RAJIV GANDHI NATIONAL UNIVERSITY OF LAW,

PATIALA, PUNJAB

TOPIC: - ABOLITION OF CONTRACT LABOUR

SUB-TOPIC: - CASE STUDY: BHARAT HEAVY ELECTRICALS LIMITED

(BHEL) V. MAHENDRA PRASAD JAKHMOLA & ORS

SUBJECT: -LABOUR LAW

Submitted by: Submitted to:

Name = Hitarth Dixit Dr. Shiva Satish Sharda

Roll No. = 19150

Group No. = 28

1|Page
 CERTIFICATE

Date: 19th March 2021

This is to certify that the dissertation titled- ABOLITION OF CONTRACT LABOUR having
SUB-TOPIC- CASE STUDY: BHARAT HEAVY ELECTRICALS LIMITED (BHEL) V.
MAHENDRA PRASAD JAKHMOLA & ORS submitted to Rajiv Gandhi National University of
Law, Punjab, in partial fulfilment of the requirement of the B.A.LL.B.(Hons.) course is an original
and bona fide research work carried out by Hitarth Dixit under my supervision and guidance. No
part of this project has been submitted to any university for the award of any degree or diploma,
whatsoever.

Dr. Shiva Satish Sharda

Assistant Professor of Law

Rajiv Gandhi National University of Law, Punjab

2|Page
 ACKNOWLEDGEMENT

I would like to thank our teacher Dr. Shiva Satish Sharda for giving the opportunity to do this
project, it has helped us to conduct research through learning. Because of this exercise for
completion of the project I came to know about several things that generally could have been
overlooked by us.

During this project, my parents and friends made an immense contribution to ensure that the project
is completed within the limited time frame we had.

I would also like to extend my gratitude to all our classmates who gave us important tips and
suggestions for this project.

3|Page
 TABLE OF CONTENTS

1. INTRODUCTION ................................................................................................. 5

2. MAJOR CHANGES BY THE OSHWC CODE ................................................ 5

2.1. CHANGE IN THE DEFINITION-................................................................... 5

2.2. CHANGES REGARDING CONTRACT WORKERS- .................................. 7

3. TWO PRONG TEST: CASE STUDY................................................................. 8

3.1. BRIEF FACTS- ................................................................................................ 8

3.2. SUPREME COURT JUDGEMENT- ............................................................... 9

4. WAY FORWARD ............................................................................................... 11

4|Page
 1. INTRODUCTION

On 23rd September, 2020, the Parliament passed the new labour codes, namely The Industrial
Relations Code, 2020, The Code on Social Security, 2020 and The Occupational Safety, Health and
Working Conditions Code, 2020. These codes then received presidential assent on 29th September,
2020. The new codes were drafted based on the recommendations of the Second National
Commission on Labour (1999-2002) which found the existing labour laws to be complex, archaic
and inconsistent.1
Before introduction of the OSHWC Code, disputes related to labour and industries were governed
by THE CONTRACT LABOUR (REGULATION AND ABOLITION ACT), 1970. After that the
ministry introduced Occupational Safety, Health and Working Conditions Code, 2019.
But due to the inconsistent and complex nature of the Act the Ministry of State for Labour and
Employment introduced Occupational Safety, Health and Working Conditions Code,
2020(OSHWC) in Lok Sabha. It was re-introduced with new changes leading to withdrawal of
Occupational Safety, Health and Working Conditions Code, 2019.

2. MAJOR CHANGES BY THE OSHWC CODE

2.1. CHANGE IN THE DEFINITION-

The Contract Labour (Regulation and Abolition) Act, 1970 defined ‘contract labour’ as-

“a workman shall be deemed to be employed as "contract labour" in or in connection with the

work-of:-an establishment when he is hired in or in connection with such work by or through a
contractor, with or without the knowledge of the principal employer”.2

On the other hand this 2020 code gave definition of ‘Contract labour’ a broader meaning. Section 2
clause (m) of the OHSWC Code, 2020; defined the term ‘Contract Labour’ as-

1
Monday, The Three New Code: Overview, Vikram Bhargawa and Raveena Verma (18th March, 2021),
https://www.mondaq.com/india/employee-benefits-compensation/991674/the-three-new-labour-codes-an-overview
2
Section 2(b) of The Contract Labour (Regulation and Abolition) Act, 1970.
5|Page
“"contract labour" means a worker who shall be deemed to be employed in or in connection with
the work of an establishment when he is hired in or in connection with such work by or through a
contractor, with or without the knowledge of the principal employer and includes inter-State
migrant worker but does not include a worker (other than part time employee) who is regularly
employed by the contractor for any activity of his establishment and his employment is governed by
mutually accepted standards of the conditions of employment (including engagement on permanent
basis), and gets periodical increment in the pay, social security coverage and other welfare benefits
in accordance with the law for the time being in force in such employment;”3

While the definition of ‘contractor’ remains same in the 2020 code.

