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Case Analysis Of Harishankar Sharma v/s Artificial Limbs Manufacturing Corporation, 2002 LLR 88 (SC)

This case of Harishankar Sharma and other v. Artificial Limbs Manufacturing Corporation and others[1] is based on an argument based on the Factories Act, 1948.

The case first saw its light in the Allahabad High Court[2] and the decision of the Allahabad High Court has been appealed against in the Supreme Court.

The Factories Act, 1948 is a statute that has been enacted for the purpose of consolidating and amending the law which regulates labour in factories. The Act has been enacted with the primary intention of protecting workers in factories against occupational and industrial hazards as well as promoting the health and safety of workers. The Act seeks to encompass within its purview any establishment with ten or more persons carrying on a manufacturing process with the aid of power, and if the manufacturing process is conducted without the aid of power, then the establishment needs to employ at least 20 persons, as can be understood from the definition of factory, provided in Section 2(m) of the Factories Act, 1948.

In Section 46 of the Factories Act, 1948, the statute provides the State Government with the power of making rules for mandatorily requiring that "in any specified factory wherein more than two hundred and fifty workers are ordinarily employed, a canteen or canteens shall be provided and maintained by the occupier for the use of the workers."

Now, it is imperative to observe that the Section 46 does not by itself makes it mandatory for a factory with more than 250 workers to establish a canteen, but puts the prerogative upon the State Government to require a factory to do so, if it thinks fit.

As per Section 46(2), the rules enacted by the State Government may also lay down:
  1. the date by which such canteen shall be provided;
  2. the standards in respect of construction, accommodation, furniture and other equipment of the canteen;
  3. the foodstuffs to be served therein and the charges which may be made therefor;
  4. the constitution of a managing committee for the canteen and representation of the workers in the management of the canteen;
    (dd) the items of expenditure in the running of the canteen which are not to be taken in account in fixing the cost of foodstuffs and which shall be borne by the employer;]
  5. the delegation to the Chief Inspector, subject to such conditions as may be prescribed, of the power to make rules under clause (c).
Section 2(l) of Factories Act, 1948 defines "worker". According to the provision, "worker" means a person employed, directly or by or through any agency (including a contractor) with or without the knowledge of the principal employer, whether for remuneration or not, in any manufacturing process, or in cleaning any part of the machinery or premises used for a manufacturing process, or in any other kind of work incidental to, or connected with, the manufacturing process, or the subject of the manufacturing process but does not include any member of the armed forces of the Union.

Facts of the Case
In this case, Respondent no. 1, which is Artificial Limbs Manufacturing Corporation is an undertaking by the Indian Government, set up with the aim to promote, encourage and develop artificial limbs as well as boost the availability, use, supply and distribution of those at a reasonable cost in India to people in need and in particular defence personnel who had lost their limbs. The aforementioned respondent had set up a factory employing more than 700 workers in order to pursue the above mentioned objective and had for the employees set up a canteen.

The canteen was run by contractors with whom the respondent no.1, that is, the Artificial Limbs Manufacturing Corporation used to enter into contracts. At the time of the case the canteen was run by the contractor Aditya Shukla, who is respondent no. 2 in this case. Now, the appellants in this case claimed that they were employed by several of the contractors, both past and in the present and had been working in the canteen for a long time. The appellants raised a claim that they were workers of respondent no. 1 while their contract with respondent no. 2 was on-going.

The State Government referred the dispute to the Labour Court which held by an order dated 10th May 1996, that the appellants were not the employees of respondent no.1 and the High Court dismissed the appeal filed by the workers against the decision of the Labour Court. However the appellants argued in the Supreme Court that the State Government had specified the Artificial Limbs Manufacturing Corporation factory under the provisions of Section 46(1) of the Factories Act by notification and therefore the respondent no. 1 was statutorily bound to establish and maintain a canteen.

Apart from the argument that the canteen was part of the respondent no. 1's establishment, the appellants also contended that several terms in the contract between the contractor and the respondent no. 1 showed that the appellants were under the direct supervision and control of the respondent no. 1 and further considering that the appellants were employed in the canteen of respondent no. 1 inspite of there being several changes in the contractors, showed that the appellants were in fact the workers of respondent no. 1, rather than respondent no.2.

On the other hand, the respondent No.1 contended that it exercised no control over the appointment, continuation or dismissal from service of the appellants. The respondent no. 1 also alleged that the appellants had never challenged the contract between it and the contractor as being a sham document intended to hide the fact that the appellants were in fact employees under the respondent no.1.

  1. Whether the Artificial Limbs Manufacturing Corporation is statutorily bound to provide canteens under Section 46 of Factories Act, 1948?
  2. Whether the canteen workers are the employees of the respondent no. 1 factory?
  3. Whether a canteen set up in a factory to meet the statutory obligation under Section 46 of Factories Act, 1948 entail that the employees of the canteen become the employees of the establishment?

