The real story behind the industrial dispute in Maruti factory that turned violent

By Rahul Varman
21 May 2013

Posted 10-Aug-2012 Vol 3 Issue 32

The Manesar (Haryana) plant of Maruti Suzuki India Ltd, a subsidiary of Suzuki Corporation of Japan and the largest car maker in the country, has been in the news for almost a year. And for all the wrong reasons the ongoing labour trouble which finally culminated in arson, rioting and the horrifying killing of a senior manager on July 18.

40% of the Maruti Manesar workforce are contract or casual workers with a take-home of around Rs 6,000, and no paid leave (Infochange News & Features)
The mainstream media is packed with analysis on the causes of the unrest and advice for Maruti and other companies, but three important points have not received the attention they deserve. 1. The realities of Japanese management

The first is the fabled Japanese management. Not too long ago it was assumed that the Japanese have all the wisdom in manufacturing and management and if only we could learn from them we would find the answer to our woes. Business schools worldwide teach special courses on Japanese management and such offerings are highly subscribed; books on the subject are bestsellers. But descriptions over the last one year of operations at Manesar demonstrate that essentially the Japanese trick to success is not so different from the rest: the principle followed is to get more work out of a worker, while at the same time paying less. Accounts of Manesar tell of workers being forced to steal rest breaks, docking of pay for minor infringements, almost no paid holidays, an army of poorly-paid temps etc. Here is an account of a typical workday at Maruti Manesar (1): You catch a bus at 5 am for the factory. Arriving a second late to punch in your card means a pay cut, but you cant leave the premises once youve entered. At 6.30 am, you exercise and supervisors give you feedback on your previous output. Start work at 7 sharp. Everyone does his one task assembling, welding, fixing for a minimum of 8 continuous hours. A car rolls off the line every 38 seconds, which means you cant budge from your position, ever. You get two breathless breaks during the day. At 9 am, a 7-minute break to drink tea or go to the loo, or both. After a while you might, like many of your friends here, end up taking your hot tea and kachori to the bathroom with you. Then a lunchbreak of 30 minutes, in which you walk about a half-kilometre to the canteen, wait in line with everyone, eat and walk back. Returning even a minute late from any break, or leaving the assembly line for any reason even for a minute, means half a days pay cut. Overtime is a compulsion whenever the company needs it and the privilege of paid leave is a fantasy -- Rs 1,500 is deducted for one days leave (even when you intimate in advance) from a maximum possible monthly pay of Rs 16,000 and five days leave for any contingency reduces it to the base salary of Rs 8,000. Out of a workforce of 2,500, 40% are on contracts, casual or apprentice (but do similar work as permanents) and their take-home is around Rs 6,000, with the threat of comparable deductions as regular workers looming all the time and no job security. Another worker states, The problem is the immense pressure. They are extracting the work of 5,000 from half that number(2)

And this is not unique to India. Such reports are corroborated by workers in Japan and Japanese plants in the US. For instance, a leading Japanese journalist worked for several months on the famed Toyota line in its prime during the 1970s and kept a diary which he later published as a book. This is how he concludes, While management journalism may applaud Toyotas high profit and the kanban method the human costs of Toyota methods suicides, injuries, job fatalities, and occupational disease increase at a horrifying rate... Workers suffer every day in front of conveyer belts this is the nightmare that I have lived(3) 2. Union as intermediary between workers and management The basic reason for the ongoing impasse of the last one year and its culmination in the grisly violence this July is the demand of the young Manesar workers to have their own representative union. They did not want the union of the Gurgaon plant -- the parent plant where Maruti began its operations in the 1980s -- to represent them as they contended it was compromised and had failed to represent workers interests. But the management insisted that the Gurgaon union was the true representative of the Manesar workers. Common sense tells us that each one of us should have the right to decide who can represent us, either individually or collectively. The Constitution of India provides the freedom to form association as a fundamental right and the Trade Union Act also gives a set of workers the right to form their own union. But the Maruti management (and the Haryana government in collusion with them) systematically denied this basic right to the workers for the past year, rejecting them and frustrating them in every possible way threats, coercion, force, enticements, etc. Not only this: after a protracted process which continued for months, when the standoff was broken last year, the management in its wisdom decided to buy peace (literally) by dismissing the whole leadership of the agitation while simultaneously giving them hefty compensations. According to media reports two top leaders were paid Rs 40 lakh each while 28 of them got Rs 16 lakh per person. Maruti Chairman Bhargava called this voluntary retirement by young workers, most in their 20s, at the time! What are the consequences of such a myopic outlook? When the crisis occurred on the

morning of July 18 in the form of an altercation between a worker and a supervisor, there was no structure in place through which a management-worker dispute could be addressed management had eliminated the whole set of leadership whom the workers trusted, there was no representative organisation which could have served as go-between and this kind of vacuum of leadership, organisation and trust set the stage for the unforgivable violence by the end of the day. Though there was a new union registered and recognised in February this year, management had continued to undercut it in the same manner as before. I am not getting here into which side is more to be blamed for the events of that particular day all I am saying is that once the mechanisms for a dialogue were systematically undermined, the preconditions for such an event were ever-present. 3. The elusive spatial fix The third aspect is the persistent reports that Maruti is likely to move lock, stock and barrel to the investment haven of Narendra Modis Gujarat. Most revealing are the comments in the mainstream digital media: click on any news of the labour trouble this past one year and the comments section is full of unsolicited advice that Maruti should move from Haryana to Gujarat. But the moot point is how come suddenly Manesar or Haryana have become unfriendly for Maruti? Wasnt the hardworking, docile, and non-unionised labour of Haryana a big consideration when plants were established in Gurgaon in the 1980s and Manesar five years ago? The geographer David Harvey calls this unceasing quest to relocate production to a favourable place an attempt at spatial fix. But Beverly Silver (4) in a large study of the world auto industry from its inception to the 1990s demonstrates that along with the movement of the centre of auto production the location of labour unrest also shifts continuously. The database reveals how the heart of labour unrest in the auto industry moved from North America in the 1930s and 40s, to Western Europe in the 1960s and 70s, and to developing countries in Latin America and East Asia in the 1990s. Silver concludes, where capital goes, conflict goes. Perhaps the point can be more dramatically demonstrated through the opinion of Britains Blackburn mission of 1896 on Shanghais labour and the threat that it posed for British textiles (5): Comparing this Oriental labour and our own, there is on the one hand, cheap, plentiful,

submissive, capable labour (of Shanghai), plus the best machinery we can give it; on the other hand, dear, dictating and exacting labour (of GB), plus the same machinery. Can anyone call these equal conditions? Are they not in favour of Shanghai capitalist? However by the 1920s Shanghai was in the news for the wrong reasons and workers in the industrial capital of China called a general strike in 1927 when several lakh workers and students fought together and finally the insurrection had to be quelled brutally by Chiang Kai-sheks army. There are no quick fixes for Marutis woes like moving to Gujarat or undermining the efforts of the workers to form their own unions

Industrial relations [edit]

Since its founding in 1983, Maruti Udyog Limited experienced few problems with its labour force. The Indian labour it hired readily accepted Japanese work culture and the modern manufacturing process. In 1997, there was a change in ownership, and Maruti became predominantly government controlled. Shortly thereafter, conflict between theUnited Front Government and Suzuki started. Labour unrest started under management of Indian central government. In 2000, a major industrial relations issue began and employees of Maruti went on an indefinite strike, demanding among other things, major [20][21] revisions to their wages, incentives and pensions. Employees used slowdown in October 2000, to press a revision to their incentive-linked pay. In parallel, after elections and a new central government led by NDA alliance, India pursued a disinvestments policy. Along with many other government owned companies, the new administration proposed to sell part of its stake in Maruti Suzuki in a public offering. The worker's union opposed this sell-off plan on the grounds that the company will lose a major business advantage of being subsidised by the Government, and the [20][22] union has better protection while the company remains in control of the government. The standoff between the union and the management continued through 2001. The management refused union demands citing increased competition and lower margins. The central government prevailed and [23][24] privatized Maruti in 2002. Suzuki became the majority owner of Maruti Udyog Limited.

Manesar violence July 2012 [edit]

On 18 July 2012, Maruti's Manesar plant was hit by violence as workers at one of its auto factories attacked supervisors and started a fire that killed a company official and injured 100 managers, including [25][26] two Japanese expatriates. The violent mob also injured nine policemen. The company's General Manager of Human Resources had both arms and legs broken by his attackers, unable to leave the building that was set ablaze, and was charred to death. The incident is the worst-ever for Suzuki since the [27] company began operations in India in 1983. Since April 2012, the Manesar union had demanded a three-fold increase in basic salary, a monthly conveyance allowance of 10,000, a laundry allowance of 3,000, a gift with every new car launch, and a house for every worker who wants one or cheaper home loans for those who want to build their own houses.Initial reports claimed wage dispute and a union spokesman alleged the incident may be caste[28][29] related. According to the Maruti Suzuki Workers Union a supervisor had abused and made

discriminatory comments to a low-caste worker. These claims were denied by the company and the [26] police. The supervisor alleged was found to belong to a tribal heritage and outside of Hindu caste system; further, the numerous workers involved in violence were not affiliated with caste either. Maruti said the unrest began, not over wage discussions, but after the workers' union demanded the [27] reinstatement of a worker who had been suspended for beating a supervisor. The workers claim harsh working conditions and extensive hiring of low-paid contract workers which are paid about $126 a month, [30] about half the minimum wage of permanent employees. Maruti employees currently earn allowances in [31] addition to their base wage. Company executives denied harsh conditions and claim they hired entrylevel workers on contracts and made them permanent as they gained experience. It was also claimed that [28] bouncers were deployed by the company. India Today claimed that its interviews of witnesses present at the plant confirms the dispute was over the suspended worker. The management insisted that they must wait for completion of inquiry underway before they can take any action on the employee suspended for beating up his supervisor. The management was then told, "you will be beaten up after we get a signal." Thereafter, the workers broke up into groups, went on to set the shop floor as well as all offices afire. They searched for management officials and proceeded with a barbaric beating of the officials at the site with iron rods. The police, in its First Information Report (FIR), claimed on 21 July that Manesar violence may be the result of a planned violence by a section of workers and union leaders. The report claimed the worker's action was recorded on close circuit cameras installed within the company premises. The workers took several managers and high ranked management officials hostage. The responsible Special Investigative Team official claimed, "some union leaders may be aware of the facts, so they burnt down the main servers and more than 700 computers." The recorded CCTV footage has been used to determine the sequence of events and people involved. Per the FIR, police have arrested 91 people and are searching [33][34] for 55 additional accused. Maruti Suzuki in its statement on the unrest, announced that all work at the Manesar plant has been suspended indefinitely. A Suzuki spokesman said Manesar violence won't affect the auto maker's [27] business plans for India. The shut down of Manesar plant is leading to a loss of about Rs 75 [36] [37] crore per day. On 21 July 2012, citing safety concerns, the company announced alockout under The Industrial Disputes Act, 1947 pending results of an inquiry the company has requested of the Haryana government into the causes of the disorder. Under the provisions of The Industrial Disputes Act for [36] wages, the report claimed, employees are expected to be paid for the duration of the lockout. On 26 July 2012, Maruti announced employees would not be paid for the period of lock-out in accordance with Indian labour laws. The company further announced that it will stop using contract workers by March 2013. The report claimed the salary difference between contract workers and permanent workers has been much smaller than initial media reports - the contract worker at Maruti received about 11,500 per month, while a permanent worker received about 12,500 a month at start, which increased in three [38] years to 21,000-22,000 per month. In a separate report, a contractor who was providing contract employees to Maruti claimed the company gave its contract employees the best wage, allowances and [39] benefits package in the region. Shinzo Nakanishi, managing director and chief executive of Maruti Suzuki India, said this kind of violence has never happened in Suzuki Motor Corp's entire global operations spread across Hungary, Indonesia, Spain, Pakistan, Thailand, Malaysia, China and the Philippines. Mr. Nakanishi went to each victim apologising for the miseries inflicted on them by fellow workers, and in press interview requested the
[35] [32]

