Page 1 R E P O R T A B L E

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NOS. 10264-10266 OF 2013

BALWANT RAI SALUJA & ANR. .. APPELLANT(S)

VERSUS

AIR INDIA LTD. & ORS. .. RESPONDENT(S)

J U D G M E N T

H.L. DATTU, J.

1. In view of the difference of opinion by two

learned Judges, and by referral order dated 13.11.2013 of

this Court, these Civil Appeals are placed before us for

our consideration and decision. The question before this

bench is whether the workmen engaged in statutory

canteens, through a contractor, could be treated as

employees of the principal establishment.

2. At the outset, it requires to be noticed that

the learned Judges differed in their opinion regarding

the liability of the principal employer running statutory

canteens and further regarding the status of the workmen

engaged thereof. The learned Judges differed on the

Page 2 aspect of supervision and control which was exercised by

the Air India Ltd. (for short, “the Air India”)-

respondent No. 1, and the Hotel Corporations of India

Ltd. (for short, “the HCI”)-respondent No. 2, over the

said workmen employed in these canteens. The learned

Judges also had varying interpretations regarding the

status of the HCI as a sham and camouflage subsidiary by

the Air India created mainly to deprive the legitimate

statutory and fundamental rights of the concerned workmen

and the necessity to pierce the veil to ascertain their

relation with the principal employer.

3. The Two Judge bench has expressed contrasting

opinions on the prevalence of an employer–employee

relationship between the principal employer and the

workers in the said canteen facility, based on, inter

alia, issues surrounding the economic dependence of the

subsidiary role in management and maintenance of the

canteen premises, representation of workers, modes of

appointment and termination as well as resolving

disciplinary issues among workmen. The Bench also

differed on the issue pertaining to whether such workmen

should be treated as employees of the principal employer

Page 3 only for the purposes of the Factories Act, 1948 (for

short, “the Act, 1948”) or for other purposes as well.

FACTS :

4. 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 (for short “the

CGIT”). The question referred was whether the workmen as

employed by Respondent No. 3-herein, to provide canteen

services at the establishment of Respondent No. 1-herein,

could be treated as deemed employees of the said

Respondent No. 1. Vide order dated 05.05.2004, the CGIT

held that the workmen were employees of the Respondent

No.1-Air India and therefore their claim was justified.

Furthermore, the termination of services of the workmen

during the pendency of the dispute was held to be

Page 4 illegal.

5. 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.

6. 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

Page 5 of the employees of the said respondent. It is urged that

since the canteen is maintained as a consequence of a

statutory obligation under Section 46 of the Act, 1948,

and that since by virtue of notification dated

21.01.1991, Rules 65-70 of the Delhi Factory Rules, 1950

(for short, “the Rules, 1950”) have become applicable to

the respondent No. 1, the said workers should be held to

be the employees of the management of the corporation, on

which such statutory obligation is placed, that is, Air

India.

7. 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. The Labour Department vide

its notification dated 20.01.1991 under sub-rule (1) of

Rule 65 of the Rules, 1950, has enlisted the said M/s.

Air India Ground Services Department, thereby making

Rules 65 to 70, of the Rules, 1950 applicable to the

same.

8. Respondent No. 2-HCI is also a company

Page 6 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.

9. Respondent No. 2 has various units and

Respondent No. 3, being Chefair Flight Catering (for

short, “the Chefair”), 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.

ISSUE :

10. The main issue for consideration before this

Court in the present reference is “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

Page 7 – Air India, can be said to be the workmen of the said

factory or corporation”.

SUBMISSIONS :

11. Shri Jayant Bhushan, learned Senior Counsel for

the appellants-workmen has two alternative submissions;

firstly, that in the event of a statutory requirement to

provide for a canteen or any other facility, the

employees of the said facility would automatically become

employees of the principal employer, irrespective of the

existence of any intermediary that may have been employed

to run that facility. Secondly, the test of sufficient

control by the principal employer over the operation of

the canteen and consequently over the appellants-workmen,

should prevail. Therefore, the Court should pierce the

veil and take note of the fact that the contractor was a

mere camouflage, and the principal employer was in real

control of the canteen and its workmen. Reference is made

to the following cases in support of his submissions-

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; and Parimal Chandra Raha v. LIC , 1995 Supp

Page 8 (2) SCC 611.

12. Shri Jayant Bhushan also submits that the issue

raised in these appeals is squarely covered by the

observations made by the Constitution Bench in the case

of Steel Authority of India Ltd. v. National Union

Waterfront Workers, (2001) 7 SCC 1.

13. While supporting the judgment in the Steel

Authority of India’s case (supra) , Shri C.U. Singh,

learned Senior Counsel for Respondent No. 1- Air India

would contend that the issue that came up for

consideration before the Constitution Bench is entirely

different and, therefore, the said decision has no

bearing on the facts and the question of law raised in

the present set of appeals.

14. Shri C.U. Singh would then refer to the various

case laws cited by the learned counsel for the appellants

to show that they are not only distinguishable on facts,

but are inapplicable to the facts of the present case. He

would also refer to the three-Judge Bench decision of

this Court in the case of Indian Petrochemicals Corpn.

Ltd. v. Shramik Sena, (1999) 6 SCC 439, and then would

submit that the proposition of law enunciated in the

Page 9 Indian Petrochemicals case (supra) is followed by this

Court in 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; and

Karnataka v. KGSD Canteen Employees’ Welfare Assn.,

(2006) 1 SCC 567.

15. In so far as the second submission of the

learned counsel for the appellants is concerned, Shri

C.U. Singh would submit that it is not the test of

sufficient control, but the test of effective and

absolute control which would be relevant, and that if the

said test, in the given facts is applied, the appellants

would fail to establish the employer and employee

relationship. In aid of his submissions, he refers to

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; and National Aluminium Co. Ltd. v. Ananta Kishore

Rout & Ors., (2014) 6 SCC 756.

RELEVANT PROVISIONS :

Page 10 16. To appreciate the point of view of the parties

to the present lis, it is necessary to notice the

relevant provisions.

17. Section 46 of the Act, 1948 statutorily places

an obligation on the occupier of a factory to provide and

maintain a canteen in the factory where more than two

hundred and fifty workers are employed. There is nothing

in the said provision which provides for the mode in

which the factory must set up a canteen. It appears to be

left to the discretion of the concerned factory to either

discharge the said obligation of setting up a canteen

either by way of direct involvement or through a

contractor or any other third party. The provision reads

as under:

“46. Canteens.-(1) The State Government may make

rules 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.

(2) Without prejudice in the generality of the

foregoing power, such rules may provide for -

(a) the date by which such canteen shall be

provided;

Page 11 (b) the standard in respect of construction,

accommodation, furniture and other equipment of

the canteen;

(c) the foodstuffs to be served therein and the

charges which may be made therefor;

(d) 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 into

account in fixing the cost of foodstuffs and

which shall be borne by the employer;

(e) the delegation to Chief Inspector subject to

such conditions as may be prescribed, of the

power to make rules under clause (c).”

