HussainBhai, Calicut v. The Alath Factory Thezhilali Union, Kozhikode and others

(1978) 4 SCC 260

Builders or company owners hire contractors to facilitate the industry with workers. In such a situation, who can be called the employer of those workers, principal or contractor? 

Worker is defined under section 2 (zr) of Industrial Relations Code, 2020 as “a person employed in an industry to do any manual, unskilled, skilled, technical, operational, clerical or supervisory work for hire or reward, whether the terms of employment be express or implied” (for the purposes of this case). This contract confirming to work, between the worker and employer is of three different types; contract of service, contract for service and contract of employment. 


The definition of employer under section 2 (m) of the Industrial Relations Code, 2020 further clarifies it further that irrespective of an intermediary, employer is a person who employs anyone directly or indirectly workers as defined by the act and has the ultimate control over affairs of the establishment. Therefore, in a case where a contractor hires workers, the employer-employee relationship derived from the contract of employment exists amidst principal and the workmen and the veil of intermediary stands lifted. The employer cannot take the luxury of denying liability in such a case on the intermediary. 


The case is about the owner of a factory manufacturing ropes, who comes into agreement with contractors to get the factory work done. Those contractors bring in workmen who do the physical work. Petitioner denied employment to 29 such workmen which gave rise to an industrial dispute as the petitioner contended that the workmen were under the employment of contractors who executed the agreement and not himself. However, the management provided raw material, premises to work, equipment as well as took the final product for their own trade. Even the defective articles were directed to be rectified by the management. 


Whether the workmen were employees of the contractor or the principal?

Background history

It was held in Hon’ble High Court that the true test for employer-employee relationship would be to determine the person as employer for whom the goods or services are being produced and the producers as the employees as this gives the benefactor a control of skills, unemployment as well as holds economic control. The absence of a direct relationship of the presence of make-believe trappings of detachment from the management cannot snap the real-life bond, therefore the presence of intermediary contractors with whom alone the workers have immediate or direct relationship is of no consequence when, on lifting the veil the naked truth is discerned.


Krishna Iyer J. 

Hon’ble court upheld the definition of employee as stated by the high court. Justice Iyer drifting away from British and American rulings, believe that Indian justice has a rule of law which runs to the aid of rule of life. Life in the phase of poverty is livelihood which in this case at hand is work wage. 

“Even cases where this impressive array of factors were not present, would have. Where workers labour to produce goods or services and these goods or services are for the business of another, that other is in fact the employer. He has economic control over the workers’ subsistence, skill, and continued employment. He is in a position to lay-off the worker. If the livelihood of the workmen substantially depends on labour rendered to produce goods and services for the benefit and satisfaction of an enterprise, the absence of direct relationship or the presence of contractors or the make-believe trappings of detachment from the Management cannot snap the bond. The liability cannot be shaken off.”

The workmen were employees of the principal.


The issue arose due to the appellant’s agreements with intermediate contractors who in-turn had hired Union’s intermediate workmen arising the ambiguity regarding the existence of direct employer-employee relationship between the petitioner and the workmen. As the contract for the employment of workmen was signed by the contractor therefore as per the understanding of contracts law, the petitioner shall have no liability. Nonetheless, it was so rightly held by Justice Iyer that the rule of law runs to the aid of rule of life and employment denial causes direct impact on their livelihood. 

Industrial Relations code is right in including, ‘direct or indirect’ as a part of the definition of employer because, where a worker or group of workers produce goods or services for the business of another, that other is, in fact, the employer. The contract between the intermediary has no consequence in lifting the veil. Justice Iyer therefore laid a test (with no universal applicability) for employer-employee relationship, “The workers making ropes are depending on the factory for livelihood, therefore in such a case, the dependent should be the “workmen” of the factory” resorting to labour legislation casting welfare obligations on the real employer, based on Articles 38, 39, 42, 43 and 43-A of the Constitution, guaranteeing the livelihood of the employees. 

Aishwarya Says:

I have always been against Glorifying Over Work and therefore, in the year 2021, I have decided to launch this campaign “Balancing Life”and talk about this wrong practice, that we have been following since last few years. I will be talking to and interviewing around 1 lakh people in the coming 2021 and publish their interview regarding their opinion on glamourising Over Work.


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