[30]

central and Haryana state governments to help stop such ghastly violence by legislating decisive rules to restore corporate confidence amid emergence of this new 'militant workforce' in Indian factories. He announced, "we are going to de-recognise Maruti Suzuki Workers Union and dismiss all workers named in connection with the incident. We will not compromise at all in such instances of barbaric, unprovoked violence." He also announced Maruti plans to continue manufacturing in Manesar, that Gujarat was an [40][41] expansion opportunity and not an alternative to Manesar. Labour disputes are endemic in the auto industry of India and have affected other manufacturers. India has strict labour laws, but their application is widely sidestepped by hiring low-wage contract [30] workers. Manesar violence adds to India's recent incidents of labour disputes turning to violence. [42][43] Analysts claim recent incidents like Manesar violence suggest a need for urgent reform of archaic Indian labour laws, the rigid rules on hiring and layoffs, which harm the formal sector and discourage investment in India. Government mandated procedures for labour dispute resolution are currently very slow, with tens of thousands of cases pending for years. The government of India is being asked to recognise that incidents such as Manesar violence indicate a structural sickness which must be solved nationally. The company dismissed 500 workers accused of causing the violence and re-opened the plant on 21 August, saying it would produce 150 vehicles on the first day, less than 10% of its capacity. Analysts said that the shutdown was costing the company 1 billion rupees ($18 million) a day and costing the company market share. The previous week company officials had announced that Maruti would scrap the practice of hiring contract workers and that the workers currently on temporary contracts would be made permanent. It [44] would begin the process of hiring new workers on a permanent basis from 2 September 2012. This report appeared on Gurgaon Workers News

1. Balance Sheet 2. The Factory 3. The Working Conditions 4. The Chronology of the Strike 5. No Conclusion *********

1. Preliminary Balance Sheet of the 13-Days Sit-Down Strike at Maruti Suzuki Factory in Manesar/Gurgaon, India From 4th to 17th of June 2011 around 2,000 young workers engaged in a wildcat sit-down strike at Maruti Suzuki factory in Manesar [1]. With the following text we hope to contribute to the necessary debate about this important strike and invite friends and comrades, particularly in Delhi area, to share their experiences and views. Before we go into chronological details of the strike we try to provide a rough political summary. It was an important strike in local terms. The two Maruti assembly plants coordinate hundreds of local supplying factories [2], the Manesar plant dominates a new industrial area of major importance. There has been silence at Maruti Suzuki for more than a decade: the workers in Gurgaon plant have been silenced by the lock-out in 2000/01 [3], and they did not join the strike in June. The Manesar plant was opened in 2006/07, but the young and casualised work-force had not found their voice as yet. It was a hard strike. The workers gave no notice to management, they stopped production completely and around 2,000 workers stayed inside the factory for nearly two weeks. The strike postponed the production of 13,200 cars and caused a loss of about 6 billion Rs. (133 million USD / 100 million Euro). Maruti Suzu kis June sales figures dropped by 23 per cent, the sharpest fall in two and a half years. In July management announced to shift one production-line back from Manesar to Gurgaon plant. Workers continued the strike despite the police stationed within the factory premises and despite strike having been officially declared illegal by Haryana government on 10th of June. Management and state did not dare to attack the workers inside the factory a lot of workers struggles in the area had been attacked physically once workers left the factory. This is partly due to the managements fear that plant and machinery could be damaged during the course of a police intervention, but mainly due to a fear of the state that in the current local and global social situation repression could cause unpredictable trigger effects. While state and management did not know how to deal with the situation, the main unions repeatedly emphasised, that the workers are victimised, that the workers, and not the company, are in a difficult spot. Despite the young workers courage and the fact that the company was hit at times of full capacity the strike ended in a defeat for the mass of workers: they did not enforce any betterment of conditions and wages, which was their main concern. Instead the agreement included a punishment wage cut of two days wages per day of strike something rarely seen in industrial relations in India. Another element of the agreement states that the 11 workers (union leaders) sacked during the strike were taken back, though they have to undergo an inquiry. We are not able to say whether workers at large felt demoralised after the strike, but we can imagine it. The strike could have spread. The initial demands and underlying motivations of the Maruti workers matched the atmosphere of the young work-force in the area: more money, less work. In Manesar more than a hundred thousand young workers have similar concerns [4]. The strike stopped production at around 200 local supplying factories, but no active connections were established between Maruti workers and the wider work-force in the territory. This might be one of the main differences to the Honda strike in China last summer and main reason for the fact that the strike was very underrepresented in both mainstream and left-wing global media despite the emerging position of Maruti Suzuki and India in the global market.

The focus on formal representation choked the dynamic of the strike. During the course of the strike, the direct demands of the workers were reduced to the question of which unionflag should be put up at the gate. We could summarise the main reasons for the defeat of the strike as follows: workers raised direct demands, but early on these demands were integrated in the workers hope that by formal recognition of an independent union their material situation would improve; we then saw an attack both by management and state, cutting of electricity, isolation of workers by army of security guards, declaring the strike formerly illegal and last but not least by sacking the 11 leaders; the main unions then offered support and at the same time focussed the struggle on the question of taking back the leaders and workers rights for representation. Workers did not manage neither to break out of the material encirclement set-up by company management and state nor to escape the embrace by the main unions. The fate of the strike was handed over to the negotiating forces. It is nave to repeat the phrase of betrayal of the main unions. It evades the question of what gives them the power to betray in the first place. Instead we should focus on the question how workers can struggle in a way, which leads both to an immediate material gain and to political experience of self-organisation and generalisation beyond the company walls the latter becoming increasingly a precondition for the former. Friends translated parts of this text into Taiwanese/Chinese: http://emblack.wordpress.com/2011/07/13// [1] A short video documentary can be found here soon(with English and German subtitles): Video [2] Short articles and reports from the local supply-chain: GurgaonWorkersNews no.33 GurgaonWorkersNews no.35 GurgaonWorkersNews no.36 [3] Material on re-structuring at Maruti Suzuki Gurgaon plant: GurgaonWorkersNews no.5 [4] Paper on Potential for Wage Struggle Offensive in Gurgaon-Manesar: GurgaonWorkersNews no.37 ******* 2. The Factory The factory was opened in 2006/2007, some of the production lines were moved from Maruti Suzukis main plant in Gurgaon, which is situated in about 20 km distance from Manesar. The Manesar plant manufactures different models from the Gurgaon plant; there is little integration or dependency in terms of production process between these two factories. The factories source parts from similar suppliers, but the larger suppliers have built separate units for the new plant, e.g. Ricos main plant supplies 90 per cent to the old Gurgaon plant, only 10 per cent to Manesar. The factory employs around 3,500 to 4,000 workers and churns out 1,200 cars a day. The assembly lines run on two shifts, the rest of the plant (weld-shop, body-shop) runs 24 hours. The production volume has been increased by about 200 cars a day during the last two years. The strike hit Maruti Suzuki in a relative

boom-period, some weeks before the conflict in Manesar, Maruti Suzuki announced to open an additional plant, probably in Gujarat a location closer to the export harbours.

Maruti Suzuki is a dominating company in the region and closely related to the political machinery. This is mainly because of the industrial dependency of hundreds of smaller production units, reaching down to slum production and small work-shops, partly because the state still holds shares in Maruti Suzuki and partly because Haryana state sources a fair chunk of tax revenue from Maruti Suzuki. In 2010 the company paid around 13 billion Rs tax to the regional state. Workers in the Manesar plant are younger than in the Gurgaon plant, and their wages a much lower, their contracts more casual. Most of the workers at Gurgaon are in their forties. They have family responsibilities and are scared of the management. They have become accustomed to the managements unjust ways and abusive behaviour. They will never raise their voice against injustice but we will, said a 25 -year-old who claimed to be a worker at the Manesar plant. The youth, who did not want to be named, said he had slipped out to get food for the other strikers and organise support for the protest from outside. The Gurgaon plant has 7,000 employees and the average worker is in his mid-forties. The employees at the Gurgaon plant are older. They have grown with the company and know the benefits of working under discipline. Manesar is a young factory with mostly young employees and I think there is an absence of a calming and more mature influence, Maruti Suzuki chairperson R.C. Bhargava said. (Telegraph India, 12th of June) In the Gurgaon plant the salary of skilled workers adds to 30,000 40,000 Rs including the overtime and incentives, whereas the skilled labourers at Manesar get only around 13,000 to 17,000 Rs. After the lock-out at the Gurgaon plant in 2000/01 around 2,500 permanent workers were replaced by temporary workers. Unfortunately we have little insights how these workers in Gurgaon saw and debated the strike of their casualised work-mates in Manesar. The factory itself is situated at the fringe of a huge industrial area, location for around 500 manufacturing units, partly garment factories, but dominated by automobile suppliers and the Honda motorbike and scooter plant see satellite picture. The workers themselves live in four five villages close to the industrial area. Some of them mainly permanent workers live further away and arrive in company buses they have to pay 600 Rs per month for the company transport.

Maruti Suzuki had hoped to de-risk their production by relocating the new production lines to a fair distance from the old troubled plant in Gurgaon, with a fresh workforc e. The following quote from an article, published a couple of months before the strike, demonstrates nicely how fragile the seemingly harmonious production relations in modern capitalism are: Workers inputs help Maruti save Rs 160 crore at its Manesar plant At a time when frequent labour unrests are plaguing the Indian auto industry, car maker Maruti Suzuki was able to save about Rs 160 crore in 2010-11 by implementing suggestions given by workers at its Manesar plant. We encourage our people to give their inputs that could increase efficiency and save money, said S Y Siddiqui, managing executive officer (administration) of Maruti Suzuki. The company had received about 2.29 lakh suggestions last fiscal compared to about 129,000 suggestions in the previous fiscal, he added. This is in sharp contrast to the companys past when strike by its workers crippled productions for three months from November 2000 to January 2001. Since then the company has had a stable relationship with its workers. When the carmakers sales crossed one million in 200910, the company celebrated the milestone by gifting a gold coin to each of over 8,600 employees. (Times of India, 8th of April 2011) 3. The Working Conditions There are around 3,500 to 4,000 workers employed in the factory, but their status differs significantly. Around 900 to 1,300 workers are permanent workers, around 800 to 1,000 trainees, around 400 apprentices and around 1,000 to 1,200 temporary workers hired through contractors. In general, initially workers are hired as apprentice (generally after completing ITI course technical college), then taken as temporary workers, and then promoted as trainee, and finally, but not necessarily they reach to the stage when they can get status of regular workers. Generally they are kept blocked at the stage of temporary workers and as trainees. In this way Maruti Suzuki more or less matches the general conditions in Gurgaon and Manesar, where around 70 to 80 per cent of the work-force is temporary.