18. By virtue of Notification No. 27(12)89-

CIF/Lab/464 dated 21.01.1991, rules 65 to 70 of the

Rules, 1950 were made applicable to M/s. Air India Ground

Services Department. The rules impose obligations upon

the occupier of the factory as regards providing for and

maintaining the said canteen.

19. Rules 65 to 70 of the Rules, 1950 are in

furtherance of the duty prescribed on the State

Government to run statutory canteens as per Section 46 of

the Act, 1948. Rule 65, inter alia, provides for an

official notification and approval of the occupier

Page 12 canteen facility as well as additional guidelines

regarding the construction, accommodation, hygiene,

ventilation, sanitation and other maintenance works. Rule

66 prescribes for setting up a dining hall, with adequate

space and furniture along with reservation of dining

space for women employees. Rule 67 enumerates the

requisite equipment such as utensils, furniture, uniforms

for the canteen staff and other equipment to be purchased

and maintained in a hygienic manner. Rule 68 prescribes

that the prices to be charged on foodstuffs and other

items will be on a non-profit basis, as approved by the

Canteen Managing Committee. Rule 69 illustrates the

procedure for handling the auditing of accounts, under

the supervision of the Canteen Managing Committee as well

as Inspector of Factories. Lastly, Rule 70 enumerates the

consultative role of the Managing Committee regarding,

inter alia, the quality and quantity of foodstuffs

served, arrangement of menus, duration for meals, etc. It

also prescribes that such a Committee must have equal

representation of persons nominated by the occupier and

elected members by the workers of the factory. The

Manager is entrusted with determining and supervising the

procedure for conducting such elections and dissolving

Page 13 the Committee at the expiry of its two year statutory

term.

DISCUSSION :

20. Before we deal with the issue that arises for

consideration, it would be necessary to consider the

applicability of the Constitution Bench decision in the

Steel Authority of India case (supra). Learned counsel

refers to paragraphs 106 and 107 of the said judgment to

contend that the observations made therein is the

expression of the Court on the question of law and since

it is the decision of the Constitution Bench, the same

would be binding on this Court. To appreciate the

submission of the learned counsel, we notice the

aforesaid paragraphs:

“106. We have gone through the decisions of this

Court in VST Industries case (2001) 1 SCC 298,

G.B. Pant University case (2000) 7 SCC 109 and

M. Aslam case (2001) 1 SCC 720. All of them

relate to statutory liability to maintain the

canteen by the principal employer in the

factory/establishment. That is why in those

cases, as in Saraspur Mills case (1974) 3 SCC 66

the contract labour working in the canteen were

treated as workers of the principal employer.

Page 14 These cases stand on a different footing and it

is not possible to deduce from them the broad

principle of law that on the contract labour

system being abolished under sub-section (1) of

Section 10 of the CLRA Act the contract labour

working in the establishment of the principal

employer have to be absorbed as regular

employees of the establishment.

107. An analysis of the cases, discussed above,

shows that they fall in three classes: ( i) where

contract labour is engaged in or in connection

with the work of an establishment and employment

of contract labour is prohibited either because

the industrial adjudicator/court ordered

abolition of contract labourer because the

appropriate Government issued notification under

Section 10(1) of the CLRA Act, no automatic

absorption of the contract labour working in the

establishment was ordered; ( ii) where the

contract was found to be a sham and nominal,

rather a camouflage, in which case the contract

labour working in the establishment of the

principal employer were held, in fact and in

reality, the employees of the principal employer

himself. Indeed, such cases do not relate to

abolition of contract labour but present

instances wherein the Court pierced the veil and

declared the correct position as a fact at the

stage after employment of contract labour stood

prohibited; ( iii) where in discharge of a

statutory obligation of maintaining a canteen in

Page 15 an establishment the principal employer availed

the services of a contractor the courts have

held that the contract labour would indeed be

the employees of the principal employer.”

21. By placing his fingers on Clause (iii) of

paragraph 107, the learned counsel would contend that the

said observation is the ratio of the Court’s decision

and, therefore, it is binding on all other Courts. We do

not agree. The Constitution Bench in Steel Authority of

India’s case (supra) was primarily concerned with the

meaning of the expression “appropriate Government” in

Section 2(1)(a) of the Contract Labour (Regulation and

Abolition) Act, 1970 and in Section 2(a) of the

Industrial Disputes Act, 1947 and the other issue was

automatic absorption of the contract labour in the

establishment of the principal employer as a consequence

of an abolition notification issued under Section 10(1)

of the Contract Labour (Regulation and Abolition) Act.

The Court while over-ruling the judgment in Air India

Statutory Corporation vs. United Labour Union (1997) 9

SCC 377, prospectively, held that neither Section 10 of

the Contract Labour (Regulation and Abolition) Act nor

any other provision in the Act, whether expressly or by

Page 16 necessary implication, provides for automatic absorption

of contract labour on issue of notification under the

said section, prohibiting contract labour and

consequently the principal employer is not required to

absorb the contract labour working in the concerned

establishment.

In the aforesaid decision, firstly, the issue whether

contract labourers working in statutory canteen(s) would

fall within the meaning of expression “workmen” under the

Act, 1948 and therefore they are employees of the

principal employer and secondly, whether the principal

employer to fulfil its obligation under Section 46 of the

Act, 1948 engages a contractor, the employees of the

contractor can claim regularisation and extension of the

service conditions extended to the employees of the

principal employer did not remotely arise for

consideration of the Court.

Secondly, in our considered view, the observations

made by the Constitution Bench in paragraph 107 of the

Judgment by no stretch of imagination can be considered

‘the law declared’ by the Court. We say so for the

reason, the Court after noticing several decisions which

Page 17 were brought to its notice, has summarised the view

expressed in those decision in three categories. The

categorisation so made cannot be said the declaration of

law made by the Court which would be binding on all the

Courts within the territory of India as envisaged under

Article 141 of the Constitution of India. This Court in

the case of The Commissioner of Income Tax v. Sun

Engineering Works (P) Ltd. , (1992) 4 SCC 363, has

observed:

“39. It is neither desirable nor

permissible to pick out a word or a sentence

from the judgment of this Court divorced from

the context of the question under consideration

and treat it to be complete ‘law’ declared by

this Court. The Judgment must be read as a

whole and the observations from the judgment

have to be considered in the light of the

questions which were before this Court. A

decision of this Court takes its colour from the

questions involved in the case in which it was

rendered and while applying the decision to the

later case, the Courts must carefully try to

ascertain the true principle laid down by the

decision of this Court and not pick out words or

sentences from the judgment, divorced from the

context of the questions under consideration by

this Court, to support their reasonings”

Page 18 22. Further, this Court in Punjab Land Development

and Reclamation Corporation Ltd., Chandigarh v. Presiding

Officer, Labour Court, Chandigarh and Ors. , (1990) 3 SCC

682, observed as follows:

“44. An analysis of judicial precedent, ratio

decidendi and the ambit of earlier and later

decisions is to be found in the House of Lords’

decision in F.A. & A.B. Ltd. v. Lupton

(Inspector of Taxes) , Lord Simon concerned with

the decisions in Griffiths v. J.P. Harrison

(Watford) Ltd. and Finsbury Securities Ltd. v.

