IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 10605 OF 2010 [Arising out of SLP [C] No.14080 of 2006]

General Manager (OSD), Bengal Nagpur Cotton Mills Rajnandgaon … Appellant

Vs.

Bharat Lal & Anr. … Respondents

J U D G M E N T

R.V.RAVEENDRAN, J.

Leave  granted.  IA  5/2007  for  bringing  on  record  an  additional  

document  (certificate  relating  to  employment  of  first  respondent  with  

another employer from 1985) is allowed. Heard.  

2. The  appellant  entered  into  a  security  service  agreement  dated  

2.12.1975 with the second respondent, for its Mills premises, governed by  

the  provisions  of  Contract  Labour  (Regulation  &  Abolition)  Act,  1970  

(‘CLRA  Act’  for  short).  The  first  respondent  was  one  of  the  persons  

appointed by the second respondent, and he was deployed for guard duties at

the appellant’s Mill on 15.12.1980. The second respondent discharged the  

first respondent from service on 27/28.7.1982. The appellant terminated the  

security service agreement with the second respondent on 16.8.1982.  

3. Five years after his termination, in the year 1987, the first respondent  

filed an application under section 31(3) of the Madhya Pradesh Industrial  

Relations  Act,  1960  (for  short  ‘MPIR  Act’)  for  a  declaration  that  his  

termination  from  service  was  illegal.  He  also  sought  a  consequential  

direction to the appellant and second respondent to extend all the benefits  

which the employees of the appellant were being extended, from the date of  

termination,  alleging  that  he  was  unemployed  and  without  income.  The  

appellant contested the claim and the second respondent remained ex parte.  

The Labour Court by order dated 28.10.1991 allowed the application in part  

and directed the appellant to reinstate the first respondent in his previous  

post and pay him all arrears. Feeling aggrieved, the appellant filed an appeal  

before  the  Industrial  Court  against  the  said  award  of  the  Labour  Court.  

While admitting the appeal,  the Industrial  Court directed the appellant to  

comply with section 65(3) of the MPIR Act which required the employer to  

pay to the employee the full wages last drawn by him, during the pendency  

of the appeal.  

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4. The appellant issued a letter dated 25.2.1992 offering reinstatement  

from 30.12.1991 on a salary of Rs.1000/- per month, though he was getting  

only  a  salary  of  Rs.200/-  from  second  respondent  at  the  time  of  his  

disengagement.  Shortly  thereafter  the  appellant’s  mills  were  closed  on  

31.10.1992  and  it  was  declared  to  be  a  sick  industry  by  the  Board  for  

Industrial & Financial Reconstruction on 6.5.1993.  

5. The Industrial  Court heard and dismissed the appellant’s appeal  by  

judgment dated 19.5.2001. The Industrial Court held that after the CLRA  

Act came into force, it would not be possible to rely upon the definition of  

‘employee’ under Section 2(13) of MPIR Act to contend that a workman  

employed by the contractor was a workman of the principal employer. The  

Industrial Court also held that first respondent was appointed by the second  

respondent.   However  it  held  that  the  agreement  between  appellant  and  

second respondent  was  sham/nominal  and the  first  respondent  should  be  

treated as a direct employee of appellant for the following reasons: (i) the  

appellant failed to establish by adducing necessary evidence that the salary  

of first respondent was not directly paid by it and that it was being paid by  

the second respondent and therefore it should be deemed that the appellant  

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was directly paying wages to the first respondent; and (ii) the  officers of  

appellant were assigning duties directly to the first respondent and therefore  

it  should  be  deemed  that  he  was  working  under  the  direct  control  and  

supervision of the appellant.

6.  The appellant challenged the order of the Industrial Court by filing a  

writ  petition  in  the  High  Court.  The  High  Court  by  judgment  dated  

12.1.2006 dismissed the writ petition without examining the contentions of  

the  appellant  on merits,  merely on the  ground that  the  appellant  did  not  

comply with section 65(3) of the MPIR Act and the scope of interference  

under Article 226/227 was very limited. The said order is challenged in this  

appeal by special leave.

7. The  appellant  relied  upon  the  decisions  of  this  Court  in  National   

Thermal  Power Corporation v.  Badri  Singh Thakur [2008 (9)  SCC 377]  

where this court held that the provisions of CLRA Act would override the  

provisions of the MPIR Act and Municipal Corporation of Greater Mumbai  

vs. K.V. Shramik Sangh [2002 (4) SCC 609] where this court observed that  

merely  because the principal  employer  and contractor  have not  complied  

with the provisions of the CLRA Act in regard to registration, the system of  

carrying out work through labour contract could not be termed as sham.  

