Full Judgment Text
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PETITIONER:
J.K. INDUSTRIES LIMITED ETC.ETC.
Vs.
RESPONDENT:
THE CHIEF INSPECTOR OF FACTORIES AND BOILERS AND OTHERS ETC.
DATE OF JUDGMENT: 25/09/1996
BENCH:
ANAND, A.S. (J)
BENCH:
ANAND, A.S. (J)
THOMAS K.T. (J)
ACT:
HEADNOTE:
JUDGMENT:
WITH
(W.P (C) 1129/91. C.A. NOS. 245-256/96, W.P. (C) 134/93.
W.P. (C) 657/91. C.A. NOS. 244/96, 1238, 4499-4500/96,
4501/96, W.P. (C) NOS. 165/96, 187/96 AND
C.A.NO.12552/96 (Arising out of S.L.P. (C) No. 12498/96)
J U D G M E N T
DR. ANAND. J.
C.A.No. 12552/96
Leave granted in SLP (C) No. 12498/96.
In this batch of cases, both in the writ petitions and
in the appeals by special leave, short facts, which are not
in dispute and are relevant for the discussion hereinafter,
are that the Chief Inspector of Factories called upon the
petitioners/appellants to file applications seeking renewal
of the registration of licence of their respective
factories, signed by a director of the company in his
capacity as the occupier of the factory and stated that a
nominee of the Board of Directors, other than a Director,
could not make such an application as an occupier. The
correctness of that direction/opinion has been put in issue
in all these cases. The petitioners/appellants have also
called in question the constitutional validity of proviso
(ii) to Section 2 (n) of the Factories Act, 1948
(hereinafter referred to as ’the Act’) as amended by Act 20
of 1987, as violative of Articles 14, 19(1) (g) and 21 of
the Constitution of India.
The basic question which requires our consideration is
whether in the case of a company which owns or runs the
factory, is it only a director of the company who can be
notified as the occupier of the factory within the meaning
of proviso (ii) to Section 2 (n) of the Act, or whether the
company can nominate any other employee to be the occupier
by passing a resolution to the effect that the said employee
shall have ’ultimate control over the affairs of the
factory’. If the answer to the question is that in the case
of a company, only a director can be notified as an occupier
under the Act, the next question which would require our
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consideration is about the constitutional validity of
proviso (ii) to Section 2(n) of the Act as introduced by the
Amending Act of 1987. The answer to these questions would
depend upon the interpretation of amended Section 2(n) of
the Act It would, therefore, be appropriate to first notice
the provisions of Section 2 (n) as it sited prior to the
amendment and as it stands today.
Section 2(n) as it stood prior to
Amendment of 1987
"2(n) "occupier" of a factory
means the person who has ultimate
control over the affairs of the
factory, and where the said affairs
are entrusted to a managing agent,
such agent shall be deemed to be
the occupier of thee factory;
Section 2(n) as it is after
Amendment of 1987
"2(n) "Occupier" of a factory means
the person, who has ultimate
control over the affairs of the
factory,
Provided that
(i) in the case of a firm or other
association of individuals any one
of the individual partners or
members thereof shall be deemed to
be the occupier;
(ii) in the case of a company, any
one of the directors shall be
deemed to be occupier;
(iii) in the case of a factory
owned or controlled by the Central
Government or any State Government
of any local authority, the person
or persons appointed to mange the
affairs of the factory by the
Central Government, the State
Government or the local authority,
as the case may be, shall be deemed
to be the occupier:
Section 2(n) of the Act prior to its Amendment was
required to be read along with Section 100 of the Act with a
view to determine an occupier under different situations.
Section 100 as it stood prior to
the Amendment of 1987
"100. Determination of occupier in
certain cases - (1) Where the
occupier of a factory is a firm of
other association of individuals,
anyone of the individual partners
or members thereof may be
prosecuted and punished under this
Chapter for any offence for which
the occupier of the factory is
punishable:
Provided that the firm or
association may give notice to the
Inspector that it has nominated one
of its members residing within
India to be the occupier of the
factory for the purposes of this
Chapter and such individual shall
so long as he is so resident be
deemed to be the occupier of the
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factory for the purposes of this
Chapter until further notice
cancelling his nomination is
received by the Inspector or until
he ceases to be a partner or member
of the firm or association.
(2) Where the occupier of a factory
is a company, any one of the
directors thereof may be prosecuted
and punished under this Chapter for
any offence for which the occupier
of the factory is punishable:
Provided that the company may give
notice to the Inspector that it has
nominated a director, who is
resident within in India, to be the
occupier of the factory for the
purposes of this Chapter and such
director shall so long as he is so
resident be deemed to be the
occupier of the factory, for the
purposes of this Chapter, until
further notice cancelling his
nomination is received by the
Inspector or until he ceases to be
a director.
Provided further that in the case
of a factory belonging to the
Central Government or any State
Government or any local authority
the person or persons appointed to
manage the affairs of the factory
shall be deemed to be the occupier
of that factory for the purposes of
this Chapter.
(3) Where the owner of any premises
or building referred to in Section
93 is not an individual, the
provisions of this Section shall
apply to such owner as they apply
to occupiers of factories who are
not individuals."
Section 100 has since been omitted
by Amendment Act 20 of 1987.
There is divergence of opinion between various High
Courts in the country with regard to the interpretation and
scope of proviso (ii) to Section 2(n) of the Act. That
conflict also needs to be resolved.
The High Court of Karnataka in W.S. Industries (India) Ltd.
and another Vs. The Inspector of Factories, Bangalore &
Others [(1991) II LLJ, 480] opined that it is not necessary
that the occupier must be necessarily the owner or the
director of thee company and if by a resolution some other
person is nominated to be the occupier who is declared to be
in the ultimate control of the affairs of the factory then
that person or officer would be treated as
the occupier for the purposes of the Act. The Court said:
But the main clause provides that
occupier shall be one who has
ultimate control of the affairs of
the company. This clause read with
the operative provisions of the Act
makes it clear that the occupier of
a factory could be a person
nominated by the board or by the
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firm notwithstanding the fact that
such a partner or director could
also be liable and the liability in
respect of the operative provisions
in respect of such director or
partner will have to be
established." (Emphasis ours)
However, the constitutional validity of Section 2(n)
was, not dealt with in the above case and it was observed
that "it is unnecessary to go into the constitutional
validity of the provisions of the Act."
The Bombay High Court in the case of Kirloskar Pneumatic
Company Ltd. vs. V.A. More & Others [(1993) LLJ 805] was
also not called upon to decide the constitutional validity
of Section 2(n) of the Act. The question debated before the
High Court was whether one of the Directors only should be
treated to be an occupier within the meaning of Section 2(n)
or not. The High Court noticed the deletion of Section 100
by the Amending Act of 1987 and observed that the
legislature had carved out an exception to the main
provision by adding second proviso to Section 2(n) of the
Act. The learned Judges noticed the judgment of this Court
in John Donald Mackenzie and another Vs. The Chief Inspector
of Factories. Bihar [ 1962 (SC), 1351 ] and opined that the
said decision lays down that an occupier of a factory need
not necessarily be a Director and that he can be any other
persons or employee nominated, as an occupier, by the Board
of Directors.
The Orissa High Court in Indo Floglabes Limited & Anr.
and Straw Products Ltd. and Anr. Vs. Chief Inspector of
Factories and Boilers and Others [1993 (66) FLR, 171] dealt
extensively with the provisions of the Factories Act before
and after the 1987 amendment. It relied upon the judgments
of the Karnataka and Bombay High Courts and went on to hold
that an occupier need not necessarily be a director of the
company and that the only requirement is that the person to
be nominated as an occupier must have the "ultimate control"
over the affairs of the factory.
The High Court of Guwahati in Wimco Ltd. & Others Vs.