Section 2 clause (n) defined the term ‘contractor’ as-

“"contractor", in relation to an establishment, means a person, who-

i. undertakes to produce a given result for the establishment, other than a mere supply of
goods or articles of manufacture to such establishment, through contract labour; or
ii. supplies contract labour for any work of the establishment as mere human resource, and
includes a sub-contractor;”4
However, one can see a slight change in the definition of ‘principal employer’. The 2020 code
interprets the definition in broader sense. Section 2 clause (z) sub-clause (z) of the OHSWC Code,
2020 defined ‘principal employer’ as-

“"principal employer", where the contract labour is employed or engaged, means—

(i) in relation to any office or Department of the Government or a local authority, the head of that
office or Department or such other officer as the Government or the local authority, may specify in
this behalf;

(ii) in a factory, the owner or occupier of the factory and where a person has been named as the
manager of the factory, the person so named;

(iii) in a mine, the owner or agent of the mine;

(iv) in relation to any other establishment, any person responsible for the supervision and control of
the establishment;”5

3
Section 2(m) of the OHSWC Code.
4
Section 2(n) of the OHSWC Code.
5
Section 2(z)(z) of the OHSWC Code.
6|Page
 2.2. CHANGES REGARDING CONTRACT WORKERS-

Older Act 2020 Code

1. This code was applied to establishments It specifies that the Code will apply to
or contractors employing 20 or more establishments or contractors employing 50
contract workers (on any day in the last or more workers (on any day in the last one
one year).6 year).7
2. This Code empowered the government to The 2020 Code instead prohibits contract
prohibit employment of contract labour in labour in core activities, except where:
some cases including where: (i) the normal functioning of the
(i) the work is of a perennial establishment is such that the
nature, or activity is ordinarily done
(ii) the work performed by through contractor,
contract workers is necessary (ii) the activities are such that they
for the business carried out by do not require full time workers
the establishment, or for the major portion of the day,
(iii) the same work is carried out or
by regular workmen in the (iii) there is a sudden increase in the
establishment.8 volume work in the core activity
which needs to be completed in
a specified time.
• It is to be noted that the
appropriate government will
decide whether a activity is a core
activity or not.9
• However, the Code defines a list of
non-core activities where the
prohibition would not apply. This
includes a list of 11 works
including:
(i) sanitation workers,

6
Section 1(4)(a) of The Contract Labour (Regulation and Abolition) Act, 1970.
7
Section 45 of the OHSWC Code.
8
Section 10 of The Contract Labour (Regulation and Abolition) Act, 1970.
9
Section 57 of the OHSWC Code.
7|Page
 (ii) security services, and
(iii) any activity of intermittent
nature even if that constitutes a
core activity of an
establishment.
3. This Code provided that it will not be The 2020 Code clarifies that the Code will
applicable to the offices of the central and apply to contract labour engaged through a
state governments. contractor in the offices of the central and
state governments (where the respective
government is the principal employer).

3. TWO PRONG TEST: CASE STUDY

In recent times there are many questions raised that whether Contract workers are direct employees
or not. Recently the hon’ble Supreme Court in its judgement in Bharat Heavy Electricals Ltd. vs
Mahendra Prasad Jakhmola10, reiterated the basic test to determine whether Contract labour are
direct employee or not.

3.1. BRIEF FACTS-

BHEL engaged a contractor to engage contract labours in its Haridwar Factory. After some time
BHEL terminated some Contract labours, afterwhich Contract Labours approached hon’ble labour
court to seek reinstatement.
The hon’ble Labour Court ruled in favour of the Contract Labours keeping in mind the following
facts-
• The documentary evidence in form of gate pass shows that they were directly elected by
BHEL.
• BHEL exercised supervision, supritendence, administrative control.
• BHEL was covered under the extended definition of ‘employer’ under Uttar Pradesh
Industrial Dispute Act, 1970.

