Balwant Rai Saluja & Anr V/s Air India Limited & Ors.

The relevant factors to be taken into consideration to establish an employer-employee relationship would include, inter alia, Who appoints the workers, who pays the salary/remuneration, who has the authority to dismiss, who can take disciplinary action, whether there is continuity of service, extent of control and supervision, i.e. whether there exists complete control and supervision.

Case name:Balwant Rai Saluja & Anr V/s Air India Ltd & Ors.
Case number:Civil appeal number 10264-10266 of 2013
Court:The Supreme Court Of India
Bench:Justice H.L. Dattu, Justice R.K. Agrawal, Justice Arun Mishra
Decided on:AUGUST 25, 2014
Relevant Act/Sections:Section 46 of the Factories Act, 1948
  • BRIEF FACTS AND PROCEDURAL HISTORY:
  • In the present set of appeals, 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.
  • 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. It has Ground Services Department at Indira Gandhi International Airport, Delhi.
  • 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. 3, being Chefair Flight Catering 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.
  • PROCEDURAL HISTORY:
  • The present set of appeals came before a two Judge Bench of this Court against a judgment and order dated 02.05.2011 of a Division Bench of the High Court of Delhi in LPA Nos. 388, 390 and 391 of 2010. The present dispute finds origin in an industrial dispute which 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, by its order dated 23.10.1996 to the Central Government Industrial Tribunal cum labour Court.
  • By 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 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.
  • ISSUE BEFORE THE COURT:
  • 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?
  • Whether the workmen engaged in statutory canteens, through a contractor, could be treated as employees of the principal establishment?
  • RATIO OF THE COURT:
  • The court contended after the submission of learned counsels and referring to many decisions like  Saraspur Mills Co. Ltd. v. Ramanlal Chimanlal, (1974) 3 SCC 66,,Hussainbhai v. Alath Factory Thezhilali Union, (1978) 4 SCC 257,,M.M.R. Khan v. Union of India, 1990 Supp SCC 191,,Parimal Chandra Raha v. LIC, 1995 Supp (2) SCC 611,,Steel Authority of India Ltd. v. National Union Waterfront Workers, (2001) 7 SCC 1,,Hari Shankar Sharma v. Artificial Limbs Mfg. Corpn., (2002) 1 SCC 337; Workmen v. Coates of India Ltd., (2004) 3 SCC 547,,Haldia Refinery Canteen Employees Union v. Indian Oil Corpn. Ltd., (2005) 5 SCC 51,,Karnataka v. KGSD Canteen Employees’ Welfare Assn., (2006) 1 SCC 567,,Bengal Nagpur Cotton Mills v. Bharat Lal, (2011) 1 SCC 635,,International Airport Authority of India v. International Air Cargo Workers’ Union, (2009) 13 SCC 374,,National Aluminium Co. Ltd. v. Ananta Kishore Rout & Ors., (2014) 6 SCC 756.
  • The court stated that a recent decision concerned with the employer employee relationship was that of the NALCO case (supra). In this case, the appellant had established two schools for the benefit of the wards of its employees. The Writ Petitions were filed by the employees of each school for a declaration that they be treated as the employees of the appellant-company on grounds of, inter alia, real control and supervision by the latter. This Court, while answering the issue canvassed was of the opinion that the proper approach would be to ascertain whether there was complete control and supervision by the appellanttherein. In this regard, reference was made to the case of Dhrangadhra Chemical Works case {supra}.
  • The court observed that the relevant factors to be taken into consideration to establish an employer-employee relationship would include, inter alia, Who appoints the workers, who pays the salary/remuneration, who has the authority to dismiss, who can take disciplinary action, whether there is continuity of service, extent of control and supervision, i.e. whether there exists complete control and supervision. As regards, extent of control and supervision, we have already taken note of the observations in Bengal Nagpur Cotton Mills case (supra), the International Airport Authority of India case (supra) and the NALCO case (supra).
  • In the present set of appeals, it is an admitted fact that the HCI is a wholly owned subsidiary of the Air India. It has been urged by the learned counsel for the appellants that this Court should pierce the veil and declare that the HCI is a sham and a camouflage. Therefore, the liability regarding the appellants herein would fall upon the Air India, not the HCI. In this regard, it would be pertinent to elaborate upon the concept of a subsidiary company and the principle of lifting the corporate veil.