Wages differ according to contractual status. Permanent workers are paid between 13,000 and 17,000 Rs, trainees get between 8,000 and 10,000 Rs, temporary workers are paid around 6,500 Rs and apprentices around 3,000 Rs to 4,200 Rs. Compared to the automobile industry in the global North wages at Maruti Suzuki are obviously low. Having said this, the relative wage of a permanent worker at the Gurgaon plant (around 30,000 Rs / 500 Euro / 660 USD) will be higher than the wage of a temporary worker in car plants in Germany or France. Permanent workers at Manesar compared their wages to the wages of permanent workers at nearby Honda, Hero Honda or Maruti Gurgaon plant and voiced anger about the fact that they earn only half as much. We also want to earn more and live in a big house, said Vinkendra Sharma, a protesting worker at the Manesar plant. Sharma, employed as a worker on the factor floor is originally from Panna district of Madhya Pradesh and earns Rs. 16,000 per month. According to him, not only does he have to contend with increasingly expensive food and lodging expenses, but has also to send money to his family. Ashok Kumar, another agitating worker, believes that formation of an independent union can take care of their rights and provide them a better living standard that is missing so far. We cannot go to the washroom during any other time, and in case we do, we have to give an unconditional apology letter, Manish Kumar said, a claim that was echoed by other workers. We are giving our best to the company, but what are we getting in turn? The production capacity of Maruti has gone up from 10 lakh units in 2009-10 to 12.7 lakh units in 2010-11, but our salary has not gone up at all. Where is the incentive for hard work? asked Ashok Kumar. Sandip Kumar, a 20 year-old contract labourer at the Manesar plant, said: Our colleagues who worked at Suzukis plant in Japan told us that they get at least Rs. 40,000 for what we are doing. According to 29-year old Rajesh (name changed on request) who has worked for three years with Maruti, the companys compensation package for workers is flawed. His basic salary is Rs 4,000 and he gets an additional Rs 9,000 every month for attendance and production. Dharminder, one such contract labourer, has worked with Maruti for two years, attaching bumpers and other accessories on car faces. His Rs 6,400-a-month salary, he claims, has not improved. (Livemint, 13th of June 2011) It is not only that wages are comparably low, they also come with fairly strict conditions attached. The basic salary for permanent workers and temporary workers is the minimum wage of around 5,000 Rs, the rest of the wage are incentives. If a worker is few minutes late, then his half day salary is cut. If a worker takes one day leave, he looses about 1,500 Rs to 2,000 Rs as salary cut in various forms of incentives and allowances. If a worker takes two day leave, he almost looses all the incentives. The fact that the company sees itself compelled to give two thirds of the wage incentives hints at a disciplinary problem. Explaining the rationale, a Maruti official said that every unplanned leave by a worker, it costs the company heavily. Each worker has been given a specific role in the production and supply chain. If they do not inform the supervisor well in advance, then production gets hampered severely, he said. Most of the workers come from far away regions, they need extra-holiday to see family and friends back home. Nikhilesh Pandey, 25, a former worker at the Manesar plant who was at the factory gat e to deliver lunch to his striking cousin, agreed that Maruti paid better than the others. But we are not donkeys. We cannot work like slaves, he said, adding that he worked at the factory for two years but quit when he was refused leave to attend to urgent business back home in Uttar Pradesh. The problem is the immense pressure. They are extracting the work of

5,000 from half that number, Pandey said. This means fewer breaks during shifts and no leave. (Telegraph, 12th of June) Work at Maruti Suzuki is hard, which also pushes workers into taking leave. According to workers, the most serious problem is the intensity of work and the brutality of the way it is imposed on the workers. We get a lunch break of exactly 30 minutes and a tea break of 5 minutes. The canteen is 400 meters away from the workplace. In those thirty minutes, we have to remove our safety clothes and goggles, run to the canteen, stand in so many different lines to pick up food, gulp down the food, go to the toilet, run back, put the goggles and safety clothes on again, and resume work. The lines are long because all the workers have break at the same time. If we are even one minute late, Rs 1000-1500 is deducted from our salary. Imagine that in the 5 minute tea break, we are supposed to have tea and snacks and restart work. There is no break allowed for visiting the toilet at any time. If a reliever does not come, a worker is forced to work a 16-hours shifts. Those workers who refuse to do over time are abused and insulted. (Interview Mazdoor Ekta Lahar) These conditions form the background of the strike, they form the background of the general situation of workers in Gurgaon and beyond. 4. Development of the Strike The company knew that trouble was brewing, they knew that some workers planned on registering a separate union and the company had already prepared legal documents for a possible expulsion of workers from the premises. The strike happened one month before union elections at Maruti Suzuki. So far Maruti Suzuki management tried to back a single union, the Maruti Suzuki Kamgar Union, for both Gurgaon and Manesar plant. This union had been set-up by forces close to management after the lock-out at Gurgaon plant in 2000/2001. Workers in Manesar did not feel represented by this u nion, they did not feel that their grievances were addressed by the union. The actual outbreak of the strike, and the fact that both permanent workers as the potential members of the new union and casual temporary workers took part, will have surprised the management. But why didnt these workers raise these issues and discuss (them) with us? They have never raised any of these issues at any formal level with the management, Maruti Suzuki chairperson Bhargava said. It remains a mystery to me why they didnt start a dialogue or a discussion or even (send) a letter detailing their demands. (Telegraph, 12th of June)

On 3rd of June, eleven leaders of the workers went to Chandigarh to meet the Labour Department to complete the formalities regarding registration of our union on June 3, 2011.

On the morning of that day, the labour department officials faxed the news of our application to the management. Immediately, the management started pressuring workers inside the factory to prevent them from joining the new Union. They began forcing workers to sign blank papers. Senior officials of another Maruti Suzuki plant also joined in this activity. As soon as the leadership of our union came to know of this activity, we mobilized workers against it. On the morning of June 4, 2011, through struggle, we were able to retrieve some of the blank signed papers from the management. By the afternoon, it became clear that the management was using all kind of tricks to break our unity. In such circumstances, we were forced to go on flash tool down strike from the afternoon of June 4, 2011. (Interview with Maruti Suzuki union leader, www.cgpi.org) On the 4th of June after the change between morning and late shift around 2,000 workers stop work and remain in factory. Later on, the C-shift would not be refused entry by management and these workers largely remained outside the factory. All the workers of the company joint the struggle permanent, casual, as well as apprentices. As I was told by a young worker how the workers tied a white hanky around their faces so that the trainee/apprentice workers, casual and contract workers could not be distinguished by the management (the Maruti chairman R.C.Bhargava is seen in the news channels to lament how there is no visible leadership whom they could talk to). The police are still inside, having occupied the canteen, and increasingly bouncers are also there. The inside-outside workers correspondence doesnt seem to be going towards anything more substantial than food/mobile battery exchange. (4th of June, Report by a friend). During this initial stage, workers raised various issues and demands: low wages, incentive cuts, few breaks. The workers have demanded that the temporary workers should be given preference for permanent posts in new departments, which the company is currently building on the premises. In a first reaction management said that workers should give up the strike and make use of the upcoming union elections: The Maruti union will hold elections next month. I am sure they can show their strength there. They can air their grievances there, he [Maruti Suzuki chairman] said. (Business Standard, 6th of June 2011) At the same time management undertook steps to threaten and isolate the striking workers within the factory premises. On 5th and 6th of June management sealed the gates and placed a row of security guards in front of them in order to prevent exchange between workers inside and outside, between workers and supporters and media. One of the demands of the workers visible on the selfmade placards was to be allowed to speak to the media. Management also restricted water, food, electricity and toilet access. Only after a demonstration outside the gate on 6th of June, the food supply through family and friends was permitted again. Eleven workers were officially dismissed on the 6th of June. Police was deployed both inside and outside the premises, they removed some tents, which supporters had put up, but largely remained looming in the background. Workers also complained that management would call their relatives back at home and ask them to convince their unruly sons and nephews to go back to work. On the 8th of June the main unions AITUC, CITU, HMS, INTUC, UTUC formed a joint action committee to support the strike. Although this committee dominated by AITUC had no formal link with neither the Maruti workers nor the new Maruti union in formation, it became the main broker and spokesperson of the strike. Often quoted representatives were union leaders from Honda HMSI, Hero Honda Dharuhera and Rico Auto. On the 9th of June this action committee mobilised workers of 50 to 60 factories in Gurgaon, around 1,000 to 2,000 union members gathered in front of the gates. Sachdeva, secretary, AITUC, said, As

we are a major union in this area, its our prime responsibility to support any cause that involves the rights of our affiliated workers. We are observing a days satyagraha at the entrance of Marutis Manesar plant. If the management doesnt accept our demands today , the workers of other neighbouring plants will go on a days strike. We are calling for the termination of the 11 workers to be revoked. The workforce says it will only start production when the 11 are taken back and given assurances they [management] will not interfere in the union. (Business Standard, 10th of June 2011) From then on no other demands and concerns of the workers were mentioned. Q: What are the other conditions that you have asked the management to agree with and what conditions has the management agreed to comply with? A: There is just one agreement. All the 11 workers should be taken back. Q: Is that the only demand? A: At the moment. (Interview with Gurudas Dasgupta, All India Trade Union Congress (AITUC) General Secretary, CNBC, 16th of June 2011) On 10th of June the over-all pressure on the striking workers increased and pushed them further into the arms of the main unions. The Haryana government has, under the provisions of the Industrial Depute Act, 1947, referred the matter of ongoing strike in Maruti Suzuki Udyog Ltd, Manesar, by the workers to the competent labour court and has also passed the orders prohibiting the continuance of the strike in the industrial unit, Minister of State for Labour and Employment Shiv Charan Lal Sharma said in a statement. The strike was officially called illegal. Two truckloads additional police arrived on the factory premises. Though the Gurgaon district magistrate said deployment of additional forces inside the 600-acre premises was just a precautionary measure, sources informed that striking workers could be booted out of the factory with the use of police force. We have a court order that allows us to evict these workers from the factory citing protection of the equipment, said RC Bhargava, c hairman, MSIL, adding police were there only as a precautionary measure. Ravinder Kulharia, a striking worker, said workers feared for their lives. We do not understand as to why the administration has moved such a large number of police personnel when we have been on peaceful strike from the beginning, he said. (Hindustan Times, 10th of June 2011) Workers probably knew beforehand that the strike was illegal and it is unlikely that the state would have used police-force to expel 2,000 workers from a modern car plant in one of the main industrial areas in the current situation. Nevertheless, the pressure on workers increased and around 250 workers decided to leave the occupation on 10th of June. I fell sick. I was relieved at 3am as there was no medicine in the factorys dispensary, said one of the workers who has left the factory. There is only one toilet open for 2,500 workers. The rest have been locked. At that point the unions kept on repeating that the workers are in trouble, although actually it looked like management and state were not sure what to do about the situation. The strike started to kick in and to build up pressure. Maruti management repeatedly reassured the market that car dealers have 20 to 28 days stock and that the loss of 6,000 cars can be made up for. More importantly the impact of the strike was felt down the supply-chain. Due to lack of storage space around 200 to 250 of the suppliers, most of them located in the proximity of the plant, had to reduce or stop production. To add pressure on workers Maruti management announced that the company would go ahead with a closure of the plant for the annual maintenance work from 20th to 25th of June 2011.

