SC:Section 5 of Factories Act can’t be invoked to exempt all factories from complying with humane working conditions

The Hon’ble Supreme Court, on 1st October 2020, in the matter of Gujarat Mazdoor Sabha & Anr. v. The State of Gujarat pronounced that Section 5 of the Factories Act could not have been invoked to issue a blanket notification that exempted all factories from complying with humane working conditions and adequate compensation for overtime, as a response to a pandemic that did not result in an ‘internal disturbance’ of a nature that posed a ‘grave emergency’ whereby the security of India is threatened. In any event, no factory/ classes of factories could have been exempted from compliance with provisions of the Factories Act, unless an ‘internal disturbance’ causes a grave emergency that threatens the security of the state, so as to constitute a ‘public emergency’ within the meaning of Section 5 of the Factories Act.

Questions before the Hon’ble Supreme Court

Whether the COVID-19 pandemic and the ensuing lockdown imposed by the Central Government to contain the spread of the pandemic, have created a public emergency as defined by the explanation to Section 5 of the Factories Act ?

Whether the notification No. GHR/ 2020/56/FAC/142020/346/M3 dated 17 April 2020 and Notification No. GHR/2020/92/FAC/142020/346/M3 dated 20 July 2020) fall within the ambit of the power conferred by Section 5 of the Factories Act ?

The Hon’ble Supreme Court observed that:

Section 5 of the Factories Act, 1948 specifies (i) when an exemption can be granted; (ii) who can exercise the power to grant an exemption; (iii) who can be exempted; (iv) the conditions subject to which an exemption can be granted; (iv) the provisions from which an exemption can be allowed; (v) the period of time over which the exemption may operate; and (vi) the manner in which the exemption has to be notified. An exemption can be granted “in any case of public emergency”. The existence of a public emergency is a pre-requisite to the exercise of the power. Whether there exists a public emergency is not left to the subjective satisfaction of the state government. The absence of the expression “subjective satisfaction” in Section 5 is crucial. The existence of a public emergency must hence be demonstrated as an objective fact, when its existence is questioned in a challenge to the exercise of the power. Left to itself, the expression ‘public emergency’ may have a wide and, as we say in law, an elastic meaning. But the statute as it stands does not leave the expression ‘public emergency’ undefined. The explanation to Section 5 was introduced by the Factories (Amendment) Act of 1976 – Amending Act 94 of 1976 – with effect from 26 October 1976. Interestingly, it was an amendment which was brought in during the internal emergency declared in June 1975 purportedly on account of “internal disturbances”. The effect of the explanation is to circumscribe the ambit of what constitutes a public emergency. The explanation constricts the expression in two ways: first, by confining it to specific causes; and second, by requiring that a consequence must have emanated from those causes before the power can be exercised. Under Section 5 a situation can qualify as a ‘public emergency’, only if the following elements are satisfied: (i) there must exist a “grave emergency”; (ii) the security of India or of any part of its territory must be “threatened” by such an emergency; and (iii) the cause of the threat must be war, external aggression or internal disturbance. The existence of the situation must be demonstrated as an objective fact. The co-relationship between the cause and effect must exist. Implicitly therefore, the statutory provision incorporates the principle of proportionality. (Para 8)

(Para 9) The principle of proportionality envisages an analysis of the following conditions in order to determine the validity of state action that could impinge on fundamental rights:

(i) A law interfering with fundamental rights must be in pursuance of a legitimate state aim;

(ii) The justification for rights-infringing measures that interfere with or limit the exercise of fundamental rights and liberties must be based on the existence of a rational connection between those measures, the situation in fact and the object sought to be achieved;

(iii) The measures must be necessary to achieve the object and must not infringe rights to an extent greater than is necessary to fulfil the aim;

(iv) Restrictions must not only serve legitimate purposes; they must also be necessary to protect them; and

(v) The State should provide sufficient safeguards against the abuse of such interference.

A proclamation of emergency now cannot be issued on a mere internal disturbance and must reach the threshold of an armed rebellion threatening the security of India. The Parliamentary amendments to Article 352 are the product of experience: experiences gained from the excesses of the emergency, experiences about the violation of human rights and above all, experiential learning that the amalgam of uncontrolled power and unbridled discretion provide fertile conditions for the destruction of liberty. The sobering lessons learnt from our not-too-distant history should warn us against endowing a statute with similar terms of a content which is susceptible of grave misuse. (Para 10)

Article 355 does not contemplate the proclamation of an emergency or interference in the functioning of elected state governments. It casts a duty on the Union Government to ensure the protection of the states against external aggression and internal disturbance and to ensure their functioning in accordance with the Constitution. (Para 12)

The expression ‘internal disturbance’ must be interpreted in the context in which it is used. Under Article 352, an internal disturbance must be of the order of an armed rebellion threatening the security of India to proclaim an emergency. Similarly, in order to sustain a valid exercise of power under Article 356 on the ground of an internal disturbance, it must be of such a nature as to disrupt the functioning of the constitutional order of the State; in other words, it must be of such a nature that the government of a state cannot be carried on in accordance with the Constitution. (Para 16)

