Consentia on Multidisciplinary Research

Judicial Interpretation of the Definition of Appropriate Government with special reference to SAIL Case and Contract Labour (Abolition and Regulation) Act, 1970

INTRODUCTION

 On a preliminary note, it should be understood that the above two queries are not independent, rather interrelated and interdependent to each other. The answer to both of the above queries lies in ascertaining the true and correct interpretation of the expression ‘appropriate government’ as defined under Section 2(1)(a) of the CLRA Act.

 To begin with, Section 2(1)(a) of the CLRA Act defined the expression ‘appropriate government’ as,

 “in relation to an establishment in respect of which the appropriate government under the Industrial Disputes Act, 1947, is the central government, the central government” and “in relation to any other establishment, the government of the state in which that other establishment is situated.”

The nexus created by this Section to the provisions of the Industrial Disputes Act makes it pertinent to review the definition of appropriate government under the Industrial Disputes Act. Section 2(a) of the Industrial Dispute Act provides that ‘appropriate government’ means:

  1. In relation to any industrial dispute concerning any industry carried on by or under the authority of the central government or by a railway company or concerning any such controlled industry as may be specified by the central government in this behalf or the enumerated industries (which forms the part of the definition but not relevant for the present discussion); and
  2. In relation to any other industrial dispute, the state government.

A conjoint reading of the definitions of ‘appropriate government’ under the CLRA Act and the Industrial Disputes Act suggests that the central government shall be the appropriate authority under the CLRA Act if the industrial dispute pertains to:

(a)    Any industry carried on the by the central government;

(b)   Any industry carried on under the authority of the central government;

(c)    Any industry carried on by a railway company;

(d)   Any controlled industry as may be specified by the central government;

(e)    Certain industries as enumerated specifically in the said Section of the ID Act. In relation to any other industrial dispute, the appropriate government shall be the government of the state in which such industry is situated.

The alternatives (a), (c), (d) and (e) indicate cases which can be clearly determined as the industries carried on ipso facto by the central government itself under its direct authority. The problem lies with alternative (b) which leads to the determination of the true meaning and import of the phrase ‘under the authority of the central government’.

Before proceeding any further, it is pertinent to construe the words ‘under the authority of the central government’ with the rule of liberal interpretation. In particular, the keyword which requires prima facie determination is the word ‘authority’. According to the Concise Oxford Dictionary, the word ‘authority’ means delegated power[1] and Black’s Law Dictionary defined the word as permission, right to exercise powers, the power delegated by a principal to his agent and the lawful delegation of power by one person to another.[2] From the above discussion, it follows that the phrase ‘any industry carried on under the authority of the central government’ implies an industry which is carried on by virtue of, pursuant to, conferment of, grant of, delegation of power or permission by the central government to a central government company or other government company/undertaking. In other words, if there is a lack of conferment of power or permissions by the central government to a government company/undertaking, it would disable such a company/undertaking to carry on the industry in question.

Given this preliminary understanding, we shall now examine as to how the concept of appropriate government and in particular the phrase ‘under the authority of the central government’ has been explained by the judiciary in the leading decisions. This exercise will ultimately lead us to analyze whether the central government is the appropriate government in the present instance, failing which the state government shall be deemed to be the appropriate government.

JUDICIAL INTERPRETATION OF THE CONCEPT OF ‘APPROPRIATE GOVERNMENT’