The Union of India & Others [1995 FLJ, 552] has followed the
judgments of Karnataka, Bombay and Orissa High Courts. The
Court observed:
"This being the position of law as
enunciated by the Karnataka and
Bombay High Courts, now let us see
whether this is good law as a laid
down by these two High Courts. A
bare reading of S. 2(n) as amended
will show that the material part of
the section defining an occupier
remains ultimate control of the
factory can be nominated as the
occupier, and it also must be borne
in mind that always a director may
not be in the ultimate control of
the factory. It is ultimate control
of the factory which is the touch-
stone and not the ultimate control
of the company. A director may live
at a distance. But the ultimate
control of the factory may be left
to his Manager as in such a case it
is the manager who will be deemed
to be occupier of factory and
advisedly such a person can be
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nominated as the occupier. Because
of certain difficulties, an
occupier only would be dependable
as such, an occupier of a factory
assumes control and responsibility
and the legislature enunciated that
the occupier should be the person
who would be the person responsible
to ensure that the provisions of
the Act are complied with. The
provisio to S. 2(n) is only added
to carve out an exception to the
Rules that a person who has
ultimate control over the affairs
of the factory as an occupier. The
legislature wanted to have a say
that in case of a company, being
the owner of the factory, the
director would be deemed to be an
occupier...."
The Madras High Court in ION Exchange India Ltd.
(represented by as Manager) Hosur Vs. Deputy Chief Inspector
of Factories, Salem [1995 LLR, 776] and the Calcutta High
Court in Greaves Ltd. and Another Vs. State of West Bengal
and Another [1996 LLR, 638], have also, following, the
judgments of Bombay and Karnataka High Court opined that a
company which owns or runs a factory can nominate a person
other than a director of the company to be an occupier of
the factory within the meaning of Section 2(n) read with
proviso (ii) thereto. None of these High Courts has,
however, dealt with the constitutional validity of the
provision under consideration.
On the other hand, the High Court of Allahabad in M/s.
Bhatia Metal Containers Pvt. Ltd. and Another Vs. The State
of U.P. [1990 (II) LLJ, 534], the High Court of Madhya
Pradesh in Standard Industries Ltd. and another etc. etc.
Vs. The State of Madhya Pradesh & Others [Misc. Petition No.
3130/91 and Writ Petition No. 4419/94 etc. decided on
15.11.95], High Court of Rajasthan in Ashok Leyland Ltd. Vs.
The State of Rajasthan and Others [Civil Writ Petition No.
4195/89 decided on 1.11.91] and in Jaipur Syntex Ltd. and
Others Vs. State of Rajasthan and Others [1991 LLR, 380] and
the High Court of Patna in Champaran Sugar Co. Ltd. Vs. The
Union of India and Ors. [C.W.J.C. NO. 2254/88 decided on
3.5.88] have held that the nomination of an occupier to be
made by the company under proviso (ii) to Section 2(n) of
the Act can only be that of a director and of no other
officer or employee of the factory or the company which owns
the factory.
Prior to the enactment of the Factories Act, 1948,
regulation of labour in factories was governed by the
Factories Act, 1934, but as the statement of objects and
reasons of the Act of 1948 shows there were various defects
and weaknesses in the 1934 Act which came in the way of its
effective administration. The provisions of the 1934 Act
regarding safety, health and welfare of workers were found
to be inadequate and unsatisfactory. In view of large and
growing industrial activity in the country, an overhauling
of the factories law became necessary. The Factories Act of
1948 which came into force with effect from 1st of April,
1949 was, enacted to remove some of the shortcomings noticed
in the 1934 Act.
The 1948 Act is an act to consolidate the law
regulating factories. It is a piece of social welfare
legislation enacted primarily with the object of protecting
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workmen employed in factories against industrial and
occupational hazards. It seeks not only to ensure that
workers would not be subjected to long hours of strain but
also that employees should work in safe, healthy and
sanitary conditions and that adequate precautions are taken
for their welfare and safety. The stringent provisions
relating to the obligations of the occupiers or managers
with a view to protect workers and to secure to them
employment in conditions conducive to their health and
safety indicate the board purpose of the Act. The Act and
the Rules made thereunder impose numerous restrictions upon
the occupier or manager of the factory to ensure to workers
adequate safeguards for their health and physical well being
and to secure to them safe and healthy conditions at the
place of work. The 1948 Act was amended by Act 94 of 1976,
with a view to remove some lacunae relating to the
definition of ’workers’ and for improvement of the
provisions in regard to safety of workers and appointment of
safety officers and to provide for an enquiry in every case
of a fatal accident. Some difficulties experienced in the
administration of the 1948 Act even after the 1976
amendment, specially those relating to hours of employment,
safety conditions and development of appropriate work
culture conducive to safety and health or workers
particularly in case of factories which deal with hazardous
materials and the escape routes which the employers had
found to shift their responsibilities on some employee or
the other and escape punishment and penalty, which were also
noticed in certain judgments of this Court, led the
Parliament to amend the Act in 1987 which inter alia amended
Section 2(n), deleted Section 100 and incorporated Sections
7, 7A, Chapter IV-A, Section 104 A and Section 106A, besides
certain other provisions.
Prior to 1987, Section 2(n) of the Act which defined
"occupier of a factory" had necessarily to be read alongwith
Section 100 of the Act to find out an occupier under
different situations. Sub-section (2) of Section 100
provided that where the occupier of a factory was a company,
any one of the Directors thereof may be prosecuted and
punished for any offence under Chapter X for which the
occupier of the factory was punishable. Under the proviso to
Section 100(2), the Company had an option to nominate one of
its Directors, resident in India, who on such purposes of
prosecution and punishment under the Act. There was, thus,
no compulsion under Section 100(2) that only a director
should be nominated as an occupier, even though in the
definition of an occupier under Section 2(n), it was
provided that an occupier means the person who has the
ultimate control over the affairs of the factory and where
such affairs are entrusted to a managing agent, such agent
shall be deemed to be an occupier. Some of the companies,
taking advantage of the option as contained in the proviso
to Section 100(2) of the Act and noticing the stringent
provisions for punishment for breach of some of the
provisions for punishment for breach of some of the
provisions of the Act, instead of nominating a Director, as
the occupier, used to nominate some other employee or
officer as an occupier of the factory and, thus, whenever
any violation of the Act was committed, it was that employee
or officer, who was subjected to penalty and punishment and
not the Directors or any one of them. Thus, by nominating an
employee or an officer as the occupier, the directors of the
company who are primarily responsible for ensuring safety
measures in the factory and take care of health, hygiene and
welfare of the workers being in ultimate control of the
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management of the company which owns the factory, where able
to escape prosecution and punishment even if they were found
to be negligent or indifferent to the welfare of the workmen
or had failed to provide adequate and proper safety measures
in the factory as well as in cases where the breach was
found to have been committed with their consent or
connivance, or due to lack of diligence on their part. After
a tragedy occurred in Delhi by the leakage of chlorine gas,
this Court noticed the "escape route" which had been carved
out by the Directors of the Company, which owns or runs the
factory, and voiced its concern and opined that if there was
negligence in looking after the safety requirements, in a
hazardous industry, in particular, even the Chairman and the
Managing Director besides the Board of Directors must be
held responsible and liable (even when they are not the
actual offenders) as that alone could ensure, reduction of,
if not altogether eliminations of, risk and hazard to
workmen. In M.C. Mehta & Anr. Vs. Union of India & Ors. [
1986 (2) SCC, 325 ] it was observed:
"So far as the undertaking to be
obtained from the Chairman and
Managing Director of Shriram is
concerned it was pointed out by
Shriram that Delhi Cloth Mills Ltd.