On 12th of June Maruti Suzuki management offered to take back 5 of the 11 sacked workers, but the union refuses. The management has agreed to reinstate five of the 11 sacked workers. However, we want all the employees to be taken back. Besides, the company has to give us an assurance in writing of not taking any disciplinary action, said Shiv Kumar, a sacked technician. Kumar has been nominated as the general secretary of the new union. The main unions announce a two-hour solidarity strike for the 14th of June 2011. We will be distributing pamphlets across the Gurgaon and Manesar factories. The two-hour tooldown from 9 a.m. to 11 a.m. will serve as a warning. If the issues are not resolved, then on Wednesday the unions will hold another meeting to decide on the date for the one-day strike, Suresh Gaur, president of the Honda HMSI union said. Meanwhile AITUC general secretary Gurudas Dasgupta held talks with Haryana Chief Minister Bhupinder Singh Hooda. The workers morale is high; this unity is unprecedented; all trade unions of Gurgaon have rallied round the striking workers. After talking to the Chief Minister, I am hopeful of a positive outcome, Mr. Dasgupta said. (The Hindu, 12th of June 2011) While Dasgupta negotiated with the Chief Minister and asked the Prime Minister to intervene his colleague Sachdeva, secretary of AITUC announced that AITUC will ask the Maruti Suzuki workers to work overtime once the dispute is settled: We want it [the dispute] to be resolved. Even the workers are anxious to restart the production. Hopefully, some solution will be found. We want the workers should resume production, normalcy should prevail and we will persuade the workers to make up for this loss of production by working extra hours or on holidays. AITUC wants industrial development to take place in Haryana. We are not against FDI investments but we feel these multinational corporations should respect our national laws, and should allow workers to form their own union. (CNBC, 13th of June 2011) On the 13th of June the company management announces that it would accept a separate union for the Manesar plant, but under the umbrella of company council, which would be responsible for wage revisions and other general issues. S Y Siddiqui, the head of human resources, said: We are ready to be flexible on their demand for a plant -level union. However, it has to comprise only those working at the plant. It cannot have outsiders. That is how Maruti has been run for 27 years. The proposed constitution of the new union allows one-third members from outside. On 14th of June AITUC secretary Sachdev first announced that the two-hours solidarity strike is on, only to proclaim that it is called off. The tool -down strike has started and about 60 65 factories workers are taking part in it. If in a day or two, no solution comes out, then workers will go on for a full-day strike, AITUC secretary D L Sachdev said. (Times of India, 14th of June 2011) The two-hour strike has been called-off for today on the appeal of the Chief Minister and the Labour Commissioner. They sought a days time to resolve the issue. Consequently, the strike has been postponed for 24 hours, AITUC Secretary D L Sachdev. (Press Trust of India, 14th of June 2011) On the 16th of June Maruti management told the media that it would try to revive production lines in the Gurgaon plant in case the strike dragged on for longer unnecessarily so, because a day later, on 17th of June, the dispute was settled. The workers were represented by leader of the proposed new union Maruti Suzuki Employees Union Shiv Kumar and national secretary of A ITUC Sachdev. The company has now agreed that we would not be asked to sign the paper. Also, the fact that Maruti took back the 11 workers shows that our demands were met, said Shiv Kumar.

Actually the eleven workers have to undergo an inquiry before they are taken back. The other main outcome of this victory is that workers lose only two days wage per each day of strike, instead of eight days, which would be legally possible under no work no payrule. This kind of official punishment for going on strike inscribed in the agreement is a rather new development. Maruti management might penalise workers with payment of an additional days wage per strike day if workers show any signs of indiscipline over the next two months. The plant will remain closed on Friday, the 17th of June, as a rest day for both workers and management and, instead, will function on Sunday. A puja [religious ceremony] has been called at 12 pm tomorrow as a symbolic way of starting things afresh, the administration official said. There was no mention of the second union in the agreement signed yesterday, simply because the workers at the Manesar plant do not require the managements permission to form a new union. Gurudas Dasgupta, general secretary, All India Trade Union Congress (AITUC). (Business Standard, 17th of June 2011) The national secretary Sachdev concluded: There has been massive loss of production and the workers are aware of this. Hence they are willing to work overtime and make up as much as possible for the loss in production. After they had digested the shock of the strike, Suzuki management tried to play down its impact. In a market where we sell 1.2 million vehicles a year, 16,000 vehicles was a matter of inventory adjustment, CEO Osamu Suzuki said. (23rd of June, Deccan Herald). Actually June sales figures did not look too good, the highest decline of monthly sales in two and a half years. While pretending that they are not bothered, their deeds speak differently. On 6th of July 2011 Maruti Suzuki management announced to shift the production of the Swift DZire from Manesar plant back to Gurgaon plant, were it was initially manufactured. At the same time the extension of production capacities in Manesar are supposed to continue 5. No Conclusion

We cannot draw any useful conclusions unless we have more insights about what workers experiences were during the strike and what they think and debate about the strike in hindsight. This will require more time and longer conversations. Majdoor Bigul is one of the political groups which supported the striking workers and whose activists were physically attacked by company paid goons while speaking to workers in the surrounding villages. They concluded: The Management and the Haryana govt. managed to

coerce the workers leaders for an abject surrender in a deal brokered by the central trade unions. (http://workersresist.net/?p=33) We dont think that betrayal of trade union leadership is a satisfying explanation for defeats of workers struggles. It does not explain why workers, who were willing to take on the hardship and risk of two weeks factory occupation, would accept an agreement brokered by some external self-proclaimed leaders or AITUC bigwigs if they are not happy with it. As far as we are aware of the workers did not develop an organised structure of collective decision-making during the occupation, which would have prevented a betrayal. They relied on their leadership and their middlemen function. A temporary worker who friends met after the strike told us that a lot of workers were not aware of the union involvement and negotiations. The Maruti union leadership was threatened with dismissal, for them the agreement the chance to get their job back was a victory. The accusation of betrayal also implies a certain illusion concerning the character of trade unions. We have decided to call a one-day strike to protest against the indecisive Maruti management, Bhagwan Malik, HMSI Employees Unions secretary said. We will give them some time before taking a final call on the issue. If Maruti Suzuki fails to act on workers demands, we will resort to a strike at our plants in coming days, Raj Kumar, president of Rico Autos workers union at the Daruhera plant, near Manesar said. We wil l extend all support to Maruti employees and may go on strike to express our solidarity. If required, we will come to a common location and protest for joint demands, Kamal Sharma, Employees Union president at Hero Hondas Daruhera plant, said. If we have a look at how some of the main supporting unions have developed as representative legal bodies of the permanent work-force we can see that their behaviour during the Maruti strike was not treacherous, but business as usual. At Rico Auto, unionised permanent workers earn up to six times as much their temporary work-mates and the wage division has increased since establishment of the union [5]. The union at Hero Honda declined membership to temporary workers and did not support the 1,500 locked-out temporary workers during the 2008 dispute [6]. Since the establishment of the union at Honda HMSI the material division between permanent and temporary workers has increased. We quote from an earlier article: Just to give the example of the union at Honda HMS I in Gurgaon. No one will deny the genuine character of the union, it has been fought for with blood, it has not been established as a company union, no one will approach them with betrayal. Since it has been recognised in 2005, wages of the permanent workers the union members have quadrupled: before May 2005 permanent workers used to get around 6,900 Rs, current wages are around 30,000 Rs plus, including incentives and bonuses. At the same time permanent workers have become a minority in the plant. In 2005 there were 1,200 permanent, 1,600 trainees, 1,000 workers hired through contractors and 400 apprentices. Today there are 1,800 permanent workers and 6,500 workers hired through contractors in production departments, plus around 1,500 workers hired through contractors for cleaning, canteen, driving etc.. The temporary workers in production get around 6,800 Rs per month, less than a quarter of their permanent work-mates. The permanent workers have retained mainly supervisory positions. As part of the union-management wage agreements the permanent workers wages contain a large share of productivity bonus. The company wants to make them benefit from the increased work load which has been imposed on the shoulders of the temporary work-force. The actual material power of the union has decreased, they compensate the decline by making themselves important managers of the

wage hierarchy not as one act of sell out, but as result of trade unions essential character within the wider process of re-structuring of class relations. The Maruti Suzuki strike in June is also an indicator for conflicts returning to the central assembly plants. During the 1990s and early 2000s companies like Maruti were able to guarantee more stable conditions in the centres by paying relatively high wages. The general pressure on automobile companies to reduce labour costs has increased significantly since the mid-2000s. Only three months earlier workers at General Motors plant in Gujarat went on a wildcat strike [7]. Workers at Maruti showed that material divisions can be overcome in struggle, in future workers will have to find ways to keep the struggle in their own hands.
MARUTI SUZUKI SHINZO NAKANISHI LABOUR UNREST MANESAR CAR

What triggered the violence at Marutis Manesar factory?

What triggered the violence at Marutis Manesar factory?
Amrit Raj First Published: Fri, Jul 20 2012. 12 30 AM IST

ALSO READ

Auto unions raise demands after Maruti wage settlement Maruti to open Manesar plant under heavy security cover Maruti may resume Manesar production in two weeks Maruti to build low-cost houses for workers in Haryana, Gujarat Maruti officials refuse to join work at Manesar

Updated: Fri, Jul 20 2012. 08 32 PM IST

Manesar: Maruti Suzuki India Ltds Manesar plant was witness to prolonged labour strife last year, but the violence unleashed on Wednesday that led to one person being killed caught its victims completely unawares. Some of us jumped off the first floor to save our lives as we saw a mob of workers, hundreds of them, rushing towards us, one of the injured Maruti officials told reporters at a hospital in Gurgaon on Thursday. He didnt want his identity to be disclosed because he feared for his safety. They were armed with car parts, rods and other implements, the official said. They didnt spare women either, said the official whose arms and legs bore marks of the encounter. The company said the violence was planned, while the union denied there was any conspiracy. Suzuki Motor Corp.s Indian unit didnt say when the plant would resume production. The person who died, Awanish Kumar Dev, general manager (HR), was burnt to death by the mob, the company said in a press release. Devs charred body was recovered by the police late on Wednesday night and identified by his family on Thursday. Marutis Manesar plant union president Rammehar Singh denied any wrongdoing. The Maruti Suzuki Workers Union is anguished at the recent developments (at) Manesar where the management has resorted to anti-worker and anti-union activities in a pre-planned manner, leading to the closure of the factory yesterday, Singh said in a statement. Wednesdays violence left at least 100 company officials, including Japanese executives, injured. Vishal Sehgal, a doctor at Artemis Hospital in Gurgaon, said most of the officials admitted had head injuries and broken arms. Loading video The clash assumed diplomatic overtones, with the Japanese embassy issuing a statement in which it condemned the violence. The embassy of Japan strongly deplores the loss of life...caused by the sabotage perpetrated by a group of workers at the Manesar plant...and condemns the violence and barbarism, it said. It called on the state of Haryana, where Maruti is based, to punish the guilty and enforce law and order. We expect that the Manesar plant will resume its operations and normalcy will be recovered at the earliest.

Maruti has plants in Gurgaon and nearby Manesar. The Gurgaon plant is functioning normally, the company said. The company said the violence didnt stem from an industrial relations dispute over wages or working conditions, but was orchestrated mob violence at a time when operations had been normal over the past many months. The Gurgaon police have formed a special investigative team of six officers under assistant commissioner of police Ranbir Tomar. The police have arrested 88 workers under various penal codes, including attempt to murder and assault on government servants. We have deployed 1,200 police personnel at the plant and formed a special investigative team to investigate the matter, said Maheshwar Dayal, deputy commissioner of police, Gurgaon. Deepinder Singh Hooda, a member of Parliament from Rohtak in Haryana and son of chief minister Bhupinder Singh Hooda, said there needed to be a review of labour laws in the overall context of such incidents. Whatever happened is unfortunate and I hope the concerned authorities will take the required action and the guilty (are) punished, he said. Labour is a state subject. The violence is unlikely to have been premeditated and could have just been be guided by a herd mentality, said Rajesh Chakrabarti, executive director at the Bharti Institute of Public Policy and a clinical associate professor of public policy at the Indian School of Business, Hyderabad. The union has said the violence stemmed from an altercation between a worker and a supervisor. A senior company official said on condition of anonymity that the situation had been building up for the past 8-10 days, with several instances of worker hostility. Cases of manhandling and workers spitting on supervisors faces were common, said this official. We also approached the police. An undercurrent of tension seems to have flared up on Wednesday, said Mahantesh Sabarad, senior vice-president, equity and research, Fortune Equity Brokers (India) Ltd. It tells us that last years events are still fresh in workers minds and they are unhappy with the last years decisions. Late last month, union leaders reiterated that demands agreed to by the company in 2011 had not been met. Workers had wanted company transport to and from their homes, better working conditions, regularization of leave, and higher wages. Not much has improved barring additional transport facilities to areas like Rewari and Jhajjar, Sarabjeet Singh, general secretary of the Manesar plant union, said in the June interview. Sandeep Dhillon, the unions chief patron, said at the time, They still cut our salaries if we take more than four days leave in a month.

