"I realise that some of my criticisms may be mistaken; but to refuse to criticize judgements for fear of being mistaken is to abandon criticism altogether... If any of my criticisms are found to be correct, the cause is served; and if any are found to be incorrect the very process of finding out my mistakes must lead to the discovery of the right reasons, or better reasons than I have been able to give, and the cause is served just as well."

-Mr. HM Seervai, Preface to the 1st ed., Constitutional Law of India.

Monday, July 24, 2017

PF Act, Contract Labourers & Principal Employer

Doubts are often expressed by Principal Employers on their liability vis-a-vis the Contract Labourers engaged in the Principal Employer's Establishment through Contractors. Strictly speaking, for the purposes of the Employees' Provident Funds & Miscellaneous Provisions Act, 1952, the term "Establishment" is relevant. Seen in its truest spirit, the PF Act calls for determination of the number of employees not on the basis of the number of direct employees of the Principal Employer alone but also the Contract Labourers. Consequently, it does not matter if the Contractor does not employ on his rolls 20 persons (and therefore claims exemption from the PF Act). Therefore, it is in the interest of the Principal Employer to specifically provide or agree upon in the Contract with the Contractor at the time of contract negotiations that the Contractor has to pay the PF for his workers as well.

Some courts have held that if the Contractor has his own code, then he, not the Principal Employer" is the Establishment (and the Employer). Although this is convenient for Principal Employers (and seems to find courts' acceptance), the PF Act per se does not recognise this aspect. The PF Act places the burden on the Principal Employer provided the Contract workers work in the premises of the Principal Employer. The PF authorities have tried to distinguish these judgements.

So long as the total number of employees (including Contract Labour) working in the Establishment crosses the 20 persons threshold, the Principal Employer (and not the Contractor) is obligated to comply with the PF Act. 

In a recent circular (No. C-I/3(19)2016/Clarification/ECR/7357, Dated 21.07.2017) by the PF authorities pertaining to separate PF Code and payment mechanism for employees working in multiple locations, the PF Authorities have stated that a facility has now been provided "to such employers to furnish their location-wise employees’ particulars." This will only support the arguments of the Principal Employers that even such Contract Labourers work in their premises, the "Establishment" will refer to that of the Contractor and not the Principal Employer.

Thursday, July 20, 2017

Contempt Mechanism under Section 27(5) of the A&C Act 1996

On the 6th of July, the Supreme Court passed a judgement in the case of Alka Chandewar v. Shamshul Ishrar Khan [Civil Appeal No. 8720/2017]. The Civil Appeal arose against a judgement of the Bombay High Court where the High Court construed Section 27(5) to state that teh said provision did not "empower the Tribunal to make representation to the Court for contempt if orders including interim orders passed by the Arbitrator except in respect of taking evidence are violated by the party."
The said position taken up by the High Court is correct for the following reasons:

(1) The text of Section 27(5) is based on of Regulation XVI of the Regulations for the Administration of Justice in the Courts of the Mofussil Dewannee Adaulut and in the Suddur Dewannee Adaulut, 1781 (“1781 Regulation). The said provision reads: 
XXVI … [T]he Court shall grant the like Process as well to the Parties and Witnesses to appear before such Arbitrator and shall administer such Oath to the Parties and Witnesses as the Court is authorized to do in Causes tried before the Judge thereof And the several Persons not attending in consequence of such Process or making any Default or refusing to give their Testimony or sign their Depositions or being guilty of any Comtempt to the Munsiffs in the executing of his Office shall be subject to like Disadvantages Penalties and Punishments by Order made by the Arbitrator as they would incur for the same Causes in Suits tried before the Judge of the Court so that the Arbitrator do report such Order together with the Reason for making the same to the Judge of the Court and do obtain the Consent of the Judge thereto which shall be signified by such Judge signing such Order with his Name;” 
This provision was adopted in the Code of Civil Procedure 1859, which was then adopted in the Codes of 1877, 1882 and 1908. Section 43(2) of the Arbitration Act, 1940 borrowed this provision and the same was once again borrowed into the 1996 Act. These provisions were enacted at a time when the arbitral tribunal was not empowered to pass interim orders at all! [See for instance, Surendra Kumar Roy Chowdhury v. Sushil Kumar Roy Chowdhury AIR 1928 Cal 256]. It is not possible that the predecessors of Section 27(5) could have applied to disobedience to an interim order by the tribunal. It was only for the first time under the 1996 Act that an arbitral tribunal was empowered to order interim measures.Therefore, how can one construe the same provision to mean that the tribunal was empowered to refer matters to the High Court for contempt?