It is customary to begin the discussion with the decision of the Supreme Court in Heavy Engineering Mazdoor Union v. state of Bihar and Others[3] (“Heavy Engineering case“). In the said case the competency of the Bihar Government to refer the industrial Section 10 of the Industrial Dispute Acts to the industrial tribunal was questioned by the Mazdoor Union. Since it was not contested by the parties to the dispute that the corporation is not an industry carried on by the central government, the limited issue that came for adjudication before the Supreme Court was whether the corporation could be regarded as the industry carried on under the authority of the central government. The Divisional Bench of the Supreme Court held that there being nothing contrary in Section 2(a) of the industrial dispute act, the said section has to be interpreted in accordance with its ordinary meaning. Applying the well established precedents of separated juristic identity of the company[4], the Court held that mere fact that the entire share holding of the corporation was held by the central government in the name of the President and certain officers and extensive powers were conferred on the Central government to administer the company (includingg the power to appoint director, power to give administrative directions, power to determine wages and salary) is not conclusive evidence of the company being carried on ‘under the authority of the central government.[5] These powers arederived form the companies’ memorandum of association and the articles of association and not by the reason of the company being the agent of the Central government. Going further, the Court opined that in the absence of a statutory provision, a commercial corporation action on its own behalf, even though it is controlled wholly or partially by the government department, will be presumed not to be a servant or agent of the state. The Court meticulously carved out the distinction that power of the ministry to call for information, give binding directions and to supervise the conduct of the business does not render the status of agent on the corporation; rather such inference can be drawn where the corporation is performing substantial governmental and not commercial functions.[6] On the basis of the above mentioned reasoning, the Supreme Court ultimately concluded that Heavy Engineering Corporation was not an industry carried on under the authority of the central government and thus, this state government was the appropriate government in the said case.

The decision of the Supreme Court in Heavy Engineering case form the reasoning of the subsequent decision of the Supreme Court in Hindustan Aeronautics Limited v. the Workmen and Others[7](‘HAL Case’) in the said case the government of West Bengal referred certain issues under Section 10(1) of the Industrial Disputes Act to the industrial tribunal for adjudication. In the Supreme Court, the competency of the government of West Bengal to make the said reference was challenged. It was contended that the Barrackpore branch of the company was under the direct control of the Bangalore division of the company and since it was a government company (with the central government being the sole share holder and being invested with the power of appointment and removal of directors and to decide important matters), the reference ought to have been made either by the central government or the government of Karnataka. Upholding the reasoning as laid down in the Heavy Engineering Case, the court held that for the purposes of the Industrial Disputes act, the Barrackpore branch was an industry carried on by the company as a separate unit. Factually, the Court analyzed that the workers were receiving their pay packagesat Barackpore and were under the control of the officers of the company stationed there.If there was any disturbance of industrial peace at Barrackpore were a considerable number of workmen were working, the appropriate government condemned in the maintenance of industrial peace was the West Bengal government. The Court opened that the cause of action of the industrial dispute in question arose in Barrackpore and the referral by the West Bengal government was good in law.

The Court rejecting the distinction made by the appellants on facts with the Heavy Engineering Case that the said case dealt with a public sector undertaking operating an industry in competition with the private sector undertakings while in the instant case, the government company was entitled to carry on the business to the exception of the private undertakings. The Court held that such distinction is of no consequence and does not affect the ratio of the Heavy Engineering Case. The Court opined that from time to time, the definition of the ‘appropriate government’ has been amended to incorporate certain statutory corporations within its ambit; however, no public company even if the shares were exclusively held by the central government was roped in the said definition. Thus strengthening the reasoning of Heavy Engineering that mere fact that the shareholding is being held by the government is not sufficient to make such company an agent of the government.

In Rashtriya Mill Mazdoor Sangh, Nagpur v. Model Mills[8] (“Rashtriya Mill Case”), a bench of three judges, while interpreting Section 32(iv) of the Payment of Bonus Act, once again considered the meaning and scope of the expression presently in discussion. In precise terms, it was held by the Supreme Court that the industrial undertaking retains its identity, personality and status remains unchanged through its management. In particular, pursuant to the exercise of the power of the central government to issue a notified order appointing an authorized controller, the said company does not lose its identity and cannot be held as an industry under the authority of the central government. The Court opined that:

Power to regulate management or control the management is entirely distinguishable from the power to run the industry under the authority of the department of the Central Government. The substitution of the management ordered under Sec. 18-A does not tantamount to the industrial undertaking being taken over by the department of the Central Government. Nor could it be said to be run under the authority of the department of the Central Government…Neither its identity nor its ownership is affected in any manner. this change in personnel of management of the industrial undertaking for a specified period can never make the industrial undertaking one engaged in an industry carried on under the authority of the Central Government.”

