CASE REVIEW: NATIONAL ALUMINIUM

COMPANY LIMITED & ORS. V. ANANTA

KISHORE ROUT & ORS.

1|Page
 INTRODUCTION
Before delving theinto the intricacies of the ‘supervision and control’ test, as discussed in
NALCO v. Ananta Rout,1 it is essential to understand what a ‘master-servant’ or ‘employer-
employee’ relationship broadly entails. The Halsbury’s Laws of England states that
,“whether or not, in any given case, the relation of master and servant, exists is a question of
fact; but in all cases the relation imports the existence of power in the employer not only to
direct what work the servant is to do but also the manner in which the work is to be done.”2.

In subsequent years, the courts in India have acknowledged the shortcomings of the Yewens
approach, observing that the ‘supervision and control’ test were was more in consonance with
an agricultural society and not its relatively industrialized successor. 3 However, these courts
have also espoused the ‘supervision and control’ test as the prima facie standard to ascertain
the existence of an employer-employee relationship across a number of judgements. 4
Consequently, there is a lot of ambiguity surrounding the legal standard best suited to the
determination of a relationship of employment.

Through the course of this project, the researcher shall firstly, examine the judgment of the
Supreme Court in NALCO. Secondly, the researcher shall attempt to position NALCO, vis-à-
vis its conformity to or divergence divergence from other Supreme Court decisions on in
ascertaining an employer-employee relationship. Thirdly, the researcher shall demonstrate
how the reliance of the Supreme Court on ‘control and supervision’ as the determinant factor
of the relationship of employment in NALCO marks a regression in from the legal standard
crystallized in precedents like Sliver Jubilee. Finally, the project concludes with certain
recommendations by the researcher so as to enhance the current standard of for establishing
an employer-employee relationship.

1
National Aluminium Company Limited & Ors. v. Ananta Kishore Rout & Ors. (2014) 6 SCC 756 (‘NALCO’).
2
Lord Hailsham of St. Marylebone, Halsbury's Laws of England: Volume 46 (4th edn, Butterworths 1992) 112.
3
Silver Jubilee Tailoring House & Ors. v. Chief Inspector of Shops & Establishments & Anr. (1974) 3 SCC 498
(‘Silver Jubilee’); Shining Tailors v. The Industrial Tribunal-II UP & Ors. (1983) 4 SCC 464.
4
Dharangadhara Chemical Works Limited v. State of Saurashtra AIR 1957 SC 264 (‘Chemical Works’);
NALCO (n 1); Balwant Rai Saluja v. Air India Limited (2014) 9 SCC 407 (‘Balwant Rai’); General Manager
(OSD), Bengal Nagpur Cotton Mills Rajnandgaon v. Bharat Lal & Anr. (2011) 1 SCC 635; M/s Indian Iron and
Steel Company Limited (Buranpur Works, Buranpur) v. State of West Bengal & Ors. 2011 LLR 771 (Cal HC);
Indian Oil Corporation v. Employees State Insurance Corporation 2008 LLR 1070 (Delhi HC).

2|Page
 [I.] NALCO V. ANANTA ROUT: A SYNOPSIS
Factual Matrix:
In 1984, two schools were established by NALCO at Angul and Koraput districts in Odisha,
to primarily provide with the purpose of providing educational facilities to the employees of
its children.5 On May 15, 1985, NALCO and the Central Chinmoy Mission Trust, Bombay
(‘CCMT’) entered into two distinct, but identical contracts, wherein the former entrusted the
management of the two schools to the latter. 6 As supervision charges, NALCO paid Rs.
10,000 per annum to CCMT.7 In accordance with the Odisha law governing school education,
a ‘Managing Committee’, comprising fourof four and three nominees by CCMT and
NALCO was constituted.8 These contracts concluded in 1990, owing to CCMT disinterest in
managing the schools.9

