Section 2(s) ID Act | Contract Labourers and Security Guards Under Direct Supervision Are 'Workmen'; Lay-Off Requires Prior Permission : Karnataka HC

The Karnataka High Court has clarified that contract labourers and security guards employed under the direct supervision and control of an establishment qualify as 'workmen' under Section 2(s) of the Industrial Disputes Act, 1947. This holding significantly expands the scope of establishments subject to mandatory prior permission requirements for lay-off and retrenchment, overturning a narrow interpretation that excluded non-permanent workers from the statutory threshold of 100 workmen.

Background & Facts

The Dispute

The dispute arose from the lay-off of 84 workmen by M/s Karnataka Malladi Biotics Ltd. (now Embio Ltd.) effective 22.06.2009, followed by their retrenchment on 06.08.2009. The management claimed that the establishment employed only 92 regular workers during the preceding 12 months, thereby falling below the statutory threshold of 100 workmen under Section 25K of the Industrial Disputes Act, 1947. Consequently, it argued that Chapter V-B of the Act - which mandates prior government permission for lay-off and retrenchment - did not apply.

The workmen, represented by the Karnataka Malladi Biotics Employees Union, contended that the total workforce exceeded 100 persons when 17 security guards and 28 contract/casual labourers were included. They alleged that the lay-off and retrenchment were pre-planned to suppress wage demands and circumvent statutory obligations.

Key Facts

• The establishment was engaged in manufacturing bulk drugs for pharmaceutical clients.
• The last wage settlement expired on 31.03.2009.
• On 27.03.2009, the workers’ union submitted a charter of demands for wage revision effective 01.04.2009.
• The management responded with a counter-demand for 20% wage reduction and introduced a Voluntary Retirement Scheme (VRS) from 08.06.2009 to 10.07.2009, which no worker accepted.
• On 22.06.2009, the management laid off 84 workers without prior government permission.
• On 06.08.2009, the same 84 workers were formally retrenched.
• The management claimed the lay-off was due to non-availability of raw materials and accumulation of unsold stock.
• The workmen alleged that raw materials were procured and finished goods were transported to the sister concern in Maharashtra, indicating the lay-off was mala fide.
• The management employed 92 regular workmen, 17 security guards, and 28 contract/casual labourers during the relevant period.
• The security guards were directly appointed by the management, wore uniforms, and were under its administrative control.
• The contract labourers were paid monthly wages through State Bank of India accounts maintained by the management.
• The names of security guards and contract labourers did not appear in the attendance registers (Ex.M5 to M31), which the management relied upon.

Procedural History

• 22.06.2009: Lay-off of 84 workmen commenced.
• 06.08.2009: Formal retrenchment of 84 workmen.
• 28.05.2010: Government referred the dispute to the Industrial Tribunal under Section 10(1)(c)/(d) of the ID Act.
• 21.07.2015: Industrial Tribunal at Mysore dismissed the reference, holding that only 92 regular workers were employed and that security guards and contract labourers did not qualify as workmen under Section 2(s).
• 17.08.2012: Tribunal issued a direction to the management to produce muster rolls, wage registers, and attendance records of contract labourers and security personnel.
• 2015: Workmen filed Writ Petition No. 57049/2015 before the Karnataka High Court.
• 2018: Connected Writ Petition No. 17692/2018 filed.
• 27.08.2024: Single Judge dismissed the writ petitions, upholding the Tribunal’s finding that contract workers and security guards were not workmen.
• 2024 - 2025: Three writ appeals filed before the Karnataka High Court Division Bench: WA No. 1637/2024, WA No. 1626/2024, and WA No. 1985/2025.
• 17.02.2026: Appeals heard and reserved.
• 03.06.2026: Judgment pronounced.

The Parties' Positions

For the Workmen (Appellants):

• Argued that Section 2(s) of the ID Act defines a workman by the nature of work performed and the employer-employee relationship, not by employment status (permanent, casual, or contract).
• Relied on Sudarshan Rajput v. U.P. SRTC and New India Assurance Co. Ltd. v. A. Sankaralingam to establish that continuous service, supervision, and control are decisive.
• Highlighted that the management admitted employing security guards and contract labourers under its direct supervision.
• Contended that the failure to produce attendance and wage registers of these workers, despite a Tribunal direction, warranted an adverse inference under Section 114(g) of the Evidence Act.

For the Management (Respondents):

• Maintained that only 92 regular employees were on the muster rolls.
• Argued that security guards and contract labourers were hired through third-party agencies and were not under direct control.
• Claimed that the absence of names in attendance registers proved they were not workmen.
• Asserted that the financial distress of the company justified the lay-off and retrenchment.
• Contended that concurrent findings of fact by the Tribunal and Single Judge should not be disturbed.

Relief Sought

The appellants sought:

• Declaration that the lay-off and retrenchment were illegal for violation of Sections 25M and 25N of the ID Act.
• Reinstatement of all retrenched workmen with full back wages and consequential benefits.
• Alternatively, substantial compensation for the loss of employment.

The Legal Issue

The central question was whether security guards and contract labourers, employed under the direct supervision and control of the management and paid wages by it, qualify as 'workmen' under Section 2(s) of the Industrial Disputes Act, 1947, for the purpose of computing the threshold of 100 workmen under Section 25K.