Inland Revenue Commissioner with their

interrelationship and with the question whether

Lupton’s case fell with-in the precedent

established by the one or the other case, said:

(AC p. 658)

‘...what constitutes binding precedent is

the ratio decidendi of a case, and this is

almost always to be ascertained by an

analysis of the material facts of the case

—that is, generally, those facts which the

tribunal whose decision is in question

itself holds, expressly or implicitly, to

be material.’ ”

23. It is stated therein that a judicial decision is

the abstraction of the principle from the facts and

Page 19 arguments of the case. It was further observed in the

Punjab Land Development case (supra), that:

“53. Lord Halsbury’s dicta in Quinn v. Leatham,

1901 AC 495: (AC p. 506)

“...every judgment must be read as

applicable to the particular facts proved,

or assumed to be proved, since the

generality of the expressions which may be

found there are not intended to be

expositions of the whole law, but governed

and qualified by the particular facts of

the case in which such expressions are to

be found. The other is that a case is only

an authority for what it actually

decides.”

This Court held in State of Orissa v. Sudhansu

Sekhar Misra (1968) 2 SCR 154, that a decision

is only an authority for what it actually

decides. What is of the essence in a decision is

its ratio and not other observation found

therein nor what logically follows from the

various observations made in it. ...”

24. A Constitution Bench of this Court in the case

of State of Punjab v. Baladev Singh, (1999) 6 SCC 172,

held that a judgment has to be considered in the context

in which it was rendered and that a decision is an

authority for what it decides and it is not everything

Page 20 said therein constitutes a precedent.

25. In our view, the binding nature of a decision

would extend to only observations on points raised and

decided by the Court and neither on aspects which it has

not decided nor had occasion to express its opinion upon.

The observation made in a prior decision on a legal

question which arose in a manner not requiring any

decision and which was to an extent unnecessary, ought to

be considered merely as an obiter dictum. We are further

of the view that a ratio of the judgment or the principle

upon which the question before the Court is decided must

be considered as binding to be applied as an appropriate

precedent.

26. The Constitution Bench in Steel Authority of

India’s case (supra) , decided on the limited issue

surrounding the absorption of contract workers into the

principal establishment pursuant to a notification issued

by the appropriate Government under Section 10 of the

Contract Labour (Abolition and Regulation) Act, 1970. The

conclusion in paragraph 125 of Steel Authority of India’s

case (supra), inter alia, states that on issuance of a

notification under Section 10(1) of Contract Labour

Page 21 (Abolition and Regulation) Act, 1970 passed by the

appropriate Government would not entail the automatic

absorption of contract workers operating in the

establishment and the principal employer will not be

burdened with any liability thereof. The issue

surrounding workmen employed in statutory canteens and

the liability of principal employer was neither argued

nor subject of dispute in the Steel Authority of India’s

case (supra). Therefore, in our considered view the

decision on which reliance was placed by learned counsel

does not assist him in the facts of the present case.

27. The Act, 1948 is a social legislation and it

provides for the health, safety, welfare, working hours,

leave and other benefits for workers employed in

factories and it also provides for the improvement of

working conditions within the factory premises. Section 2

of the Act, 1948 is the interpretation clause. Apart from

others, it provides the definition of worker under

Section 2(l) of the Act, 1948, to mean a person employed,

directly or through any other agency, whether for wages

or not, in any manufacturing or cleaning process. Section

46 of the Act, 1948 requires the establishment of

Page 22 canteens in factories employing more than two hundred and

fifty workers. The State Government have been given power

under the Section to make Rules requiring that such

canteens to be provided in the factory under Sub Section

(2), the items for which rules are to be framed have been

specified. The Sub Section also contemplates the

delegation by the State Government the power to the Chief

Inspector to make rules in respect of the food to be

served in such canteens and their charges. In exercise of

rules making power, the Delhi State has framed and

notified the Rules, 1950, in which rules 65 to 70 are

incorporated to give effect to the purpose of Section 46

of the Act, 1948.

28. The question before us is “when the company is

admittedly required to run the canteen in compliance of

the statutory obligation under Section 46 of the Act,

1948, whether the canteen employees employed by the

contractor are to be treated as the employees of the

company only for the purpose of Act 1948 or for all the

other purposes.”

29. Before we advert to the aforesaid issue raised

and canvassed, we intend to notice some of the decisions

Page 23 of this Court where a similar issue was raised and

answered. In Indian Petrochemicals case (supra), a three

Judge Bench of this Court has stated the law on the point

by holding that the employees of the statutory canteens

are covered within the definition of ‘workmen’ under the

Act, 1948 and not for all other purposes. The Court went

on to observe that the Act, 1948 does not govern the

rights of employees with reference to recruitment,

seniority, promotion, retirement benefits etc. They are

governed by other statutes, rules, contracts or policies.

30. The aforesaid viewpoint is reiterated by this

Court in the case of Haldia Refinery Canteen Employees

Union and others v. Indian Oil Corporation Ltd. and ors.,

(2005) 5 SCC 51 and in Hari Shankar Sharma v. Artificial

Limbs Manufacturing Corporation, (2002) 1 SCC 337. As

observed by the Constitution Bench of this Court in the

case of Union of India v. Raghubir Singh, 178 ITR 548

(SC), the pronouncement of law by a Division Bench of the

Supreme Court is binding on a Division Bench of the same

or a smaller number of Judges and in order that such

decision is binding, it is not necessary that it should

be a decision rendered by a Full Court or a Constitution

Bench of the Supreme Court. The Indian Petrochemical’s

Page 24 case (supra) is decided by a three-Judge Bench of this

Court and the facts and the legal issues raised in the

present appeals are the same or similar as in Indian

Petrochemicals c ase (supra), and since we are not

persuaded to take a different view in the matter, the

observations made therein is binding on us.

31. This Court in the Indian Petrochemical case

(supra), while explaining the decision in Parimal Chandra

Raha’s case (supra), has stated that in Raha’s case, the

Supreme Court did not specifically hold that the deemed

employment of the workers is for all purposes nor did it

specifically hold that it is only for the purposes of the

Act, 1948. However, a reading of the judgment in its

entirety makes it clear that the deemed employment is

only for the purpose of the Act, 1948. Therefore, it has

to be held that the workmen of a statutory canteen would

be the workmen of the establishment for the purpose of

the Act, 1948 only and not for all other purposes. To

arrive at this conclusion, the Court has followed the

view expressed by this Court in M.M.R Khan’s case (supra)

and Reserve Bank of India v. Workmen, (1996) 3 SCC 267.

32. The proposition of law in the Indian

Page 25 Petrochemicals case (supra) has been reiterated in the

Hari Shankar Sharma’s case (supra). This Court stated

that:

“6. The observations in Parimal Chandra Raha

case relied on by the appellants which might

have supported the submission of the appellants

have been explained by a larger Bench in Indian

Petrochemicals Corpn. Ltd. v. Shramik Sena where

it was held, after considering the provisions of

the Factories Act and the previous decisions on

the issue, 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.”