which is the owner of Shriram has
several units manufacturing
different products and each of
these units is headed and managed
by competent and professionally
qualified persons who are
responsible for the day to day
management of its affairs and the
Chairman and Managing Director is
not concerned with day to day
functioning of the units and it
would not therefore be fair and
just to require the Chairman and
Managing Director to give an
undertaking that in case of death
or injury resulting on account of
escape of chlorine gas, the
Chairman and Managing Director
would be personally liable to pay
compensation. We find it difficult
to accept this contention urged on
behalf of Shriram. We do not see
any reason why the Chairman and/or
Managing Director should not be
personally liable for payment of
compensation in case of death or
injury resulting on account of
escape of chlorine gas,
particularly when we find that
according to the reports of various
expert committees which examined
the working of caustic chlorine
plant, there was considerable
negligence in looking after its
safety requirements and in fact,
considerable repair and renovation
with and installation of safety
devices had to be carried out at a
fairly heavy cost in order to
reduce the element of risk of
hazard to the community. We may
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however make it clear that the
undertaking to be given by the
Chairman and/or Managing Director
may provide that no liability shall
attach to the Chairman and/or
Managing Director if he can show
that the escape of chlorine gas was
due to an Act of God or vis major
of sabotage. But in all other cases
the Chairman in all other cases the
Chairman or Managing Director must
hold himself liable to pay
compensation. That alone in our
opinion would ensure proper and
adequate maintenance of safety
devices and instruments and
operation of the caustic chlorine
pant in a manner which would
considerably reduce, if not
eliminate, risk or hazard to the
workmen and to the people living in
the vicinity"
[Emphasis ours]
It was, thereafter, that the Parliament stepped in and
passed the Amendment Act 20 of 1987, which as already
noticed, besides amending the definition of an occupier
under Section 2(n) of the Act by addition of various
provisos thereto also made some more significant changes in
the Act. The statement of objects and reasons of Amendment
Act 20 of 1987, reads:
"Statement of Objects and Reasons"
(1) The Factories Act, 1948,
provides for the health, safety,
welfare and other aspects of
workers in factories, The Act is
enforced by the State Governments
through their Factory
Inspectorates. The Act also
empowers the State Governments to
frame rules, so that the local
conditions prevailing in the State
are appropriately reflected in the
enforcement. The Act was last
amended in 1976 for strengthening
the provisions relating to safety
and health at work, extending the
scope of the definition of
"workers", providing for statutory
health surveys, and requiring
appointment of safety officers in
large factories.
(2) After the last amendment to the
Act, there has been substantial
modernization and innovation in the
industrial field Several Chemical
Industries have come up which deal
with hazardous and toxic
substances. This has brought in its
strain problems of industrial
safety and occupational health
hazards. It is, therefore,
considered necessary that the Act
may be appropriately amended, among
other things to provide
specifically for the safeguards to
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be adopted against use and handling
of hazardous substances by the
occupiers of factories and the
laying down of emergency standards
and measures. The amendments would
also include procedures for siting
of hazardous industries to ensure
that hazardous and polluting
industries are not set up in areas
where they can cause adverse
affects on the general public.
Provision has also been made for
the workers’ participation in
safety management.
(3) Opportunity has been availed of
to make the punishments provided in
the Act stricter and certain other
amendments found necessary in the
implementation of the Act."
It is in this background that we shall consider the
scope and validity of Section 2(n) of the Act as amended in
1987. According to the definition of the ’occupier’ under
section 2(n), an occupier means a person who is in ’ultimate
control of the affaires of the factory’. Though the word
’person’ has not been defined under the Act, but under
Section 3(42) of the General Clauses Act, a person has been
defined to include a company or association or body of
individuals, whether incorporated or not. Such a person,
under Clause 2(n) of the Act, therefore, could be a company
or a partnership or an association of persons or an
individual. Where the factory is owned or run by a company,
it would be that company which would be the occupier of the
factory. Under Section 100, as it stood originally, where
the occupier of the factory was a company, any one of the
directors may be prosecuted and punished and the company
could give a notice identifying such a director. It was,
therefore, as already noticed, optional for the company to
notify a director as the occupier. The company could
nominate any other officer or employee also as an occupier.
The Amending Act of 1987 eliminated altogether section 100
and instead introduced into Section 2(n) various provisos
and in proviso (ii) provided a deeming fiction, as to what
would happen if the occupier was a company. Criminal
liability in case of a default would primarily attach to the
company, as the occupier of the factory and, therefore, it
has been provided that in the case of a company, any one of
the directors of the company shall be deemed to be the
occupier. To remove the ambiguity and ensure that a mere
’authorisation’ by the Board of Directors of any of its
employees or officers, by a resolution, to be the occupier
was not allowed the object of the Act, particularly in
matters of punishment and penalty the Parliament also
enacted Sections 7 and 7A of the Act by the Amending Act of
1987.
Section 7(1) of the Act reads as
under:
7(1) The occupier shall, at least
fifteen days before he begins to
occupy or use any premises as a
factory, send to the Chief
Inspector a written notice
containing.
(a) the name and situation of the
factory;
(b) the name and address of the
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occupier;
(bb) the name and address of the
owner of the premises or building
(including the precincts thereof)
referred to in section 93:
(c) the address to which
communication relating to the
factory may be sent:
(d) the nature of the manufacturing
process:
(i) carried on in the factory
during the last twelve months in
the case of factories in exist of
commencement of this Act, and
(ii) to be carried on in the
factory during the next twelve
months in the case of all
factories;
(e) the total rated horse power
installed or to be installed in the
factory, which shall not include
the rated horse power of any
separate stand-by plant;]
(f) the name of the manager of the
factory for the purposes of this
Act;:
(g) the number of workers likely to
be employed in the factory:
(h) the average number of workers
per employed during the last twelve
months in the case of a factory in
existence on the date of the
commencement of this Act:
(i) such other particulars as may
be prescribed.
7A. General duties of the occupier.
(1) Every occupier shall ensure, so
far as is reasonably practicable,
the health, safety and welfare of
all workers while they are at work
in the factory.
(2) Without prejudice to the
generality of the provisions of
sub-section (1), the matters to
which such duty extends, shall
include-
(a) the provision and maintenance
of plant and systems of work in the
factory that are safe and without
risk of health;
(b) the arrangements in that
factory for ensuring safety and
absence of risks to health in
connection with the use, handling,
storage and transport of articles
and substances;
(c) the provision of such
information, instruction, training
and supervision as are necessary to
ensure the health and safety of all
workers at work;
(d) the maintenance of all places
of work in the factory in a
condition that is safe and without
risks to health and the provision
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and maintenance of such means of
access to and egress from, such
places as are safe and without such
risks;
(e) the provision, maintenance or
monitoring of such working
environment in the factory for the
workers that is safe, without risks
to health and adequate as regards
facilities and arrangements for
their welfare at work.
(3) Except in such cases as may be
prescribed, every occupier shall
prepare, and, as often as may be
appropriate, revise, a written
statement of his generally policy
with respect to the health and
safety of the workers as work and
the organisation and arrangements
for the time being in force for
carrying out that policy; and to
bring the statement and any
revision thereof to the notice of
all the workers in such manner as
may be prescribed."
Under Section 7, a notice is required to be given to
the Chief Inspector, disclosing the name of the occupier at
least fifteen days before he occupies or begins to use any
premises as a factory. It also requires the disclosure of
the name of the owner of the premises or building and the
name and particulars of the Manager. Section 7A prescribes
the duties of the occupier. The provisions of Section 7 and
7A when considered in the light of proviso (ii) to Section
2(n), leave no manner of doubt that it is a statutory
obligation under Section 7 of the Act after 1987 to nominate
the occupier before the occupier occupies or begins to use
the premises to run the factory and in the case of an
existing factory seek the renewal of the licence to continue
to operate the factory. It is only when this statutory
requirement is fulfilled that the factory would be given the
licence or its licence shall be renewed in the case of
existing factories. The argument of the learned counsel for
the appellants/petitioners that the expression "person" in
Section 2(n) implies only an individual does not bear
scrutiny, when construed in the case of a company, a firm of
partners or an association of persons. Where it is the
company which owns or runs such a factory, it is the company
which owns or runs such a factory, it is the company which
has the ultimate control over the affairs of the factory,
and, therefore it would be the company would be the occupier
of that factory. However, since a company is a legal
abstraction, it can act only through its agents who in fact
control and determine the management and are the centre of
its personality. Such agents are generally called the
directors being the "directing mind and will" of the
company. The deeming fiction under proviso (ii), therefore,
only clarifies the position where company is the occupier of
the factory. The legislature by providing the deeming
fiction under proviso (ii) did not detract from the
generality of the main provision under Section 2(n), but
only clarified it. The directors are not the employees or
servants of the company. They manage, control and direct the
business of the company as "owners" (Section 291 of the
Companies Act). The Directors are often referred to as the
"alter ego" of the company. Where the company owns or runs a
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factory, it is the company which is in the ultimate control
of the affairs of the factory through its Directors. An
employee or officer of the factory or of the company, even
if authorised by the board of directors by a resolution to
be a person "in the ultimate control of the affairs of the
factory" cannot be so. Such an employee only carries out
orders from above and it makes no difference that he has
been given some measure of discretion also and has
supervisory control. He can at best be treated to be in the
immediate control of the affairs of the factory or having
day to day control over the affairs of the factory, the
ultimate control being retained by the company itself. The
legislature did not designedly use the expression immediate
or day to day or supervisory control instead of ultimate
control in the main provision of Section 2(n).
