Case: M/s. Hochtlef Gammon Vs. State of Orissa and Others

The earlier decision is reported in 1964 (7) S.C.R. 596 (Hochtief Gammon v. Industrial Tribunal, Bhubaneshwar, Orissa & Ors. ([1964] 7 S.C.R. 596.).In August 1957 the Hindustan Steel Ltd., the 4th respondent in the appeal, hereinafter called the company, and the appellant, a partnership of a West German company and an Indian company, hereinafter called the contractor, entered into a contract for execution of the foundation and civil engineering work of the Hot and Cold Rolling Mills at Rourkela including the purification and other civil engineering work of the Hot and with the water supply to the Rolling Mills. The contract was a cost contract with a target sum plus fixed overheads and fee, that is, the company was to pay to the contractor all costs of construction and in addition pay fixed overhead or the head office general expenses of the contractor plus a fixed fee. The target sum for the work was Rs 66, 294, 000. The overheads were D.M. 2, 800, 000/- plus Rs 2, 120, 000/- and the fee of Rs. 6, 200, 000/-. The work w as to be carried out as detailed in the drawings, bills of quantities, specifications and other written orders issued or to be issued by the company. All payments in respect of wages and salaries and connected payments made two persons engage d upon the work as may be approved by the company, comprising wages of all operatives as well as all other payments connected with wages were to be paid by the company. Any increase beyond the initial rates specified in Enclosure III to the contract was to be subject to the approval of the company and such approval was to be taken in respect of categories and not individuals. Emoluments of site supervisory staff as well as all other payments connected therewith were also to be paid by the company. Payments made to statutory schemes in connection with sickness or accident or provident fund or pension or other like schemes to the above categories, payments of overtime and additional remuneration for Sunday, holiday or night work etc., and payments for leave and traveling cost were all to be made by the company. It was also provided that the count of any other expenditure was to be admitted only on satisfactory proof being given by the contractor that such expenditure was necessary in connection with the preparation and execution of the work. The company was to open an imprest account of Rs. 30, 00, 000/- and the contractor was to draw on the account to cover his day-to-day requirements for the work. The imprest was to be increased or decreased from time to time depending on the amount required by the contractor to do the work. The contractor was to submit fortnightly cash account covering the expenditure incurred from the imprest account and the company was to recoup the amounts covered by such account within seven working days. Once in three months the contractor was to be paid a part of the fixed amount of overheads pro rata to the target cost of work done during the preceding three months. Once in six months he was to be paid three-fourths of the fee proportionate to the target cost of the work done in the preceding. half year. Enclosure Ill also set out the rate of wages for unskilled labourers, khalasi, mason, fitter or carpenter. If the contractor completed the work prior to the 30th September, 1960 he was to be paid, exclusive of such sums as may be due to, or from, him a bonus equivalent to Rs. 2, 00, 000/- for every complete month by which the actual completion of the work precedes the 30th September, 1960. The terms of the contract have been set out at some length as they have a relevance to the question of bonus payable to the workers because the question now agitated before this Court is that the Industrial Tribunal should be asked to decide who is to Pay the bonus, if bonus is payable to the workmen, the contractor or the company.It would be noticed from the provisions of the contract set out above that all payments to labour were to be made by the company. The contract contemplates payment of traveling allowance, payment in respect of sickness, accident, provident fund, pension, overtime, additional remuneration for Sunday, holiday or right work etc. It has eve n mentioned the rate of wages and is thus fairly comprehensive. There is, of course, no mention about bonus. Now if the contractor has to pay a higher rate of wages than that found in Enclosure III because of the conditions in the labour market naturally the contractor cannot be expected to pay it from out of his funds or the payments he was to receive in pursuance of the contract. This being a contract in which the company is to pay for labour as well as for materials any increase in the cost of those items cannot be borne by the contractor, who was to be paid only a fixed sum towards its remuneration. As the question of bonus is not mentioned in the contract the question arises as to who is to pay the bonus in case bonus is found payable to the workmen. We express no opinion on that point. But it appears to us that the company is adopting an ostrich like policy in trying to avoid being made a party to the reference before the Industrial Tribunal. if it should ultimately be held that bonus is payable and the company is liable to pay it, it should do its best even from this stage to fight the question of liability to pay bonus as well as the quantum.What is called a tripartite agreement seems to have been entered into between the workmen and the appellant in the presence of the Labour Commissioner on 12th June, 1960. That was natural as the appellant it was that employed labour. But that by itself does not decide the question w ho is to pay the bonus. Under that agreement the appellant agreed to the payment of bonus in principle subject to the condition that they get the bonus from the company. The quantum of bonus and exact date from which the bonus was payable w as not, however, indicated. It was also stated that when bonus was received by the management it shall notify the fact to the workers and that the union may raise this as a point of dispute when it would deem it appropriateOn 15th June, 1960 the labour union appears to have written a letter to the Labour Commissioner of Orissa raising a dispute for adjudication regarding bonus The union mentioned that they had also written a number of letters to the appellant as well as the company but either of them had decied the issue. They, therefore, served a notice of strike. The Labour Commissioner wrote to the Government on 17-10-60 about the dispute and mentioned that the appellant had agreed to pay bonus if the company paid it. He also