Godavari Sugar Mills Ltd vs Kepargaon Taluka Sakhar Kamgarsabha

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: Supreme Court of India

Case Number: Civil Appeal No. 352 of 1958

Decision Date: 16 December 1960

Coram: K.N. Wanchoo, P.B. Gajendragadkar, K.C. Das Gupta

In this matter the Supreme Court of India delivered its judgment on 16 December 1960. The case was titled Godavari Sugar Mills Ltd. versus Kepargaon Taluka Sakhar Kamgarsabha, Sakarwadi, with Godavari Sugar Mills Ltd. as the petitioner and the Kepargaon Taluka Sakhar Kamgarsabha as the respondent. The judgment was authored by Justice K. N. Wanchoo, who was joined by Justice P. B. Gajendragadkar and Justice K. C. Das Gupta. The decision was reported in the 1961 volume of the All India Reporter at page 1016 and also appeared in the 1961 Supreme Court Reports (third series) at page 342. The statutory framework involved the Bombay Industrial Relations Act of 1947, specifically sections 3(18), 42(2), and 73A, together with Item (2) of Schedule XI and Item (6) of Schedule III of that Act. The constitutional issue concerned Article 19(1)(g) of the Constitution of India, which guarantees the right of a person to carry on any trade, business, or profession.

The dispute arose because the employer, Godavari Sugar Mills Ltd., employed contract labour in its sugar mills, and the workers’ union, which was the respondent, served a notice on the employer pursuant to section 42(2) of the Bombay Industrial Relations Act. In that notice the union referred the matter to the Industrial Court under section 73A and demanded two reliefs: the abolition of the system of employing contract labour and a permanent increase in the wages of the employees in the relevant departments. The employer contended, inter alia, that the Industrial Court lacked jurisdiction because the matter fell within the exclusive jurisdiction of a Labour Court under Item 6 of Schedule III, and that any award ordering the abolition of contract labour would infringe the employer’s fundamental right to carry on business under Article 19(1)(g). The Industrial Court, however, held that it possessed jurisdiction because the dispute was covered by Item 2 of Schedule XI and that no constitutional violation occurred. On appeal, the Labour Appellate Tribunal affirmed that the Industrial Court could decide the case even though the dispute was not covered by Item 2 of Schedule XI, and it observed that the question of whether the restriction on the employer’s right was reasonable depended on the facts of each case and lay beyond the powers of a court of appeal. Consequently, the Tribunal set aside the entire award on its merits. Upon further appeal by special leave, the Supreme Court held that the Industrial Court had jurisdiction to entertain the matter. It reasoned that irrespective of the scope of the term “employment” in Item 6 of Schedule III, any issue that fell within Schedule XI could only be referred to the Industrial Court under section 73A. The Court observed that a question concerning the abolition of contract labour inevitably involved matters listed in Items 2, 9 and 10 of Schedule XI—namely, the permanent increase in the number of persons employed, the employees’ wages, and the conditions of hours of work and rest intervals—and therefore could be referred only to an Industrial Court. The Court concluded that the power granted to the Industrial Court was proper and that the award was within its jurisdiction.

The Court observed that conferring jurisdiction upon the Industrial Court, which functioned as a quasi‑judicial tribunal empowered to determine whether contract labour should be abolished, did not render the statutory definition of “industrial matter” unreasonable merely because it encompassed the mode of employment. The Court explained that the inclusion of the mode of employment within the term “industrial matter”, as provided for in Section 3(18) of the Bombay Industrial Relations Act, did not impose an unreasonable restriction on the employer’s fundamental right to practise his trade. Accordingly, the provision was held to be a valid exercise of legislative authority and did not infringe the constitutional guarantee of freedom to carry on business under Article 19(1)(g). By interpreting the definition in this manner, the Court affirmed that the power granted to the Industrial Court to adjudicate the question of abolishing contract labour was consistent with both the statutory scheme and the Constitution.