The word ’ultimate’ in common parlance means last or
final. The Oxford Advanced learner’s Dictionary of Current
English Encyclopedic Edition (1992), defines the word
’ultimate’ to mean :
"beyond which no other exists or is
possible; last or final; from which
every thing is derived; basic or
fundamental; that cannot be
surpassed or improved upon;
greatest etc."
According to Collins Dictionary of the English Language
the word ’ultimate’ has been defined as:
"last; final; elemental;
fundamental; basic or essential;
highest; furthest or greatest
thing."
According to Black’s Law Dictionary (Sixth Edition),
the word ’ultimate means:
"at last, finally or at the
end....."
There is a vast difference between a person having the
ultimate control of the affairs of a factory and the one who
has immediate or day to day control over the affairs of the
factory. In the case of a company, the ultimate control of
the factory, where the company is the owner of the factory,
always vests in the company, through its Board of Directors.
The Manager or any other employee, of whatever status, can
be nominated by the Board of Directors of the owner company
to have immediate or day to day or even supervisory control
over the affairs of the factory. Even where the resolution
of the Board of Directors says that an officer or employee,
other than one of the directors, shall have the ’ultimate’
control over the affairs of the factory, it would only be a
camaflouge or an artful circumvention because the ultimate
control cannot be transferred from that of the company, to
one of its employees or officers, except where there is a
complete transfer of the control of the affairs of the
factory. Mechanical recitation of the words of Section 2(n),
as a Mantra, in a resolution nominating an employee or an
officer as the occupier by stating that he shall have
"ultimate control over the affairs of the factory", cannot
be permitted to defeat the object of the amendment. The
provisions of the Act have to be construed in a manner which
would promote its object, prevent its subtle evasion and
foil its artful circumvention to suppress the mischief.
Though, the expression ultimate control was used in Section
2(n) even prior to the 1987 amendment also but read with the
proviso to Section 100(2), it gave an opportunity to the
companies owning the factory to dilute the rigor of the
provision by not notifying one of its directors to be the
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occupier and instead nominating some employee or the other
to be the ’’occupier’’ for purposes of punishment and
penalty. The ultimate control which vests in an owner and in
the case of a company in the Board of Directors cannot be
vested in anyone else without completely transferring the
control over the factory to that other person. The law does
not countenance duality of ultimate control. If the transfer
of the control to another person is not complete, meaning
thereby that the transferor retains its control over the
affairs of the factory, the transferee, whosoever he may be,
(except a director of the company, or a partner in a
partnership firm) cannot be considered to be the person
having ultimate control over the affairs of the factory
notwithstanding what the resolution of the Board states. The
litmus test, therefore, is who has the ’ultimate’ control
over the affairs of the factory.
The observations of this Court in Mackenzie’s case
(supra) that the "ultimate control over the factory must
necessarily be with an owner unless the owner has completely
transferred that control to another person" are significant.
Where, a company has "completely transferred" that control
to another person, it would be that other person, who would
have the ultimate control over the affairs of the factory to
the exclusion of the transferor -company and would be its
occupier. The High Courts taking the view that in the case
of a company, any person nominated by the Board of Directors
to be in the ultimate control of the affairs of the factory
would be an occupier, whether or not he is a Director of the
company, have relied upon the following observations of this
Court in John Donald Mackenzie and another vs. The Chief
Inspector of Factories, Bihar (supra) :
"Undoubtedly the expression
’occupier’ is not to be equated
with owner. But it must be borne in
mind that the ultimate control over
the factory must necessarily be
with an owner unless the owner has
completely transferred that control
to another person. Whether that was
done in the present case would be a
question of fact. It was for the
petitioners to contend that
petitioner No.1 was the manager of
the factory and had the ultimate
control thereof to lay before the
Chief Inspector of Factories the
necessary material for showing that
the company had in some manner
transferred the entire control of
the factory to petitioner No. 1".
(Emphasis supplied)
and from these observations, those High Courts have
concluded that the law laid down by this Court in John
Donald Mackenzie’s case (supra) is that the occupier of the
factory need not necessarily be a Director and that any
person to whom control has been transferred and who has been
given the entire control over the affairs of the factory by
the company through a resolution can be the occupier, even
if he is not a director. In our opinion, this is not a
correct reading of that judgment, which even otherwise was
concerned with the pre-amendment provisions. A brief
reference to the facts of that case is, therefore, necessary
at this stage. Mackenzie, who was petitioner No. 1 in the
writ petition, had described himself as the Manager and
occupier of Bata while seeking renewal of the licence of the
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factory. The Chief Inspector of Factories enquired from the
factory whether Mackenzie was one of the Directors of the
company and pointed out that if he was not a Director, then
a fresh application seeking renewal of the factory’s licence
signed by the occupier should be submitted. The Chief
Secretary of Bata Shoe Company sent a reply to the Chief
Inspector of Factories stating therein that Mackenzie was
the person who had been nominated to have the ultimate
control of the affairs of the factory and therefore he was
an occupier within the meaning of Section 2(n) of the Act
and, thus, competent to make an application for seeking
renewal of the licence. The Chief Inspector, however,
returned the application stating that if Mackenzie was not a
Director, then a fresh application signed by the Director is
required to be submitted. The Company, thereupon, moved the
High Court at Patna for quashing the direction of the Chief
Inspector of Factories requiring a director only to make the
application for renewal of the licence. That petition was,
dismissed by the High Court. The company then filed an
appeal by special leave to this court. The Court after
setting out the definition of an occupier under Section 2(n)
of the Factories Act went on to consider the correspondence
that had been exchanged between the company and the Chief
Inspector of Factories, which revealed that Mackenzie had
been declared to be an occupier without his being a director
of the company and held:
"In the circumstances, therefore,
the Chief Inspector of Factories
was perfectly right in refusing to
act on the application signed by
Mackenzie and in requiring the
factory to file a proper
application for renewal of the
licence."
(Emphasis ours)
The appeal was consequently dismissed and the direction
of the Chief Inspector of factories was maintained. This
Court, thus, did not hold that a company can nominate any of
its employee as an occupier of the factory, even if he is
not a Director of the company. The judgment in Mackenzie’s
case, therefore, has to be understood in the context in
which it was given as otherwise the decision of the Chief
Inspector of Factories calling upon Mackenzie (who had been
nominated as the occupier having ’ultimate control over the
affairs of the factory’) but was not himself a director, to
have a fresh application signed by the Director submitted
for renewal of the license, would not have been sustained by
this Court. It is not fair or proper to read a sentence from
the judgment of this Court, divorced from the complete
context in which it was given and to build up a case
treating as if that sentence is the complete law on the
subject. Judgments of this Court are not to be read in that
manner.
Mr. Jain, learned senior advocated drew our attention
to an order of a three Judges Bench of this Court in special
leave petition No. 4141 of 1979 dated 14.3.1980 to support
his submission that the occupier of the factory owned by a
company need not necessarily be one of the directors of the
company. Their Lordships while dismissing special leave
petition No. 4141 of 1979 filed by the State of Orissa
against the judgment of that High Court observed:
"We are of the view that the
judgment of the High Court of
Orissa in the instant case and that
of the Gujarat High Court in Jyoti
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Switchgears Vs. Chief Inspector of
Factories (34), Indian Factories
and labour Reports 354, "that the
occupier of a factory need not
necessarily be either a Director or
an owner of the factory is
correct". In other words it is open
to a Company to nominate a person
other than a Director of the
company as an "occupier" of the
Company for the purpose of the
Factories Act."