(2) The scope of Section 43(2) of the 1940 Act [the present Section 27(5)] and its predecessors was restricted to witnesses alone 

[Interestingly, the 1859 Code formed the basis on which the Jamaican Code of Civil Procedure, 1879 (“Jamaican Code”) was drafted. Section 343 of the Jamaican Code contained a provision virtually identical to Section 317 of the 1859 Code. Significantly, the Marginal Note to Section 343 read: “Non-attendance or contempt by witness”. See, GOVERNMENT OF JAMAICA, The Laws of Jamaica Passed in the Year 1879 (1879)].

In its 76th Report, the Law Commission of India has stated the following in respect of Section 43: 
"Section 43 confers powers on the court to issue processes for appearance before the arbitrator or umpire. The power is co-extensive with the corresponding power of the court in suits tried before it. There are consequential provisions in regard to persons who fail to attend, and there is a definition of the expression “processes”. No amendment is required in the section.” 
The aforesaid observations clearly imply that Section 43 dealt with the “consequential provisions” pertaining to failing to honour the summons for witnesses or for production of documents and other default by the recipient of such summons and did not encompass contempt to the arbitral tribunal for breach of its interim orders.

(3) Even precedents under Section 43 of the 1940 Act provided for a limited scope:

In Nihaluddin v. Tej Pratap Singh and Ors. [AIR 1968 All 157], the Consolidation Officer referred a dispute as to title to the Civil Judge, who in turn, referred the matter to the arbitrator as per Section 37 of the U.P. Consolidation of Holdings Act, 1939. One of the parties to the dispute allegedly disobeyed the injunction order passed by the statutory arbitrator. The other party filed a criminal miscellaneous petition under Section 3 of the Contempt of Courts Act, 1952 alleging contempt. The court had to decide whether the arbitrator was a “court”. Having held that the arbitrator was not a court, the Allahabad High Court went on to hold that the opposite party could not be guilty of contempt of court in having overlooked the arbitrator’s order. On the scope of the provision, the court held:
Under Section 43 of the Arbitration Act, it is the Court (and not the Arbitrator) who has authority to issue process to the parties and their witnesses whom they or the Arbitrator want or wants to examine. It is again the Court which would enforce the production of documents before the Arbitrator. Thus the Arbitrator again lacks the power to enforce the production of parties, their witnesses and documents, which is a distinguishing feature of Courts.”
The aforementioned arbitrator could pass interim orders since the relevant statute empowered him to do so. Even in such a case, the court held that a party disobeying such arbitrator’s interim orders was not liable for contempt. It is also noteworthy that if the court had the power to initiate contempt proceedings against a party disobeying the tribunal’s orders, either the party would have invoked Section 43(2) of the 1940 Act or the court would have referred to it, especially when the court discussed Section 43 of the 1940 Act.

Similarly, in M.I. Shahdad v. Mohd. Abdullab Mir and Ors.[AIR 1967 J&K 120], the High Court of Jammu & Kashmir held that the sole purpose of Section 43 was to “ensure service or process”. In Union of India v. Bhatia Tanning Industries [AIR 1986 Delhi 195], the Division Bench of the Delhi High Court held that Section 43 was “confined to cases where a person, whether a party or a third person, is required to appear as a witness before the arbitrator” and that where a witness was guilty of contempt to the arbitrator or the umpire, he could be taken to task by the court. Notably, the High Court held that Section 43 was “confined to witnesses and witnesses alone.”. This position has been affirmed by the Supreme Court in Delta Distilleries Limited v. United Spirits Limited and Anr. [2013(4) Arb LR 47 (SC)]

(4) The interpretation affording the power to refer for contempt for all kinds of disobedience is not correct. Section 27(4) employs the term “witnesses” while Section 27(5) speaks of “persons”. Consequently, it is possible to contend that Section 27(5) is not merely restricted to witnesses but to any person, including a person who disobeys an interim order of the arbitral tribunal. However, the placement of Section 27(5) in Section 27 (which is titled “Court assistance in taking evidence”) itself militates against this argument. Even otherwise, the said contention might not hold much water. Section 27(2)(c) provides that an application under Section 27(1) shall specify the name and address of a “person” to be heard as witness or expert witness. Section 27(4) employs the term “witnesses” and not “persons”. Reading Sections 27(2)(c) with Section 27(5), it is clear that “person” employed in both sections refer either to a third party witness or to a party-witness. Consequently, the difference in references in Sections 27(4)(witness) and 27(5)(person) cannot be determinative of the applicability of Section 27(5) to disobedience of orders under Section 17.

For these reasons the decision of the Supreme Court is erroneous. 

It is pertinent to note that the Supreme Court observed that the 2015 amendments making Section 17 enforceable provide a better remedy and therefore reference to the Court under Section 27(5) may "no long be necessary".  The decision can be accessed from here.