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INDIAN OIL CORPORATION LTD. V.

THE CHIEF INSPECTOR OF


FACTORIES AND OTHERS AIR 1998 SC 2456

Final Draft submitted in partial fulfillment of the course of Corporate law-1 for the
completion of B.ALL.B(Hons.) course.

SUBMITTED BY
RADHA KRISHAN
ROLL NO. 1356
B.A.L.L.B. (HONS.)

SUBMITTED TO
Mr. Shantanu Braj Choubey
Faculty of Law

SESSION 2015-2020
AUGUST, 2018
CHANAKYA NATIONAL LAW UNIVERSITY
NYAYA NAGAR, MITHAPUR

PATNA
DECLARATION BY THE STUDENT

I hereby declare that the work reported in the B.A LL.B (Hons.) Project Report entitled “Indian
Oil Corp. Ltd. v.The Chief Inspector of Factories ” submitted at Chanakya National Law
University, Patna is an authentic record of my work carried out under the supervision of Mr.
Shantanu Braj Choubey. I have not submitted this work elsewhere for any other degree or
diploma. I am fully responsible for the contents of my Project Report.

(Signature of the Candidate)

RADHA KRISHAN

Chanakya National Law University, Patna

4/9/2018
ACKNOWLEDGEMENT

I am using this opportunity to express my gratitude to everyone who supported me throughout


the course of this Corporate Law-I project. I am thankful for their aspiring guidance, invaluably
constructive criticism and friendly advice during the project work. I am sincerely grateful to
them for sharing their truthful and illuminating views on a number of issues related to project.

First, I would like to thank our faculty Mr. Shantanu Braj Choubey for his exemplary guidance,
monitoring and constant encouragement throughout the course of this project. I would also like
to express my deep gratitude to him for his valuable and constructive suggestions. His classes on
Research Methodology gave me lot of insight into carrying out research.

The contributions made by my classmates and friends are, definitely, worth mentioning. I would
also like to express my gratitude towards the library staff for their help.

I would like to thank my parents and my brother for their constant support and encouragement
without which this project would not have seen the light of the day.

Last, but far from the least, I would express my gratitude towards the Almighty for obvious
reasons.

RADHA KRISHAN
Table of Contents

INTRODUCTION .......................................................................................................................... 5

AIMS AND OBJECTIVE ........................................................................................................... 6

RESEARCH QUESTION ........................................................................................................... 6

RESEARCH METHODOLOGY ................................................................................................ 6

HYPOTHESIS ............................................................................................................................ 6

1. Fats of The Case ...................................................................................................................... 7

2. The status before the case or prior to the amendment in 1987 ................................................ 9

3. Status After The Case ............................................................................................................ 12

4. Principles Laid Down in The Case ........................................................................................ 13

5. Conclusion ............................................................................................................................. 15

Bibliography :- ....................................................................................................................... 16
INTRODUCTION

The Case of Indian Oil Corporation Ltd. v. The Chief Inspector of factories and others provides
the answer to the question that who can be the Occupier. The issue raised in the case were that
whether in the case of the company, the director of the company can only be recognized as
Occupier of the factory owned by the company and can the Central Government nominate any
person other than the director as the occupier.
Section 2(n) states that `occupier' of a factory means the person who has ultimate control over
the affairs of the factory; provided that:
i) in the case of a firm or other association of individuals, any one of the individual
partners or members thereof shall be deemed to be the occupier;
ii) in the case of a company, any one of the directors, shall be deemed to be the occupier;
and
iii) in the case of a factory owned or controlled by the Central Government, or any State
Government, or any local authority, the person or persons appointed to manage the
affairs of the factory by the Central Government, the State Government or the local
authority, as the case may be, shall be deemed to be the occupier.
It was held in the case that the relevant provisions regarding the establishment of the appellant
corporation and its working leave no doubt that the “ultimate control” over all the affairs of the
corporation, including opening and running of the factories, is with the Central Government.
Acting through the corporation is only a method employed by the Central Government for
running its petroleum industry. In the context of Sec. 2(n) of the Factories Act, 1948 it will have
to be held that all the activities of the corporation are really carried on by the Central
Government with a corporate mask.
The legislature also provides that in the case of a factory owned or controlled by Government or
any of these authorities the person or persons appointed to manage the affairs of the factory shall
be deemed to be the occupier. Therefore, if it is a case of a factory, in fact and in reality, owned
or controlled by the Central Government or other authority, the person or persons appointed to
manage the affairs of the factory shall have to be deemed to be the occupier even though for
better management of such a factory, a corporate form is adopted by the Government.
AIMS AND OBJECTIVE
The aim of the research is
To in depth the knowledge regarding who can be the ‘Occupier’ and the meaning of the term
‘Occupier’

