is whether the employees concerned are justified in contending that they should be treated as the employees of the appellant Company, by virtue of the duty for running the statutory canteen and the continuous service, though engaged through different contractors at different point of time. The law which was rather in fluid state of affairs earlier, came to be crystallized at least to a good extent, as per the decisions rendered by the Apex Court in M.M.R. Khan v. Union of India (1990 (Supp.) SCC 191) and Reserve Bank of India v. Workmen (1996 (3)SCC 267). Following the said judgments, it was held by a three-member Bench of the Apex Court in Indian Petrochemicals Corporation's case (cited supra) that the workmen of a 'statutory canteen' would be the workmen of the establishment, for the purpose of the Factories Act alone and not for all other purposes. After arriving at such a finding, the Court proceeded to examine whether the engagement of workers through the contractor was a 'sham transaction', to deny the benefits otherwise payable to such W.A.NO.1810 OF 2008 & W.A.NO.2060 of 2008 : 7 : workers in accordance with law. Based on the materials produced before the Court the following aspects were taken specific note of: “(a). The canteen has been there since the inception of the appellant's factory. (b). The workmen have been employed for long years and despite a change of contractors the workers have continued to be employed in the canteen. (c). The premises, furniture, fixture, fuel, electricity, utensils etc have been provided for by the appellant. (d). The wages of the canteen workers have to be reimbursed by the appellant. (e). The supervision and control on the canteen is exercised by the appellant through its authorised officer, as can be seen from the various clauses of the contract between the appellant and the contractor. (f). The contractor is nothing but an agent or a manager of the appellant, who works completely under the supervision, control and directions of the appellant. (g). The workmen have the protection of continuous employment in the establishment”. Placing reliance on the factual aspects, the Apex Court observed that, considering the totality of the W.A.NO.1810 OF 2008 & W.A.NO.2060 of 2008 : 8 : circumstances, the workers concerned were liable to be treated as workmen of the appellant/management. 7. While so, the scope of such engagement had come up for consideration before the Constitution Bench of the Supreme Court in Steel Authority of India Ltd. v. National Union Waterfront Workers (2001 (7) SCC 1), wherein the relevant provisions under the Contract Labour (Regulation & Abolition) Act, 1970, as it existed before and after the amendment in 1986, were discussed in detail. If there was a notification prohibiting the contract labour under Section 10 of the Act, whether the employees would get automatic regularization; was also a matter considered by the Bench. It was held, among other points, that even in such a case, the matter had to be adjudicated by the Industrial Court and that it was not automatic. 8. Later, the Apex Court considered the issue once again in Haldia Refinery Canteen Employees Union's W.A.NO.1810 OF 2008 & W.A.NO.2060 of 2008 : 9 : case (cited supra), wherein the law declared by the Apex Court earlier in Indian Petrochemicals Corporation Ltd. v. Shramik Sena & Others (1999 (6) SCC 439) was reiterated, holding that the workmen of a 'statutory canteen' would be the workmen of the establishment for the purpose of the Factories Act alone and not for all other purposes. On the factual side, it was observed that there was a distinction in this regard from the situation in Indian Petrochemicals Corporation's case (cited supra); where the workmen in the canteen were held as the workmen of the establishment. In Haldia Refinery's case, there were settlements between the workers and the concerned contractors who engaged them and hence the workers were held as not liable to be regarded as the workers of the principal employer. In the case on hand, a reference was made by the learned counsel for the appellant to the judgment of the Supreme Court in State of Karnataka v. KGSD Canteen Employees' Welfare Assn.(2006 (1) SCC 567), as referred to in the impugned judgment passed by the learned Single Judge. W.A.NO.1810 OF 2008 & W.A.NO.2060 of 2008 : 10 : This Court finds that the factual position in the said case is quite different from this case, as the concerned canteen in the former case was a canteen run by the 'Karnataka State Government Secretarial Department', which was not a 'factory' under the Factories Act and there was no statutory obligation for the Government to run a canteen as provided under Section 46 of the Factories Act. 9. Apart from the above decisions cited at the bar and also those taken note of in the verdict passed by the learned Single Judge, this Court has come across two subsequent decisions as well, which appear to be relevant on the subject. As per the decision of the Supreme Court in International Airport Authority of India v. International Air Cargo Workers' Union (2009 -IV- LLJ 31), it was held that, in the absence of a notification under Section 10 of the Contract Labour (Regulation and Abolition) Act, 1970 prohibiting the employment of contract labour in the operation of cargo handling work, the workmen employed as W.A.NO.1810 OF 2008 & W.A.NO.2060 of 2008 : 11 : contract labour were not entitled to claim absorption and that the contract labourers were not direct employees of the International Airport Authority of India - appellant therein. In a still recent case, General Manager (OSD), Bengal Nagpur Cotton Mills, Rajnandgaon v. Bharat Lal (2011 (I) LLJ 321), the Apex Court held that the two well recognized tests to find out whether an employee was a contract labourer or a direct employee of the principal employer are: (1) whether the principal employer pays salary, instead of the contractor and (2) whether the principal employer controls and supervises the work of the employee. In short, the question is whether the agreement executed by the appellant/management to have the statutory canteen run through a contractor, is a 'sham transaction' or not. The finding of the Labour Court and the inference made by the learned Single Judge have to be tested in the above background. 