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8. 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. It is now well-settled that if the industrial adjudicator  

finds  that  contract  between  the  principal  employer  and  contractor  to  be  

sham, nominal or merely a 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 labour 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  first  respondent  is  a  direct  

employee of the appellant.

9. On a  careful  consideration,  we  are  of  the  view that  the  Industrial  

Court committed a serious error in arriving at those findings. In regard to the  

first  test  as to who pays the salary,  it  placed the onus wrongly upon the  

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appellant. It is for the employee to aver and prove that he was paid salary  

directly  by  the  principal  employer  and  not  the  contractor.  The  first  

respondent did not discharge this onus. Even in regard to second test, the  

employee did not establish that he was working under the direct control and  

supervision of the principal employer. The Industrial Court misconstrued the  

meaning of the terms ‘control and supervision’ and held that as the officers  

of appellant were giving some instructions to the first respondent working as  

a guard, he was deemed to be working under the control and supervision of  

the  appellant.  The expression ‘control  and supervision’  in  the  context  of  

contract  labour  was  explained  by  this  court  in  International  Airport   

Authority  of  India  v.  International  Air  Cargo Workers  Union [2009 (13)  

SCC 374] thus:  

“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  direct  employee of the principal employer, if the salary is paid by contractor, if  the right to regulate employment is with the contractor, and the ultimate  supervision and control lies with the contractor.  

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.”

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Therefore we are of the view that the Industrial Court ought to have held that  

first respondent was not a direct employee of the appellant, and rejected the  

application of the first respondent.  

10. There  is  a  yet  another  reason  why  the  first  respondent  should  be  

denied any relief as there is sufficient material to infer that he deliberately  

suppressed  and  misrepresented  facts.  The  first  respondent  was  careful  

enough not to disclose his address (either his residence or place of work) at  

any stage of the proceedings before the Labour Court or Industrial Court or  

the High Court or this Court. He all along gave his address as care of his  

counsel Sri Harish Chandra Rishi, Advocate, Rajnandgaon, Chattisgarh. In  

the application before the Labour Court as also before the Industrial Court  

and the High Court, he asserted that he was unemployed. Even in the counter  

affidavit dated 29.4.2008 filed in this court, he stated that he is “suffering  

from  unemployment  and  mental  agony  since  1987”,  thereby  giving  an  

impression that  he has been continuously unemployed. The appellant  has  

produced  before  us  an  employment  certificate  issued  by  the  current  

employer of the first respondent. The appellant has stated that it could not  

earlier ascertain whether the first respondent was otherwise employed as it  

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did not have his particulars as he was not its employee and his whereabouts  

were not known; and that only after the filing of the special leave petition, it  

could trace the place of employment of the first respondent and secure the  

particulars. The certificate produced is a communication dated 17/18.1.2007  

from  Western  Coalfields  Ltd.,  a  Govt.  of  India  Undertaking,  Nagpur,  

addressed  to  the  appellant,  stating  that  the  first  respondent  took  up  

employment under Western Coalfields Ltd. on 5.6.1985 and that in January,  

2007 he was working in Wani area in WCL in Maharashtra and was being  

paid a gross salary of Rs.12435/-.  This has not been denied or controverted  

by the first respondent.  

11. The proviso to section 65(3) of the MPIR Act makes it clear that if the  

employee  had  been  otherwise  employed  and  receiving  adequate  

remuneration during the pendency of the appeal or subsequent periods, the  

court  shall  order  that  no wages shall  be payable  under section 65(3).  As  

noticed above the first respondent approached the Labour Court only in the  

year  1987,  five  years  after  his  disengagement  by  the  second respondent.  

After  he  was  disengaged  in  July,  1982,  the  first  respondent  took  up  

employment with Western Coalfields on 5.6.1985 and has been earning a far  

larger  amount than what he was earning earlier.  Two years  thereafter  he  

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approached the Labour Court. He continues to be employed with Western  

Coalfields during the pendency of this appeal. That is an additional ground  

to deny any backwages or direction to pay wages during the pendency of the  

litigation. It is also a ground to reject the claim on account of the deliberate  

suppression and misrepresentation.  

12. In view of the foregoing, we allow this appeal and set aside the orders  

of  the  Labour  Court,  Industrial  Court  and High Court.  Consequently  the  

application of first respondent filed before the Labour Court, Rajnandgaon  

under Section 31(3) of MPIR Act stands dismissed.

…………………………..J. (R V Raveendran)

New Delhi; ………………………….J. December 14, 2010. (A K Patnaik)                   

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