33. The aforesaid principle has also been applied in

Haldia’s case (supra); KGSD Canteen case (supra); Indian

Overseas Bank v. I.O.B. Staff Canteen Workers’ Union &

Anr., (2000) 4 SCC 245; and Barat Fritz Werner Ltd. v.

State of Karnataka, 2001 (4) SCC 498.

34. The Coates of India Ltd.’s case (supra) was

regarding a dispute over the status of the appellant-

workmen therein who were hired by a contractor to work in

Page 26 a canteen run on the premises of the respondent company.

This Court observed that merely some requirement under

the Act, 1948 of providing a canteen in the industrial

establishment is by itself not conclusive of the question

or sufficient to determine the status of the persons

employed in the canteen. The Industrial Court and the

learned Single Judge of the High Court held in favour of

the workmen. However, the Division Bench of the High

Court held in favour of the respondent-company therein.

This Court took note of the relevant finding of fact by

the learned Single Judge therein and upheld the

conclusion of the Division Bench of the High Court, that

the workmen were employed only by the contractor to run

the canteen, and they were not employees of the

respondent Company. The Court went on to observe that

since the canteen employees were not directly appointed

by the Company nor had they ever moved the Company for

leave or other benefits enjoyed by the regular employees

of the Company, and further that the canteen employees

got their wages from the respective contractors and,

therefore, they are not employees of the Company.

35. The Haldia case (supra) was similar to the facts

Page 27 of the present case. In that case, the appellant-workmen

were working in the statutory canteen run by the

respondent through a contractor in its factory. It was

contended therein that the factory of the respondent

where the workmen were employed was governed by the

provisions of the Act, 1948 and the canteen where the

said workmen were employed would be a statutory canteen

and the same was maintained for the benefit of the

workmen employed in the factory. It was alleged therein

that the respondent had direct control over the said

workmen and the contractor had no control over the

management, administration and functioning of the said

canteen. Therefore, writ applications were filed seeking

issuance of mandamus to the respondent to absorb the

appellants in the service of the respondent therein and

to regularize them as such. This Court then made a

detailed reference to the Parimal Chandra Raha case

(supra), the MMR Khan case (supra) and the Indian

Petrochemicals case (supra). The Court then extensively

referred to the terms and conditions of the contract

between the canteen contractor and the respondent to

ascertain whether there was any control of the respondent

company therein over the workers in the canteen, and if

Page 28 so what was the nature of the said control. It was

observed as follows:

“14. No doubt, the respondent management does

exercise effective control over the contractor

on certain matters in regard to the running of

the canteen but such control is being exercised

to ensure that the canteen is run in an

efficient manner and to provide wholesome and

healthy food to the workmen of the

establishment. This, however, does not mean that

the employees working in the canteen have become

the employees of the management.

15. A free hand has been given to the contractor

with regard to the engagement of the employees

working in the canteen. There is no clause in

the agreement stipulating that the canteen

contractor unlike in the case of Indian

Petrochemicals Corpn. Ltd. shall retain and

engage compulsorily the employees who were

already working in the canteen under the

previous contractor. There is no stipulation of

the contract that the employees working in the

canteen at the time of the commencement of the

contract must be retained by the contractor. The

management unlike in Indian Petrochemicals

Corpn. Ltd. case is not reimbursing the wages of

the workmen engaged in the canteen. Rather the

contractor has been made liable to pay provident

fund contribution, leave salary, medical

benefits to his employees and to observe

Page 29 statutory working hours. The contractor has also

been made responsible for the proper maintenance

of registers, records and accounts so far as

compliance with any statutory

provisions/obligations is concerned. A duty has

been cast on the contractor to keep proper

records pertaining to payment of wages, etc. and

also for depositing the provident fund

contributions with the authorities concerned.

The contractor has been made liable to defend,

indemnify and hold harmless the employer from

any liability or penalty which may be imposed by

the Central, State or local authorities by

reason of any violation by the contractor of

such laws, regulations and also from all claims,

suits or proceedings that may be brought against

the management arising under or incidental to or

by reason of the work provided/assigned under

the contract brought by the employees of the

contractor, third party or by the Central or

State Government authorities.”

36. As regards the nature of control exercised by

the management over the workmen employed by the

contractor to work in the said canteen, it was observed

by this Court in the Haldia case (supra) that the control

was of a supervisory nature and that there was no control

over disciplinary action or dismissal. Such control was

held not to be determinative of the alleged fact that the

Page 30 workmen were under the control of the management. This

Court observed as follows:

“16. The management has kept with it the right

to test, interview or otherwise assess or

determine the quality of the employees/workers

with regard to their level of skills, knowledge,

proficiency, capability, etc. so as to ensure

that the employees/workers are competent and

qualified and suitable for efficient performance

of the work covered under the contract. This

control has been kept by the management to keep

a check over the quality of service provided to

its employees. It has nothing to do with either

the appointment or taking disciplinary action or

dismissal or removal from service of the workmen

working in the canteen. Only because the

management exercises such control does not mean

that the employees working in the canteen are

the employees of the management. Such

supervisory control is being exercised by the

management to ensure that the workers employed

are well qualified and capable of rendering

proper service to the employees of the

management.”

37. The last case that we intend to refer on this

point is that of KGSD Canteen case (supra), wherein this

Court was required to answer the question as to whether

the employees of the canteen are employees of the State

Page 31 or whether their services should be directed to be

regularized or not. However, in the said case, the State

had no statutory compulsion to run and maintain any

canteen for its employees. This Court made reference to

numerous cases on this issue, inter alia, the Saraspur

Mills case (supra), the Parimal Chandra Raha case

(supra), the MMR Khan case (supra), the Indian

Petrochemicals case (supra), the Constitution Bench

decision in the Steel Authority of India case (supra),

the Hari Shankar Sharma case (supra), and the Haldia case

(supra).

38. We conclude that the question as regards the

status of workmen hired by a contractor to work in a

statutory canteen established under the provisions of the

Act, 1948 has been well settled by a catena of decisions

of this Court. This Court is in agreement with the

principle laid down in the Indian Petrochemicals case

(supra) wherein it was held that the workmen of a

statutory canteen would be the workmen of the

establishment for the purpose of the Act, 1948 only and

not for all other purposes. We add that t he statutory

obligation created under Section 46 of the Act, 1948,

Page 32 although establishes certain liability of the principal

employer towards the workers employed in the given

canteen facility, this must be restricted only to the

Act, 1948 and it does not govern the rights of employees

with reference to appointment, seniority, promotion,

dismissal, disciplinary actions, retirement benefits,

etc., which are the subject matter of various other

legislations, policies, etc. Therefore, we cannot accept

the submission of Shri Jayant Bhushan, learned counsel

that the employees of the statutory Canteen ipso-facto

become the employees of the principal employer.

39. We may now refer to the various decisions, cited

by learned counsel, Shri Jayant Bhushan.

