Subject Group on Administrative And Legal Simplifications

Report on
Implementable Action Plans in the area of
Administrative and Legal Simplifications.

The Task Force interviewed the representatives of the industry and got a feedback that the proposal to introduce an exit policy has been virtually shelved and there are no foreseeable prospects of such a policy coming into existence.

Concerns were also expressed by the industry that in the context of different political ideologies such a policy may not take shape at all and it was therefore considered appropriate to recommend to the Government to at least free the industry from the rigour of the various stringent provisions of the Industrial Disputes Act, the Factories Act and other related labour enactments.

Contract Labour

One area where the industry expects the Government to help them is the law relating to Contract Labour. Though the Contract Labour (Abolition and Regulation) Act (CLARA) is a Central Enactment, the States have unfettered rights to abolish contract labour in any industry for the whole or part of the State.

CLARA provides that the Central or State Governments, as the case may be, should constitute an Advisory Board under section 3 and 4 respectively and, before the Central or State Governments can decide on prohibition on contract labour in a given industry and in a given area of work, it must refer the matter to the Advisory Board. The Advisory Board will go into the various details and examine whether prohibition is warranted and submit its report to the Government. After consulting the Advisory Board, in the context of the report submitted, the Government may take a decision whether or not to abolish contract labour. The consultative process with the Advisory Board is often reduced to a mere formality and the objective needs of the industry are completely ignored while resorting to abolition of contract labour in certain areas of work.

A classic example of such abolition is one which relates to canteen employees. Under section 46 of the Factories Act, every factory in which more than 250 people are employed, a canteen must be provided. It was the understanding of the industry that a facility for employees to have their food must be provided and it was not the obligation of the industry itself to prepare and serve the food to its employees through another set of permanent employees. The industry is concerned with its core competency in manufacturing a particular product and it does not have any competency in matters of catering which it would like to leave to a contractor who is better equipped to provide such services. The industry is aware that there have been judicial pronouncements to the effect that the abolition of Contract Labour is valid but what the industry seeks to represent through the Task Force is that in areas which are not related to the manufacturing process, Contract labour may not be abolished but should definitely be regulated to ensure that all the benefits such as minimum wages, welfare measures and other benefits are fully enforced and administered.

CLARA was aimed at regulating the employment of contract labour as it was considered disorganised and exploited. It is a known fact that Governments are the largest employers of contract labour. It is therefore appropriate that there is a top down commitment to providing safe working condition, wages commensurate with the legal provisions concerning the trade or industry and certain provisions like workmen’s compensation and insurance. Just as the Government cannot afford to absorb the entire contract labour force on its employment rolls, the private sector cannot hope to compete and survive in a free market economy unless it has the flexibility to structure its manpower requirements and outsource or farm out certain jobs which are unrelated to its core activity.

Different States have abolished contract labours in different areas. For example, in certain States maintaining the gardens, sweeping the factory premises, cleaning the toilets (scavenging) have been abolished. This imposes extraordinary burden on the industry to carry on its rolls 50 to 100 people (depending on the size of the premises) for work which is done for a couple of hours on either once or twice a day basis and not on a continuing basis. In order to make industry more productive and also to give it an opportunity to right-size its man power, the Government must seriously look at amending the Contract Labour Act emphasizing more on regulation and curtailing the sweeping powers which the States have on abolition of contract labour, which according to the findings of this Task Force is being resorted, to gain political mileage rather than to facilitate industrial growth.

Right-sizing Manpower

In the context of globalisation many cliched terms like global quality, global competition etc., are being increasingly used. But what is being lost sight of is that global competitiveness is achievable only if certain global benchmarks in relation to running of the business are also considered and accorded due importance.

One such benchmark is the linking of productivity to man power. Over staffing is something which no industry can afford. Improvement in technology, process, automation and other types of improvements often bring about redundancy. It is in this context that the global market talks of downsizing, which is sometimes frowned upon as it is construed that it would lead to a hire and fire policy.

What this Task Force has found during its study is that industry does not really want to necessarily resort to down-sizing but would definitely like to do right-sizing. There must be adequate provision for the industry to be able to shed extra manpower and make the industry productive and globally competitive.

