Industrial Establishments and Prior Permission: Should Number of Workers Include Contract Workers?

In 1976, a very contentious amendment was made to the Industrial Disputes Act, 1947 [hereinafter referred to as the ID Act].[1] This amendment incorporated Chapter V-B in the Act, which requires the management of any industrial establishment where over 100 workers are employed to take prior permission of the government before laying off workers, retrenching workers or closing down. A number of states have amended the base number of workmen for applicability to 300 workmen, and this is also sought to be done in the new Labour Codes that are being brought in. But an unresolved issue of legal significance for the industrial working class is whether for the purpose of counting 100, or 300 as the case may be, only permanent workmen on the rolls of the establishment are to be counted, or whether contract workers too would be liable to be counted towards applicability of the Chapter and requirement of prior permission.

In view of the increasing contractualisation and informalization of employment, the answer to this question will have a significant impact on the rights of workers across the country. This article will elaborate on how the only legally sound answer is that all workmen working on the premises of the establishment, including contract workers, must be included in calculation of this figure.

Section 25-K (1) of the ID Act reads as follows:

25K. Application of Chapter VB.- (1) The provisions of this Chapter shall apply to an industrial establishment (not being an establishment of a seasonal character or in which work is performed only intermittently) in which not less than one hundred workmen were employed on an average per working day for the preceding twelve months.”

One of the main rules of statutory interpretation is the literal rule, where courts seek to interpret the law literally, in terms of the literal meaning of the words employed in the law. At the outset, use of this rule shows that the section does not require for the workmen to be employed directly by the employer of the industry. This is in contradistinction to provisions such as Section 25F (pre-conditions for retrenchment in industries not covered by Chapter VB) which states that “No workman employed in any industry who has been in continuous service for not less than one year under an employer shall be retrenched by that employer until…”. Hence, while 25F contemplates employment under a particular employer the 25K does not mention by whom the workmen should be employed. In this view of the matter, all workmen working in the establishment should be counted. The emphasis being on the preposition "in", a literal interpretation would cover all workmen working in the premises, though they may be employees of a different employer (the agency/contractor).


Not only this, Section 25L(a) of the ID Act defines “industrial establishment” as a factory as defined in the Factories Act, 1948, a mine as defined in the Mines Act, 1952, or a plantation as defined in the Plantations Labour Act, 1951. For the purposes of factories, the Factories Act defines a ‘factory’ as “any premises including the precints thereof - (i) whereon ten or more workers are working, or were working on any day of the preceding twelve months, and in any part of which a manufacturing process is being carried on with the aid of power, or is ordinarily so carried on, or (ii) whereon twenty or more workers are working, or were working on any day of the preceding twelve months, and in any part of which a manufacturing process is being carried on without the aid of power, or is ordinarily so carried on”. Hence, a factory refers not to the employer, but to the premises. Again, this indicates that all workmen including contract workers, would be counted. Interestingly, the definition of worker under the Factories Act specifically includes persons employed through contractors.[2]

Apart from the literal rule of statutory interpretation, even other rules lead to the same answer. The rule  of purposive construction allows the court to interpret a law keeping in mind the purpose of the legislation, and to further the said purposes. Another rule of statutory interpretation is the Mischief Rule, where judges seek to interpret law while keeping in mind the mischief sought to be prevented by the passage of the law. The Statement of Objects and Reasons of the 1976 Amendment Act noted that “There have been many cases of large-scale lay-offs, particularly by large companies and undertakings. Cases of large-scale retrenchment as well as closures have also been reported time and again. This action on the part of the management has resulted in all-round demoralising effect on the workmen. In order to prevent avoidable hardship to the employees and to maintain higher tempo of production and productivity, it has become now necessary to put some reasonable restrictions on the employer's right to lay-off retrenchment and closure” [3] When this purpose is kept in mind, it would only further the purpose if all workers were included in the calculation of number of workers. Moreover, if only permanent workers were included in the calculation, then the mischief sought to be redressed by the 1976 amendment would continue, and managements would further reduce the number of permanent workmen and increase contractualisation to evade liability under Chapter VB of the Act, further increasing informality and exploitation of workers.

Lastly, and perhaps most importantly, is the rule of beneficient construction of welfare legislation, which requires the court to liberally construe the law to give the benefit of any grey areas to the party in favour of whose welfare the law was enacted, or workers in this case. Hence, to ensure social justice to the mass of workers who are increasingly losing labour security, it is vital that all workmen be included in the calculation of number of workers under section 25K.


Surprisingly, there has been very limited interpretation of this question, and it appears that only the Bombay High Court has gone into the question in depth. In fact, in the year 2000, the current Chief Justice of India, soon after his elevation to Bombay High Court was found in favour of including all workers in the establishment including contract workers on the basis of the definition of ‘worker’ under the Factories Act.