 

“The fact that the authorized controller is appointed by the Central Government and that he has to work subject to the directions of the Central Government does not render the industrial undertaking an agent of the Central Government and therefore, could not be said to be an establishment engaged in an industry carried on by or under the authority of the Central Government.[9][Emphasis supplied]

The above judgment was followed by a bench of two judges in Food Corporation of India Workers’ Union v. Food Corporation of India [10](“FCI Case”) where then issue for consideration before the Supreme Court was whether regional offices of the Food Corporation of India and the warehouses were an industry carried on by or under the authority of the central government. Following the above three cases, the Court took the view that the same principle would govern the interpretation of the expression ‘appropriate government’ in the CLRA Act and held that the state government was the appropriate government pertaining to the regional offices and warehouses.

The width and ambit of the definition of ‘appropriate government’ under the CLRA was once again under the consideration of the Supreme Court in the case of Air India Statutory Corporation v. United Labour Union[11] (“Air India Case”). The Court was concerned with the question as to whether the central government was the competent appropriate government for the purposes of the notification issued by the central government under the provisions of CLRA Act to abolish the contract labour system in the establishment of Air India Statutory Corporation. Taking a sharp departure from precedents (as discussed above) and analyzing the principles of public law interpretations, the Court reversed the decision as laid down in the Heavy Engineering Case on the reasoning that the said case narrowly interpreted the words ‘appropriate government’ on the common law principles which no longer bear any relevance when it is tested on the anvil of Article 14 of the Constitution of India. The Court took an unconventional approach to interpret the phrase ‘under the authority of the central government’ at the touchstone of the tests as laid down in Ajay Hasia v. Khalid Mujib Sehravardi and Others[12] to determine whether the entity is an instrumentality or agency of the state. Based on the said reasoning and taking a contradictory view from the earlier cases, the Court held that the appropriate government is the central government from the inception of the CLRA Act.

Taking note of the apparent conflict of opinion between different benches of the Supreme Court in the HAL Case, FCI Case and the Air India Case, the divisional bench of the Supreme Court in its decision in F.C.I Bombay v. Transport and Dock Workers Union and Others[13] referred the questions to a larger bench of the Supreme Court. Thus, the question concerning interpretation of the expression ‘appropriate government’ under Section 2(1)(a) of the CLRA Act and under Section 2(a) of the Industrial Disputes Act came into consideration before the Constitutional Bench of the Supreme Court in Steel Authority of India Limited v. National Union Waterfront Workers[14] (“SAIL Case”).

Rejecting the instrumentality test for determination of appropriate government under CLRA Act as laid down by the Air India Case, the Constitutional Bench opined in the SAIL Case that.,

while discharging public functions and duties, the government companies/corporations/societies which are instrumentality or agencies of the government must be subjected to the same limitations in the field of public law (constitutional or administrative law) as the government for all purposes so as to bind such government for all their acts, liabilities and obligations under various central and/or state acts or under private laws.[15]

 

The Court held that the fact of being instrumentality of a center/state government or being a state within the meaning of Article 12 of the Constitution cannot be determinative of the question as to whether an industry carried on by a company/corporation or an instrumentality of the government, is by or under the authority of the central government for the purpose of or within the meaning of the definition of ‘appropriate government’ in the CLRA Act.