  • The Companies Act in India and all over the world have statutorily recognized subsidiary company as a separate legal entity. Section 2(47) of the Companies Act, 1956 defines ‘subsidiary company’ or ‘subsidiary’, to mean a subsidiary company within the meaning of Section 4 of the Act, 1956.  For the purpose of the Act, 1956, a company shall be, subject to the provisions of sub-section (3) of Section 4, of the Act, 1956, deemed to be subsidiary of another. Clause (1) of Section 4 of the Act, 1956 further imposes certain preconditions for a company to be a subsidiary of another. The other such company must exercise control over the composition of the Board of Directors of the subsidiary company, and have a controlling interest of over 50% of the equity shares and voting rights of the given subsidiary company.
  • The court took reference that the law has been crystallized around the six principles formulated by Munby J. in Ben Hashem v. Ali Shayif, [2008] EWHC 2380 (Fam). The six principles, as found at paragraphs 159– 164 of the case are as follows-   
  • Ownership and control of a company were not enough to justify piercing the corporate veil, the Court cannot pierce the corporate veil, even in the absence of third party interests in the company, merely because it is thought to be necessary in the interests of justice, the corporate veil can be pierced only if there is some impropriety, the impropriety in question must be linked to the use of the company structure to avoid or conceal liability, Justify piercing the corporate veil, there must be both control of the company by the wrongdoer(s) and impropriety, that is use or misuse of the company by them as a device or facade to conceal their wrongdoing; and The company may be a ‘façade’ even though it was not originally incorporated with any deceptive intent, provided that it is being used for the purpose of deception at the time of the relevant transactions. The Court would, however, pierce the corporate veil only so far as it was necessary in order to provide a remedy for the particular wrong which those controlling the company had done.
  • Thus, on relying upon the aforesaid decisions, the doctrine of piercing the veil allows the Court to disregard the separate legal personality of a company and impose liability upon the persons exercising real control over the said company. However, this principle has been and should be applied in a restrictive manner, that is, only in scenarios wherein it is evident that the company was a mere camouflage or sham deliberately created by the persons exercising control over the said company for the purpose of avoiding liability. The intent of piercing the veil must be such that would seek to remedy a wrong done by the persons controlling the company.  The application would thus depend upon the peculiar facts and circumstances of each case.
  • It has been noticed above 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.
  • The court stated about the it the Memorandum of Association and the Articles of Association of the HCI 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:
  • To carry on the business of hotel, motel, restaurant, café, tavern, flight kitchen, refreshment room and boarding and lodging, housekeepers, licensed victuallers, etc.;
  • To provide lodging and boarding and other facilities to the public;
  • To purchase, erect, take on lease or otherwise acquire, equip and manage hotels;
  • To establish shops, kitchens, refreshment rooms, canteens and depots for the sale of various food and beverages.
  • The court observed that nothing has been brought before this Court to show that such provisions in the Articles of Association are either bad in law or would impose some liability upon the Air India, in terms of calling the appellants to be its own workers. The court stated that the said Articles are not impermissible in law and 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 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.
  • The court contended that HCI is a separate legal entity incorporated under the Act, 1956 and the said Articles of Association of the HCI, in no way give control of running the said canteen to the Air India. The functions of appointment, dismissal, disciplinary action, etc. of the canteen staff, are retained with the HCI. Thus, the exercise of control by the HCI clearly indicated that the said respondent No. 2 is not a sham or camouflage created by respondent No. 1 to avoid certain statutory liabilities.
  • Therefore, in our considered view and in light of the above, 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.
  • It would be pertinent to mention, at this stage, 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.
  • 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.
  • DECISION HELD BY COURT:
  • At last the court ordered that this court dismissed these appeals.
  • No order as to costs.

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