This appeal, recorded as Civil Appeal No. 352 of 1958, was filed by special leave against the judgment and order dated 27 July 1956 issued by the Labour Appellate Tribunal of India, Bombay, in Appeal (Bombay) No. 72 of 1956. Counsel for the appellant were the lawyers representing the proprietor of the two sugar mills involved in the dispute, while counsel for the respondent, identified as Respondent No. 1, were the lawyers presenting the case of the union. An additional advocate appeared on behalf of intervening parties. The judgment was pronounced on 16 December 1960, and Justice Wanchoo delivered the opinion of the Court. The factual matrix indicated that the appellant owned two sugar mills where a controversy arose concerning the employment of contract labour. The union, acting as the respondent, issued a notice of change under Section 42(2) of the Bombay Industrial Relations Act, No. XI of 1947, thereby seeking the reinstatement of workmen. Subsequently, the union referred each mill separately to the Industrial Court under Section 73A, demanding the abolition of the system of employing contractors’ labour and a permanent increase in the regular employee strength of the respective departments. In response, the appellant advanced two principal contentions before the Industrial Court: first, that the Court lacked jurisdiction because the matter fell within item 6 of Schedule III of the Act, which was reserved for the exclusive jurisdiction of a labour court; and second, that any award directing the abolition of contract labour would contravene the appellant’s fundamental right to carry on business as guaranteed by Article 19(1)(g) of the Constitution. The Industrial Court rejected both submissions, holding that the dispute was covered by item 2 of Schedule XI and therefore fell within its jurisdiction, and concluding that the award did not violate the appellant’s constitutional right. The Court noted that the second contention arose from the appellant’s argument that contractors’ workmen were not his own employees. After resolving the jurisdictional and constitutional questions, the Industrial Court proceeded to examine the merits of the case and issued orders, the substance of which lies outside the scope of the present appeal.

In the course of the proceedings it was noted that several other sugar mills had raised exactly the same issues before the industrial court, and the industrial court had decided all of those matters at the same time. Consequently, a number of appeals were filed in the Labour Appellate Tribunal by the various mills and, one by one, by the unions, although the respondent‑union itself had not filed an appeal. All of those appeals were heard together by the appellate tribunal, where again the two questions concerning jurisdiction and the alleged infringement of the fundamental right guaranteed by article 19(1)(g) were raised. The appellate tribunal disagreed with the industrial court’s view that the references fell within item (2) of schedule 11 of the Act. Instead, the tribunal held that the term “employment” in item (6) of schedule III of the Act must be given a limited meaning. It observed that the three schedules of the Act did not exhaust the comprehensive provisions of section 42(2) and that the dispute concerned the abolition of contract labour, a matter involving a far‑reaching and important change which could not have been intended to be dealt with in a summary manner by a labour court, the lowest court in the hierarchy created under the Act. Accordingly, the tribunal concluded that the industrial court possessed jurisdiction to decide the issue. Regarding the alleged violation of the fundamental right, the tribunal expressed the view that whether the restriction imposed was reasonable depended on the facts of each individual case and therefore lay beyond its power as an appellate court. After examining the merits, the tribunal found that the industrial court’s approach to the questions presented was not correct and that it could not comfortably support the award. It therefore set aside the award and remanded the matter for an early hearing in accordance with the observations it had made. In the interest of justice, the tribunal further ordered that the entire award be set aside, even though most of the cases did not involve an appeal by the unions. The appellant subsequently approached this Court and was granted special leave, bringing the matter before us. Counsel for the appellant, Mr Pathak, reiterated the same two points before us. The Court first addressed the question of jurisdiction, noting that reliance was placed on item (6) of schedule III of the Act, which reads: “Employment including—(i) reinstatement and recruitment; (ii) unemployment of persons previously employed in the industry concerned.” It was not contested that matters contained in schedule III fall within the jurisdiction of a labour court and that an industrial court lacks jurisdiction to decide any matter referred under section 73A of the Act that is within the jurisdiction of a labour court. Counsel for the appellant argued that item (6) of schedule III, by referring to “employment,” also encompassed additional matters, thereby giving the term a broader scope than the two matters expressly listed.