The Court laid down that the test to determine whether the industry carried on by the establishment in question is under the authority of the central government is that, whether an undertaking instrumentality of the government is carrying on an industry under the authority of the central government’ and not whether the undertaking is instrumentality or agency of the government for the purposes of Article 12 of the Constitution. Such an authority may be conferred either by a statute or by virtue of relationship of principal and agent or delegation of power. Where the authority, to carry on any industry for or on behalf of the central government is conferred on the government, company/undertaking by the statute under which it is created, no further question arises. But, if it is not so, the question that arises is whether there is any conferment of authority on the government company/undertaking by the central government to carry on the industry in question. The Court opined that this is a question of fact and has to be ascertained on the facts and circumstances of each case.

All this stage, the Court made reference to its earlier decisions by its other benches. The Supreme Court upheld the law as laid down in the Heavy Engineering Case, with a little divergence. As stated above, in the Heavy Engineering Case, the Court had opined that the corporation was an agent of the government might be drawn where the corporation was performing substantial governmental and not commercial functions. The Supreme Court in the SAIL Case disagreed with the distinction thus made and barring this limited disagreement, the Court upheld the rest of the decision. In paragraph 42 of the SAIL Case, the Court examined the HAL Case and held that the factors weighed with the Court could not be said to be irrelevant. Further, the Court reiterated the position as laid down in the Rashtriya Mill Case and FCI Case and concluded that there is no illegality either in the approach or in the conclusion arrived at by the court in these cases.

TESTS FOR DETERMINATION OF THE ‘APPROPRIATE GOVERNMENT’- CONCLUSION

 

The tests for determining as to when a corporation can be said to be ‘an industry carried on by or under the authority of the central government’ may now be called out from the judgments as discussed above. From the point of present discussion, it should be noted that these tests are not conclusive or clinching, but they are merely indicative indicia which have to be used with care and caution looking at the peculiarity of the facts, because while stressing the necessity of a wide meaning to be placed on the expression, it must be realized that it should not be stretched so far as to bring in every corporation which has any nexus with the central government within the sweep of the expression. In essence, a wide enlargement of the meaning must be tempered by a wise limitation.

The most crucial test that has been laid down in the SAIL Case is whether the corporation is acting as an agent of the central government or has any authority to bind the central government. In particular, it needs to be ascertained that whether the corporation has been referred authority either by a statute, or by virtue of a relationship of principle and agent, or delegation of power. In addition, the factors on which the Supreme Court decided the HAL Case, the Rashtriya Mill Case and the FCI Case are also important in making such determination.

Interestingly, the judgments discussed above fall way short to enumerate in-depth and with precision, the factors which shall be considered while determining whether, the corporation is an industry carried on by the central government or not, however, from the conjoint reading of the above discussed six judgments, a list of factors which are not relevant to make such determination can be laid down. These irrelevant factors, inter alia, are as follows:

a)      The entire share capital of the corporation being held by the central government or under the name of the President or officers of the central government;

b)      The memorandum and articles of association of the corporation confer extensive powers on the central government to give binding directions as regards the functioning of the corporation;

c)      The wages and salaries of the employees of the corporations are determined in accordance with the directions issued by the central government;

d)     The power of the President of India or the central government to appoint or remove the directors, chairman and the managing director of the corporation;

e)      The corporation is in substance performing government and non-commercial functions;

f)       All the matters of importance are reserved for the decision of the President of India and ultimately executed in accordance with his directions; or

g)      The corporation is instrumentality or agency of the government for the purposes of Article 12 of the Constitution.

[1]

[2]

[3] (1970)1 SCR 995

[4] Salomon v. Salomon & Co., (1897) A.C. 22.

[5] Ibid, at pp. 999-1000.

[6] Ibid: State Trading Corporation of India Limited v. the Commercial Tax Officer, Vishakhapatnam, (1961) 1L.L.J. 734.

[7] (1975) 4 SCC 679

[8] 1984(Supp.) SCC 443

[9]

[10] (1985) 2 SCC 294

[11] (1997) 2 SCR 79

[12] (1961) 2 SCR 79.

[13] (1999) 7 SCC 59.

[14] (2001) 7 SCC 1.

[15]

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