Dhillon, Sarabjeet Singh and Rammehar Singh, the unions president, were not reachable on Thursday. Pravat Chaturvedi, a former labour secretary, said the Maruti management could have handled the situation better. He blamed the incident on the arrogance of the management. Even last year, when there was a settlement, I had said this is not the right way to deal with these issues, Chaturvedi said. I had also said that the company will suffer in the future. Look at what has happened. Mint reported on 23 April that the union had sent a notice asking for a doubling of salary and enhanced transport facilities, among other demands. A permanent worker gets Rs17,000 a month, while a casual worker gets Rs7,000. The plant has around 3,000 workers, of whom 900 are permanent. The Economic Times newspaper reported on 20 June that the Haryana labour department had initiated proceedings against Maruti executives for allegedly violating last years agreement with workers. Maruti Suzuki had committed in that accord to form grievance redressal and labour welfare committees at its Manesar plant. These have not been set up and wage raises are still under negotiation. Marutis production last year was disrupted by the industrial action at Manesar, which caused a revenue loss of Rs2,500 crore. The strike was called off following a tripartite agreement involving the management, workers and the state government of Haryana. It later emerged that 30 workers, who had been the strikes main leaders, were paid by the management to quit the company. The workers received a combined Rs4.2-4.8 crore,Mint reported on 8 November. Maruti said the company is still assessing the damage to property and facilities. What is clear is that the office facilities have been burnt beyond repair, as have the main gate, security office and the fire safety section, the company said. Rammehar Singh in turn said some of this was done by persons hired by the company. The bouncers, who are antisocial elements on hire, also destroyed company property and set fire to a portion of the factory, he said. The gates were later opened to oust the workers and enforce a lockout by the company. Sabarad of Fortune Equity Brokers noted that the violence has taken place as Maruti recovers from last years losses.

This incident could do permanent damage to their market share because it has happened at a plant where capacity was ramped up significantly and manufactures popular models, he said. Even if we assume the company takes stern action againts errant workers, that mistrust between the management and workers will be there for a long time. Its worrisome for investors Maruti Suzuki shares fell 8.74% to close at Rs.1,117.35 on BSE on Thursday, while the benchmark Sensex rose 0.55%. Surabhi Agarwal, Liz Mathew, Prashant Nanda and Elizabeth Roche in New Delhi, and Shally Seth in Mumbai contributed to this story. amrit.r@livemint.com

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Madras High Court

The General Manager vs Canteen Wrokers Of Bhel on 4 January, 2010
DATED : 04 .01.2010 Coram The HONOURABLE MR.JUSTICE K.K.SASIDHARAN W.P.No.10861 of 2000 The General Manager Bharat Heavy Electricals Ltd., Ranipet. : Petitioner vs. 1. Canteen Wrokers of BHEL rep.by the BHEL Canteen Workers Union (Regd. 796/NAT) 282-N-Block Anna Nagar East Chennai-102. 2. The Secretary Indco Service Society Ltd.,

BHEL, Factory Complex Ranipet-632 406. 3. The Presiding Officer Labour Court Vellore. : Respondents PRAYER:- Writ Petition filed under Article 226 of the Constitution of India praying to issue a writ of Certiorari calling for the records connected with I.D.No.93/92 on the file of the third respondent and quash the award dated 17.12.1999. For Petitioner : Mr.Sanjoy Mohan for M/s.Ramasubramaniam Associates For Respondents : Mr.K.M.Ramesh for R1 M/s.Gupta and Ravi for R2 R3- Court. ORDER This writ petition is directed against the award of the Labour Court, Vellore dated 17-121999 in I.D.No.93 of 1992 whereby and whereunder the Labour Court declared the canteen workers of Bharat Heavy Electricals Limited (hereinafter referred to as "BHEL"), Ranipet as their regular workers and directed the management to grant such status with effect from 23.11.1987 with all monetary benefits. BACKGROUND FACTS:2. The petitioner is a Public Sector Undertaking Company wholly owned by the Government of India, engaged in the manufacture of Heavy machinery. The petitioner Unit is located at Ranipet in the State of Tamil Nadu. 3. The petitioner has provided a canteen to its employees in accordance with Section 46 of the Factories Act, 1947. The canteen was originally managed by an independent

contractor. Subsequently in the year 1986, the second respondent Society was formed by the workmen of the contractor. The second respondent (hereinafter referred to as "Society") is a labour Co-operative Society registered under the Tamil Nadu Co-operative Societies Act, 1961. 4. The petitioner has entered into a written agreement with the Society and as per the said agreement, the Society has to provide food to BHEL employees by employing their own personnel to run the canteen and the petitioner would pay the agreed amount. The Society was a separate entity by virtue of its constitution and registration as a Cooperative Society. The Society is governed by its own by-laws. 5. The management of the Society vests with the Board of Directors and the profit and loss as the case may be shall be borne by the Society. The Society is answerable to the Registrar of Industrial Co-operative Societies. The admission and expulsion of the members of the Society are as per the terms of the by-laws and the status of the members of the Society is totally independent and unconnected with the employees of BHEL. The petitioner has no financial or supervisory control over the Society. 6. The Society had obtained a separate licence under Section 12 of the Contract Labour (Regulation and Abolition) Act, 1970 and as such it is a "Contractor" within the meaning of the said Act. The workmen employed by the Society are neither directly nor indirectly employed by BHEL. They have no lien on BHEL in terms of their employment, wages or conditions of service. The workmen were under the direct control of the Society and there never existed Master Servant relationship between the members of the first respondent Union (hereinafter referred to as "Union") and BHEL. BHEL was nothing more than a principal employer as defined under the Contract Labour Act, 1970. The Society has been functioning as a separate entity catering to the needs of the workers of BHEL on the basis of the agreement executed from time to time. 7. While the matters stood thus, the Union made a demand that the workmen of the Society should be conferred with permanent status in BHEL. The Union approached the Labour Officer for conciliation. BHEL appeared before the Labour Officer and submitted their explanation on 13.1.1988. BHEL maintained that the workmen employed by the Society never functioned as their employees and as such there was no legal relationship of employer-employee between the parties. However the Union

persisted in their demand. Ultimately the Government of Tamil Nadu referred the matter to the Labour Court for adjudication. The order of reference was challenged by the petitioner before this Court in W.P.No.15145 of 1988. The writ petition was disposed of as per order dated 3.12.1997 directing the Labour Court to decide the issues taking note of the objections submitted by BHEL. 8. The dispute was originally pending before the II Additional Labour Court, Madras. Subsequently it was transferred to the Labour Court, Vellore and it was registered as I.D.No.93 of 1992. The dispute was initially raised by the Anna Workers Union. Subsequently BHEL Canteen Workers Union stepped into the shoes of Anna Workers Union and the dispute was prosecuted by them before the Labour Court. 9. Before the Labour Court, BHEL demonstrated that there was no employer-employee relationship between the parties. BHEL has also placed reliance on various provisions of the by-laws of the Society to substantiate their contention that the Society is an independent entity and BHEL has no control in respect of its affairs. 10. The agreement entered into between BHEL and the Society was also placed before the Labour Court. However the Labour Court concluded that the agreement was sham and nominal and it was only BHEL, who was running the canteen. Accordingly the dispute was answered by directing the management of BHEL to grant permanent status to the workers of the canteen. Accordingly BHEL is before this Court. SUBMISSIONS:11. The learned counsel for the petitioner would contend thus:(a) BHEL is a factory employing more than 250 workers and as such there was a statutory requirement to provide canteen. Section 46 of the Factories Act, 1948 provides for establishment and maintenance of such canteens. The Government of Tamil Nadu framed rules and those rules also indicates the mandatory requirement of providing various facilities in the canteens. It was only in such circumstances BHEL has appointed the Society to run the canteen. (b) The second respondent Society is a separate legal entity. The Society has its own bylaws. The Society is manned by the Board of Directors comprising the representatives of both BHEL and the workers of the Soceity. The Government is also entitled to nominate

one Director. The Chief Executive Officer of the Society is a Government servant. Therefore the Society has an independent existence and BHEL has no persuasive control over the Society. (c) The mere fact that the canteen is a statutory canteen established by BHEL as per Section 46 of the Factories Act, it cannot be said that the factory is run by BHEL and the workers of the canteen are its workers. (d) The Labour Court posed a wrong question and answered the same in a perverse manner. (e) The finding recorded by the Labour Court that BHEL through its officers exercises control over the management of the Society and the canteen, has no factual basis and as such it was a perverse finding. (f) The Society has got an elected Board of Management and the daily administration of the Society is conducted by none other than the officer appointed by the Government. Therefore the Society does not satisfy the management test so as to arrive at a finding that the management of the Society is being carried on only by BHEL . (g) BHEL is obliged to conduct the canteen in its factory premises. The rules also contain a mandate that the canteen should be inside or near the factory. Therefore merely on the ground that the canteen is located inside the factory, it cannot be said that the Society is controlled by BHEL. (h) The Labour Court observed that finance to run the Society was made available only by BHEL. However the accounts shows that the Society has got its own finance and it also collects share capital from members. Therefore the said finding is also erroneous. (i) The supply of basic materials were given to the Society only as per the agreement. BHEL was giving subsidised food to its workers and as such responsibility to procure groceries and other materials vests with BHEL. Similarly the vessels, crockeries and other items necessary for running the canteen are also to be provided by BHEL as per agreement. Therefore BHEL was providing these items only as per the agreement executed with the Society. In such circumstances it cannot be said that the supply of these materials would prove that the canteen was run by none other than BHEL.

(j) The economic control test was taken as another ground to decide the matter against BHEL. It is true that BHEL has engaged its own workers to supervise the canteen. That was only for the purpose of satisfying itself that quality food was given to the workers of the factory. The said fact cannot be taken as a reason to come to the conclusion that the canteen was run only by BHEL through its workers. (k) The Labour Court has placed reliance on Ex.W.10 dated 29.2.1998 and observed that the recruitment of the staff to the canteen were also done by BHEL. The document in Ex.W.10 was a stray document which has nothing to do with BHEL. Merely because BHEL recommended the case of a candidate for appointment it cannot be said that the recruitment was conducted only by BHEL. (l) The Labour Court observed that the salary and other allowances of the workers were conditioned by BHEL. BHEL was only giving the agreed amount to the Society. It was the look out of the Society to disburse wages to its members as per the pay structure devised by the Society. (m) The Labour Court by taking note of the fact that the supervisors of BHEL were employed in the canteen observed that the canteen was supervised and run by none other than BHEL. The supervisors were engaged by BHEL only to ensure that its workers were given superior quality food on time. The quality and quantity of food was of serious concern to BHEL and it was only to protect the interest of the workers, supervisors were posted in the canteen. The said supervisory control cannot be treated as an effective control of the Society. (n) The medical and other facilities to the workers of the Canteen were provided by BHEL only to run the canteen in an efficient manner. The workers of the canteen are the workers of the factory within the meaning of the Factories Act. Therefore BHEL was bound to give medical facilities to the workers of the canteen. Those factors cannot be taken against BHEL as conclusive proof of management of the canteen by BHEL. (o) The statutory obligation of BHEL under Section 46 of the Factories Act was also taken as a pointer by the Labour Court to decide the matter against BHEL. The statutory requirement under Section 46 of the Factories Act was considered by the Supreme Court time and again and it was categorically held that merely because the company was providing a statutory canteen, it cannot be said that the workers of the canteen are in effect the workers of the company. (p) The accounts of the Society clearly shows that it was having a budget and provisions were made for payment of salary and dividend to its

members. Therefore the Society was managing its affairs independently without the control of BHEL. (q) The learned counsel for the petitioner placed reliance on the following judgments to substantiate his contentions . (1) M.E. Ilangovan and Ors. v. Madras Refineries Ltd. (2005(1) MLJ 686) (2) Haldia Refinary Canteen Employees Union v. Indian Oil Corportion Ltd., 2005 (5) SCC 51. (3) International Airport Authoirty of India v. International Air Cargo Workers' Union and Anr. (JT2009(8) SCC 661). 12. The learned counsel for the Union supported the award passed by the Labour Court. The learned counsel made the following submissions:(a) The workmen of the Society were originally employed by the contractor. During the year 1986, BHEL represented that it was difficult to absorb the canteen workers in BHEL. Accordingly it was agreed to organise an Industrial Co-operative Society with a clear understanding that the workers then working with the contractor would be given preference for regular employment in BHEL subject to vacancy. Their seniority in the canteen also would be taken into consideration for such appointments. Therefore BHEL has specifically agreed to treat the workers of the canteen as its workers and the Society was formed only as an interim measure till the actual absorption of the workers of the Society hitherto employed under the contractor. (b) Though the Society was having a Board of Management, the actual control of the Society was always in BHEL. BHEL has employed its own supervisors and they are looking after the affairs of the canteen. The provisions and other groceries used to be purchased only by BHEL and it would be kept only in their godown. It would be given to the canteen daily wise. The godown is also under the lock and key of BHEL. Therefore the day-to-day management of the Society was conducted only by BHEL.