In the same year, NALCO and Saraswati Vidya Society (‘SVS’) entered into an agreement,
with the latter being entrusted with the management of the schools. 10 As per the most recent
supervision charges, NALCO pays paid Rs. 50,000 per annum to SVS.11 Under the
agreement, two separate Managing Committees for each of the schools was have been
established. Out of the total 84 members, 84 were nominated by NALCO.12 The SVS
Secretary and Manager (Personnel) have jointly drafted the ‘Saraswati Vidyamandir
Employees’ Recruitment and Conditions of Service Rules, 1995 to worsen cater
to/prevent/ameliorate the surging rising discontentment among the employees vis-à-vis the
lack of service conditions.13

Procedural History:
The employees of both schools filed two writ petitions in the Odisha High Court, seeking
declaration that they are NALCO employeesemployees of NALCO and not that of SVS,
accompanied by a prayer that their pay scale should be in concomitance with NALCO
employees. 14other employees of NALCO. The High Court has upheld the contentions of the

5
NALCO (n 1) [¶4].
6
ibid.
7
ibid.
8
ibid [¶5].
9
ibid [¶7].
10
NALCO (n 1) [¶7].
11
ibid.
12
ibid.
13
ibid [¶10].
14
ibid [¶2].

3|Page
school employees, directing NALCO to provide all benefits enjoyed by its regular employee
toemployees to the former.15 Thereafter, NALCO filed the present appeals to in the Supreme
Court against the 2006 judgment of by the High Court.

Issues for Consideration:

Are the teaching and non-teaching staff of the two schools NALCO employees? If the answer
to this question is in the affirmative, are they entitled to parity of payment vis-à-vis the
regular NALCO employees?

The Decision of the Court:

Diverging from the High Court reasoning reasoning of the High Court, the Supreme Court
delivered its judgment in NALCO’s favour, ruling that the school staff were SSV
employees.16were employees of SSV. From the discussion undertaken by the two-judge
bench, it is evident that the Supreme Court’s decision hinged upon the character of the
aforementioned mManaging coCommittees as separate legal entities under the Societies
Registration Act, 1860.17 These Committees handled the recruitment and delineation of the
service conditions of both the teaching and non-teaching staff of the schools.

The respondents’ counselcounsel for the respondent had highlighted that the prominent
positions in the Committees were occupied either by employees or nominees of NALCO, the
expenditure incurred in running the schools was borne by NALCO, and that the schools
remained NALCO’s propertyproperty of NALCO. However, the Court observed that the ‘
day to day’ control over the school staff was exercised by the Committees, which were
statutorily recognized as independent bodies.18 Noting that the appeals arose from writ
petitions and not within under the ambit of industrial disputes, the Court held that it would
not pierce the corporate veil over the contractual arrangement between SVS and NALCO,
since because that was a disputed question of fact.19

15
NALCO (n 1) [¶2].
16
ibid [¶23].
17
ibid [¶35].
18
ibid [¶23].
19
ibid [¶26].

4|Page
 [II.] THE TEST FOR A RELATIONSHIP OF EMPLOYMENT: FORUM CHEMICAL
WORKS TO BALWANT RAI20

In one of the earlier cases of Chemical Works, the Supreme Court was faced with the
question of determining whether the relationship between professional salt farmers and the
appellants was one of ‘employment’ or a ‘contract for service’. The Court took into
consideration the cases of J & W Henderson21 and Cassidy,22 and concretized the legal
standard of employment as the employer’s exercise of ‘control and supervision’ over both the
work to be done and the ‘manner of its execution’. In essence, the Court liberalized the test
posited in Yewens and held that the absence of certain characteristics typically found in a
contract of service would not alter its nature to of a contract for service.23

In Bhindichand ,24 the Supreme Court followed a similar approach to Chemical Works. In
fact, while determining whether a relationship of employment prevailed between workers and
their employers in the Beedi industry, the Court further broadened the control and supervision
test. It held that acceptance or rejection of the final product would suffice as ‘control’ by the
employer. The majority in Shankar Balaji25 once again reverted to the control and supervision
test as characterized in Chemical Works. They ruled that mere supervision over the final
product is not adequate to constitute control and that control over the manner of the entire
work process was essential to establish an ‘employer-employee’ relationship. A mere two
years later however, the Court upheld the validity of the Birdichand approach in DC
Dewan.26 It held that acceptance or rejection of the final product would suffice as ‘control’ by
the employer.