mentioned the fact that the appellant in reply to the letters from the workmen had stated that they had not come to any final decision in the matter. On the ground that unless something was done there will be a strike causing complete dislocation of work of the company he suggested that the following issue may be considered for reference to the Industrial Tribunal:"Whether the workers of Hochtief Gammon are entitled to any bonus ? If so, what should be the quantum ?"He proceeded to say that if this question was finally decided it would also serve as a guiding principle for other contractors as similar demands for payment of bonus from workers were being received. It would be noticed that though the appellants stand was that they would pay the bonus if it were given by the company the Labour Commissioner did not suggest that the question as to the party liable to pay the bonus, whether it was the appellant or the company, be referred for adjudication. His anxiety was that the work of the company should not A be dislocated. He did not apply his mind to the question of the party liable to pay the bonus. Naturally the Government also did not. The Government therefore ref erred the following issue for adjudication:"Whether the workers of M/s. Hochtief Gammon. Civil Engineers and Contractors, Rourkela are entitled to any bonus and if so, what should be the quantum?"On this a notice seems to have been served on the company and curiously enough the company said that the appellant did not complete the work as set out in the Memorandum of Agreement and hence no bonus was due to the contractors and that therefore they were not a necessary party. This bonus, as the terms of the contract set out earlier would show. has nothing to do with the bonus payable to the workmen. The appellant in their written statement pointed out that under the terms of the contract the company had to bear all expenditure with reference to labour, all payments in respect of wages, salaries and other connected payments made to persons engaged in the works, that it was also responsible to make payments to statutory schemes in respect of all workmen and that they themselves were only paid a stated fee for professional services rendered to them and therefore no demand can be raised by the workmen who are engaged by the contractor against the contractor and such a demand is unsustainable in law. They then gave reasons why the workmen were not entitled to any bonus from them. It is not necessary to set out those reasons at length. We have already referred to the stand of the company. As would be apparent from the decision of this Court on the earlier occasion, which we shall set out later, the Tribunal could not have decided this question in view of the terms of reference made to it.Thereafter the appellant filed. an application under s. 18(3) (b) of the Industrial Disputes Act praying that for a proper adjudication of the issue referred to the Tribunal it was necessary to bring on record the company as a party to the proceedings. They pointed out that any amount payable to the labourers engaged by the contractors for whatsoever reason was a contract expenditure within the meaning of the term contract and payable by the company as it was entirely responsible for payment of all remuneration to the workmen and all expenditure incurred by reason of any demand put forward by the workmen in connection with the works, was debitable to the contract and payable by the company. This application was rejected. Thus the stand of the appellant as to the party liable to pay the bonus was never in doubt.The appellant thereupon filed a petition before the High Court of Orissa praying that the order of the Tribunal should be set aside. that petition also having been dismissed an appeal was filed before this Court by specialrelevant portion of the judgment of this Court is found at page 605, 1964(7) S.C.R.: -"The next contention raised by Mr. Chatterjee is that M/s. Hindustan Steel Ltd. is a necessary party because it is the said concern which is the employer of the respondents and not the appellant. In other words, this contention is that though in form the appellant engaged the workmen whom the respondent union represents, the appellant was acting as the agent of its principal and for adjudicating upon the industrial dispute referred to the Tribunal by the State of Orissa, it is necessary that the principal, viz., M/s. Hindustan Steel Ltd. Ought to be added as a party. I n dealing with this argument, it is necessary to bear in mind the fact that the appellant does not dispute the respondent Unions case that the workmen were employed by the appellant. It would have been open to the State Government to ask the Tribunal to consider who was the employer of these workmen and in that case, the terms of reference might have been suitably framed. Where the appropriate Government desires that the question as to who the employer is should be determined, it generally makes a reference in wide enough terms and includes as parties to the reference different persons who are alleged to be the employers. Such a course has not been adopted in the present proceedings, and so, it would not possible to hold that the question as to who is the employer as between the appellant and M/s. Hindustan Steel Ltd. is a question incidental to the industrial dispute which has been referred under s. 10(1)(d). This dispute is a substantial dispute between the appellant and M/s Hindustan Steel Ltd. and cannot be regarded as incidental in any sense, and so, we think that even this ground is not sufficient to justify the contention that M/s. Hindustan Steel Ltd. is a necessary party which can be added and summoned under the implied powers of the Tribunal under s. 18(3)(b)."It would be noticed that before this Court what was admitted w as that the appellant had employed the workmen but the question as to who was the employer in relation to those workman was the main question at issue. That was why this Court pointed out that it would have been open to the State Government to ask the Tribunal to consider who was the employer of these workmen and in that case the terms of reference might have been suitably framed. As that had not been done this Court pointed out that it would not be possible to hold that t he question as to who was the employer as between the appellant and the company was a question incidental to the industrial dispute which had been referred under s. 10(1)(d), as it was a substantial dispute between the appellant and the company .Apparently taking the cue from the observations of this Court the appellant filed a writ petition out of which this appeal arises.