40. The Saraspur Mills case (supra) came before this

Court as a result of a dispute under the Bombay

Industrial Relations Act, 1946. In that case, t he

appellant-Company was responsible for maintaining the

canteen under the provisions of Section 46 of the Act,

1948 and the rules made thereunder. The appellant-therein

had handed over the task of running the said canteen to a

cooperative society. The society employed the respondent-

workmen in the canteen. One of the issues that came up

Page 33 for consideration before this Court was that, whether the

employees of the said cooperative society could be said

to be the employees of the appellant-company. The case of

the workmen was that the appellant-company was running

the canteen to fulfill its statutory obligations and thus

the running of the said canteen would be part of the

undertaking of the appellant although the appellant did

not run itself the canteen but handed over the premises

to the co-operative society to run it for the use and

welfare of the Company’s employees and to discharge its

legal obligation. The appellant-company had resisted the

claim by contending that the workmen had never been

employed by it but by the co-operative society which was

its licensee. This Court after referring to the amended

definition of employee and employer in Section 3(13) and

3(14) of Bombay Industrial Relation Act, 1946 and the

definition of `Worker’ under the Act, 1948, and also

referring to earlier decision in Basti Sugar Mills Ltd.

v. Ram Ujagar and Ors., (1964) 2 SCR 838, held that since

under Act, 1948, it was the duty of the appellant-company

to run and maintain the canteen for use of its employees,

the ratio of the decision in Ahmedabad Mfg. and Calico

Printing Co. Ltd., v. Their Workmen (1953) II LLJ 647

Page 34 would be fully applicable in which the very same

provision of the Act, 1948 were considered and confirmed

the finding of the Industrial Court.

41. It would be relevant to note that the primary

reasoning of the Court in the Saraspur Mills case (supra)

to hold that the workers of the canteen run by a

cooperative society to be the employees of the appellant-

company therein, was in view of the amended definition of

“employer” and “employee” as found under the Bombay

Industrial Relations Act, 1946 and definition of

`Workmen’ under the Act, 1948. Since no such expansive

definition finds mention neither in the Act, 1948 nor in

the facts of the present case, it would not be proper to

place reliance on the given case as a precedent herein.

42. In the Hussainbhai case (supra), the dispute

arose between workmen hired by a contractor to make ropes

within the factory premises on one hand, and the

petitioner who was the factory owner manufacturing ropes

who had engaged such contractor, on the other hand. The

issue therein pertained to whether such workmen would be

that of the contactor or the petitioner. In the said

case, the Court went into the concept of employer-

Page 35 employee relationship from the point of view of economic

realities. It was observed, by a three-Judge Bench, that:

“5. The true test may, with brevity, be

indicated once again. Where a worker or group of

workers labours to produce goods or services and

these goods or services are for the business of

another, that other is, in fact, the employer.

He has economic control over the workers’

subsistence, skill, and continued employment. If

he, for any reason, chokes off, the worker is,

virtually, laid off. The presence of

intermediate contractors with whom alone the

workers have immediate or direct relationship ex

contractu is of no consequence when, on lifting

the veil or looking at the conspectus of factors

governing employment, we discern the naked

truth, though draped in different perfect paper

arrangement, that the real employer is the

Management, not the immediate contractor. ...”

43. The Hussainbhai case (supra) did not deal with

the Act, 1948, much less any statutory obligation

thereunder. The case proceeded on the test of employer-

employee relationship to ascertain the actual employer.

The Court gave due weight and consideration to the

concept of ‘economic control’ in this regard. It may only

be appropriate for the Court in the present case to refer

to this judgment as regards determining the employer-

Page 36 employee relationship.

44. The case of M.M.R. Khan (supra), also came up

for consideration before a three-Judge Bench of this

Court. It related to the workers employed in canteens run

in the different railway establishments. The relief

claimed was that the workers concerned should be treated

as railway employees and should be extended all service

benefits which are available to the said railway

employees. The Court was concerned, in the said case,

with three types of canteens:- (i) Statutory Canteens;

(ii) Non-Statutory, Recognized Canteens; and (iii) Non-

Statutory, Non-Recognized Canteens. As regards statutory

canteens, the Court noticed that under Section 46 of the

Act, 1948, the occupier of a factory was not only obliged

to provide for and maintain a canteen where more than 250

workers are employed, but was also obliged to abide by

the rules which the concerned Government may make,

including the rules for constitution of a managing

committee for running the canteen and for representation

of the workers in the management of the canteen. In other

words, the whole working and functioning of the canteen

has to conform to the statutory rules made in that

Page 37 behalf.

45. It would be relevant to notice the facts noted

by this Court in the MMR Khan’s case (supra). This Court

had made an explicit reference to the relevant provisions

of the Railway Establishment Manual and the

Administrative Instructions on Departmental Canteens in

Offices and Industrial Establishments of the Government

as issued by the Department of Personnel and Training,

Ministry of Personnel, Public Grievances and Pensions of

the Government of India, which dealt with the canteens

and had express provisions thereunder that were integral

to the final decision of this Court. The issue that arose

before the Court was whether the employees of the

statutory canteen could be said to be the employees of

the railway administration as well. This Court observed

that:

“25. Since in terms of the Rules made by the

State Governments under Section 46 of the Act,

it is obligatory on the railway administration

to provide a canteen, and the canteens in

question have been established pursuant to the

said provision there is no difficulty in holding

that the canteens are incidental to or connected

with the manufacturing process or the subject of

Page 38 the manufacturing process. The provision of the

canteen is deemed by the statute as a necessary

concomitant of the manufacturing activity.

Paragraph 2829 of the Railway Establishment

Manual recognizes the obligation on the railway

Administration created by the Act and as pointed

out earlier paragraph 2834 makes provision for

meeting the cost of the canteens. Paragraph 2832

acknowledges that although the railway

administration may employ anyone such as a staff

committee or a co-operative society for the

management of the canteens, the legal

responsibility for the proper management rests

not with such agency but solely with the railway

administration. If the management of the canteen

is handed over to a consumer cooperative society

the bye-laws of such society have to be amended

suitably to provide for an overall control by

the railway administration.

26. In fact as has been pointed out earlier the

Administrative Instructions on departmental

canteens in terms state that even those canteens

which are not governed by the said Act have to

be under a complete administrative control of

the concerned department and the recruitment,

service conditions and the disciplinary

proceedings to be taken against the employees

have to be taken according to the rules made in

that behalf by the said department. In the

circumstances, even where the employees are

Page 39 appointed by the staff committee/cooperative

society it will have to be held that their

appointment is made by the department through

the agency of the committee/society as the case

may be. ...”

46. We are in agreement with the view expressed in

MMR Khan case (supra). We further observe that the

reasoning of the Court, as noticed hereinabove, was based

on the Railway Establishment Rules and the relevant

Administrative instructions issued by the Government of

India. By virtue of the aforesaid Rules and

Administrative instructions, it was made mandatory that

the complete administrative control of the canteen be

given to the Railway Administration. Such mandatory

obligations are not present in the instant case. In light

of the same, the given case cannot be said to be a

precedent on the general proposition as regards the

status of employees of a statutory canteen established

under the Act, 1948.