The above order, was concerned with the provisions of
Section 2(n) as they stood prior to the 1987 amendment,
where under there was an option available to the company, to
nominate a person other than a director of the company as an
’occupier’ of the company. This order, therefore, cannot
advance the case of the appellants/petitioners herein, who
are governed by the provisions of Section 2(n) as amended by
the Amending Act of 1987.
Thus, we find that after the 1987 amendment, the true
import of proviso (ii) to Section 2(n) would be that in the
case of a company, which owns the factory, the company
cannot nominate any one of its employees or officers, except
a director of the company, as the occupier of the factory.
In other words, an occupier of the factory in the case of a
company must necessarily be any one of its directors who
shall be so notified for the proposes of the Factories Act.
Such an occupier cannot be any other employee of the company
or the factory. This interpretation of an "occupier" would
apply to all provisions of the Act wherever the expression
occupier is used and not merely for the purposes of Section
7 or 7A of the Act.
Learned counsel for the appellants/petitioners, then,
vehemently argued that proviso (ii) to Section 2(n) of the
Act is beyond the scope of the main Section. Learned counsel
urged that since the principal provision contained in
Section 2(n) of the Act is clear, recourse cannot be had to
proviso (ii) with a view to expand the ambit of the
principal provision. Learned counsel further argued that
proviso (ii) confers absolute, unfettered and unguided
powers upon the Inspector of Factories to pick and choose
any one of the directors of a company for prosecution and
punishment in connection with the breach of any of the
provisions of the Act by a deeming fiction when that
director is himself not responsible for the contravention
and proviso (ii) is, therefore, violative of Article 14 of
the Constitution also. It is submitted that there is
potential for abuse of power by the Inspector of Factories,
both in selecting and in not selecting a director, as an
occupier for prosecution, punishment and penalty under the
Act:
The learned Attorney General and learned counsel
appearing for different States, on the other hand submitted
that proviso (ii) to Section 2(n) of the Act does not run
counter to the substantive provision and that it is an
exception to the main Section and has been enacted with a
view to advance the object of the Act and the intention of
the legislature and it does not travel beyond the scope of
the main section. It is submitted that the proviso neither
offends Article 14 nor the main provision of Section 2(n) of
the Act. Mr. Ashok Desai, the learned Attorney General,
further submitted that the second proviso to Section 2(n),
by making any one of the Directors to be a deemed occupier
of the factory owned or run by a company, does not in any
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manner make the substantive part of the definition clause
otiose and that the proviso and the main provision can be
harmoniously construed. He submitted that in the case of a
company, the main provision of Section 2(n) may be incapable
of proper working without the aid of proviso (ii) to the
said Section because the company itself may not be possible
to be prosecuted and sentenced to any term of imprisonment,
and hence the necessity of the deeming fiction. The learned
Attorney General submitted that the apprehension expressed
by the learned counsel for the petitioners that the
Inspector of Factories can pick and choose any director at
his whims is not well founded because Section 7 as
introduced by the 1987 Amendment Act casts a duty on the
company to notify, the name of a director who would be the
occupier and once that statutory obligation is discharged,
the Inspector of Factories has no choice but to prosecute
that notified director only.
Does proviso (ii) to Section 2(n) travel beyond the
scope of the main provision or is otherwise violative of
Article 14 of the Constitution
India?
In Reserve Bank of India Etc. Etc. Vs. Peerless General
Finance And Investment Co. Ltd. & Others Etc. Etc. [1987 (1)
SCC, 424] dealing with the principles for interpretation of
statutes this Court observed:
"Interpretation must depend on the
text and the context. They are the
basis of interpretation. One may
well say if the text is the
texture, context is what gives the
colour. Neither can be ignored.
Both are important. That
interpretation is best which makes
the textual interpretation match
the contextual. A statute is best
interpreted when we know why it was
enacted. With this knowledge, the
statute must be read, first as a
whole and then section by section,
clause by clause, phrase by phrase
and word by word. If a statute is
looked at, in the context of its
enactment, with the glasses of the
statute-maker, provided by such
context, its scheme, the sections,
clauses, phrases and words may take
colour and appear different than
when the statute is looked at
without the glasses provided by the
context. With these glasses we must
look at the Act as a whole and
discover what each section. each
clause, each phrase and each word
is meant and designed to say as to
fit into the scheme of the entire
Act. No part of a statute and no
word of a statute can be construed
in isolation. Statutes have to be
construed so that every word has a
place and everything is its place."
(Emphasis supplied)
In S. Gopal Reddy Vs. State of Andhra Pradesh [ JT
1996(6) 268], to which one of us (Anand,J.) was a party it
was observed:
"It is well known rule of
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interpretation of statutes that the
text and the context of the entire
Act must be looked into while
interpreting any of the expressions
used in a statute. The courts must
look to the object which the
statute seeks to achieve while
interpreting any of the provisions
of the Act. A purposive approach
for interpreting the Act is
necessary." {Emphasis supplied}
It is in the light of the above settled principles that
we shall consider the true scope and intent of Section 2(n)
with reference to proviso (ii) thereto within the scheme of
the Act. Can Section 2(n) stand without proviso (ii) in the
case of a company? What is the true function of proviso (ii)
to Section 2(n)?
A proviso to a provision in a statute has several
functions and while interpreting a provision of the statute,
the Court is required to carefully scrutinise and find out
the real object of the proviso appended to that provision.
It is not a proper rule of interpretation of a proviso that
the enacting part or the main part of the Section be
construed first without reference to the proviso and if the
same is found to be ambiguous only then recourse may be had
to examine the proviso as has been canvassed before us. On
the other hand an accepted rule of interpretation is that a
Section and the proviso thereto must be construed as a whole
each portion throwing light, if need, be, on the rest. A
proviso is normally used to remove special cases from the
general enactment and provide for them specially.
A proviso qualifies the generality of the main
enactment by providing an exception and taking out from the
main provision, a portion, which, but for the proviso would
be a part of the main provision. A proviso must, therefore,
be considered in relation to the principal matter to which
it stands as a proviso. A proviso should not be read as if
providing something by way of addition to the main provision
which is foreign to the main provision itself.
Indeed, in some cases, a proviso, may be an exception
to the main provision though it cannot be inconsistent with
what is expressed in the main provision and if it is so, it
would be ultra-vires of the main provision and struck down.
As a general rule in construing an enactment containing a
proviso, it is proper to construe the provisions together
without making either of them redundant or otiose. Even
where the enacting part is clear, it is desirable to make an
effort to give meaning to the proviso with a view to justify
its necessity.
While dealing with proper function of a proviso, this
Court in The Commissioner of Income-Tax. Mysore & Ors. Vs.
The Indo Mercantile Bank Ltd. & Ors. [AIR 1959 (SC), 713]
opined:
"The proper function of a proviso
is that it qualifies the generality
of the main enactment by providing
an exception and taking out as it
were, from the main enactment, a
portion which, but for the proviso
would fall within the main
enactment. Ordinarily it is foreign
to the proper function of a proviso
to read it as providing something
by way of an addendum or dealing
with a subject which is foreign to
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the main enactment."
This view has held the field till date.
Let us now examine Proviso (ii) to Section 2(n) to
determine whether it is inconsistent with or beyond the main
provision of Section 2(n).