Counsel for the appellant argued that item (6) of Schedule III listed two matters that might ordinarily be excluded, and that, consequently, the term “employment” in that clause should be interpreted broadly enough to encompass the question of whether contract labour ought to be employed. He therefore submitted that the issue of abolishing contract labour fell within the meaning of “employment” in item (6) of Schedule III. The Court observed that it was unnecessary to decide the precise scope of “employment” in that schedule for the purpose of the present appeal. The Court noted that the structure of the Act placed the jurisdiction of labour courts and industrial courts on a concurrent footing under sections 71 and 72 for any matters that the State Government might deem appropriate for referral. However, section 73A permitted a reference by a registered union that was also an approved representative of the employees only to an industrial court, subject to the proviso that a dispute could not be sent to an industrial court where the Act expressly required it to be decided by a labour court. Section 78 conferred jurisdiction on labour courts, but matters enumerated in Schedule 11 were not within the ordinary jurisdiction of a labour court. Accordingly, when a registered union wished to refer any issue that fell within Schedule 11, such a reference could be made only to an industrial court. The Court further explained that the question of whether contract labour should be abolished, assuming that contract labourers were not employees of the mills, inevitably raised issues relating to a permanent increase in the number of persons employed, their wages—including the period and mode of payment—and the hours of work and rest intervals, which correspond to items (2), (9) and (10) of Schedule 11. Because a dispute concerning the abolition of contract labour was thus inseparably linked with those three items, any such dispute could only be referred, under section 73A, to an industrial court. Counsel, however, contended that the appellant had not really contested the matters of permanent increase in employment, wages, hours of work and rest intervals, pointing out that these points were absent from the appellant’s written statements, although the appellate tribunal’s decision later indicated that the sugar‑mills had raised the contention that the workmen were not employees of the mills.

The appellate tribunal recorded that the sugar‑mills had argued that the workers in question were not employees of the mills. Once that contention was raised, a dispute concerning a permanent increase in the number of persons employed, together with their wages, hours of work and rest intervals, would necessarily arise. Accordingly, the tribunal held that a question relating to the abolition of contract labour inevitably raised a dispute with respect to the three items contained in Schedule 11, namely the permanent increase in employment, the wages payable and the hours of work and rest periods. In those circumstances the judges were of the opinion that the industrial court possessed the jurisdiction to adjudicate the matter. The judges further noted that, in the petitions filed by the unions, at least the issue of a permanent increase in the number of persons employed had been raised, which brought item (2) of Schedule 11 within the scope of the dispute. Although the increase in employment, the wages and the work‑hour arrangements would arise only if contract labour were abolished, the judges considered these matters so inseparably intertwined with the question of abolition that they must be deemed to be in dispute as soon as the issue of abolishing contract labour was raised, assuming, of course, that the employer did not accept contract labour as part of its own workforce. For that reason the contention that the industrial court lacked jurisdiction was rejected.

The judges then turned to the second contention advanced by counsel for the appellant, which was based on section 3(18) of the Industrial Disputes Act. That provision defined an “industrial matter” to include any question relating to employment, work, wages, hours of work, privileges, rights or duties of employers or employees, or the mode, terms and conditions of employment. Counsel argued that the inclusion of the mode of employment within that definition offended the fundamental right guaranteed by Article 19(1)(g) of the Constitution, because it allowed an industrial court to decide upon the mode of employment and thereby interfered with the employer’s freedom to carry on his trade subject only to reasonable restrictions. Section 3(17) was also cited, which defined an “industrial dispute” as any dispute or difference connected with any industrial matter. By reading the two definitions together, counsel contended that the industrial court was empowered to decide disputes concerning the mode of employment, and that such power constituted an unreasonable restriction on the employer’s right under Article 19(1)(g). Assuming that the mode of employment referred to in section 3(18) encompassed matters such as the abolition of contract labour, the judges considered whether a provision that enabled an industrial court to determine whether contract labour should be abolished imposed an unreasonable restriction on the employer’s right to conduct his trade. The judges expressed the view that they could not see how the authority granted to a quasi‑judicial tribunal to decide such a question could be characterized as an unreasonable limitation on the constitutional right of the employer.

