Steel Authority of India Ltd. vs Ispat Khadan Janta Mazdoor Union: Contract Labour and Regularization in Employment

The Supreme Court of India, in its judgment dated 5th July 2019, dealt with an important issue regarding the regularization and payment of wages to contract labourers working in a Government undertaking, Steel Authority of India Ltd. (SAIL). The case arose from a dispute regarding the status of contract labourers working in the Kuteshwar Lime Stone Mines of SAIL after the prohibition of contract labour by the Government under the Contract Labour (Regulation and Abolition) Act, 1970. The question before the Court was whether the contract labourers, who had been employed before the prohibition notification, were entitled to regularization and reinstatement as permanent employees of SAIL.

Background of the Case

The appellant, Steel Authority of India Ltd. (SAIL), a Government undertaking, had engaged contract labourers for various operations in its Kuteshwar Limestone Mines, which are located in Madhya Pradesh. The contract labourers were engaged through contractors for operations like raising minerals, transportation, and other activities related to limestone mining. However, in 1993, the Government issued a notification under Section 10(1) of the Contract Labour (Regulation and Abolition) Act, 1970, prohibiting the employment of contract labour in the establishment of SAIL for specified operations. This led to the termination of the contract labourers’ services.

The Ispat Khadan Janta Mazdoor Union, representing the affected contract labourers, raised the issue before the Government, leading to the referral of the dispute to the Central Government Industrial Tribunal (CGIT) for adjudication. The dispute was regarding the legality of the termination of contract labourers’ services after the prohibition notification and their entitlement to regularization and reinstatement as permanent employees of SAIL.

Petitioner’s Arguments

The appellant, SAIL, argued that the contract between the management and contractors was genuine, and the contract labourers were employed by the contractors, not directly by SAIL.
It contended that the prohibition notification issued under Section 10(1) of the CLRA Act did not automatically entitle the contract labourers to regularization or reinstatement as SAIL employees.
The appellant further argued that the contract labourers were employed by the contractors, who had the disciplinary control over them, and the work was supervised by the contractors as per the terms of the contract.

Respondent’s Arguments

The respondents, represented by the union of contract labourers, argued that the termination of services of the contract labourers was unlawful, especially after the prohibition notification issued under the CLRA Act.
They claimed that after the notification, the contract labourers were entitled to be treated as regular employees of SAIL, as the contractor-labour system was effectively abolished, and the labourers had been working under SAIL’s supervision.
The union also cited the judgment of the Constitution Bench in Steel Authority of India Ltd. v. National Union Waterfront Workers (2001), which had dealt with similar issues of regularization and absorption of contract labourers in the establishment after the issuance of a prohibition notification.

Court’s Final Decision

The Supreme Court, after hearing the arguments, made the following observations:

“Neither Section 10 of the CLRA Act nor any other provision in the Act, whether expressly or by necessary implication, provides for automatic absorption of contract labour on the issuance of a prohibition notification by the appropriate Government under Section 10(1).”

The Court noted that the contract between the management and the contractors was not ‘sham’ or ‘bogus’ before the notification and the contract workers had been working in a legitimate contractual relationship. However, the Court also observed that after the prohibition notification came into effect, the continuation of employment under the contractors became illegal and void. The relationship between the principal employer (SAIL) and the contract labourers had to be reconsidered, and the workmen were entitled to be considered for regularization under the terms laid out by the Industrial Tribunal.

While the Court agreed with the Tribunal’s finding that the termination of contract labourers’ services was unlawful, it held that the contract labourers could not automatically be absorbed as permanent employees. The Court emphasized that the principal employer (SAIL) was not bound to absorb them unless the employer followed the procedural guidelines for regularization. The Court also clarified that the workers could seek further remedies, including claiming compensation or other statutory benefits from SAIL, provided they followed the proper legal procedure.

Key Takeaways from the Judgment

The Court clarified that the prohibition of contract labour by itself does not automatically result in the regularization of contract workers. The principal employer is not obligated to absorb them as permanent employees.

However, if the contract is found to be a sham or a disguise to evade statutory responsibilities, the workers are entitled to be treated as regular employees.

The decision reaffirmed the principle that the regularization of contract labour depends on various factors, including the nature of the work and the compliance with statutory regulations.

The ruling underlines the importance of following the legal processes for regularizing contract workers and ensuring that the employment rights of workers are respected under the law.

Conclusion

This judgment has significant implications for the interpretation of employment laws and the treatment of contract labour in India. It highlights the need for employers to comply with statutory requirements when employing contract workers and ensures that workers’ rights are upheld in accordance with the law. While the Court held that automatic regularization was not mandated by the prohibition of contract labour, it also emphasized that workers whose contracts were deemed to be illegal could seek appropriate remedies.

Petitioner Name: Steel Authority of India Ltd..
Respondent Name: Ispat Khadan Janta Mazdoor Union.
Judgment By: Justice Rastogi, Justice S. K. Kaul.
Place Of Incident: Madhya Pradesh.
Judgment Date: 05-07-2019.

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