RESEARCH QUESTION
What is the meaning of the term Occupier?
Who can be Occupier?
Can Central Government nominate Occupier?

RESEARCH METHODOLOGY
The researcher has followed the Doctrinal Method of research methodology. The researcher has
made use of primary sources like statutes, cases, and secondary sources like articles, journals etc
for the purpose of research.

HYPOTHESIS
The researcher assumes that
The director of the company can only be recognized as the occupier of the factory owned by that
company.
1. Fats of The Case

The Indian Oil Corporation is a Government Company.1 It is engaged in the supply and
distribution of petroleum and its products. In order to ensure an effective supply system it has to
establish storage facilities at many places. One such storage of it was already established at
Namkum, in Ranchi District. In 1992 after approval from the Central Government a new unit
was established.
The Depot Manager posted there made an application to the Inspector of Factories for obtaining
the license of the new unit and also for the renewal of the license of the existing unit.
The Inspector refused to the grant the license on the ground that Indian Oil Corporation is a
company and in the case of the Company only director of the company can be the Occupier.2 On
refusal the appellate (Indian Oil Corporation Ltd.) filed a petition at Patna High Court.
Meanwhile, the Inspector allowed the Company to carry out the work the new unit temporarily
till the disposal of the writ petition.
The Government of India, in the Ministry of Petroleum and Natural Gas; wrote to the Chief
Inspector of Factories that the it had already issued notifications declaring the unit incharge as
the occupier for the purpose of the Act. He was accordingly advised to recognise the officer
incharge of the concerned depot as the occupier of that factory. Rejecting the request the
Inspector of Factories reiterated the stand taken by him and refused to recognise the officer
incharge as the occupier. Thereupon the Corporation filed a more comprehensive petition,
challenging the action of the Inspector of Factories.

ISSUES :-
Two questions were put by the appellant before the High Court:
a. Whether in the case of a company one of the directors of the company only can be
recognised as an occupier of the factory owned by it,
b. Whether clause (iii)3 would apply to the factories of the Corporation and it is open to
the Central Government to nominate any person other than the director as the
occupier.

