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Occupier liability: more clarity now

Occupier liability: more clarity now
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First Published: Mon, Mar 09 2009. 12 26 AM IST

Illustration: Jayachandran / Mint
Illustration: Jayachandran / Mint
Updated: Mon, Mar 09 2009. 12 26 AM IST
The concept of an “occupier”, in the context of labour laws, is of significant importance and over the years has been the subject of much judicial scrutiny and legislative attention. The reason for this is that an occupier of a factory assumes statutory liability for non-compliance by the factory establishment under most labour-related statutes in India. It is the designated “occupier” who is responsible, right from the basic compliance such as maintenance of health standards, safety standards, amenities, etc., to all statutory payments such as bonus, gratuity, provident fund, etc.
Illustration: Jayachandran / Mint
Under the Factories Act, 1948, an occupier has been defined as a person who has ultimate control over the affairs of the factory. A notice is required to be given to the chief inspector of factories, disclosing the name of the occupier, at least 15 days prior to the commencement of the operations of the factory.
Before 1987, the liberal provisions in the Act allowed a designation of any employee managing the affairs of the factory as an occupier of the factory.
To no surprise, this led to the top tier decision makers—the owners—appointing mid-level officials as occupiers of the factory, so that the liability, if any, actually befell the latter and exposure was limited to a certain rung of the corporate ladder.
In 1987, however, as a spin-off, the Bhopal gas tragedy and similar industrial disasters that led to public consensus for demand of higher responsibility, an occupier was redefined, deeming mandatorily that any one of the directors of a company running a factory would be the occupier of such factory.
As a result, the opportunity available with companies to, in some sense, shield its management by appointing an employee as an occupier was taken away.
Naturally, this did not appeal to companies that wanted to designate persons other than directors as occupiers under the Act, leading to various lawsuits. One such landmark case was JK Industries Ltd and others v. Chief Inspector of Factories and Boilers and others (Supreme Court, 1996). In this case, the Supreme Court noted that where a company owns or runs a factory, it is the company that has ultimate control over the affairs of the factory and would therefore be the occupier.
However, since a company is a legal abstraction, it can act only through its directors, who are the directing mind and will of the company and are the centre of its personality. The court went on to say that the word “ultimate” in common parlance means last or final. There is a vast difference between a person having ultimate control of the affairs of a factory and one who has immediate or day-to-day control over the affairs of the factory. The manager or any other employee, of whatever status, can be nominated by the board of directors of the owner company to have immediate or day-to-day or even supervisory control over the affairs of the factory. However, the ultimate control over the affairs of the factory will always be with the board of directors of the company and cannot be vested in any other person, without completely transferring the control over the factory to the other person. Essentially, the law as declared by the Supreme Court was that a company cannot nominate any one of its employees or officers, except a director of the company, as the occupier of the factory.
While examining the concept of an occupier, it is important to take note of section 92 of the Act, which provides for strict liability on the occupier for non-compliance under the Act. Section 92 provides for joint liability of the occupier and the manager for offences under the Act. The fact that the director designated as the occupier is ignorant about the management of the factory which has been entrusted to a manager or some other employee and is himself not responsible for the contravention does not absolve him of his liability.
Absence of criminal intent of the occupier is irrelevant in determining liability of the occupier. However, one defence available to the occupier (under section 101) is to bring the real offender before the court and prove that the occupier has been diligent in his actions and that the offender committed the offence in question without the knowledge or consent of the occupier.
While the legal position on the liability of an occupier stands clarified, an innovative method currently used by some companies to limit exposure is to take factories on long-time lease contracts (styled as “operating agreements”) from third party independent entities who own the factory premises.
Under these arrangements, the actual owner of the factory is retained as the occupier of the factory and made responsible for labour and other amenities with respect to the factory while operations and receivables are that of the lessee.
The operating agreement is structured to give the lessee technical lead of all operations at the factory while the actual owner is made responsible for all compliance under all labour-related statutes (including indemnification obligations in favour of the lessee).
In such a scenario, it would be interesting to see whether the owner, being the notified occupier of the factory and contractually liable for compliances, would be solely liable for contraventions under the Act and other labour legislation, or whether the lessee, having the right to take policy decisions with respect to the factory, would also be deemed to be the occupier of the factory, and liable accordingly.
This column is contributed by Sachin Mehta of AZB & Partners, Advocates & Solicitors. Send your comments to lawfullyyours@livemint.com
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First Published: Mon, Mar 09 2009. 12 26 AM IST