Due to a divergence of views, the matter was referred to a division bench. In the order of the Division Bench in Dyes and Chemical Workers Union v. Bombay Oil Industries Ltd. and Ors. [(2001)ILLJ1252Bom], it was found that for the purpose of computing the number of workmen while considering section 25K of the ID Act, contract workmen could not be considered. However, this is legally incorrect. The Court proceeded on an incorrect assumption that if contract workers were included for the purposes of section 25K and thereby Chapter VB, they would also be required to be extended the benefit of section 25F, and could claim retrenchment compensation / issue notice against the principal employer. However, as detailed above, Section 25F uses the words ‘under an employer’ which escaped the notice of the Division Bench. Moreover, the court relied on judgments that a workman is one who is employed, and hence, must have a jural relationship with the principal employer. However, even a contract worker is a workman for the purpose of section 2(s) under the contractor, in case of a genuine contract. Hence, there is no difficulty whatsoever in including them while calculating the number of workmen under Section 25K.


The said decision of the Division Bench of the Bombay High Court came to be appealed before the Supreme Court. However, during that time, the workers involved in the case accepted settlements, and the case was disposed on grounds of the compromise. It was brought to the notice of the Supreme Court that the issue, i.e. "whether for the purposes of computing the number of workmen while applying Sub-section (1) of Section 25K of the Industrial Disputes Act, 1947, contractors workmen, mathadi workers and workmen of other industrial establishments are liable to be included" was of significance. In this context, the Supreme Court noted that though in the light of the compromise the matter did not survive, it held “the matter is of general importance, which will ultimately have to be resolved in some other case. We accordingly dispose of the appeal and leave the question open to be decided in an appropriate matter.” [4] Hence, the point of law has been left open by the Supreme Court and is yet to be resolved.


Interestingly, in another judgment, the Madras High Court has noted that “for the purpose of 25K, it is not merely permanent workers who are to be taken into account but all the workmen employed on an average working day in the preceding twelve months.” [5] However, the issue was not considered in detail.


The entire issue deserves to be given quietus by finding that for the purpose of the applicability of Chapter VB, all workmen working in an establishment including contract workmen should be considered. It may be kept in mind that Supreme Court has held that the system of contract labour is nothing but an improved form of bonded labour.[6] It also held that contract labour is nothing but a new technique of subterfuge adopted by employers in recent years in order to deny the rights of the workmen.[7] In this context, any other restrictive interpretation that would promote further contractualisation cannot be accepted.


In a fundamentally inequal relationship between workers and management, a balance can either be created through strong unionisation or through state intervention. The Indian Government took the route of ensuring some level of protection through regulation of rights of workers through a number of statutes like the Minimum Wages Act, Payment of Wages Act, The Factories Act etc. The Government is now working towards substantial dilution and deletion of these regulations and minimisation of state intervention, in favour of ‘ease of doing business’ of companies. Even the judiciary has played a significant role in this – most memorably in the SAIL judgment that effectively eviscerated the right of contract workers to seek for abolition of contract labour by holding that even if so abolished, the workers would not have any right to be considered permanent.


What are the consequences of such a deregulatory policy? Dr. BR Ambedkar clarified that the argument that minimisation of state intervention would leave liberty must be tempered by asking – to whom and for whom is this liberty? He argued as follows:


Obviously this liberty is liberty to the landlords to increase rents, for capitalists to increase hours of work and reduce rate of wages. This must be so. It cannot be otherwise. For in an economic system employing armies of workers, producing goods en masse at regular intervals some one must make rules so that workers will work and the wheels of industry run on. If the state does not do it the private employer will. Life otherwise will become impossible. In other words, what is called liberty from the control of the state is another name for the dictatorship of the private employer.”



                  [1] Industrial Disputes (Amendment) Act, 1976 [Act 32 of 1976]

                  [2] Section 2(l) of the Factories Act, 1948

                  [3] As quoted by the Supreme Court in Workmen Of Meenakshi Mills Ltd vs Meenakshi Mills Ltd. [1994 AIR 2696]

                  [4]Maharashtra General Kamgar Union v.  Indian Gum Industries Ltd. (2008) 3 SCC 127

                  [5] Judgment dated 16.05.1995 of the Hon’ble High Court of Madras in Management of Cholamandalam Software Ltd. v. Presiding Officer, I Addl. Labour Court, Madras [W.P. No. 3133/1993]

                  [6] Sankar Mukherjee And Ors vs Union Of India [AIR 1990 SC 532]

                  [7] Bhilwara Dugdh Utpadak Sahakari S. Ltd. Vs. Vinod Kumar Sharma and Ors.[ AIR 2011 SC 3546]