The Court observed that granting to the industrial court – a quasi‑judicial tribunal – the authority to decide whether contract labour should be abolished does not render the definition of “industrial matter” unreasonable when it embraces the mode of employment. The tribunal is required to hear both sides fully, allowing each party to present its case, and then to assess, in the context of the particular facts, whether any restriction on the mode of employment constitutes a reasonable limitation. The tribunal’s task is to examine the reasonableness of the proposed mode of employment; if it determines that the mode sought by labour is unreasonable, it will refuse to impose it, whereas if it finds that the mode is a reasonable restriction, it will enforce that mode. For illustration, the Court explained that when the issue concerns contract labour, the tribunal must analyse the specific circumstances of each case. Should the tribunal conclude that, on the facts, employing contract labour is reasonable, then abolishing it would amount to an unreasonable restriction on the employer’s right to carry on his trade, and the tribunal will permit the continuation of contract labour. Conversely, if the tribunal finds that, given the factual matrix, the use of contract labour is unreasonable, it will order its abolition, reasoning that such abolition represents a reasonable restriction in that situation. Consequently, the determination of whether a particular mode of employment is a reasonable or unreasonable restriction rests with the quasi‑judicial tribunal. In view of this, the Court held that the provision in s. 3(18) which includes the mode of employment within “industrial matter” does not violate the employer’s fundamental right to conduct trade.

The Court further rejected the appellant’s contention that accepting the argument would imply that judicial or quasi‑judicial decisions could amount to unreasonable restrictions on fundamental rights, a situation the Constitution does not contemplate. Accordingly, the argument was deemed to fail. The Court then turned to the points raised concerning ss. 3(13) and 3(14) of the Act. It noted that the appellant had never asserted that contract labour employed in its mills was outside its employment. Section 3(13) defines “employee” and expressly includes any person employed by a contractor to perform work for the contractor in the execution of a contract with an employer, as stipulated in sub‑clause (e) of clause (14). Section 3(14) defines “employer” in an inclusive manner, encompassing the owner of any undertaking who, in the course of or for the purpose of conducting the undertaking, enters into contracts with any person for execution by or under the contractor of the whole or any part of any work that is ordinarily part of the undertaking. These definitions therefore link the contractor’s workers to the employer, but they do not, in themselves, necessitate the abolition of contract labour.

In the definition quoted, the words read: “contracts with any person for the execution by or under the contractor of the whole or any part of any work which is ordinarily part of the undertaking, the owner of the undertaking.” It was submitted that, because of this definition, the employees who work for contractors should be regarded as employees of the mills, and consequently the mills should be regarded as the employers of those contractor‑employees. On that basis, counsel for the appellant argued that there was no need to abolish the system of contract labour. He further contended that the industrial court, if it so desired, could prescribe that the contractor‑employees receive the same wages, working hours, rest periods and all other terms and conditions of employment that are granted to comparable direct employees of the appellant. He maintained that, as long as the contractor‑employees enjoyed a position identical to that of the direct employees with respect to their service conditions, the contract system need not be eliminated.

The Court observed, however, that this line of argument was not the manner in which the dispute had been framed before either the industrial court or the appellate tribunal. Accordingly, the Court stated that, when the matter is remitted to the industrial court pursuant to the direction of the appellate tribunal, the industrial court may take the appellant’s submission into consideration. The industrial court may then examine whether it is necessary to do away with the contract system, on the condition that the appellant is able to assure the court that the contractor‑employees, who are deemed to be its employees within the meaning of sections 3(13) and 3(14), will receive the full benefit of the same terms and conditions of service as those enjoyed by comparable direct employees.

Having reached this conclusion, the Court held that the appeal failed. The appeal was therefore dismissed with costs, and the order of dismissal was entered.