By the Amending Act of 1987 it appears that the
legislature wanted to bring in a sense of responsibility in
the minds of those who have the ultimate control over the
affairs of the factory, so that they take proper care for
maintenance of the factories and the safety measures
therein. The fear of penalty and punishment is bound to make
the Board of Directors of the company, more vigilant and
responsive to the need to carry out various obligations and
duties under the Act, particularly in regard to the safety
and welfare of the workers. Proviso (ii) was introduced by
the Amending Act, couched in a mandatory form - ’any one of
the directors shall be deemed to be the occupier’- keeping
in view the experience gained over the years as to how the
directors of a company managed to escape their liability,
for various breaches and defaults committed in the Factory
by putting up another employee as a shield and nominating
him as the ’occupier’ who would willingly suffer penalty and
punishment. The state of unemployment in the country being
what it is, it is not difficult to "hire" the services of
someone only for this "job". Proviso (ii) now makes it
possible to reach out to a director of the company itself,
who shall be prosecuted and punished for breach of the
provisions of the Act, apart from prosecution and punishment
of the Manager and of the actual offender. The proviso, by
making one of the directors of the company responsible for
proper implementation of the provisions of the Act, to a
great extent ensures that more care is taken for the
maintenance of the factory and various safety measures
prescribed under the Act for the health, welfare and safety
of the workers are not neglected. In the case of a company,
the main part of Section 2(n) would not be workable unless
that provision is read alongwith proviso (ii). The
definition of an occupier under Section 2(n) is of general
application and different situations have been covered by
the legislature only in different provisos appended to
Section 2(n). These situations were, to a large extent
earlier covered by Section 100 of the Act and with the
deletion of Section 100, it became imperative to take care
of different situations dealt therein, by enacting various
provisos to Section 2(n). Of course, the expression "shall
be deemed to be an occupier" in second proviso to Section
2(n) indicates the creation of a legal fiction but it is
wrong to presume that such legal fiction can come into play
only where the substantive provision of Section 2(n) is not
attracted. As already observed, the substantive provision of
Section 2(n) can become workable only in the case of a
company, when the same is read alongwith proviso (ii). The
deeming provision does not override the substantive
provision of Section 2(n) but clarifies it. In our opinion,
proviso (ii) is not ultra-vires the main provision of
Section 2(n) and as a matter of fact there is no conflict at
all between the main provision of Section 2(n) and proviso
(ii) thereto. Both can be read harmoniously and when so read
in the case of a company, the occupier of a factory owned by
a company would mean ’any one of the directors of the
company who has been notified/identified by the company to
have ultimate control over the affairs of the factory’ and
where no such director has been identified. then for the
purposes of prosecution and punishment under the Act, the
Inspector of Factories may initiate proceedings against any
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one of the directors as the deemed occupier.
The apprehension that on account of Proviso (ii), the
Inspector of Factories has acquired ’unguided, unfettered or
absolute powers’ to pick and choose any director of the
company for prosecution and punishment is not well founded.
Section 7 lays down a mandatory obligation on the factory to
notify the name of the ’occupier’ for obtaining the licence
or seeking renewal of the licence of the factory and,
therefore, the option to ’select’ the director who would be
the "occupier" vests in the Board of Directors and once
they notify the name and particulars of that director, the
Inspector of Factories is left with no discretion to ’pick
and choose’ any other director for prosecution etc. for the
breaches committed in the factory or for contravention of
the provisions of the Act. It is only when the company fails
to perform its statutory obligation to notify the name of
the director under Section 7 of the Act, that the Inspector
of Factories may "choose" any one of the directors as the
deemed occupier and proceed against him. The area for
mischief can, thus, be totally blocked by the company by
notifying one of its directors as the occupier in discharge
of its statutory obligations enumerated in Section 7 of the
Act. That apart, the reasonableness of the restriction
depends upon the circumstances obtaining at a particular
time and the urgency of the evil sought to be controlled.
The possibility of the power being abused is no ground for
declaring the provision unconstitutional. Proviso (ii) to
Section 2(n), therefore, does not offend Article 14 of the
Constitution.
In keeping with the aim and object of the Act which is
essentially to safeguard the interests of workers, stop
their exploitation, and take care of their safety, hygiene
and welfare at their place of work, numerous restrictions
have been enacted in public interest in the Act. Providing
restrictions in a Statute would be a meaningless formality
unless the statute also contains a provision for penalty for
the breach of the same. No restriction can be effective
unless there is some sanction compelling its observance and
a provision for imposition of penalty for breach of the
obligations under the Act or the rules made thereunder is a
concomitant and necessary incidence of the restrictions.
Such a provision is contained in Section 92 of the Act,
which contains a general provision for penalties for
offences under the Act for which no express provision has
been made elsewhere and seeks to lay down uniform penalty
for all or any of the offences committed under the Act. The
offences under the Act consist of contravention of (1) any
provision of the Act; (2) any rules framed thereunder; and
(3) any order in writing made thereunder. It comprises both
acts of omission and commission. The persons punishable
under the Section are occupiers and managers, irrespective
of the question as to who the actual offender is. The
provision, is in consonance with the scheme of the Act to
reach out to those who have the ultimate control over the
affairs of the factory to see that the requirements for
safety and welfare of the employees are fully and properly
carried out besides carrying out various duties and
obligations under the Act. Section 92 contemplates a joint
liability of the occupier and the manager for any offence
committed irrespective, of the fact as to who is directly
responsible for the offence. The fact that the
notified/identified director is ignorant about the
’management’ of the factory which has been entrusted to a
manager or some other employee and is himself not
responsible for the contravention cannot absolve him of his
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liability. The identified / notified director is held
vicariously liable for the contravention of the provisions
of the Act, the rules made thereunder or of any order made
in writing under it for the offender company, which is the
occupier of the factory.
Mr. Jain, Mr. Nariman and Mr. Tripathi, appearing for
the appellants, however, argued that since Section 92
imposes a liability for imprisonment and/or fine, both on
the occupier (the notified director) and the manager of the
factory, jointly and severally, for the contravention of any
of the provisions of the Act or any rule made thereunder or
of any order in writing given thereunder, irrespective of
the fact whether the occupier (the notified director) or
manager, had any mens-rea in respect of that contravention
or that the contravention was not committed by him or was
committed by any other person in the factory without his
knowledge, consent or connivance, it is an unreasonable
restriction. Learned counsel argued that in criminal law,
the doctrine of vicarious liability is unknown and if a
director is to be punished for some thing of which he is not
actually guilty, it would violate his fundamental right as
enshrined in Article 21 of the Constitution. It was urged
that on account of advancement in science and technology,
most of the companies, appoint professionally qualified men
to run the factories and nominate such a person to be the
’occupier’ of the factory and make him responsible for
proper implementation of the provisions of the Act and it
would, therefore, be harsh and unreasonable to hold any
director of the company, who may be wholly innocent, liable
for the contraventions committed under the Act etc. when he
may be totally ignorant of what was going on in the factory,
having vested the control of the affairs of the factory to
such an officer or employee, by ignoring the liability of
that officer or employee. The argument is emotional and
attractive but not sound.
The offences under the Act are not a part of general
penal law but arise from the breach of a duty provided in a
special beneficial social defence legislation, which creates
absolute or strict liability without proof of any mens rea.
The offences are strict statutory offences for which
establishment of mens rea is not an essential ingredient.
The omission or commission of the statutory breach is itself
the offence. Similar type of offences based on the principle
of strict liability, which means liability without fault or
mensrea, exist in many statutes relating to economic crimes
as well as in laws concerning the industry, food
adulteration, prevention of pollution etc. In India and
abroad. ’Absolute offences’ are not criminal offences in any
real sense but acts which are prohibited in the interest of
welfare of the public and the prohibition is backed by
sanction of penalty. Such offences are generally knows as
public welfare offences. A seven Judge Bench of this Court
in R.S. Joshi Vs. Ajit Mills [AIR 1977 (SC), 2279, at page
2287] observed :
"Even here we may reject the notion
that a penalty or a punishment
cannot be cast in the form of an
absolute or no-fault liability but
must be proceeded by mens rea. The
classical view that ’ no mens rea
no crime’ has long ago been eroded
and several laws in India and
abroad, especially regarding
economic crimes and departmental
penalties, have created severe
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punishments even where the offences
have been defined to exclude mens
rea. Therefore, the contention that
Section 37(1) fastens a heavy
liability regardless or fault has
no force......"
What is made punishable under the Act is the
’blameworthy’ conduct of the occupier which resulted in the
commission of the statutory offence and not his criminal
intent to commit that offence. The rule of strict liability
is attracted to the offences committed under the Act and the
occupier is held vicariously liable alongwith the Manager
and the actual offender, as the case may be. Penalty follows
actus reus, mens-rea being irrelevant.