(c) The wages of the workers used to be revised now and then by BHEL. Whenever there was revision of wages in BHEL, the same would be extended to the workers of the canteen. The said practice is evident from the exhibits marked before the Labour Court. (d) The food coupons were issued to the workers only by BHEL employees and the cash box of the canteen was also handled only by BHEL employees. Therefore the effective management was only with BHEL. (e) The learned counsel placed reliance on the following judgments. (1) Parimal Chandra Raha v. LIC, 1995 Supp (2) SCC 611. (2) Indian Petrochemicals Corpn. Ltd. v. Shramik Sena, (1999) 6 SCC 439. ANALYSIS:13. The petitioner is a factory within the meaning of Section 2(m) of the Factories Act, 1948. The Factories Act contains provisions for the welfare of the workers. Section 46 of the Act provides that in any specified factory wherein more than two hundred and fifty workers are ordinarily employed, a canteen or canteens shall be provided and maintained by the occupier for the use of the workers. Since the petitioner has employed more than two hundred and fifty workers, they are bound to provide and maintain a canteen for the use of its workers. 14. There is no dispute that originally the canteen was entrusted to a private contractor by BHEL. The contractor was running the canteen on the basis of an agreement executed with BHEL. The members of the Union were the workers of the contractor. It was only in the year 1986, the idea of incorporating a Co-operative Society was emerged in the meeting between the management of BHEL and the Union. The letter dated 12.6.1986 sent by the Union to BHEL contains a reference about the discussion. In fact the Labour Commissioner as per letter dated 30.11.1985 called upon the management of BHEL to inspect MRL Industrial Co-operative Service Society Limited and to form a Society of such kind in BHEL. It appears that the said suggestion also made an impact in

coming to an agreement with the workers to organise an Industrial Co-operative Society. 15. The Society was constituted as an Industrial Service Co-operative Society. The membership of the Society was restricted to the workers of the contractor engaged for running canteen and to look after sanitation at BHEL, Ranipet. Those persons who are above eighteen years of age and whose lands were acquired under the Land Acquisition Act for the establishment of BHEL, Ranipet and eligible for employment in BHEL but not employed in BHEL on the date of registration of the Society were also given the right to be enrolled as members of the Society. 16. The Board of management of the Society consists of three nominees of BHEL, one from the State Government and another three to be elected from the worker members. As per the by-laws, the Society has to be managed by the Board of Management and the day-to-day affairs would be conducted by the President through the Chief Executive Officer. The President shall have a general control over the affairs of the Society and he was expected to monitor the day-to-day administration of the Society. 17. There is no dispute about the constitution of the Society and the fact that its original members were none other than the workers employed in the statutory canteen till the formation of the Society. There are agreements entered into between BHEL and the Society which contains provisions regarding the nature of functioning of the Society. 18. The core question to be decided in this writ petition is as to whether the employees of the Society are in effect the employees of BHEL by virtue of the persuasive control of BHEL over the Society. 19. Disputes regarding nature of employment of workmen in statutory and nonstatutory canteens were the subject matter before the Supreme Court time and again. There were two kinds of canteens. Those canteens which were established as per the provisions of the Factories Act were termed as statutory canteens. Other canteens which were established by the management without such compulsion were termed as nonstatutory canteens. 20. Before considering the facts of this case, for the purpose of coming to a conclusion as to whether the canteen was run only by BHEL and the Society was only sham and nominal, it is necessary to consider the decisions of the Supreme Court on point.

PRECEDENT:21. In Dhrangadhra Chemical Works Ltd. v. State of Saurashtra, {AIR 1957 SC 264 = 1957 SCR 152} the Supreme Court indicated the principles according to which the relationship of an employer and employee or Master and Servant has to be determined. "13. The principle which emerges from these authorities is that the prima facie test for the determination of the relationship between master and servant is the existence of the right in the master to supervise and control the work done by the servant not only in the matter of directing what work the servant is to do but also the manner in which he shall do his work, or to borrow the words of Lord Uthwatt at p. 23 in Mersey Docks and Harbour Board v. Coggins & Griffith (Liverpool) Ltd.5 The proper test is whether or not the hirer had authority to control the manner of execution of the act in question. 14. The nature or extent of control which is requisite to establish the relationship of employer and employee must necessarily vary from business to business and is by its very nature incapable of precise definition. As has been noted above, recent pronouncements of the Court of Appeal in England have even expressed the view that it is not necessary for holding that a person is an employee, that the employer should be proved to have exercised control over his work, that the test of control was not one of universal application and that there were many contracts in which the master could not control the manner in which the work was done. 15. The correct method of approach, therefore, would be to consider whether having regard to the nature of the work there was due control and supervision by the employer." 22. In Silver Jubilee Tailoring House v. Chief Inspector of Shops & Establishments, {1973(2) LLJ 495 = (1974) 3 SCC 498} the workmen were engaged by the management on piece-rate basis. The workers were also paid on piece-rate basis. The Workers generally attend the shops every day if there was work. The rate of wages paid to the workers were not uniform. The rate depended on the skill of the worker and the nature of work. When cloth was given for stitching to a worker after it has been cut, the worker was told how he should stitch it. If he does not stitch it according to the instruction, the employer rejects the work and he generally asks the worker to re-stitch the same. When the work was not done by a worker according to the instructions, generally no further work would be given to him. If a worker does not want to go for work to the shop on a

day, he does not make any application for leave, nor was there any obligation on his part to inform the employer that he will not attend for work on that day. If there was no work, the employee was free to leave the shop before the shop closes. Almost all the workers did their work in the shop. Some workers were allowed to take cloth for stitching to their homes on certain days. But it was done always with the permission of the proprietor of the shop. The machines installed in the shop absolutely belonged to the proprietor of the shop and the premises and the shop in which the work was carried on also belongs to him. The question posed before the Supreme Court was whether from the above circumstances, the conclusion drawn by the Chief Inspector of Shops and Establishments and the High Court that there existed employer-employee relationship was correct. The Supreme Court considered series of cases including D.C.Dewan Mohideen Sahib and Sons v. The Industrial Tribunal, Madras (1964(2) LLJ 633) relating to contractors supplying leaves and tobacco from the owner and employing workmen for manufacturing beedies. The Supreme Court observed thus:"28. It is exceedingly doubtful today whether the search for a formula in the nature of a single test to tell a contract of service from a contract for service will serve any useful purpose. The most that profitably can be done is to examine all the factors that have been referred to in the cases on the topic. Clearly, not all of these factors would be relevant in all these cases or have the same weight in all cases. It is equally clear that no magic formula can be propounded, which factors should in any case be treated as determining ones. The plain fact is that in a large number of cases, the Court can only perform a balancing operation weighing up the factors which point in one direction and balancing them against those pointing in the opposite direction. 29. During the last two decades the emphasis in the field has shifted and no longer rests so strongly upon the question of control. Control is obviously an important factor and in many cases it may still be the decisive factor. But it is wrong to say that in every case it is decisive. It is now no more than a factor, although an important one. 35...... The degree of control and supervision would be different in different types of business. If an ultimate authority over the worker in the performance of his work resided in the employer so that he was subject to the latters direction, that would be sufficient."

23. In Hussainbhai v. Alath Factory Thezhilali Union, (1978) 4 SCC 257, the issue before the Supreme Court was as to whether the workmen employed by an independent contractor to work in the factory for manufacturing ropes were workers and as to whether there was a relationship of employer-employee between them. In Hussainbhai's case, the industry was engaged in the manufacture of ropes. Large number of workmen were engaged to make ropes within the factory. When their engagement was put an end, it was challenged before the Tribunal. The Tribunal allowed the claim of the workers and it was confirmed by a learned Single Judge as well as the Division Bench of the High Court. The Supreme Court indicated the factual position thus:"2. ......It is not in dispute that the work done by these workmen was an integral part of the industry concerned; that the raw material was supplied by the Management; that the factory premises belonged to the Management; that the equipment used also belonged to the Management and that the finished product was taken by the Management for its own trade. The workmen were broadly under the control of the Management and defective articles were directed to be rectified by the Management. This concatenation of circumstances is conclusive of the question. After considering the nature of engagement, the Supreme Court indicated the test to be adopted to find out the employer - employee relationship thus:"5. The true test may, with brevity, be indicated once again. Where a worker or group of workers labours to produce goods or services and these goods or services are for the business of another, that other is, in fact, the employer. He has economic control over the workers subsistence, skill, and continued employment. If he, for any reason, chokes off, the worker is, virtually, laid off. The presence of intermediate contractors with whom alone the workers have immediate or direct relationship ex contractu is of no consequence when, on lifting the veil or looking at the conspectus of factors governing employment, we discern the naked truth, though draped in different perfect paper arrangement, that the real employer is the Management, not the immediate contractor. Myriad devices, half-hidden in fold after fold of legal form depending on the degree of concealment needed, the type of industry, the local conditions and the like may be resorted to when labour legislation casts welfare obligations on the real employer, based on Articles 38, 39, 42, 43 and 43-A of the Constitution. The court must be astute to avoid the mischief and achieve the purpose of the law and not be misled by the maya of legal appearances.

6. If the livelihood of the workmen substantially depends on labour rendered to produce goods and services for the benefit and satisfaction of an enterprise, the absence of direct relationship or the presence of dubious intermediaries or the make-believe trappings of detachment from the Management cannot snap the real life-bond. The story may vary but the inference defies ingenuity. The liability cannot be shaken off." 24. In Parimal Chandra Raha v. LIC, 1995 Supp (2) SCC 611, the issue was regarding the claim made by forty two workmen working in canteens at four different offices of the Life Insurance Corporation in Calcutta. The learned Single Judge allowed the writ petition filed by the workmen and directed the Corporation to implement the policy of equal pay for equal work and pay them minimum salary as was enjoyed by the regular staff of the Corporation. There was a further direction that the workmen shall be treated as direct workers under the Corporation with all service benefits. The Supreme Court considered the earlier cases on point and on an evaluation of the law on the subject observed thus:"25. What emerges from the statute law and the judicial decisions is as follows: (i) Whereas under the provisions of the Factories Act, it is statutorily obligatory on the employer to provide and maintain canteen for the use of his employees, the canteen becomes a part of the establishment and, therefore, the workers employed in such canteen are the employees of the management. (ii) Where, although it is not statutorily obligatory to provide a canteen, it is otherwise an obligation on the employer to provide a canteen, the canteen becomes a part of the establishment and the workers working in the canteen, the employees of the management. The obligation to provide a canteen has to be distinguished from the obligation to provide facilities to run canteen. The canteen run pursuant to the latter obligation, does not become a part of the establishment. (iii) The obligation to provide canteen may be explicit or implicit. Where the obligation is not explicitly accepted by or cast upon the employer either by an agreement or an award, etc., it may be inferred from the circumstances, and the provision of the canteen may be held to have become a part of the service conditions of the employees. Whether the provision for canteen services has become a part of the service conditions or not, is a question of fact to be determined on the facts and circumstances in each case.