20
Balwant Rai (n 8).
21
Short v. J & W Henderson, Limited [1946] 62 T.L.R. 427, 429.
22
Cassidy v. Ministry of Health [1951] 1 T.L.R. 539: [1951] 2 K.B. 343, 352-3.
23
Chemical Works (n 8) [¶18].
24
Birdichand Sharma v. First Civil Judge, Nagpur & Ors. (1961) II LLJ 86 (SC).
25
Shankar Balaji Waje v. State of Maharashtra (1962) Supp (1) SCR 249.
26
DC Dewan Mohideen Sahib & Sons v. Industrial Tribunal, Madras (1964) 7 SCR 646.

5|Page
In 1973, a three-judge bench in Silver Jubilee categorically rejected sole reliance on the
control and supervision test as the conclusive indicator of a relationship of employment. Post
a perusal of the judgments in Cassidy, Montreal Locomotive,27 Slatford,28 and Sulk,29 Justice
Mathew performed a balancing test between a plethora of different factors material to an
employer-employee relationship. This culminated in the adoption of a ‘multi-factorial’
approach wherein factors like an integrality of the work, the ownership of equipment, the
location of the work premises, etc. , were also taken into accountconsidered along with the
aspects of control and supervision.30

Building upon the control and supervision test in Chemical Works, Justice VR Krishna Iyer
qualified an employer-employee relationship through the dimension of ‘economic reality’. 31
He then observed that in order to determine the true nature of a contract for service, the veil
over the intermediate contractor has to be lifted. If this exercise reveals that the principal
employer exercises significant economic control over the subsistence of workers engaged by
the contractor, the contractor is sham and the workers would be the employees of the
principal employer.32

In Nilgiri Cooperative,33 the Supreme Court was yet again faced with determination of the
existence of an employer-employee relationship in the pertinent factual matrix of the case.
Echoing Justice Mathew’s sentiment in Silver Jubilee, Justice SB Sinha reiterated that an
integrated approach was critical to the accurate ascertainment of the jural relationship of
employment. Justice Sinha thus observed that placing reliance on the control and supervision
test as the conclusive indicator is fallacious. Factors including but not limited to the nature of
the work, the recruiting and dismissing authority, the paymaster, etc., have to be taken into
consideration.

Eventually, starting from NALCO and leading up to Balwant Rai, the legal standard vis-à-vis
the relationship of employment has significantly progressed. In NALCO, the Supreme Court
reverted to the ‘control’ test as posited in Chemical Works. Surrendering to technical
considerations, the Court refused to engage with the true nature of the contract between SVS

27
Montreal v. Montreal Locomotive Works Limited [1947] 1 D.L.R. 161.
28
Bank Voor Handel en Scheepvaart N.V. v. Slatford [1952] 2 All E.R. 956.
29
United States v. Silk 331 U.S. 704.
30
Silver Jubilee (n 7) [¶29-36].
31
Hussainbhai, Calicut v. The Allath Factory Thezhilali Union, Kozhikode & Ors. (1978) 4 SCC 257 [¶5].
32
ibid.
33
Workmen of Nilgiri Cooperative Marketing Society Limited v. State of Tamil Nadu & Ors. (2004) 3 SCC 514
[¶37-38].

6|Page
and NALCO, resulting in a judgment detrimental to the school staff. A mere sSix months
later, the case of Balwant Rai materialised. In Balwant Rai, the problematic approach of the
Court in NALCO was further consolidated, with it being ruled that for the intermediate
contractor to be considered as a smokescreen, ‘primary or absolute’ control should be
exercised by the principal employer over the workers engaged by the contractor.34

34
Balwant Rai (n 8) [¶81].

7|Page