Tag Archives: Contractor

Employees of Statutory Canteen – Entitled To Same Benefits As Regular Employees

In VST Industries Ltd. v. VST Industries Workers Union, 2001 (88) FLR 548, the Hon’ble Supreme Court was considering the case of the appellate company, which was engaged in the manufacture and sale of cigarettes and which maintained a canteen in pursuance of statutory obligation under Section 46 of the Factories Act. The appellant company had managed the canteen on its own for sometime and thereafter introduced contract system and the contractors paid salary to the workmen employed in the canteen whereas the appellant company provided the building, furniture, fuel, electricity, water supply and other facilities. The contractor was engaged only for overseeing the preparation and service of food items, whereas the quality and quantity of food items and their rates were controlled by the Management of the Company.         The employees of the canteen filed a writ petition for their regularization, which was allowed by the Writ Court and the judgment was affirmed by the Division Bench of the Hon’ble High Court, which held that the employees of the canteen were actually employees of the company and entitled to the same benefits as other regular employees. M/s NTPC Ltd. v. Presiding Officer, 2018 (157) FLR 263.

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Blacklisting – Effect of

The Hon’ble Supreme Court in Raghunath Thakur v. State of Bihar, (1989) 1 SCC 229 has held as under:

        “Blacklisting has the effect of preventing a person from the privilege and advantage of entering into lawful relationship with the Government for purposes of gains. The fact that a disability is created by the order of blacklisting indicates that the relevant authority is to have an objection satisfaction. Fundamentals of fair play require that the person concerned should be given an opportunity to represent his case before he is put on the blacklist.” Triveni Engineers v. Dakshinanchal Vidyut Vitran Nigam Ltd., 2020 (1) AWC 297.

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Till Adjudication of Demand – Government Cannot Withhold Money of Contractor

In Gangotri Enterprises Ltd. v. Union of India, (2016) 11 SCC 720, it was held that the demand of the Government is crystallised or adjudicated upon, the Government cannot withhold the money of the contractor. This judgment is primarily based on the judgment of the Hon’ble Apex Court in Union of India v. Raman Iron Foundry, (1974) 2 SCC 231. In this case it was held that the Government had no right to appropriate the amount claimed without getting it first adjudicated. It was held as under:

            “But here the order of interim injunction does not expressly or by necessary implication, carry any direction to the appellant to pay the amounts due to the respondent under other contracts. It is not only in form but also in substance a negative injunction. It has no positive content. What is does is merely to injunct the  appellant from recovering, suo motu, the damages claimed by it from out of other amounts due to the respondent. It does not direct that the appellant shall pay such amounts to the respondent. The appellant can still refuse to pay such amounts if it thinks it has a valid defence and if the appellant does so, the only remedy open to the respondent would be to take measures in an appropriate forum for recovery of such amounts where it would be decided whether the appellant is liable to pay such amounts to the respondent or not. No breach of the order of interim injunction as such would be involved in non-payment of such amounts by the appellant to the respondent. The only thing which the appellant is interdicted from doing is to make recovery of its claim for damages by appropriating such amounts in satisfaction of the claim. That is clearly within the power of the court under Section 41(b) of the Arbitration Act, 1940 because the claim for damages forms the subject-matter of the arbitration proceedings and the court can always say that until such claim is adjudicated upon, the appellant shall be restrained from recovering it by appropriating other amounts due to the respondent.” State of Gujarat v. Amber Builders, (2020) 2 SCC 540.  

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Contract Labour – Control and Supervision

The expression “control and supervision” in the context of contract labour was explained by the Hon’ble Supreme Court in the case of International Airport Authority of India v. International Air Cargo Workers’ Union, (2009) 13 SCC 374 as under:
“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 a contractor, if the right to regulate the 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 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.” Workmen, Bihar Colliery Kamgar Union v. Bharat Coking Coal India Ltd., 2014 (142) FLR 536.

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Contract of Sale vis-à-vis Works Contract

In CST v. Sabarmati Reti Udyog Sahakari Mandali Ltd., (1976) 3 SCC 592, it was held as under:
“It is well settled that whether a particular transaction is a contract of sale or a works contract depends upon the true construction of all the terms and conditions of the document, when there is one. The question will depend upon the intention of the parties executing the contract. As observed in State of Gujarat v. Variety Body Builders, (1976) 3 SCC 500, there is no standard formula by which one can distinguish a contract of sale from a contract for work and labour. The question is not always easy and has for all time vexed jurists all over. The distinction between a contract of sale of goods and a contract for work and labour is often a fine one. A contract of sale is a contract whose main object is the transfer of property in, and the delivery of the possession of, a chattel as a chattel to the buyer. (Halsbury’s Laws of England, 3rd Edition, Vol. 34, Page 6).
The above paragraph in CST v. Sabarmati Reti Udyog Sahakari Mandali Ltd., (1976) 3 SCC 592, sufficiently demonstrates that the question will depend upon the intention of the parties executing the contract and that there can be no standard formula by which one can distinguish a contract of sale from a contract of work and labour. The said principle stated in the abovesaid paragraph can be applied under all situations and since after the Forty-Sixth Amendment as held in Larsen and Toubro Limited v. State of Karnataka, (2014) 1 SCC 708, the first condition to be found out is as to whether a contract is a “works contract”. It has to be necessarily examined based on the terms agreed between the parties as to what is the intention of the parties. Therefore, applying the above tests, since it is found that the present contract is a contract for sale, it cannot be held to be a “works contract.”
In State of A.P. v. Guntur Tobaccos Limted, AIR 1965 SC 1396, it was held:
“The fact that in the execution of a contract for work some materials are used and property in the goods so used passes to the other party, the contractor undertaking to do the work will not necessarily be deemed on that account to sell the materials. A contract for work in the execution of which goods are used may take one of three forms. The contract may be for work to be done for remuneration and for supply of materials used in the execution of the works for a price, it may be a contract for work in which the use of materials is accessory or incidental to the execution of the work: or it may be a contract for work and use or supply of materials though not accessory to the execution of the contract is voluntary or gratuitous. In the last class there is no sale because though property passes it does not pass for a price. Whether a contract is of the first or the second class must depend upon the circumstances: if it is of the first; it is a composite contract for work and sale of goods: where it is of the second category, it is a contract for execution of work not involving sale of goods.” Kone Elevator India Private Ltd. V. State of Tamil Nadu, (2014) 7 SCC 1.

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