There are provisions relating to retrenchment, but it is a known fact that it is not easy to accomplish even in the most merited cases. The Industrial Disputes Act needs to be revisited to make it possible for industry to not only shed surplus manpower, but also be able to continue the business without having to face labour unrest leading to disruption of work or lockout.

The Task Force therefore recommends that, there should be some provision in the respective enactments, which will enable the industry to shed surplus man power upon payment of certain compensation which can be determined in consultation with the Labour Commissioner or any other person designated by the Government.

Closure of Business

The other area of concern expressed by industry, is that any decision to close down business, gets throttled by legal hurdles. There are businesses which have proved to be unproductive either due to outdated technology or the product becoming irrelevant in the market place. There are situations where an investment made in a business was considered wise on the date of the investment but subsequent events may establish that the investment is not worth building upon and could be a case of ‘spending good money after bad money’. In such cases the industry finds it extremely difficult to close down the factory or for that matter even to lay off employees if the number of employees is more than 100. The permission of the concerned Government is a must and the Government is known to take a very long time to process requests for closure or lay off. This puts enormous burden on industry and it eventually leads to the entire enterprise stagnating.

For example, an industry where more than 100 people are employed is required to go through an elaborate procedure under section 25-O of the Industrial Disputes Act. The industry has to apply atleast 90 days before the date on which closure is to become effective and unless the Government grants permission, closure cannot take place. If an industry is closed down due to financial losses, accumulation of finished goods, expiry of a license period or exhaustion of minerals in the case of mining operations, it is not deemed to be a closure on account of unavoidable circumstances beyond the control of the employer. This is the intention of section 25-FFF for the purposes of payment of compensation in the case of closure.

This leads to a very peculiar situation where if due to financial losses and other factors beyond its control, an industry wants to close down, it should not only go through a long procedure under section 25-O fraught with uncertainties, but also carry the extra burden imposed under the retrenchment provision.

The Task Force had a very meaningful dialouge with the Ministry of Labour and the concerns of the Ministry were also taken note of by the Task Force. The fact that a balance has to be struck between the interest of the industry as also the interest of labour cannot be disputed. But the Task Force recommends that the provisions of chapter V of the Industrial Disputes Act should not be made applicable to industrial units employing more than 100 people in the preceding 12 months. This number is insignificant. In the opinion of the Task Force the Government should concern itself with matters under Chapter V if the workforce is in excess of 1000 workmen.

The Task Force therefore strongly urges the Government to review the relevant provisions of the Industrial Disputes Act and make suitable provisions whereby closure / lay off can be resorted to by industries subject to payment of certain compensation. This will also help the industry to dispose off unproductive assets and to reinvest the proceeds in another profitable venture which could be in the same State, if the State is willing to extend the usual incentives which are available to new ventures.

Director as Occupier

The Task Force also interviewed representatives of industry and found that the mandatory requirement that the Director should be the Occupier of a factory was wholly unwarranted. The amendment made to the Factories Act in the context of the Bhopal Gas tragedy was a reaction prompted by the circumstances which then prevailed. It does not mean that industry is irresponsible or that it wants to run away from its legal obligations in providing a safe environment for the workers. The Factories Act clearly says that the Occupier must be a person having ultimate control over the affairs of the factory, which necessarily means total control over the day to day administration of all the departments in the factory. In the case of most industries, the factories are in far flung areas and in any case not located in the vicinity where the Director resides. It is just and appropriate that the person heading the factory should be the Occupier and no useful purpose will be served if a Director is made the Occupier when in fact he is incapable of discharging his duties as an Occupier on a day to day basis. The head of the factory is in a much better position to ensure safe working conditions and compliance with all the laws applicable to the factory. Therefore the Task Force echoes the sentiment of industry and recommends that the mandatory requirement of Director being the Occupier be dispensed with, by a suitable amendment to the Act, and the person having ultimate control over the affairs of the factory may act as an Occupier, provided his appointment is backed by a resolution of the Board of Directors.