1
Sec 617, Companies Act
2
Sec 2(n), Factories Act, 1948
3
Ibid.
The High Court held that in the case of the company which owns a factory only the director of
the company can be the Occupier of the Company and Company cannot nominate any other
employee as the Occupier of the factory.4 The Court further held that the storage unit was owned
by the company and not by the Central government and also the Depot Manager was employed
by the company therefore Sec2(ii)5 will be applicable.
The Attorney General from the side of the Corporation tried to prove that the corporation is a
Government Company. In the support of his point he submitted that all its affairs, except the day
to day affairs, are controlled by the Central Government and that 91.5 per cent of its share capital
is held by the Government. The articles of association disclose that the Central Government has
all-pervasive control over the working and other decisions of the corporation. Therefore the case
must attract the purview of sec 2(iii) as the term "occupier" itself makes it clear that the person
who has the ultimate control over the affairs of the factory is to be regarded as the occupier of
the factory.
On the other hand the respondent counsel submitted that Corporation is just like any other
company, has its own share capital, has a Board of Directors in whom the power to manage the
affairs of the company vests and profit and loss made by it would be its own. He also submitted
that though the Government has vast powers to control the affairs of the Corporation yet the
factories of the Corporation are run by the Corporation and its employees and not by the
concerned Government department and the employees working therein.
Sec 2(n) of the Act which defines the word 'occupier' as,
'occupier' of a factory means the person who has ultimate control over the affairs of the factors:
Provided that
(i) in the case of a firm or other association of individuals, any one of the individual
partners or members thereof shall be deemed to be the occupier,
(ii) in the case of a company; any of the directors shall be deemed to be occupier;
(iii) in the case of a factory owned or controlled by the Central Government of any State
Government, or any local authority, the person or persons appointed to manage the
affairs of the factory by the Central Government, the State Government or the local
authority, as the case may be shall be deemed to be the occupier.

4
J. K. Industries Limited and others v. The Chief Inspector of Factories and Boilers and Others, [1996] 6 SCC 665
5
Sec2, The Factories Act,1948
2. The status before the case or prior to the amendment in 1987

Sec 2(n) defined occupier of a factor, means the person who has ultimate control over the affairs
of the factory, and where the said affairs are entrusted to a managing agent such agent shall be
deemed to be the Occupier of the factory"

Section 2(n) was required to be read with Section 100 of the Act

"Section 100 deals with the Determination of occupier in certain cases;

Where the occupier of a factory is a company, any of the directors thereof may be prosecuted and
punished under this Chapter for any offence for which the occupier of the factory is punishable
The company may give notice to the inspector that it has nominated a director, to be the occupier
of the factory and such director shall, be deemed to be the occupier of the factory until further
notice cancelling his nomination is received by the Inspector or until he ceases to be a director

In the case of a factory belonging to the Government or any local authority the person/ persons
appointed to manage the affairs of the factory shall be deemed to be the occupier of that factory.

A significant change was made by the legislature while amending Sec 2(n), Sec 100 was deleted
and a stricter provision was made in Sec 2(n) by introducing the first proviso, in J.K. Industries
Limited 6. The Court in the context of the objects and reasons for amendments observed that "By
the Amending Act of 1987 it appears that the legislature wanted to bring in a sense of
responsibility in the minds of those who have the ultimate control over the affairs of the factory,
so that they take proper care for maintenance of the factories and the safety measures therein. It
was found by the Hon'ble Supreme Court that only one of its Directors and none of its employees
or officers can be nominated as occupier of the factory by such a company. Examining the
scheme of the amended Act, it was found by the Supreme Court that after 1987 amendment, the
true import of proviso (ii) to Section 2(n) would be that in the case of a company which owns a
factory, the company cannot nominate any one of its employees and officers except Director of
the company as the occupier of the factory.

6
J. K. Industries Limited and others v. The Chief Inspector of Factories and Boilers and Others, [1996] 6 SCC 665
In Som Prakash Rekhi v. Union of India Anr7 the Court has held that corporations are one species
of legal entity invented by the law and invested with a varieties of attributes so as to achieve
certain purposes sanctioned by the law. The characteristics of corporations, their fights and
liabilities, functional autonomy and juristic status, are recognised as of a distinct entity even
where such corporations are State agencies or instrumentalities. But merely because a company
has functional and legal individuality for certain purposes and in certain areas of law and if it is
found to be a mere agent or surrogate of the State, in fact owned by the State, controlled by the
State, the definition of Article 12 applies that any authority controlled by the Government of
India is itself State. The true test is functional, not how the legal person is born but why it is
created. Apart from discharging functions or doing business as the proxy of the State, wearing
the corporate mask there must be an element of ability to affect legal relations by virtue of power
vested in it by law.