Court's reasoning:
It is apparent from their reply that the Government had not applied their mind to the facts placed before them. There was at least an arguable case on the point as to who was liable to pay the bonus and in that case the company would have been a necessary and appropriate party. Even if the Government thought that the company was not a necessary party the question as to who was liable to pay the bonus was a very relevant question and that made the company a necessary or at least a proper party. The attitude of the appellant had throughout been that their contract was a cost contract, that the company had to pay labour and whilehave employed the workmen the employer was really the company. That contention may or may not be upheld by the Tribunal. Ultimately if the Tribunal should hold that the appellant is the party responsible for payment of bonus the question as between the company on the one hand and appellant on the other may have to be decided by arbitration as provided in the contract between them or otherwise. It appears to us, therefore, that not only was this an appropriate question to be referred to the Industrial Tribunal for adjudication but even the company should be interested in getting itself impleaded as a party so as to put forward any contention which it may decide to put forward as regards the question whether bonus was payable and if so the quantum thereof, as also the question as to who would be liable to pay the bonus instead of adopting, as we have said earlier, an ostrich likepower of the Courts in relation to the orders of the appropriate Government in the matter of referring industrial disputes for adjudication is no longer inby these tests the order of the State Government is unsustainable. Here the Government did not say that it considered it inexpedient to refer the question for adjudication or that the considerations put forward by the appellant before it were irrelevant. Neither the Labour Commissioner nor the Government seem to have noticed that this contract is not one of the usual kind wherein a contractor undertakes to do a certain work for a certain sum. In that case the question of profit and loss or as between the contractor and the party for whom he is executing the work any question as to who was to pay labour would not arise whether it is with regard to wages or bonus. The contractor will have to bear the full cost o material as well as the full liability for paying the workmen on any head whatsoever. In this contract the company had to pay for the material as well as labour. The appellant got paid only for its professional services. There was in any case in A the contract no provision that the appellant was to incur any item of expenditure or make any payment in relation to the workman. In such a contract it would be unusual if it was to be considered that the appellant were expected to pay the bonus for the workman. This however need not be taken as our final view on this point. But it is a relevant Matter for consideration by the Government in deciding whether to refer the matter to the Tribunal or not. Furthermore, when the question of bonus in this case arose what is known as t he Full Bench formula was holding the field in the matter of payment of bonus. If the bonus were to be paid by the appellant it could hardly be brought within that formula. As the company had certainly not begun production at that stage it would be difficult to calculate the bonus with reference to the business of the company either. The mistake that the Labour Commissioner committed was in not realising that the dispute concerned not Cr merely two parties but three because from t he beginning the appellant had made it clear that they would pay the bonus if the necessary amount was paid to them by the company.We have set out the facts of this case at considerable length and considered the whole question. We think that the Governments order in this case really amounts to an outright refusal to consider relevant matters and the Government also misdirected itself in point of law in wholly omitting to take into account the relevant considerations which as held by the House of Lords is unlawful behavior. It has failed to realise that in effect the contractor employed labour for the companywas the real paymaster. It held failed to take into account the fact that the workmen wanted the bonus from either the company or the appellant. Naturally the workmen were not interested who paid them as long as they were paid. It would bear repetition to say again that the. Original mistake arose out of the assumption by the Labour Commissioner that this was a case of an ordinary contract which would apply to other contractors also. He had apparently not seen the contract between the company and the appellant and that mistake was adopted by the State Government and they stuck to it inspite of the application made to them by the appellant after the disposal of the earlier appeal by this Court, giving all relevant facts. It does not appear from the communication of the Government to the appellant that they had applied their mind to any of the considerations set out in the appellants application.