Lanco Anapara power limited vs State of Uttar Pradesh

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Lanco Anapara Power Limited v. State of Uttar Pradesh & Ors.

Case law
09 December 2016

Introduction

By way of its recent judgment (Lanco Anapara Power Limited v. State of Uttar Pradesh & Ors., 2016 SCC OnLine SC 1153) (Lanco judgment), the Hon’ble Supreme Court has put an end to the long-standing debate on whether registration under the Factories Act, 1948 (Factories Act) excludes the applicability of the Building and Other Construction Workers (Regulation of Employment and Conditions of Service) Act, 1996 (BOCW Act) and the Building and Other Construction Workers Welfare Cess Act, 1996 (BOCW Cess Act) at the time of construction of a manufacturing unit. This issue was pending before several high courts throughout the country and was required to be conclusively and uniformly settled, thereby providing clarity to the construction and related industries, as well as ensuring the welfare of construction workers under the two distinct legislations.

Facts

The appeal before the Hon’ble Supreme Court arises out of the unanimous decision taken by the High Courts of Allahabad, Orissa, Madhya Pradesh, Karnataka and the various transfer petitions relating to the same issues before various High Courts. This decision of the various High Courts arises from the following factual matrix:

  • Appellants were issued show cause notices by the BOCW authorities for non-compliance with the BOCW Cess Act and the BOCW Act. The said notices were challenged before different High Courts.
  • The Appellants took the view that the provisions of the BOCW Act were not applicable to them because they stood registered under the Factories Act. The Appellants relied on Section 2(d) of the BOCW Act that specifically states that building or construction work does not include any building to which provisions of the Factories Act apply.
  • The High Courts negated the aforesaid plea on the ground that such workers would not be covered under the definition of workers under the Factories Act in the absence of any operations/manufacturing process being carried at the factory premises and therefore mere registration under the Factories Act would not suffice and rescue them from the liability under the BOCW Act and the BOCW Cess Act.

Judgements

The Hon’ble Supreme Court of India in the Lanco Judgment conclusively decided on 18 October 2016 that construction workers who are engaged in the construction of a factory premises but are not engaged in any kind of manufacturing activity, would not qualify to be workers under the Factories Act.

The judgment has drawn a clear distinction between the applicability of the BOCW Act and the Factories Act to construction workers. It elucidates the definition of a “factory” to gauge the applicability of the Factories Act. The Hon’ble Supreme Court held that a factory, for the purposes of the Factories Act, would mean an establishment where some manufacturing activity is being carried on and the workers engaged in such manufacturing process would be the workers eligible for welfare benefits provided under the Factories Act. Thus, the provisions of the Factories Act would apply only to workers engaged in the actual manufacturing process.

The judgment has drawn a clear distinction between the applicability of the BOCW Act and the Factories Act to construction workers. It elucidates the definition of a “factory” to gauge the applicability of the Factories Act. The Hon’ble Supreme Court held that a factory, for the purposes of the Factories Act, would mean an establishment where some manufacturing activity is being carried on and the workers engaged in such manufacturing process would be the workers eligible for welfare benefits provided under the Factories Act. Thus, the provisions of the Factories Act would apply only to workers engaged in the actual manufacturing process.

In respect to the argument made that the BOCW Act categorically excludes any building or other construction work to which the provisions of the Factories Act apply in terms of Section 2(d) of the BOCW Act, the Hon’ble Supreme Court makes it clear that registration under the Factories Act becomes necessary at the preparatory stage of a manufacturing facility – i.e., when the factory premises are being constructed – to ensure that the construction is done in a manner that meets the requirements under the Factories Act, such as the safety measures relating to hazardous process, and presence of canteen facilities and adequate number of lavatories.

The Hon’ble Supreme Court adopted a purposive and beneficent rule of construction of the provision of the BOCW Act. It interpreted the provision under the BOCW Act that does not allow the simultaneous applicability of the BOCW and the Factories Act, and held that the provisions of the Factories Act would apply to the workmen engaged in the factory when the manufacturing process starts and not to construction workers at the time of construction of the factory premises. Thus, the compulsory registration under the Factories Act would in no way make the construction workers amenable to the welfare provisions under the Factories Act, as the said registration is altogether for a different purpose. Thus, in sum, as per the Hon’ble Supreme Court, the construction workers would not be covered by the Factories Act and are entitled to the welfare measure specifically provided under BOCW Act. The Court further clarified that the issue of calculation of respective cess payable under the BOCW Cess Act can be decided before the respective adjudicating authorities.

Implications

The judgment may have far-reaching implications on companies that are engaged in the construction of factory/manufacturing units, on the basis of the registrations obtained under the Factories Act.

In addition to the registration under the Factories Act, such company would also be required to obtain registration and comply with the provisions of the BOCW Act and the BOCW Cess Act.