47. We have already referred to the decision of this

Court in Parimal Chandra Raha case (supra), and,

therefore, we are not referring to the said decision once

over again. However, we add that in the Parimal Chandra

Raha case (supra), this Court made a general observation

Page 40 that under the provisions of the Act, 1948, it is

statutorily obligatory on the employer to provide and

maintain a canteen for the use of his employees. As a

consequence, the Court stated that, the canteen would

become a part of the principal establishment and,

therefore, the workers employed in such canteen would be

the employees of the said establishment. This Court went

on to observe that the canteen was a part of the

establishment of the Corporation, that the contractors

engaged were only a veil between the Corporation and the

canteen workers and therefore, the canteen workers were

the employees of the Corporation. This Court, while

arriving at the said conclusion laid emphasis on the

contract between the corporation and the contractor,

whereby it was shown that the terms of the said contract

were in the nature of directions to the contractor about

the manner in which the canteen should be run and the

canteen services should be rendered to the employees.

Furthermore, it was found that majority of the workers

had been working in the said canteen continuously for a

long time, whereas the intermediaries were changed on

numerous occasions.

Page 41 48. In light of the above discussion, in our view,

the case laws on which the reliance is placed by learned

counsel would not assist him to drive home the point

canvassed.

49. To ascertain whether the workers of the

Contractor can be treated as the employees of the factory

or company on whose premises they run the said statutory

canteen, this Court must apply the test of complete

administrative control. Furthermore, it would be

necessary to show that there exists an employer-employee

relationship between the factory and the workmen working

in the canteen. In this regard, the following cases would

be relevant to be noticed.

50. This Court would first refer to the relevant

pronouncements by various English Courts in order to

analyze their approach regarding employer-employee

relationship. In the case of Ready Mix Concrete (South

East) Ltd v. Minister of Pensions and National

Insurance, [1968] 2 QB 497, McKenna J. laid down three

conditions for the existence of a contract of service. As

provided at p.515 in the Ready Mix Concrete case (supra),

the conditions are as follows:

Page 42 “(i) The servant agrees that, in consideration

of a wage or other remuneration, he will provide

his own work and skill in the performance of

some service for his master; (ii) he agrees,

expressly or impliedly, that in the performance

of that service he will be subject to the

other's control in a sufficient degree to make

that other master; (iii) the other provisions of

the contract are consistent with its being a

contract of service.”

51. In the Ready Mix Concrete case (supra), McKenna

J. further elaborated upon the above-quoted conditions.

As regards the first, he stated that there must be wages

or remuneration; else there is no consideration and

therefore no contract of any kind. As regards the second

condition, he stated that control would include the power

of deciding the thing to be done, the way in which it

shall be done, the means to be employed in doing it, the

time when and the place where it shall be done.

Furthermore, to establish a master-servant relationship,

such control must be existent in a sufficient degree.

52. McKenna J. further referred to Lord Thankerton's

“four indicia” of a contract of service said in Short v.

Page 43 J. and W. Henderson Ltd. (1946) 62 TLR 427. The J. and W.

Henderson case (supra) at p.429, observes as follows:

“(a) The master's power of selection of his

servant; (b) the payment of wages or other

remuneration; (c) the master's right to control

the method of doing the work; and (d) the

master's right of suspension or dismissal.”

53. A recent decision by the Queen’s Bench, in JGE

v. The Trustees of Portsmouth Roman Catholic Diocesan

Trust, [2012] EWCA Civ 938, Lord Justice Ward, while

discussing the hallmarks of the employer-employee

relationship, observed that an employee works under the

supervision and direction of his employer, whereas an

independent contractor is his own master bound by his

contract but not by his employer's orders. Lord Justice

Ward followed the observations made by McKenna J. in the

Ready Mix Concrete case (supra) as mentioned above. The

JGE case (supra), further noted that ‘control’ was an

important factor in determining an employer-employee

relationship. It was held, after referring to numerous

judicial decisions, that there was no single test to

determine such a relationship. Therefore what would be

needed to be done is to marshal various tests, which

Page 44 should cumulatively point either towards an employer-

employee relationship or away from one.

54. The case of Short v. J. and W. Henderson Ltd.,

as cited in the Ready Mix Concrete case (supra) and in

the JGE case (supra), was also referred to in the four-

Judge Bench decision of this Court in Dhrangadhra

Chemical Works Ltd. v. State of Saurashtra, AIR 1957 SC

274. In the Dhrangadhra Chemical Works case (supra), it

was observed that the prima facie test for the

determination of the relationship between master and

servant is the existence of the right in the master to

supervise and control the work done by the servant not

only in the matter of directing what work the servant is

to do but also the manner in which he shall do his work.

55. In Ram Singh v. Union Territory, Chandigarh,

(2004) 1 SCC 126, as regards the concept of control in an

employer-employee relationship, observed as follows:

“15. In determining the relationship of employer

and employee, no doubt, “control” is one of the

important tests but is not to be taken as the

sole test. In determining the relationship of

employer and employee, all other relevant facts

and circumstances are required to be considered

Page 45 including the terms and conditions of the

contract. It is necessary to take a multiple

pragmatic approach weighing up all the factors

for and against an employment instead of going

by the sole “test of control”. An integrated

approach is needed. “Integration” test is one of

the relevant tests. It is applied by examining

whether the person was fully integrated into the

employer’s concern or remained apart from and

independent of it. The other factors which may

be relevant are — who has the power to select

and dismiss, to pay remuneration, deduct

insurance contributions, organize the work,

supply tools and materials and what are the

“mutual obligations” between them. (See

Industrial Law, 3rd Edn., by I.T. Smith and J.C.

Wood, at pp. 8 to 10.)”

56. In the case of Bengal Nagpur Cotton Mills case

(supra), this Court observed that:

“9. In this case, the industrial adjudicator has

granted relief to the first respondent in view

of its finding that he should be deemed to be a

direct employee of the appellant. The question

for consideration is whether the said finding

was justified.

10. It is now well settled that if the

industrial adjudicator finds that the contract

between the principal employer and the

contractor to be a sham, nominal or merely a

Page 46 camouflage to deny employment benefits to the

employee and that there was in fact a direct

employment, it can grant relief to the employee

by holding that the workman is the direct

employee of the principal employer. Two of the

well-recognized tests to find out whether the

contract labourers are the direct employees of

the principal employer are: ( i) whether the

principal employer pays the salary instead of

the contractor; and ( ii) whether the principal

employer controls and supervises the work of the

employee. In this case, the Industrial Court

answered both questions in the affirmative and

as a consequence held that the first respondent

is a direct employee of the appellant.”

57. Further, the above case made reference to the

case of the International Airport Authority of India case

(supra) wherein the expression “control and supervision”

in the context of contract labour was explained by this

Court. The relevant part of the International Airport

Authority of India case (supra), as quoted in Bengal

Nagpur Cotton Mills case (supra) is as follows:

“38. ... if the contract is for supply of

labour, necessarily, the labour supplied by the

contractor will work under the directions,

supervision and control of the principal

employer but that would not make the worker a

Page 47 direct employee of the principal employer, if

the salary is paid by a contractor, if the right

to regulate the employment is with the

contractor, and the ultimate supervision and

control lies with the contractor.