10. Following the tips as to the manner in which the W.A.NO.1810 OF 2008 & W.A.NO.2060 of 2008 : 12 : matter has to be examined as made clear by the Apex Court, the learned Single Judge proceeded to examine the factual position. As discussed in paragraph-11 of the verdict, a 'sample copy of the contract' in respect of the year “2007- 08” was made available for perusal of the Court by the learned counsel for the Management Company; the relevant clauses of which have been extracted therein. After going through the said clauses, the emerging situation was noted, point by point, by the learned Single Judge in paragraph-12. We do not find it necessary to reproduce the said clauses/points as above, but for observing that, based on the relevant aspects, the learned Judge arrived at a finding that the contractor was only a 'glorified supervisor' of the Company, without any independent functions regarding the running of the canteen, but engaged for the purpose of record and that the Company had absolute control over the entire affairs of the canteen including the workmen. It was accordingly that a declaration was given, holding that the workmen were entitled to be reinstated with continuity of W.A.NO.1810 OF 2008 & W.A.NO.2060 of 2008 : 13 : service and all attendant benefits, giving consequential directions to satisfy 25% of the back wages to the concerned workmen to the extent as specified. We find that the finding rendered by the learned Single Judge is justified by the reasons given. 11. The learned counsel for the appellant points out that the judgment under challenge has been passed by the learned Single Judge, referring to the clauses as contained in the Agreement for the year '2007-08', which did not govern the situation in respect of the alleged denial of employment in 1994. A copy of the Agreement covering the period from 1.6.1993 to 31.5.1994 is seen produced as Annexure-I along with I.A.No.485/2011 (with a typed copy as Annexure-II) in W.A.No.2060/2008. It is also argued that, much reliance has been wrongly placed on the Award passed by the Industrial Tribunal, Alappuzha in I.D.No.71/1989, whereby the workers engaged in the statutory canteen in the 'Mamala (Kochi) unit' of the appellant Company have been reckoned as the workers W.A.NO.1810 OF 2008 & W.A.NO.2060 of 2008 : 14 : of the Company (Principal Employer) itself. 12. We find that the reference made to the Award passed by the Industrial Tribual, Alappuzha in I.D.No.71/1989 as aforesaid in paragraph-15 of the judgment is only a passing reference in respect of an “admitted fact”. Anyhow, the verdict passed by the learned Single Judge, in fact, is on the basis of an independent analysis of the legal and factual position, as discernible from paragraphs 11 to 14 and from para-17 onwards. 13. With regard to the challenge against the reliance placed on the '2007-08 Agreement', it has been clearly observed in paragraph 11 of the judgment, that a copy of the said Agreement was made available by the appellant Company, as a “Sample Agreement”. Copy of the 'Relevant Agreement' was never produced along with the writ petition filed by the management/Company. Nothing prevented the management/Company from furnishing a copy of the relevant agreement for the period 1993-94/1994-95 and the Company W.A.NO.1810 OF 2008 & W.A.NO.2060 of 2008 : 15 : chose to submit a copy of the agreement for the period '2007-08' as a “sample agreement”, which accordingly was relied on by the learned Single Judge. As such, the appellant/Company is not justified in taking a 'U - turn' and the challenge raised in this regard does not weigh much. 14. Even otherwise, coming to the terms of the relevant agreement, copy of which has been produced as Annexure-I along with I.A.No485/2011, the reliance placed by the appellant is more on Clauses 3,18 and 19, which read as follows: “3. The monthly expense of Rs.12,500/- (Rupees Twelve Thousand and Five Hundred only) by the licensee for employing workers to cook and serve the food items in the Canteen will be paid on the 3rd working day of each month. No enhancement in the above rate will be allowed during the period of this licence. 18. The licensee shall bring in his own employees for running the Canteen and he shall take them back as and when the licensee is terminated. The licensee is solely responsible for their employment and their service conditions. The Canteen employees will be W.A.NO.1810 OF 2008 & W.A.NO.2060 of 2008 : 16 : engaged and paid by the licensee and they shall not be considered as employees of the company. The company reserves the right to withdraw or refuse admission to any employee of the licensee at any time without notice or without assigning any reason whatsoever. The licensee will be responsible to the company for the good behaviour of his employees. The company will not be responsible for any dispute arising between the licensee and his employees. 19. All the statutory obligations regarding the employees of the licensee shall be that of the licensee. Almost similar clauses were there in the '2007-08' agreement as well, as extracted and discussed by the learned Single Judge in para 11 of the judgment, which read as follows: “3. The monthly expense of Rs.33,450/= (Rupees Thirty three thousand four hundred and fifty only) by the licensee for employing workers to cook and serve the food items in the Canteen will be paid on the 3rd working day of each month. No enhancement in the above rate will be allowed during the period of this licence. 