As already noticed, where the company owns a factory it
is the company which is the occupier, but, since company is
a legal abstraction without a real mind of its own, it is
those who in fact control and determine the management of
the company, who are held vicariously liable for commission
of statutory offences. The directors of the company are,
therefore, rightly called upon to answer the charge, being
the directing mind of the company. Dealing with the question
of vicarious liability of the directors for offences
committed by a company, the following observations of Lord
Diplock in Tesco Supermarkets Ltd. V. Nattrass [(1972) AC,
153], are useful :
"In my view, therefore, the
question: what natural persons are
to be treated in law as being the
company for the purpose of acts
done in the course of its business,
including the taking of precautions
and the exercise of due diligence
to avoid the commission of a
criminal offence, is to be found by
identifying those natural persons
who by the memorandum and articles
of association or as a result of
action taken by the directors, or
by the company in general meeting
pursuant to the articles, are
entrusted with the exercise of the
powers of the company. This text is
in conformity with the classic
statement of Viscount Haldane, Lord
Chancellor, in Lennard’s Carrying
Company Ltd. Vs. Asiatic Petroleum
Company Ltd."
{Emphasis supplied}
The passage of Viscount Haldane, Lord Chancellor, in
Lennard’s Carrying Company Ltd. v. Asiatic Petroleum Company
Ltd. [(1915) AC 705], referred to by Lord Diplock, is as
follows :
My Lords, a corporation is an
abstraction. It has no mind of its
own any more than it has a body of
its own; its active and directing
will must consequently be sought in
the person of somebody who for some
purposes may be called an agent,
but who is really the directing
mind and will of the corporation,
the very ego and centre of the
personality of the corporation.
That person may be under the
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direction of the shareholders in
general meeting; that person may be
the board of directors itself, or
it may be, and in some companies it
is so, that person has an authority
co-ordinate with the board of
directors given to him under the
articles of association......"
We are in complete agreement with the above view
propounded by Lord Diplock and Viscount Haldane, Lord
Chancellor and hold that under the Act only one of the
directors, the directing mind and will of the company, its
alter ego, can be nominated as an occupier for the purposes
of the Act.
The object of the Act would stand defeated if for the
commission of strict offences, the identified director, as
the deemed occupier of the factory, is not held vicariously
liable. An argument similar to the one raised before us
regarding the harshness of the provision insofar as an
"innocent" director is concerned, was also canvassed in M.C.
Mehta’s case (supra). We may excerpt that portion which
formulates the question and furnishes the answer :
"So far as the undertaking to be
obtained from the Chairman and
Managing Director of Shriram is
concerned it was pointed out by
Shriram that Delhi Cloth Mills Ltd.
which is the owner of Shriram has
several units manufacturing
different products and each of
these units is headed and managed
by competent and professionally
qualified persons who are
responsible for the day to day
management of its affairs and the
Chairman and Managing Director is
not concerned with day to day
functioning of the units and it
would not therefore be fair and
just to require the Chairman and
Managing Director to give an
undertaking that in case of death
or injury resulting on account of
escape of chlorine gas, the
Chairman and Managing Director
would be personally liable to pay
compensation. We find it difficult
to accept this contention urged on
behalf of Shriram. We do not see
any reason why the Chairman and/or
Managing Director should not be
required to give an undertaking to
be personally liable for payment of
compensation in case of death or
injury resulting on account of
escape of chlorine gas."
We, therefore, find no hesitation in rejecting the
argument of learned counsel for the appellants.
It deserves a notice that under the Act, the
legislature has itself taken care to dilute the rigor of
Section 92 by providing an exception to the strict liability
rule by laying down a third party procedure in Section 101
of the Act which reads :
101. Exemption of occupier of
manager from liability in certain
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cases.- Where the occupier or
manager of a factory is charged
with an offence punishable under
this Act, he shall be entitled,
upon complaint duly made by him and
on giving to the prosecutor not
less than three clear days notice
in writing of his intention so to
do, to have any other person whom
he charges as the actual offender
brought before the Court at the
time appointed for hearing the
charge; and if, after the
commission of the offence has been
proved, the occupier or manager of
the factory, as the case may be,
proves to the satisfaction of the
court-
(a) that he has used due diligence
to enforce the execution of this
Act, and
(b) that the said other person
committed the offence in question
without his knowledge, consent or
connivance,-
that other person shall be
convicted of the offence and shall
be liable to the like punishment as
if he were the occupier or manager
of the factory, and the occupier or
manager, as the case may be, shall
be discharged from any liability
under this Act in respect of such
offence :
Provided that in seeking to prove
as aforesaid, the occupier or
manager of the factory, as the case
may be, may be examined on oath,
and his evidence and that of any
witness whom he calls in his
support shall be subject to cross-
examination on behalf of the person
he charges as the actual offender
and by the prosecutor :
Provided further that, if the
person charged as the actual
offender by the occupier or manager
cannot be brought before the Court
at the time appointed for hearing
the charge, the Court shall adjourn
the hearing from time to time for a
period not exceeding three months
and if by the end of the said
period the person charged as the
actual offender cannot still be
brought before the Court, the Court
shall proceed to hear the charge
against the occupier or manager and
shall, if the offence be proved,
convict the occupier or manager."
This section which lays down "third party procedure" as
a defence, is in a way an exception to the general rule and
enables the occupier or the manager of the factory, to
extricate himself from punishment by establishing that the
actual offender is someone else and giving satisfactory
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proof of facts as are contemplated by Section 101 (a) & (b).
The principle underlying Section 101 may well be gathered
from the following observations of Phillimore J. in Ward v.
Smith [1913(3)K.B. 154], while dealing with a somewhat
similar provision in England, the learned Judged said :
A prima facie liability is imposed
upon the occupier or manager from
which however he can extricate
himself; otherwise he remains
liable. The scheme of the Act is
first to find the de facto
employer. An information may be
laid against the occupier. His way
of escape is provided for by this
section. He may set up a defence
not unlike the defence of warranty
which the seller of food may set up
under the English Sale of Food and
Drugs Act. He may show that the
offence was not committed by his
fault. To do this he must bring the
real offender before the court."
Prof. Glanville Williams in his "Text Book on Criminal
Law" (1978 Edn.), while dealing with exceptions to the
strict liability rule opined that the principle of strict
liability may be modified by the statute itself and further
that the statutes, generally speaking, contain two main
types of excuses (i) the third party procedure and (ii) the
no-negligence defence. Prof. Williams observes at page 954 :
"As to the first, some penal
statutes provide that when a charge
is brought under them the defendant
may bring in any other person (e.g.
a supplier) to whose act or default
he alleges that the contravention
was due, and shift the blame to
him. The defence is sometimes
called a "passing on" defence. The
most important examples are in the
Shops Act 1950 (s.113), the
Medicines Act 1968 (s.121) (this
Act replacing the provisions of the
1955 Act with regard to drugs), the
Weights and Measures Act 1963
(s.27), and the Factories Act 1961
(s. 161).
The ’passing on’ defence provided in Section 101 of the
Act is an accepted form of an exception to the principle of
strict liability but its benefit would be available only
when the requirements of that Section are fully complied
with and the Court is satisfied about the proof of facts as
are contemplated by clauses (a) and (b) of Section 101.
The provisions of Section 101 are almost identical to
the provisions of Section 71 of the Factories Act prior to
its amendment, with the difference that under Section 101, a
provision for 3 days advance notice to the prosecutor has
been added. Under Section 101, after a complaint is made by
the Inspector of Factories against the manager or occupier
under Section 92 of the Act for contravention of any of the
provisions of the Act, the manager or occupier is entitled
to complain against the actual offender before the Court and
if he does so, the actual offender is given a notice and
brought before the court and the trial then proceeds against
both the persons complained against, because the Section
contemplates both sets of complaints (one filed by the
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Inspector of Factories and the other by the manager or the
occupier) and both the accused (one as named by the
Inspector of Factories and the other as named by the Manager
or occupier) being brought before the Court at the same
time. The carriage of proceedings is with the original
complainant (Inspector of Factories) and the onus also lies
on him of proving that an offence has been committed. Both
the parties complained against (one by the Inspector and the
other by the Manger or occupier) are entitled to cross-
examine the prosecution witnesses at this stage and also
lead evidence to disprove the charge. If the prosecution
fails to prove the offence, both of them would be acquitted.