Arguments Presented

For the Appellant/Petitioner

The appellants relied on the expansive definition of 'workman' under Section 2(s), which includes any person employed to perform manual, skilled, technical, operational, clerical, or supervisory work for hire or reward, irrespective of whether the employment is permanent, casual, or contractual. They cited Sudarshan Rajput v. U.P. SRTC to argue that long-term engagement as a casual worker, especially where the nature of work is permanent, amounts to an unfair labour practice. They further relied on New India Assurance Co. Ltd. v. A. Sankaralingam to establish that part-time or non-permanent workers under supervision qualify as workmen. The appellants emphasized that the management’s admission of direct control over security guards and payment of wages to contract labourers through its accounts established an employer-employee relationship. They argued that the failure to produce muster rolls and wage registers after a specific Tribunal direction triggered an adverse inference under Section 114(g) of the Evidence Act, shifting the burden to the management to disprove the claim.

For the Respondent/State

The respondents contended that only those appearing on the official attendance and muster rolls qualify as workmen under Section 25K. They argued that the 17 security guards were hired through a third-party agency and the 28 contract labourers were engaged on a temporary basis, thus falling outside the definition of 'workmen'. They relied on the Tribunal’s finding that the absence of names in the attendance registers proved they were not employees of the establishment. The respondents further argued that the financial distress of the company, including accumulated losses of Rs.30.17 crores and non-availability of raw materials, justified the lay-off. They maintained that the concurrent findings of fact by the Tribunal and the Single Judge were entitled to deference and that no adverse inference could be drawn without a prima facie case being established.

The Court's Analysis

The Court undertook a rigorous interpretation of Section 2(s) of the Industrial Disputes Act, 1947, rejecting the narrow view that only permanent employees qualify as workmen. It emphasized that the definition is inclusive and does not contain any qualification based on permanency, regularity, or mode of engagement. The Court held: "Any person who is employed in an industry and he is paid wages/reward for performing manual, unskilled, skilled, technical, operational, supervisory work for hire or reward is a workman. The nature of employment i.e., temporary or regular, is not relevant to mention whether a person employed in an industry is a workman or not."

The Court critically examined the management’s reliance on attendance registers and found it insufficient. It noted that the management itself admitted, through its witness MW.1, that security guards were directly appointed and were under its control, even if not permanent. The Court observed: "The fact that the names of security staff are not mentioned in Ex.M5 to M31... does not negate the existence of an employer-employee relationship."

The Court then turned to the issue of non-production of documents. It held that the Tribunal had specifically directed the management on 17.08.2012 to produce muster rolls, wage registers, and attendance records of contract labourers and security personnel. The management failed to comply. Citing Gopal Krishnaji Ketkar v. Mohamed Haji Latif and Tomasso Bruno v. State of Uttar Pradesh, the Court affirmed that where a party withholds documents in its exclusive possession that are crucial to the issue, an adverse inference under Section 114(g) of the Evidence Act must be drawn. The Court stated: "The burden was shifted on the management to disprove the assumption of the workmen by producing the documents. As the management failed to produce the documents/records, an adverse inference should have been drawn against the respondent-establishment."

The Court further relied on Sudarshan Rajput to hold that continuous employment for years, even as a casual worker, cannot be used to circumvent statutory protections. The Court concluded that the 17 security guards and 28 contract labourers, who were paid wages by the management and operated under its supervision, were unquestionably workmen under Section 2(s). Adding these to the 92 regular workers, the total workforce exceeded 100, thereby triggering Chapter V-B of the ID Act.

The Court held that since no prior permission was obtained under Section 25M for lay-off or Section 25N for retrenchment, the actions were illegal. Under Section 25N(7), such retrenchment is deemed illegal from the date of notice, entitling the workmen to all benefits as if no notice had been given. However, recognizing the passage of 18 years since the retrenchment and the financial collapse of the establishment, the Court declined reinstatement and back wages, instead awarding a lump sum compensation.

"The concept 'regular employee' is not employed in the definition as provided under Section 2(s). Any person who is employed in an industry and he is paid wages/reward for performing manual, unskilled, skilled, technical, operational, supervisory work for hire or reward is a workman."

The Verdict

The writ appeals were allowed. The orders of the Industrial Tribunal dated 21.07.2015 and the Single Judge dated 27.08.2024 were set aside. The Court held that the establishment employed more than 100 workmen during the relevant period, making Chapter V-B of the ID Act applicable. The lay-off and retrenchment were declared illegal for failure to obtain prior government permission. The management was directed to pay a lump sum compensation of Rs.3,00,000/- to each of the 84 retrenched workmen within eight weeks from the date of judgment. No order was made on costs.

What This Means For Similar Cases

Workman Status Is Not Dependent on Employment Label

• Practitioners must now argue that the label 'contract worker', 'casual', or 'security guard' is irrelevant - what matters is whether the person performs work for hire or reward under the employer’s supervision.
• Any worker performing manual, technical, or supervisory duties, even part-time or on a temporary basis, qualifies as a workman if the employer exercises control over the manner of work.
• Employers can no longer avoid statutory obligations by reclassifying permanent roles as contractual.

Adverse Inference Applies to Non-Production of Employment Records

• When a tribunal or court directs production of muster rolls, wage registers, or attendance records, and the employer fails to comply, an adverse inference under Section 114(g) of the Evidence Act is mandatory.
• The burden shifts to the employer to explain the non-production; silence or delay cannot be used to defeat a claim.
• This principle applies equally in industrial disputes, service matters, and wage claims.

Threshold of 100 Workmen Must Include All Directly Controlled Workers

• Employers must now count all individuals under their direct supervision - including security, housekeeping, and contract labour - when determining whether they exceed the 100-worker threshold under Section 25K.
• Third-party hiring does not absolve the principal employer if the workers are under its administrative control and paid through its systems.
• Legal audits of workforce composition must now include non-permanent staff to assess exposure to Chapter V-B obligations.