Precedents Cited
In this case, the following precedents have been cited:
  1. Parimal Chandra Raha and others v. Life Insurance Corporation of India and Others [3]
    In this case it was held by the Supreme Court that since the Corporation had a dominating effect on the contract and could continue or terminate the contract and also to modify and dictate the new terms of the contract with the employees of the canteen, the workers of the canteen would be employees under the corporation subject to certain conditions.
  2. Indian Petrochemicals Corporation Ltd. vs. Shramik Sena and Others [4]
    In this case, the that the workmen of a statutory canteen would be the workmen of the establishment only for the purpose of the Factories Act and not for all other purposes unless it was otherwise proved that the establishment exercised complete administrative control over the employees serving in the canteen. Thus what was to be seen in the relationship between the establishment and the canteen employees, was that whether there existed a master-servant relationship.
  3. Barat Fritz Werner Ltd. V. State of Karnataka [5]
    In this case, the Supreme Court held that running a canteen is an incidental activity of a factory, which is necessary for running it.
  4. R.K. Panda v. Steel Authority of India Ltd [6]
    The Supreme Court held that a clause in the contract which is benevolently inserted to protect the contract labourers to continue to earn their livelihood cannot by itself give rise to a right to regularisation in the employment of the principal employer.
As to issue 1, that is, whether Artificial Limbs Manufacturing Corporation statutorily bound to provide canteens under Section 46 of Factories Act, 1948, the Supreme Court held that it was already decided by the High Court that it did not apply to the respondent no. 1 company and that the issue required no further indulgence.

To adjudge issue 2, as mentioned in the previous sections, the Court found that although the respondent No.1 had agreed to provide the contractor with the basic infrastructure, the actual running of the canteen was the responsibility of the contractor alone and the contractor had the sole authority to employ, dismiss employees and thereby held that the canteen workers were not employees of the respondent no. 1.

On issue 3 that is whether the employees of a canteen established under the statutory obligation of Section 46 of Factories Act, 1948 become employees of the factory despite being employed by a contractor, the Court held that there was nothing mentioned in the statute that provides for the manner in which a factory must set up a canteen and employees of contractors who were in no way supervised by the establishment, would not become the employees of respondent No. 1.

Critical Analysis of the Judgement
Going through the judgement, it seems that the ratio-decidendi has been very aptly decided and the reasoning behind the judgement seems to be very accurate in its application. The judgement delivered by Justices S. Rajendra Babu and Ruma Pal have certain very important junctures.

Firstly, in deciding whether the contract between the contractor who is respondent no. 2 and the respondent no. 1 which is the Artificial Limbs Manufacturing Corporation provides for an employer-employee relationship between the respondent no.1 and the appellant, the Court found that the respondent no. 1 only supplied the basic infrastructure to run the canteen to the contractor whilst the contractor had to provide for its upkeep and maintenance and further indemnify the respondent no.1 for any loss or damage caused to those items, thereby allowing the contractor to run the canteen as per his own discretion. Considering that the respondent no.1 only obliged the contractor to provide the employees all facilities as provided in various labour laws did not mean the respondent no. 1 was usurping the role of running the canteen but only meant that the corporation ensured compliance with statutory rules.

Clause 43 of the agreement which gave the contractor the discretion to employ the workers already working in the canteen (like the appellants) also made it clear that the contractor could not take action against the canteen workers. Therefore the respondent No. 1 had no say as to who should be employed by the contractor, nor did it provide for the method of recruitment to be followed by the contractor.

There was no obligation on the contractor to employ the persons who had served under earlier contractors. The master-servant relation being absent herein, it was rightly pointed out by the Court that workmen of a statutory canteen could only be the workmen of the establishment for the sole purpose of the Factories Act and not for all other purposes unless it was otherwise proved that the establishment exercised complete administrative control over the employees serving in the canteen, using the principle of law as laid down in the case of Barat Fritz Werner Ltd. V. State of Karnataka[7].

The Supreme Court also rightly held that even if there is a mandatory clause in the contract whereby a contractor had to hire old employees in a canteen, it could not be said that they were employees of the factory because such a clause in the contract is actually inserted in the contract in a benevolent fashion to protect the continuance of the source of livelihood of the contract labourers who had been working for long in the factory.

  1. 2002 LLR 88 (SC)
  2. 1997 (76) FLR 838 (All HC)
  3. 1995 Supp (2) SCC 611
  4. (1999) 6 SCC 439
  5. 2001 (4) SCC 498
  6. (1994) 5 SCC 304
  7. 2001 (4) SCC 498

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