In Mahabir Auto Stores and Others v. Indian Oil Corporation and others,8 held that the Indian
Oil Corporation which is a statutory body incorporated under the Companies Act, is an organ of
the State or an instrumentality of the State, The relevant thing to be noted, is that this Court while
so holding took note of the fact that the corporation is subject to the policies, directions,
instructions and guidelines issued by the Ministry of Energy, Again in J.K. Industries Ltd.9 this
Court, while dealing with Section 2(n), as amended by Act 20 of 1987 emphasised the use of the
word "ultimate" and after referring to the decision in John Donald Mackenzie v. Chief Inspector
of Factories,10 observed that it is to be seen who has the 'ultimate control over the affairs of the
fact. It is also held that the provision made in proviso (ii) does not override the substantive
provision of Section 2(n) but clarifies it.

Thus before 1987, the firm or association was given an option to nominate one of its members as
the occupier of the factory and if such an option was exercised by giving a notice to the Inspector
then he alone was to be deemed to be the occupier of the factory for the said purpose. Similar
provision was available to the company. That also clearly indicates the intention of the

7
In Som Prakash Rekhiv. Union of India Anr.r [1981] I SCC 449
8
Mahabir Auto Stores and Others v. Indian Oil Corporation and others, [1990] 3 SCC 752
9
Supra 6
10
John Donald Mackenzie v. Chief Inspector of Factories, AIR (1962) SC 135l
Legislature that it wanted to make a separate provision for deeming who should be the occupier
of a government factory.
3. Status After The Case

In Laxman Jha v. State Of Jharkhand,11 the complaint was filed with respect to an accident an
accident took place in the factory in which one workman. It came to light that the workers were
working in an unsafe place resulting in the accident and therefore the occupier and the manager
are responsible for not complying with the provisions of the Act and the Rules, and the petitioner
in his capacity as Director (Technical) was shown to be an occupier.

It has been submitted by the learned counsel for the petitioner that admittedly the accident took
place on 03.11.2004 and the petitioner took charge as Director (Technical) Operations with
effect from 05.11.2004. He thus submits that although the petitioner has been shown as occupier
in the complaint petition, but admittedly on the date of the accident, the petitioner was not an
occupier.

The learned counsel for the State has submitted that in fact the petitioner was appointed vide
letter dated 17.09.2004 which is before the date of occurrence and as such, thus made the
petitioner as an occupier in the complaint petition.

Relying on the judgement of the case Indian Oil Corporation Ltd. v. Chief Inspector of Factories
and Others,12 the Court observed that the petitioner on the date when accident took place was
admittedly not the occupier and in such circumstances, the petitioner cannot be prosecuted for
any criminal offence instituted

11
In Laxman Jha vs State Of Jharkhand, Petition No. 628 of 2005
12
Indian Oil Corpn. Ltd. v. Chief Inspector of Factories" reported in (1998) 5 SCC 738
4. Principles Laid Down in The Case

The Court here observed that the First proviso indicates that the Legislature intended that the
person having ultimate control over the affairs of the factory has to be regarded as occupier of
the factory. The proviso to the Section is not in the nature of an exception. In order to avoid any
ambiguity, to plug loopholes provision has been made in a mandatory form. In the case of a firm
the partners of the firm have ultimate control over the affairs of the partnership. In case of other
type of association the members thereof will have such control. In the case of a company the
directors have the ultimate control, as the power to manage the affairs of the company vests in
the Board of Directors, What clauses (i) and (ii) of the proviso provide is that they shall be
deemed to be 'occupiers'.