However, if the offence is proved then the trial court shall
record an order to that effect and the occupier or manager
shall be afforded an opportunity to extricate himself from
the liability provided he can give satisfactory proof of the
facts required by Section 101 (a) and (b). The onus of
proof, at that stage, is shifted to the manager or the
occupier. He is entitled to call evidence as well as to give
evidence himself. The alleged actual offender would have a
right to cross-examine the manager or the occupier as the
case may be. He would also be entitled to call evidence.
Even where the occupier establishes that the actual offender
is the person named by him, he must still prove to the
satisfaction of the Court, that he had used due diligence to
enforce the execution of the act and that the said other
person committed the offence in question without his
knowledge, consent or connivance.
In State of Gujarat Vs. Kansara Manilal [AIR 1964 (SC),
1893 at 1897] while dealing with the provisions of Section
101 of the Act, this Court opined :
"Where an occupier or a manager is
charged with an offence he is
entitled to make a complaint in his
own turn against any person who was
the actual offender and on proof of
the commission of the offence by
such person the occupier of the
manager is absolved from liability.
This shows that compliance with the
preemptory provisions of the Act is
essential and unless the occupier
or manager brings the real offender
to book he must bear the
responsibility. Such a provision
largely excludes the operation of
S. 117 in respect of persons guilty
of a breach of the provisions of
the Act. It is not necessary that
mens rea must always be established
as has been said in some of the
cases above referred to. the
responsibility exists without a
guilty mind. An adequate safeguard,
however, exists in Section 101
analysed above and the occupier and
manager can save themselves if they
prove that they are not the real
offenders but who, in fact is."
This judgment has been noticed with approval by a three
Judge Bench of this Court in Maneklal Jinabhai Kot Vs. State
of Gujarat & Ors. [ 1967 (2) SCR, 507]. We are in respectful
agreement with the view that an adequate safeguard has been
provided under Section 101, under which, for circumstances
mentioned therein, the occupier or manager can absolve
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himself from the liability if he can establish to the
satisfaction of the Court that he is not the real offender
but it is the other person charged by him who deserves to be
punished and that he had been diligent and further that the
offence was not committed with his knowledge, consent or
connivance.
Mr. Jain, learned senior counsel, however, argued that
since Section 101 requires that the actual offender must be
brought before the Court at the time appointed for hearing
the charge or at the latest within a period of three months
thereafter and if by the end of that period the actual
offender cannot be brought before the Court, the Court would
proceed to hear the charges against the occupier or the
manager and convict him if the offence is proved, renders
the benefit of Section 101 as illusory. We find ourselves
unable to agree. The scheme of Section 101 being that the
occupier or manager should be relieved from liability only
if the actual offender could be brought to Court, the
presence of the actual offender on whom the burden has been
shifted by the occupier or the manager would be necessary,
at the time of trial and a period of three months has been
prescribed by the Legislature within which the actual
offender should ordinarily be brought before the Court by
the process of law. If that cannot be done, the trial
against the occupier or the manager as the case may be,
cannot be allowed to be protracted indefinitely and we find
it difficult to see how any fault can be found with this
provision.
Thus, we are of the opinion that proviso (ii) to
Section 2(n) when considered in relation to Section 92 of
the Act does not offend Article 21 of the Constitution of
India either.
That Section 92 is a perfectly valid piece of
legislation insofar as it makes the occupier or manager of a
factory guilty of an offence for contravention of any of the
provisions of the Act or the rules made thereunder, even if
the actual contravention may not have been committed by the
occupier or the manager. is not disputed or doubted before
us and, therefore, we are unable to appreciate how the
provision contained in proviso (ii) to Section 2(n) can
render the said proviso read with Section 92 invalid or
unreasonable or how it offends Article 19(1)(g) of the
Constitution by defining an occupier to be only the director
of the company.
Article 19(1)(g) of the constitution guarantees to a
citizen the right to practice any profession or to carry on
any occupation, trade or business. This right, however, is
subject to Clause (6) of Article 19 which lays down that
nothing in sub-Clause (g) of Article 19(1) shall affect the
operation of any existing law insofar as it imposes or
prevents the State from making any law imposing in the
interest of the general public reasonable restrictions on
the exercise of the right. Clause (6) of Article 19 is
intended to strike a balance between individual freedom and
social control. Keeping in view the object of the Act, we
must look to the reasonableness of the provision requiring
the nomination of a director as the occupier of the factory
under Section 7 of the Act, with a view to determine whether
proviso (ii) to Section 2(n) has a rational nexus with the
object which the legislature seeks to achieve. It was, as
already observed, with a view to secure proper and effective
enforcement of the provisions of the Act and the Rules made
thereunder, that the legislature considered it appropriate
to fasten the liability for proper implementation of the Act
on one of the directors by insisting that in the case of a
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company, which owns the factory, one of the directors shall
be deemed to be the occupier for all purposes, including
prosecution and penalty in respect of offences committed
under the Act. The Legislature has attempted to plug the
loopholes, which existed earlier and enabled the directors
to escape their liability by passing on the buck, as they
say, to an employee. It is much too obvious that when top
persons of the company are made conscious of their
responsibilities and duties for the implementation of the
safety and welfare measures in a factory and to carry out
the duties prescribed under the Act, at the pain of
punishment in case they choose to overlook, there are much
greater chances that proper care would be taken for
maintenance of the factory, particularly in regard to the
safety measures and welfare of workers.
There is, therefore, nothing unreasonable in fixing the
liability on a director of a company and making him
responsible for compliance with the provisions of the Act
and the rules made thereunder and laying down that if there
is contravention of any of the provision of the Act or an
offence is committed under the Act, the notified director,
and in the absence of the notification, any one of the
directors of the company, shall be prosecuted and shall be
liable to be punished as the deemed occupier. "A law has to
be judged for its constitutionality by the generality of
cases it covers, not by the freaks and exceptions it
martyrs." [See AIR 1977 S.C. 2279 (supra)].
The restriction imposed by proviso (ii) if at all, it
may be called a restriction, has, a direct nexus with the
object sought to be achieved and is, therefore, a reasonable
restriction within the meaning of clause (6) of Article 19.
Proviso (ii) to Section 2(n) is thus, not ultra-vires
Article 19(1)(g) of the Constitution.
Thus, from the above discussion, it follows that the
directions given by the Chief Inspector of Factories to the
writ petitioners and the appellants herein to the effect
that only a director of the company could file an
application for renewal of the factory licence (or for grant
of factory licence), as occupier of the factory and that no
other employee could make such an application even if
nominated by the company as an occupier of the factory,
suffers from no infirmity whatsoever.
To sum up our conclusions are :
(1) In the case of a company, which owns a factory, it
is only one of the director of the company who can be
notified as the occupier of the factory for the purposes of
the Act and the company cannot nominate any other employee
to be the occupier of the factory:
(2) Where the company fails to nominate one of its
directors as the occupier of the factory, the Inspector of
Factories shall be at liberty to proceed against any one of
the directors of the company, treating him as the deemed
occupier of the factory, for prosecution and punishment in
case of any breach or contravention of the provisions of the
Act or for offences committed under the Act.
(3) Proviso (ii) to Section 2(n) of the Act is
intravires the substantive provision of Section 2(n) of the
Act;
(4) Proviso (ii) to Section 2(n) is constitutionally
valid and is not ultra-vires Articles 14, 19(1)(g) and 21 of
the Constitution of India;
(5) The law laid down by the High Courts of Bombay,
Orissa, Karnataka, Calcutta, Guwahati and Madras is not the
correct law and the contrary view expressed by the High
Courts of Allahabad, Madhya Pradesh, Rajasthan and Patna is
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the correct enunciation of law in regard to the ambit and
scope of proviso (ii) to Section 2(n) of the Act.
All the writ petitions and the appeals by special leave
consequently fail and are hereby, dismissed. We, however,
leave the parties to bear their own costs.