39. The principal employer only controls and

directs the work to be done by a contract

labour, when such labour is

assigned/allotted/sent to him. But it is the

contractor as employer, who chooses whether the

worker is to be assigned/ allotted to the

principal employer or used otherwise. In short,

worker being the employee of the contractor, the

ultimate supervision and control lies with the

contractor as he decides where the employee will

work and how long he will work and subject to

what conditions. Only when the contractor

assigns/sends the worker to work under the

principal employer, the worker works under the

supervision and control of the principal

employer but that is secondary control. The

primary control is with the contractor.”

58. 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

Page 48 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 appellant-

therein. In this regard, reference was made to the case

of Dhrangadhra Chemical Works case (supra) wherein this

Court had observed that:

“14. The principle which emerges from these

authorities is that the prima facie test for the

determination of the relationship between master

and servant is the existence of the right in the

master to supervise and control the work done by

the servant not only in the matter of directing

what work the servant is to do but also the

manner in which he shall do his work, or to

borrow the words of Lord Uthwatt at p.23 in

Mersey Docks and Harbour Board v. Coggins &

Griffith (Liverpool) Ltd., (1952) SCR 696 “ The

proper test is whether or not the hirer had

authority to control the manner of execution of

the act in question”.”

59. The NALCO case (supra) further made reference to

the case of Workmen of Nilgiri Coop. Mkt. Society Ltd. v.

State of T.N., (2004) 3 SCC 514 , wherein this Court had

observed as follows:

Page 49 “37. The control test and the organization test,

therefore, are not the only factors which can be

said to be decisive. With a view to elicit the

answer, the Court is required to consider

several factors which would have a bearing on

the result: (a) who is the appointing authority;

(b) who is the paymaster; ( c) who can dismiss;

(d) how long alternative service lasts; ( e) the

extent of control and supervision; ( f) the

nature of the job e.g. whether it is

professional or skilled work; ( g) nature of

establishment; (h) the right to reject.

38. With a view to find out reasonable solution

in a problematic case of this nature, what is

needed is an integrated approach meaning thereby

integration of the relevant tests wherefor it

may be necessary to examine as to whether the

workman concerned was fully integrated into the

employer’s concern meaning thereby independent

of the concern although attached therewith to

some extent.”

60. It was concluded by this Court in the NALCO case

(supra) that there may have been some element of control

with NALCO because its officials were nominated to the

Managing Committee of the said schools. However, it was

observed that the above-said fact was only to ensure that

the schools run smoothly and properly. In this regard,

the Court observed as follows:

Page 50 “30. ... However, this kind of “remote control”

would not make NALCO the employer of these

workers. This only shows that since NALCO is

shouldering and meeting financial deficits, it

wants to ensure that the money is spent for the

rightful purposes.”

61. Thus, it can be concluded that the relevant

factors to be taken into consideration to establish an

employer-employee relationship would include, inter alia,

(i) who appoints the workers; (ii) who pays the

salary/remuneration; (iii) who has the authority to

dismiss; (iv) who can take disciplinary action; (v)

whether there is continuity of service; and (vi) 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).

62. 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

Page 51 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.

63. 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 (for short “the 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.

Page 52 64. In a concurring judgment by K.S.P.

Radhakrishnan, J., in the case of Vodafone International

Holdings BV v. Union of India, (2012) 6 SCC 613, the

following was observed:

“Holding company and subsidiary company

....

257. The legal relationship between a holding

company and WOS is that they are two distinct

legal persons and the holding company does not

own the assets of the subsidiary and, in law,

the management of the business of the subsidiary

also vests in its Board of Directors. ...

258. Holding company, of course, if the

subsidiary is a WOS, may appoint or remove any

Director if it so desires by a resolution in the

general body meeting of the subsidiary. Holding

companies and subsidiaries can be considered as

single economic entity and consolidated balance

sheet is the accounting relationship between the

holding company and subsidiary company, which

shows the status of the entire business

enterprises. Shares of stock in the subsidiary

company are held as assets on the books of the

parent company and can be issued as collateral

for additional debt financing. Holding company

and subsidiary company are, however, considered

as separate legal entities, and subsidiary is

allowed decentralized management. Each

subsidiary can reform its own management

Page 53 personnel and holding company may also provide

expert, efficient and competent services for the

benefit of the subsidiaries .”

65. The Vodafone case (supra), further made

reference to a decision of the US Supreme Court in United

States v. Bestfoods [141 L Ed 2d 43: 524 US 51 (1998)].

In that case, the US Supreme Court explained that as a

general principle of corporate law a parent corporation

is not liable for the acts of its subsidiary. The US

Supreme Court went on to explain that corporate veil can

be pierced and the parent company can be held liable for

the conduct of its subsidiary, only if it is shown that

the corporal form is misused to accomplish certain

wrongful purposes, and further that the parent company is

directly a participant in the wrong complained of . Mere

ownership, parental control, management, etc. of a

subsidiary was held not to be sufficient to pierce the

status of their relationship and, to hold parent company

liable.

66. The doctrine of ‘piercing the corporate veil’

stands as an exception to the principle that a company is

a legal entity separate and distinct from its

shareholders with its own legal rights and obligations.

Page 54 It seeks to disregard the separate personality of the

company and attribute the acts of the company to those

who are allegedly in direct control of its operation. The

starting point of this doctrine was discussed in the

celebrated case of Salomon v. A Salomon & Co Ltd., [1897]

AC 22. Lord Halsbury LC (paragraphs 31–33), negating the

applicability of this doctrine to the facts of the case,

stated that:

“...a company must be treated like any other

independent person with its rights and

liabilities legally appropriate to itself ...,

whatever may have been the ideas or schemes of

those who brought it into existence.”

67. Most of the cases subsequent to the Salomon case

(supra), attributed the doctrine of piercing the veil to

the fact that the company was a ‘sham’ or a ‘façade’.

However, there was yet to be any clarity on applicability

of the said doctrine.

68. In recent times, 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- (i) ownership and control of a company

Page 55 were not enough to justify piercing the corporate veil;

(ii) 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; (iii) the corporate veil can be

pierced only if there is some impropriety; (iv) the

impropriety in question must be linked to the use of the

company structure to avoid or conceal liability; (v) to

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

(vi) 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.

69. The principles laid down by the Ben Hashem case

(supra) have been reiterated by UK Supreme Court by Lord

Page 56 Neuberger in Prest v. Petrodel Resources Limited and

others, [2013] UKSC 34, at paragraph 64. Lord Sumption,

in the Prest case (supra), finally observed as follows:

“35. I conclude that there is a limited

principle of English law which applies when a

person is under an existing legal obligation or

liability or subject to an existing legal

restriction which he deliberately evades or

whose enforcement he deliberately frustrates by

interposing a company under his control. The

Court may then pierce the corporate veil for the

purpose, and only for the purpose, of depriving

the company or its controller of the advantage

that they would otherwise have obtained by the

company's separate legal personality. The

principle is properly described as a limited

one, because in almost every case where the test

is satisfied, the facts will in practice

disclose a legal relationship between the

company and its controller which will make it

unnecessary to pierce the corporate veil.”