The position of the government and the local authority is quite different from that of a firm or an
association or a company not only with respect to the person who can be said to be in ultimate
control but also with respect to the object for which factory is set up. In a democratic set-up of
Government, it may not be possible to say with certainty as to who is having the ultimate control.
In a welfare state, the government does not carry on such activity for its own profit or benefit but
for the benefit of the people as a whole. Moreover, it is the government which looks after the
successful implementation of the provisions of the Factories Act and, therefore, it is not likely to
evade implementation of the beneficial provisions of the Factories Act; That appears to be the
reason why the legislature though it fit to make a separate provision for the Government and the
local authorities. Ordinarily, for running the factories owned or controlled by the Central
Government or any State Government, or any local authority, a person or persons would be
appointed by it to manage the affairs of the factory, because the Government or the local
authority as a whole would not run the factory, Therefore, the legislature appears to have
provided that in case of a factory owned or controlled by the Central Government, the State
Government or the local authority the person or persons appointed to manage the affairs of the
factory by the Central Government, State Government or the local authority, as the case may be,
shall be deemed to be the occupier.

After taking into consideration the fact that control by the government and the circumstances
under which the Bharat Petroleum Corporation Limited was made a Corporation, the Court held
that it "is not a mere company but much more than that and has a statutory flavour in its
operation and functions, in its powers and duties and in its personality itself, apart from being
functionally and administratively under the thumb of the government. It was also observed that a
"commercial undertaking though permitted to be run under the government, may be better
managed with professional skills and on business principles if it were administered with
commercial flexibility. Therefore, if it is a case of a factory in fact and in reality owned or
controlled by the Central Government or the State Government or any local authority then in
case of such a factory the person or persons appointed to manage the affairs of the factory shall
have to be deemed to be the occupier, even though for better management of such a factory or
factories a corporate form is adopted by the government.
5. Conclusion

The definition of “occupier” has a long and chequered history. Before 1987, The firm or
association even the company was given an option to nominate one of its members as the
occupier of the factory and if such an option was exercised by giving a notice to the Inspector
then he alone was to be deemed to be the occupier of the factory for the said purpose.

The amendment of 1987 made significant changes in it and Sec. 100 of the Act was deleted. A
stricter provision in Sec. 2(n) was introduced.

In the landmark case of J. K. Industries Ltd vs Chief Inspector of Fisheries and Boilers,13 the
Supreme Court observed that by the Amending Act, 1987, the legislature wanted to bring in a
sense of responsibility in the minds of those who have the ultimate control over the affairs of the
factories by imposing fear of punishment. In the case of a company, the occupier of a factory
owned by a company would mean any one of the directors of the company who has been
notified/identified by the company to have ultimate control over the affairs of the factory

In Indian Oil Corporation vs Chief inspector of Factories,14 it was observed that it is the
Government which looks after the successful implementation of the Factories Act and, therefore,
it is not likely to evade its implementation. That appears to be the reason why the legislature
thought it fit to make a separate provision for the Government and local authorities, and so on.
The legislature has provided that in the case of a factory owned or controlled by any of these
authorities the person or persons appointed to manage the affairs of the factory shall be deemed
to be the occupier. Therefore, if it is a case of a factory, in fact and in reality, owned or
controlled by the Central Government or other authority, the person or persons appointed to
manage the affairs of the factory shall have to be deemed to be the occupier even though for
better management of such a factory, a corporate form is adopted by the Government.

13
(1996 (7) SCALE 247
14
[1998(4) SCALE 116]
Bibliography :-

Books:-
1. Dr. GK Kapoor and Sanjay Dhameeja, Company Law- A comprehensive textbook on
Companies Act 2013, Taxmann, 20th ed. 2017.
2. Dr. S.N Mishra, Labour Laws- The Labour and Industrial laws, Central law Publication, 26th
Ed., 2015
3. P.K Padhi, Labour Laws- Labour and Industrial laws, Eastern Economy Edition, 3rd Ed.,
2016
4. Bare Act - Corporate Laws, Lexis Nexis, 6th ed. 2017.
5. Bare Act – Labour And Industrial Laws, Professionals, 2017 Edition.

Web Sites:-
Jstore
Taxmann
www.mca.gov.in
www.icsi.edu