Where to provide canteen services has become a part of the service conditions of the employees, the canteen becomes a part of the establishment and the workers in such canteen become the employees of the management. (iv) Whether a particular facility or service has become implicitly a part of the service conditions of the employees or not, will depend, among others, on the nature of the service/facility, the contribution the service in question makes to the efficiency of the employees and the establishment, whether the service is available as a matter of right to all the employees in their capacity as employees and nothing more, the number of employees employed in the establishment and the number of employees who avail of the service, the length of time for which the service has been continuously available, the hours during which it is available, the nature and character of management, the interest taken by the employer in providing, maintaining, supervising and controlling the service, the contribution made by the management in the form of infrastructure and funds for making the service available etc." 25. In Parimal Chandra Raha the Supreme Court considered the nature of arrangement between the Corporation and the Co-operative Society. The observation reads thus:"29. The facts on record on the other hand, show in unmistakable terms that canteen services have been provided to the employees of the Corporation for a long time and it is the Corporation which has been from time to time, taking steps to provide the said services. The canteen committees, the Cooperative Society of the employees and the contractors have only been acting for and on behalf of the Corporation as its agencies to provide the said services. The Corporation has been taking active interest even in organising the canteen committees. It is further the Corporation which has been appointing the contractors to run the canteens and entering into agreements with them for the purpose. The terms of the contract further show that they are in the nature of directions to the contractor about the manner in which the canteen should be run and the canteen services should be rendered to the employees. Both the appointment of the contractor and the tenure of the contract is as per the stipulations made by the Corporation in the agreement. Even the prices of the items served, the place where they should be cooked, the hours during which and the place where they should be served, are dictated by the Corporation. The Corporation has also reserved the right to modify the terms of the contract unilaterally and the contractor has no say in the matter. Further, the record shows that almost all the workers of the canteen like the appellants

have been working in the canteen continuously for a long time, whatever the mechanism employed by the Corporation to supervise and control the working of the canteen. Although the supervising and managing body of the canteen has changed hands from time to time, the workers have remained constant. This is apart from the fact that the infrastructure for running the canteen, viz., the premises, furniture, electricity, water etc. is supplied by the Corporation to the managing agency for running the canteen. Further, it cannot be disputed that the canteen service is essential for the efficient working of the employees and of the offices of the Corporation. In fact, by controlling the hours during which the counter and floor service will be made available to the employees by the canteen, the Corporation has also tried to avoid the waste of time which would otherwise be the result if the employees have to go outside the offices in search of such services. The service is available to all the employees in the premises of the office itself and continuously since inception of the Corporation, as pointed out earlier. The employees of the Corporation have all along been making the complaints about the poor or inadequate service rendered by the canteen to them, only to the Corporation and the Corporation has been taking steps to remedy the defects in the canteen service. Further, whenever there was a temporary breakdown in the canteen service, on account of the agitation or of strike by the canteen workers, it is the Corporation which has been taking active interest in getting the dispute resolved and the canteen workers have also looked upon the Corporation as their real employer and joined it as a party to the industrial dispute raised by them. In the circumstances, we are of the view that the canteen has become a part of the establishment of the Corporation. The canteen committees, the cooperative Society of the employees and the contractors engaged from time to time are in reality the agencies of the Corporation and are, only a veil between the Corporation and the canteen workers. We have, therefore, no hesitation in coming to the conclusion that the canteen workers are in fact the employees of the Corporation." 26. In Secy., Haryana SEB v. Suresh, (1999) 3 SCC 601, the Supreme Court indicated as to how the legislation like the Contract Labour (Regulation & Abolition) Act, 1970 has to be interpreted. It reads:"3. Ours is a Socialist State as the Preamble depicts and the aim of socialism, therefore, ought to be to distribute the common richness and the wealth of the country in such a way so as to subserve the need and the requirement of the common man. Article 39 is a pointer in that direction. Each clause under the article specifically fixes a

certain social and economic goal so as to expand the horizon of benefits to be accrued to the general public at large. In particular reference to Article 39(a) it is seen that the State ought to direct its policies in such a manner so that the citizens men and women equally, have the right of an adequate means of livelihood and it is in this perspective again that the enactment in the statute-book as noticed above [the Contract Labour (Regulation & Abolition) Act, 1970] ought to be read and interpreted so that social and economic justice may be achieved and the constitutional directive be given a full play." 27. The Supreme Court in Secy., Haryana indicated the approach to be taken in respect of employment which was perennial in nature. The observation reads thus:"13. There is, however, a total unanimity of judicial pronouncements to the effect that in the event the contract labour is employed in an establishment for seasonal workings, question of abolition would not arise but in the event of the same being perennial in nature, that is to say, in the event of the engagement of labour force through an intermediary which is otherwise in the ordinary course of events and involves continuity in the work, the legislature is candid enough to record its abolition since involvement of the contractor may have its social evil of labour exploitation and thus the contractor ought to go out of the scene bringing together the principal employer and the contract labourers rendering the employment as direct, and resultantly a direct employee. " 28. In Secy., Haryana SEB v. Suresh, (1999) 3 SCC 601, the Supreme court indicated as to how a social and beneficial piece of legislation has to be interpreted. It reads thus:"18. As noticed above the draconian concept of law is no longer available for the purpose of interpreting a social and beneficial piece of legislation specially on the wake of the new millennium. The democratic polity ought to survive with full vigour: socialist status as enshrined in the Constitution ought to be given its full play and it is in this perspective the question arises is it permissible in the new millennium to decry the cry of the labour force desirous of absorption after working for more than 240 days in an establishment and having their workings supervised and administered by an agency within the meaning of Article 12 of the Constitution the answer cannot possibly be in the affirmative the law courts exist for the society and in the event law courts feel the requirement in accordance with principles of justice, equity and good conscience, the

law courts ought to rise up to the occasion to meet and redress the expectation of the people. The expression regulationcannot possibly be read as contra public interest but in the interest of the public." 29. In Indian Petrochemicals Corpn. Ltd. v. Shramik Sena, (1999) 6 SCC 439, the issue before the Supreme Court was as to whether the relationship of workmen of a statutory canteen managed by a contractor with the establishment maintaining such canteen are master-servant and by virtue of their status as the workmen of the establishment for the purpose of Factories Act, whether ipso facto would enable the workmen to claim that they are the workers of the factory. The other contention was regarding the nature of management of the canteen, in the light of the provisions made by the management to run the canteen and the supervision and control exercised by them in running the Canteen and as to whether it would constitute the relationship of an employer and employee. The claim made by the workmen that the canteen was a statutory canteen under Section 46 of the Factories Act, and as such the workmen are deemed to be the employees of the Factory, was rejected. The Supreme Court observed thus:- "17. The question however is: does this status of a workman under the Factories Act confine the relationship of the employer and the employees to the requirements of the Factories Act alone or does this definition extend for all other purposes which include continuity of service, seniority, pension and other benefits which a regular employee enjoys. The Factories Act does not govern the rights of employees with reference to recruitment, seniority, promotion, retirement benefits etc. These are governed by other statutes, rules, contracts or policies. Therefore, the workmens contention that employees of a statutory canteen ipso facto become the employees of the establishment for all purposes cannot be accepted." 30. The Supreme Court in Indian Petrochemicals Corporation Ltd., case examined the salient features of the contract in the said case for the purpose of arriving at a decision as to whether the employees of the canteen were in fact employees of the establishment. The Supreme Court considered the following features as evidence of relationship of employer employee between the management and the workmen. It reads:- "25. ...........That apart, a perusal of the affidavits filed in this Court and the contract entered into between the Management and the contractor clearly establishes: (a) The canteen has been there since the inception of the appellants factory.

(b) The workmen have been employed for long years and despite a change of contractors the workers have continued to be employed in the canteen. (c) The premises, furniture, fixture, fuel, electricity, utensils etc. have been provided for by the appellant. (d) The wages of the canteen workers have to be reimbursed by the appellant. (e) The supervision and control on the canteen is exercised by the appellant through its authorised officer, as can be seen from the various clauses of the contract between the appellant and the contractor. (f) The contractor is nothing but an agent or a manager of the appellant, who works completely under the supervision, control and directions of the appellant. (g) The workmen have the protection of continuous employment in the establishment. 26. Considering these factors cumulatively, in addition to the fact that the canteen in the establishment of the Management is a statutory canteen, we are of the opinion that in the instant case, the respondent workmen are in fact the workmen of the appellate Management." 31. In Indian Overseas Bank v. I.O.B. Staff Canteen Workers' Union, (2000) 4 SCC 245 the Supreme Court by placing reliance on Indian Petrochemicals Corporation Ltd., case (1999) 6 SCC 439, indicated that the formula evolved cannot be concretised into fixed formula for universal application and the mere availability of any one or more or their absence in a given case cannot by itself be held to be decisive of the whole issue. The observation reads thus:- "18. The standards and nature of tests to be applied for finding out the existence of master and servant relationship cannot be confined to or concretised into fixed formula(e) for universal application, invariably in all class or category of cases. Though some common standards can be devised, the mere availability of any one or more or their absence in a given case cannot by itself be held to be decisive of the whole issue, since it may depend upon each case to case and the peculiar device adopted by the employer to get his needs fulfilled without rendering him liable. That being the position, in order to safeguard the welfare of the workmen, the veil may have to be pierced to get at the realities. Therefore, it would be not only impossible but also not desirable to lay down abstract principles or rules to serve as a ready reckoner for all

situations and thereby attempt to compartmentalise and peg them into any pigeonhole formulae, to be insisted upon as proof of such relationship. This would only help to perpetuate practising unfair labour practices than rendering substantial justice to the class of persons who are invariably exploited on account of their inability to dictate terms relating to conditions of their service. Neither all the tests nor guidelines indicated as having been followed in the decisions noticed above should be invariably insisted upon in every case, nor the mere absence of any one of such criteria could be held to be decisive of the matter. A cumulative consideration of a few or more of them, by themselves or in combination with any other relevant aspects, may also serve to be a safe and effective method to ultimately decide this often agitated question. Expecting similarity or identity of facts in all such variety or class of cases involving different type of establishments and in dealing with different employers would mean seeking for things, which are only impossible to find." 32. In Indian Overseas Bank case, the canteen was not a statutory one. The Supreme Court found that there were materials to come to a conclusion that there was a masterservant relationship between Indian Overseas Bank and canteen workers, not withstanding the presence of a Co-operative Society earlier and a contractor later. The observation reads thus:- "20. ........The canteen in question was being run from 11-1973 and even before that, indisputably, the Bank itself had arranged for running of the same through a contractor and similar arrangement to run through a contractor was once again made by the Bank on its closure on 26-4-1990, though after a period of some break from 21-10-1992. Besides this, the nature and extent of assistance, financial and otherwise in kind provided which have been enumerated in detail, would go to establish inevitably that the Bank has unmistakably and for reasons obvious always undertaken the obligation to provide the canteen services, though there may not be any statutory obligation and it will be too late to contend that the provision of canteen had not become a part of the service conditions of the employees. The materials placed on record also highlight the position that the Bank was always conscious of the fact that the provision and availing of canteen services by the staff are not only essential but would help to contribute for the efficiency of service by the employees of the Bank. That it was restricted to the employees only, that the subsidy rate per employee was being also provided, and the working hours and days of the canteen located in the very bank buildings were strictly those of the Bank and the further fact that no part of the capital required to run the same was contributed by anybody else, either the promoters or the

staff using the canteen are factors which strengthen the claim of the workers. It was also on evidence that the canteen workers were enlisted under a Welfare Fund Scheme of the Bank besides making them eligible for periodical medical check-up by the doctors of the Bank and admitting them to the benefits of the Provident Fund Scheme. The cumulative effect of all such and other facts noticed and considered in detail provided sufficient basis for recording its findings by the Tribunal as well as the Division Bench of the High Court ultimately to sustain the claim of the workers in this case." 33. In Vst Industries Ltd. v. Vst Industries Workers' Union, (2001) 1 SCC 298, the High Court issued a writ of Mandamus to treat the employees of the Factory canteen as employees of VST Industries Limited. Though the Supreme Court accepted the contention of the Management that writ petition was not maintainable as VST was not an authority or a person amenable to writ jurisdiction, the findings of fact recorded by the learned Single Judge was confirmed as evidence of a jural relationship of employeremployee in spite of the presence of an independent contractor. The relevant para reads thus:- "10. In the present case, the findings recorded by the learned Single Judge on examination of the facts available is that there had been a canteen within the premises of the appellant up to the year 1982 and it is only from 1982 onwards the management of the canteen has been entrusted to a private contractor; that even after change of the contractor, the canteen workers have continued to be the same irrespective of the change in the contractors from time to time; that wages were paid to the workmen in the canteen by the management through the contractor; that the appellant has provided the accommodation, furniture, fuel, electricity, utensils, etc.; that the management exercises control over the standard in quality, quantity and the rate of the food items supplied to the workmen for whose benefit the canteen is established. Thus, these circumstances clearly indicate that the appellant has complete control over the activities in respect of the canteen and the contractor has absolutely no discretion either in regard to the menu, quality and quantity of the food items much less the rate at which the same are supplied to the workmen. When the management of the appellant exercises such a complete control, the canteen shall be deemed to be run by the management itself. The appellant in any manner cannot controvert these facts. 11. We do agree that the respondents have a strong case on merits." 34. In Union of India v. M. Aslam,(2001) 1 SCC 720, the issue before the Supreme Court was regarding the claim made by the employees of the Unit-run Canteens. The Central