70. The position of law regarding this principle in

India has been enumerated in various decisions. A

Constitution Bench of this Court in Life Insurance

Corporation of India v. Escorts Ltd. & Ors., (1986) 1 SCC

264, while discussing the doctrine of corporate veil,

held that:

Page 57 “90. ... Generally and broadly speaking, we may

say that the corporate veil may be lifted where

a statute itself contemplates lifting the veil,

or fraud or improper conduct is intended to be

prevented, or a taxing statute or a beneficent

statute is sought to be evaded or where

associated companies are inextricably connected

as to be, in reality, part of one concern. It is

neither necessary nor desirable to enumerate the

classes of cases where lifting the veil is

permissible, since that must necessarily depend

on the relevant statutory or other provisions,

the object sought to be achieved, the impugned

conduct, the involvement of the element of the

public interest, the effect on parties who may

be affected etc.”

71. 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

Page 58 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.

72. Having considered the relevant judicial

decisions and the well established and settled

principles, it would be appropriate to revert back to the

controversy as found in the present factual matrix.

73. In the present reference, this Court is required

to ascertain whether workmen, engaged on a casual or

temporary basis by a contractor to operate and run a

statutory canteen on the premises of a factory or

corporation, can be said to be the workmen of the said

factory or corporation.

74. 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,

Page 59 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.

75. To ascertain whether the appellants-herein would

be entitled to other benefits and rights such as

regularization, this Court would have to apply the test

of employer-employee relationship as noticed hereinabove.

For the said purpose, it would be necessary to refer to

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:

(i) To carry on the business of hotel, motel,

restaurant, café, tavern, flight kitchen,

Page 60 refreshment room and boarding and lodging, house-

keepers, licensed victuallers, etc.;

(ii) To provide lodging and boarding and other

facilities to the public;

(iii) To purchase, erect, take on lease or otherwise

acquire, equip and manage hotels;

(iv) To establish shops, kitchens, refreshment

rooms, canteens and depots for the sale of various

food and beverages.

76. The objects incidental or ancillary to the main

objects include, inter alia:

“...

(5) To carry on any business by means of

operating hotels etc. or other activity which

would tend to promote or assist Air-India’s

business as an international air carrier.

...”

77. It can be noticed from the above, that the

primary objects of the HCI have no direct relation with

the Air India. It is only one of the many incidental or

ancillary objects of the HCI that make a direct reference

to assisting Air India. The argument that the HCI runs

the canteen solely for Air India’s purpose and benefit

Page 61 could not succeed in this light. The HCI has several

primary objects, which include the running of hotels,

motels, etc., in addition to establishing shops,

kitchens, canteens and refreshment rooms. The Air India

only finds mention under HCI’s ancillary objects. It

cannot be said that the Memorandum of Association of the

HCI provides that HCI functions only for Air India. Nor

can it be said that the fundamental activity of the HCI

is to run and operate the said statutory canteen for the

Air India.

78. As regards HCI’s Articles of Association, it is

stated therein that the HCI shall be a wholly-owned

subsidiary of the Air India and that its share capital

shall be held by the Air India and/or its nominees.

Furthermore, the said Articles included provisions

whereby Air India controls the composition of the Board

of Directors of the HCI, including the power to remove

any such director or even the Chairman of the Board.

Further, Air India has the right to issue directions to

the HCI, which the latter is bound to comply with. In

this regard, it may be contended that the Air India has

effective and absolute control over the HCI and that

Page 62 therefore latter is merely a veil between the appellants-

workmen and Air India. We do not agree with this

contention.

79. In support of the above we find 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.

In our view, the said Articles are not impermissible in

law. It is our considered opinion 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 issue

relating to the appointment of the Board of Directors of

the HCI by the Air India would be a consequence of

statutory obligations of a wholly owned subsidiary under

the Act, 1956.

80. 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

Page 63 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. As regards the question of impropriety, the

Division Bench of the High Court of Delhi in the impugned

order dated 02.05.2011, noted that there has been no

advertence on merit, in respect of the workmen’s rights

qua HCI, and the claim to the said right may still be

open to the workmen as per law against the HCI. Thus, it

cannot be concluded that the controller ‘Air India’ has

avoided any obligation which the workmen may be legally

entitled to. Further, on perusal of the Memorandum of

Association and Articles of Association of the HCI, it

cannot be said that the Air India intended to create HCI

as a mere façade for the purpose of avoiding liability

towards the Appellants-workmen herein.

81. Therefore, the only consideration before this

Court is the nature of control that the Air India may

have over the HCI, and whether such control may be called

effective and absolute control. Such control over the HCI

would be required to be established to show that the

Page 64 appellants-workmen were in fact the employees of the Air

India.

82. It may be noticed again that the NALCO case

(supra) dealt with a similar issue. In that case, the

Court had observed that the day-to-day functioning of the

school as setup by the appellant therein was not under

NALCO, but under a managing committee therein. Further,

the said Managing Committee was a separate and distinct

legal entity from NALCO, and was solely responsible for

recruitment, disciplinary action, termination, etc. of

its staff. The Court therefore had held that the

respondents therein could not be said to be employed by

NALCO. In the present case, HCI is a separate legal

entity incorporated under the Act, 1956 and is carrying

out the activity of operating and running of the given

canteen. 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

Page 65 to avoid certain statutory liabilities.

83. Reference was also made by the learned counsel

for the Appellants to certain documents such as minutes

of meetings, etc. to show that the Air India was

exercising control over the HCI in matters relating to

transfer of workmen in the canteen, rates of subsidies,

items on the menu, uniforms of the canteen staff, etc.

On a perusal of the said documents, it is found that the

said matters were, again, in the nature of supervision.

In fact, most of these were as a consequence of the

obligations imposed under the Rules, 1950. Air India,

being the entity bearing the financial burden, would give

suggestions on the running of the canteen. Furthermore,

in light of complaints, issues or even suggestions raised

by its own employees who would avail the said canteen

services, Air India would put forth recommendations or

requests to ensure the redressal of said complaints or

grievances. As regards discussions over uniforms, prices,

subsidies, etc., it may be noted that the same are

obligations under the Rules, 1950 as applicable to Air

India.

84. In our considered view, and in light of the

Page 66 principles applied in the Haldia case (supra), such

control would have nothing to do with either the

appointment, dismissal or removal from service, or the

taking of disciplinary action against the workmen working

in the canteen. The mere fact that the Air India has a

certain degree of control over the HCI, does not mean

that the employees working in the canteen are the Air

India’s employees. The Air India exercises control that

is in the nature of supervision. Being the primary

shareholder in the HCI and shouldering certain financial

burdens such as providing with the subsidies as required

by law, the Air India would be entitled to have an

opinion or a say in ensuring effective utilization of

resources, monetary or otherwise. The said supervision or

control would appear to be merely to ensure due

maintenance of standards and quality in the said canteen.

85. 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

Page 67 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.

86. 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.

87. In terms of the above, the reference is answered

as follows :

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

Page 68 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.

88. In view of the above, while answering the

referral order, we dismiss these appeals. No order as to

costs.

Ordered accordingly.

....................J.

[ H.L. DATTU ]

....................J.

[ R.K. AGRAWAL ]

....................J.

[ ARUN MISHRA ]

NEW DELHI,

AUGUST 25, 2014.