10
2019 SCC Online 382
8|Page
The Labour court awarded that all the 67 petitioners i.e. workers, should be reinstated with
immediate effect but without backwages.
After this BHEL filed review petition which was dismissed by the hon’ble High Court stating that
“undisputedly” all workmen i.e. petitioners were performing duties identical with those of regular
BHEL employees. Therefore, it can be said that they were under the command, control and
supervision of BHEL.
BHEL filed Special Leave Petition against this order. In which the hon’ble Supreme Court observed
that the course open to the Petitioner is to approach the hon’ble High Court seeking review petition.
Since Special Leave Petition are not entertained on the above grounds liberty is granted to challenge
the impugned order through review petition.
BHEL then filed a review petition in the hon’ble High Court, which disposed of the review petition
stating-
“BHEL has submitted written statement before the learned Labour Court. Paragraph 3 thereof
reads as under:
“3.The workman concerned in the dispute Sri Mahendra Prasad Jakhmola was never engaged by
BHEL Haridwar and he was not their employee and they were not his employers. It appears that he
might have been engaged and employed by the contractor Sri Madan Lal who also has been made
party as employer in the Industrial Dispute under reference.”11
Plain reading of paragraph 3 of the written statement would go to suggest that even BHEL is not
sure as to whether workmen were supplied by the contractor or were engaged by the BHEL.
Not only this, BHEL has not placed on record any material to demonstrate that under the alleged
Labour Contract Agreement payment was ever made in favour of Madan Lal/alleged contractor for
supplying labourers/workmen in question; no material is available on the record to say what was the
period of supplying the labourers under the contract.
On the grounds mentioned above, the hon’ble High Court didn’t find any good reason to review the
judgment under review. Hence, the review petition is dismissed. After that BHEL approached the
hon’ble Supreme Court.

3.2. SUPREME COURT JUDGEMENT-

• Supreme Court stated that it was clear from the evidence that the aforesaid gate passes were
issued only after the request of the contractor itself and that for security purpose only. And
the same was missed by the hon’ble labour Court when it arrived to its conclusion.

11
Id.
9|Page
 • The hon’ble Supreme Court after going through the extended definition under section 2 (iv)
of the Uttar Pradesh Industrial Dispute Act, 1947; which states-

“where the owner of any industry in the course of or for the purpose of conducting the
industry contracts with any person for the execution by or under such person of the whole or
any part of any work which is ordinarily part of the industry, the owner of such industry;”12

The hon’ble Supreme Court stated that the after looking at the provision, in order that
section 2(i)(iv) apply, evidence must be led to show that the work performed by contract
labour is a work which is ordinarily part of the industry of BHEL. The SC found that in the
present case no such evidence has been led. So it was clear that the Labour Court has arrived
to a conclusion which no reasonable man would possibly arrive. Therefore, the award given
by the Labour court is set aside.
• Apart from setting aside Labour Court decision; the SC observed that the hon’ble High
Court in its first impugned judgment has also arrived at findings which are contrary to the
evidence taken on record. First and foremost, it could not have said that “undisputedly”, the
labour that was employed through contractors were performing identical duties as regular
employees and that, therefore, without any evidence, it can be said that they were under the
control, management and guidance of BHEL.
• The hon’ble SC also observed that a plain reading of the written statement (stated by BHEL
in Paragraph 3) would certainly not suggest that BHEL is not sure as to whether workmen
were or were not supplied by a contractor, or engaged by BHEL. What is clear from the
written statement is that BHEL has denied that the workmen were engaged by BHEL or that
the workmen were BHEL’s workmen.
Apart from this, it is also incorrect to state that BHEL has not placed on record any material
to demonstrate that under the alleged labour contract, payment was ever made in favour of
Madan Lal, the alleged contractor.
• The hon’ble SC observed the judgment in ‘General Manager, (OSD), Bengal Nagpur
Cotton Mills, Rajnandgaon v. Bharat Lala and Another’, which is as follows-
“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

12
Section 2(iv) of The Uttar Pradesh Industrial Dispute Act, 1947
10 | P a g e
 instead of the contractor; and (ii) whether the principal employer controls and supervises
the work of the employee.”13
Herein, 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. The Court held that-
“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: (i) the salary is
paid by a contractor;(ii) the right to regulate the employment is with the contractor; and
(iii) 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 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.”14
From this judgement, it is clear that test No. 1 is not met on the facts of this case as the
contractor pays the workmen their wages. Secondly, the principal employer cannot be said
to control and supervise the work of the employee merely because he directs the workmen
of the contractor ‘what to do’ after the contractor assigns/ allots the employee to the
principal employer.
• Given this, we set aside the impugned judgements of the High Court and the Labour Court’s
Award.

4. WAY FORWARD

Permanency claims against Principal employer are not recent findings. These cases have been
witnessed in industrial, manufacturing and IT industries. In India ‘Principal Employer’ should be
very cautious while employing ‘Contract Labours’. To avoid such claims there should be a detailed
contract between the ‘Contractor’ and the ‘Principal Employer’. Further, the rights and obligations
of both the ‘Contractor’ as well as the ‘Principal Employer’ should be clearly mentioned in the

13
(2011) 1 SCC 635
14
(2009) 13 SCC 374
11 | P a g e
contract itself. The ‘Principal Employer’ should take proper care to ensure that the supervision and
control of the Contract Labour is with the ‘Contractor’.
Despite the fact that the Code has succeeded in consolidating pre-existing laws and possibly
increased the ease of doing business, the loopholes of this act might be seen in couple of years after
its implementation.

12 | P a g e