The power under Section 5 of the Factories Act can be exercised in a “public emergency”. The explanation states that to constitute a public emergency, there must be a grave emergency. The emergency must be of such a nature as to threaten the security of India or a part of its territory. The threat to the security of India or a part of the territory must be caused by war, external aggression or an internal disturbance. The expression ‘internal disturbance’ cannot be divorced from its context, or be read in a manner divorced from the other two expressions which precede it. They are indicative of the gravity of the cause which threatens the security of India or a part of its territory. An internal disturbance must be of a similar gravity. Further, it is necessary to evaluate whether a situation of internal disturbance threatens the security of India, or a part of its territory to qualify as a ‘public emergency’. In the absence of any one or more of the constituent elements, the conditions requisite for the exercise of statutory power will not exist. (Para 19)

Section 5 of the Factories Act provides for the power of exemption from certain provisions of the Act due to the occurrence of a public emergency. The explanation speaks of a grave emergency where the security of India is threatened by war, external aggression or internal disturbance. The power conferred by the provision by its very nature, must be used only where there is a grave emergency implicating an actual threat to the security of the state. The purpose of exercising emergency powers is to avert the threat posed by war, external aggression or internal disturbance and such powers must not be used for any other purpose. (Para 22)

The global pandemic caused by COVID-19 is an unprecedented situation with which countries all over the world are grappling. In India, the Central Government imposed a nationwide lockdown on 24 March 2020 for an initial period of 21 days to take effective measures to contain the spread of COVID-19, including, maintenance of essential supplies and services and healthcare facilities. The lockdown was subsequently extended until 31 May 2020. During the lockdown, economic activity in the country was brought to a standstill. There was a widespread migration of labour from the cities, where all avenues for work had closed. There was an unprecedented human migration, countless of the marginalized on foot, to rural areas in search of the bare necessities to sustain life. There has been a loss of incomes and livelihood. The brunt of the pandemic and of the lockdown has been borne by the working class and by the poorest of the poor. Bereft of social security, they have no fall back options. The respondent has in exercise of its powers under Section 5 of the Factories Act issued the impugned notifications purportedly to provide a fillip to industrial and commercial activities. (Para 24)

The economic slowdown created by the COVID-19 pandemic does not qualify as an internal disturbance threatening the security of the state. The pandemic has put a severe burden on existing, particularly public health, infrastructure and has led to a sharp decline in economic activities. However, it has not affected the security of India, or of a part of its territory in a manner that disturbs the peace and integrity of the country. The economic hardships caused by COVID–19 certainly pose unprecedented challenges to governance. However, such challenges are to be resolved by the State Governments within the domain of their functioning under the law, in coordination with the Central Government. Unless the threshold of an economic hardship is so extreme that it leads to disruption of public order and threatens the security of India or of a part of its territory, recourse cannot be taken to such emergency powers which are to be used sparingly under the law. Recourse can be taken to them only when the conditions requisite for a valid exercise of statutory power exist under Section 5. That is absent in the present case. (Para 28)

In analyzing the scope and intent of Section 5 of the Factories Act and the specific exemptions of Section 51, 54, 55 and 56 envisaged by the impugned notifications, it is necessary to examine the purpose of the Factories Act, in the backdrop of the constitutional scheme of the Indian welfare State. The Factories Act was enacted almost contemporaneous with the framing of the Constitution. The Factories Act is a product of history; of a long struggle of worker unions to secure the right to human dignity in workplaces that ensure their safety and well- being. (Para 29)

The Factories Act, as it currently stands, was enacted to guarantee occupational health and safety. It ensures the material and physical well-being of workers by fastening responsibilities and liabilities on ‘occupiers’ of factories. As a legislative recognition of the inequality in the material bargaining power between workers and their employers, the Act is meant to serve as a bulwark against harsh and oppressive working conditions. The Act, primarily applies to establishments employing more than 10 persons. It has been purposively and expansively applied to workers, who may not strictly fall within the purview of the definition, and yet embody similar roles within the establishments. These permissible interpretations have been aligned with the intention of the legislature which has a vital concern in preventing exploitation of labour. (Para 30)

While enacting the Factories Act, Parliament was cognizant of the occasional surge of the demand for, or requirement of, the manufacture of certain goods which would demand accelerated production. The law – makers were aware of the exigencies of the war effort of the colonial regime in World War II, with its attendant shortages, bottlenecks and, in India, famine as well. Section 64(2) of the Factories Act envisages exemption from certain provisions relating to working hours in Chapter VI, for instances such as urgent repairs, supplying articles of prime necessity or technical work, which necessarily must be carried on continuously. Section 65(2) enables classes of factories to be exempt from similar provisions in order to enable them to cope with an exceptional pressure of work. However, these exemptions are circumscribed by Section 64(4) and 65(3) respectively, at limits that are significantly less onerous than those prescribed by the notifications in question. Despite these concessions, these provisions do not enable an exemption of Section 59 which prescribes mandatory payment of overtime wages to the workers at double the ordinary rate of their wages. (Para 34)