18. The licensee shall bring in his own employees for running the Canteen and he shall W.A.NO.1810 OF 2008 & W.A.NO.2060 of 2008 : 17 : take them back as and when the licensee is terminated. The licensee is solely responsible for their employment and their service conditions. The Canteen employees will be engaged and paid by the licensee and they shall not be considered as employees of the company. The company reserves the right to withdraw or refuse admission to any employee of the licensee at any time without notice or without assigning any reason whatsoever. The licensee will be responsible to the company for the good behaviour of his employees. The company will not be responsible for any dispute arising between the licensee and his employees. 19. All the statutory obligations such as minimum wages ESI & PF Contribution, Income Tax etc. regarding the employees of the licensee shall be that of the licensee”. On going through the contents of the Agreement for the period from 1.6.93 to 31.5.1994 and comparing the same with the relevant clauses as extracted by the learned Single Judge in paragraph-11 of the judgment, we do not find any distinction to be made with regard to the finding by the learned Single Judge. In other words, the finding and reasoning with reference to the relevant clauses in paragraph- 11 of the judgment is attracted with equal force, with W.A.NO.1810 OF 2008 & W.A.NO.2060 of 2008 : 18 : reference to the relevant clauses in Annexure -I Agreement as well. 15. An important aspect to be considered with regard to the genuineness of 'Annexure-I Agreement' and to see whether it is a 'sham transaction' or not (which exercise has to be pursued by this Court, in view of the law declared by the Apex Court on the point), is that an amount of Rs.12,500/- is stipulated in 'Clause 3' of Annexure-I agreement, towards the “expenses” of the contractor for employing the workers to cook and serve the food in the canteen. Obviously, the said agreement is dated 1.6.1993 and covers the forthcoming period up to 31.5.1994. When the appellant/management contend that the workers were not the employees of the appellant/management and that it was for the contractor to bring in his own employees, what would be the 'expenses/wages' payable in respect of such workers to be engaged was 'not a quantified/pre-determined fact, known to the management as on the relevant date. As such, how the W.A.NO.1810 OF 2008 & W.A.NO.2060 of 2008 : 19 : appellant/ management came to the figure of Rs.12,500/- as the 'expenses' for engaging the workers to cook and serve the food by the contractor, as incorporated in clause 3 of Annexure -I Agreement remains a mystery. 16. Yet another aspect to be noted is that the specific word used in clause 3 of Annexure -I Agreement with regard to the payment of Rs.12,500/= to the contractor is towards the monthly “expenses” for employing the workers to cook and serve food in the canteen. In other words, this is the actual expense that is being reimbursed by the appellant/management, to compensate the amount spent by the contractor under this head, however, making it clear that no enhancement in the above rate will be allowed during the currency of the licence. The Union, in paragraph- 3 of their claim statement (Ext.P1 in O.P.No.4755/1999-para 3), has given the particulars of the wages drawn by the 16 workers; which comes to a total of Rs.12,420/-. Though particulars of the wages as aforesaid have been denied in Ext.P2 written statement filed by the management (allegedly W.A.NO.1810 OF 2008 & W.A.NO.2060 of 2008 : 20 : for not being their employees but those engaged by the contractor), there is every reason to presume that, it is with the 'knowledge', as to the total wages for full reimbursement, while providing for reimbursement of Rs.12,500/- every month, towards the 'expenses' for engaging the workers to cook and serve food in the canteen. This being the position, the averment of the appellant that the wages were not being reimbursed by the appellant/management cannot be a correct statement at all. 17. As noted above, the total wages payable to the 16 workers as given in Ext.P1 claim statement comes to Rs.12,420/-; while the 'monthly expenses' given by the appellant/ management to the contractor as per clause 3 of Annexure-I Agreement is Rs.12,500/-; resulting in a differential portion of just Rs.80/=. When the appellant/management contend that they were not effecting any payment towards ESI/EPF contribution of the concerned workers, but for causing necessary deduction/appropriation from the amount payable to the contractor, the contentions W.A.NO.1810 OF 2008 & W.A.NO.2060 of 2008 : 21 : raised and the terms in the contract do not reconcile with each other. 18. Equally or more important aspect with regard to the genuineness of Annexure I Agreement is that, but for the amount of Rs.12,500/= stated as payable by the management to the contractor for employing workers to cook and serve the food in the canteen, no other amount is payable to him under any of the clauses 1 to 32 of Annexure I Agreement. Since the amount of Rs.12,500/= is admittedly towards the 'expenses', this cannot constitute any profit or consideration payable to the contractor for running the canteen, meeting various obligations under the Agreement. To put it more clear, there is no valid consideration to support the agreement between the management and the contractor and if the version of the management is to be accepted, it has to be presumed that the running of the canteen has been undertaken by the contractor as a matter of charity. There cannot be any question of pious