It would be fathomable, and within the realm of reasonable possibility during a pandemic, if the factories producing medical equipment such as life-saving drugs, personal protective equipment or sanitisers, would be exempted by way of Section 65(2), while justly compensating the workers for supplying their valuable labour in a time of urgent need. However, a blanket notification of exemption to all factories, irrespective of the manufactured product, while denying overtime to the workers, is indicative of the intention to capitalize on the pandemic to force an already worn-down class of society, into the chains of servitude. (Para 36)

The Indian Constitution is born from a transformative vision which aims to achieve social and economic democracy. Labour welfare is an integral element of that vision. That, indeed, is the philosophy which undergirds the Directive Principles. (Para 37)

The need for protecting labour welfare on one hand and combating a public health crisis occasioned by the pandemic on the other may require careful balances. But these balances must accord with the rule of law. A statutory provision which conditions the grant of an exemption on stipulated conditions must be scrupulously observed. It cannot be interpreted to provide a free reign for the State to eliminate provisions promoting dignity and equity in the workplace in the face of novel challenges to the state administration, unless they bear an immediate nexus to ensuring the security of the State against the gravest of threats. (Para 38)

The principle of paying for overtime work at double the rate of wage is a bulwark against the severe inequity that may otherwise pervade a relationship between workers and the management. (Para 41)

The Constitution is a charter which solemnized the transfer of power. But the constitutional vision of swarajya transcends the devolution of political power. The Fundamental Rights and Directive Principles of State Policy present a coherent vision of a welfare state that envisages justice- social, economic and political.(Para 42)

Although the Directive Principles were not intended to be capable of being independently enforced before the courts to invalidate a legislation, they inform state policies; act as a guidepost for legislation and provide sign posts for travelers engaged on the path of understanding the complexities which the Constitution unravels. (Para 42)

The COVID-19 pandemic in India, was accompanied with an immense migrant worker crisis, where several workers (including workers employed or contracted with factories) were forced to abandon their cities of work due to the halt in production which cut-off their meagre source of income. (Para 43)

Clothed with exceptional powers under Section 5 of the Factories Act, 1948, the state cannot permit workers to be exploited in a manner that renders the hard-won protections of the Factories Act, 1948 illusory and the constitutional promise of social and economic democracy into paper-tigers. It is ironical that this result should ensue at a time when the state must ensure their welfare. (Para 43)

In an economy where the State is not the dominant employer of workers, the COVID-19 pandemic opens up unforeseen challenges in securing true equality and dignity to them. Workers in the organized and unorganized sectors of the economy face basic questions about survival and security. The unprecedented nature of these challenges is matched only by the unanticipated nature of the pandemic. The challenges will need to be addressed with ingenuity and commitment. The framers of the Constitution did not envisage one model of economic democracy. (Para 44)

The Constitution allows for economic experiments. Judicial review is justifiably held off in matters of policy, particularly economic policy. But the Directive Principles of State Policy cannot be reduced to oblivion by a sleight of interpretation. To a worker who has faced the brunt of the pandemic and is currently laboring in a workplace without the luxury of physical distancing, economic dignity based on the rights available under the statute is the least that,this Court can ensure them. (Para 44)

Judges must constantly remind themselves of its value through their tenures, if the call of the constitutional conscience is to retain meaning. The ‘right to life’ guaranteed to every person under Article 21, which includes a worker, would be devoid of an equal opportunity at social and economic freedom, in the absence of just and humane conditions of work. A workers’ right to life cannot be deemed contingent on the mercy of their employer or the State. The notifications, in denying humane working conditions and overtime wages provided by law, are an affront to the workers’ right to life and right against forced labour that are secured by Articles 21 and 23 of the Constitution. (Para 44)

However, financial losses cannot be offset on the weary shoulders of the laboring worker, who provides the backbone of the economy. Section 5 of the Factories Act could not have been invoked to issue a blanket notification that exempted all factories from complying with humane working conditions and adequate compensation for overtime, as a response to a pandemic that did not result in an ‘internal disturbance’ of a nature that posed a ‘grave emergency’ whereby the security of India is threatened. In any event, no factory/ classes of factories could have been exempted from compliance with provisions of the Factories Act, unless an ‘internal disturbance’ causes a grave emergency that threatens the security of the state, so as to constitute a ‘public emergency’ within the meaning of Section 5 of the Factories Act. (Para 45)

Overtime wages shall be paid, in accordance with the provisions of Section 59 of the Factories Act to all eligible workers who have been working since the issuance of the notifications (Notification No. GHR/ 2020/56/FAC/142020/346/M3 dated 17 April 2020 and Notification No. GHR/2020/92/FAC/142020/346/M3 dated 20 July 2020). (Para 45)

Copy of judgement:Judgement_01-Oct-2020

-Adv. Tushar Kaushik

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