Administrative Tribunal accepted the contentions of employees and held that they were serving under the Ministry of defence. Before the Supreme Court, the Union of India contended that the Unit-run canteens are operated by non-public funds and the expenditure required to run the Unit Canteens were made out of the profits earned by the canteen itself and therefore there was no relationship of Master and Servant between Union of India and the employees of the Unit-run Canteens. The Supreme Court found that originally the canteens were run by the contractors. Subsequently the concept of Unit-run Canteens were born. Accordingly, contract system was abolished. The Supreme Court applied the test formulated in Parimal Chandra Raha v. LIC, 1995 Supp (2) SCC 611, and decided the issue thus:- "3. ........Applying the aforesaid principle to the facts in the present case, it is difficult to conceive as to how the employees working in the Unit-run Canteens can be held to be not government servants, when it has emerged that providing canteen facilities to the defence service personnel is obligatory on the part of the Government and, in fact, these Unit-run Canteens discharge the duty of retail outlets after getting their provision from the wholesale outlet or depot of the Canteen Stores Department........" 35. In Steel Authority of India Ltd. v. National Union Waterfront Workers, (2001) 7 SCC 1, the Supreme Court considered the earlier cases relating to contract labour and observed thus:"107. An analysis of the cases, discussed above, shows that they fall in three classes: (i) where contract labour is engaged in or in connection with the work of an establishment and employment of contract labour is prohibited either because the industrial adjudicator/court ordered abolition of contract labour or because the appropriate Government issued notification under Section 10(1) of the CLRA Act, no automatic absorption of the contract labour working in the establishment was ordered; (ii) where the contract was found to be a sham and nominal, rather a camouflage, in which case the contract labour working in the establishment of the principal employer were held, in fact and in reality, the employees of the principal employer himself. Indeed, such cases do not relate to abolition of contract labour but present instances wherein the Court pierced the veil and declared the correct position as a fact at the stage after employment of contract labour stood prohibited; (iii) where in discharge of a statutory obligation of maintaining a canteen in an establishment the principal employer availed the services of a contractor the courts have held that the contract labour would indeed be the employees of the principal employer."

36. The question as to whether the condition in the agreement between the contractor and the establishment that the new contractor should retain the employees who had served under the earlier contractors, would necessarily mean that such employees were employees of the establishment was the issue in Hari shankar Sharma v. Artificial Limbs Manufacturing Corpn.(2002(1) SCC 337). The Supreme Court observed that the issue is primarily and ultimately one of fact to be determined by a fact-finding Tribunal. 37. In Bharat Heavy Electricals Ltd. v. State of U.P., (2003) 6 SCC 528, the issue before the Supreme Court was the arrangement made by BHEL to employ workmen through intermediary. The management engaged workers as gardeners to sweep, clean and maintain and look after the lawns and parks inside factory premises and campus of the residential colony through the agency. Their services were terminated. The workers raised an industrial dispute. Before the Labour Court, BHEL raised a plea that the workers were never employed by them and as such they were not liable to pay any amount of compensation or to re-instate the workers in service. The Labour Court directed BHEL to re-employ the workers. The award was confirmed by the High Court. The Supreme Court considered the nature of work performed by the workmen and their employment through the contractor. The Supreme Court found that the Head Mali, was admittedly employed by BHEL and he used to supervise the work of the workmen. Similarly another employee of BHEL used to maintain the records of attendance of the workmen. The Supreme Court concurred with the views expressed by the High Court that the workmen were under the direct employment, supervision and control of BHEL and that the employer with a view to get over stringent provisions of the labour law, resorted to engage the workmen through some intermediary and such an arrangement shall be termed as artificial. The Supreme Court also considered the earlier judgment in Hussainbhai V. Alath Factory Thozhilali Union (1978(4) SCC 257) and observed thus:- "10. Looking to what is stated in paras extracted above, it is clear that where workman-labour is engaged to produce goods or services and these goods or services are for the business of another, the other is the employer. The work of the respondent workmen is not totally disassociated in fact between them and the appellant to say that they were not employees of the appellant judged by what is stated in para 7 of the same judgment in the following words: 7. Of course, if there is total dissociation in fact between the disowning management and the aggrieved workmen, the employment is, in substance and in real-life terms, by another. The managements adventitious connections cannot ripen into real employment.

38. In Bharat Heavy Electricals Ltd. Case cited supra, the Supreme Court by lifting the veil and looking at the conspectus of factors governing the employment concluded that the involvement of the direct contractor was merely figurative and sham. The Supreme Court confirmed the award of the Labour Court and directed re-instatement of the workers. 39. In Workmen of Nilgiri Coop. Mkt. Society Ltd. v. State of T.N.,(2004) 3 SCC 514, the Supreme Court observed that the question as to whether there was a relationship of Master-Servant has to be answered having regard to the facts involved and no single test has been held to be the determinative factor. The observation reads thus:"Determination of relationship 32. Determination of the vexed questions as to whether a contract is a contract of service or contract for service and whether the employees concerned are employees of the contractors has never been an easy task. No decision of this Court has laid down any hard-and-fast rule nor is it possible to do so. The question in each case has to be answered having regard to the fact involved therein. No single test be it control test, be it organisation or any other test has been held to be the determinative factor for determining the jural relationship of employer and employee. 33. There are cases arising on the borderline between what is clearly an employeremployee relation and what is clearly an independent entrepreneurial dealing." 40. The Supreme Court in Workmen of Nilgiri Coop. Mkt. Society Ltd. Case (2004) 3 SCC 514, indicated the relevant factors for determining the jural relationship thus:"Relevant factors 37. The control test and the organisation test, therefore, are not the only factors which can be said to be decisive. With a view to elicit the answer, the court is required to consider several factors which would have a bearing on the result: (a) who is the appointing authority; (b) who is the paymaster; (c) who can dismiss; (d) how long alternative service lasts; (e) the extent of control and supervision; (f) the nature of the job e.g. whether it is professional or skilled work; (g) nature of establishment; (h) the right to reject."

41. The role of industrial adjudicator to decide the question as to whether the contract was sham or camouflage was indicated by the Supreme Court in Workmen of Nilgiri Coop. Mkt. Society Ltd. thus:"Camouflage 68. Whether a contract is a sham or camouflage is not a question of law which can be arrived at having regard to the provisions of the Contract Labour (Regulation and Abolition) Act, 1970. It is for the industrial adjudicator to decide the said question keeping in view the evidences brought on record. ............ 94. There cannot be any doubt whatsoever that where a person is engaged through an intermediary or otherwise for getting a job done, a question may arise as the appointment of an intermediary was merely sham and nominal and rather than camouflage where a definite plea is raised in the Industrial Tribunal or the Labour Court, as the case may be, and in that event, it would be entitled to pierce the veil and arrive at a finding that the justification relating to appointment of a contractor is sham or nominal and in effect and substance there exists a direct relationship of employer and employee between the principal employer and the workman. " 42. In M.E. Ilangovan and Ors. v. Madras Refineries Ltd. (2005(1) MLJ 686), the issue before a Division Bench of this Court was the claim of regularisation made by 103 workers of Madras Refineries Limited and their writ of declaration to declare that they are the workmen of the Corporation and to regularise their services. The writ petition was dismissed by the learned Single Judge. Before the Division Bench the Corporation contended that it was not open to the workmen to argue that the contract was sham and camouflage as they have conceded before the learned Judge that the contract was not challenged on the ground that it was a sham document and the same was recorded by the learned Judge in more than one place. The said submission was accepted by the Division Bench. The Division Bench observed that on the basis of the self serving averments in the affidavit it was not possible to declare that the contracts entered into by the Corporation with the contractor were sham and nominal and not genuine. The Division Bench followed Hari shankar Sharma's case (2002(1) SCC 337) where it was held that merely because the employer has complied with the provisions of the Factories Act by providing the equipment, foodstuffs, etc., to the contractor, would not necessarily mean that the employer was running the canteen through the agency of the contractor

and there must be something more. In such factual context, the Division Bench observed that the learned Judge was correct that on the facts of the case that there was nothing to show that the contract between the respondents inter se was sham and bogus one. Accordingly the finding rendered by the learned Judge that the contract was genuine was confirmed. 43. The claim of the canteen employees for permanent status was considered by the Supreme Court in Haldia Refinary Canteen Employees Union v. Indian Oil Corportion Ltd., 2005 (5) SCC 51. The contention taken by the workers that the management themselves exercised effective control over the contractor of canteen on certain matters with regard to running the canteen was negatived by the Supreme Court by opining that such control was being exercised to ensure that the canteen was run in an efficient manner and to provide wholesome and healthy food to workmen of the establishment and it does not mean that the workmen working in the canteen have become employees of the establishment. The Supreme Court compared the facts in Haldia Refinary Canteen Employees Union case with Indian Petrochemicals Corpn. Ltd. v. Shramik Sena, (1999) 6 SCC 439, and on facts held that the supervisory control exercised by the management to ensure that the workers employed were well qualified and capable of rendering proper service to the employees of the management would not show that the workers were in effect the workers engaged by the management. 44. In Haldia Refinary Canteen Employees Union case there was also a distinguishing feature which was noted by the Supreme Court. In the said case the employees of the canteen raised a dispute against the contractor. It was found that a statutory settlement was arrived at between them, wherein certain terms and conditions were agreed upon with regard to some labour issues relating to the workmen employed by the contractor, which was followed by another settlement. In such circumstances the Supreme Court observed that the settlement clearly goes to show that the workmen were treating themselves to be the employees of the contractor and not of the management. 45. In State of Karnataka and Ors. v. KGSD Canteen Employees Welfare Association and Ors.{2006(1)SCC 567}, the issue before the Supreme Court was the demand made by the Employees of the Karnataka Government Secretariat Departmental Canteen claiming permanent status. The High Court granted the relief in favour of the employees by directing the Government to regularise the services of six petitioners, who have put in ten years of service. The Supreme Court considered the earlier decisions on the point

and observed that it was not proper for the High Court to decide such disputed questions in a proceeding under Article 226 of the Constitution of India. The Supreme Court noted that the State was not obliged to run a canteen for its employees. In the said factual context, the Supreme Court observed that the question as to whether the employees of the canteen were in fact only employees of the State or whether their services should be directed to be regularised or not, in view of several decisions of the Supreme Court would dependent upon the issue as to whether the canteens are required to be made in terms of the provisions of a Statute or otherwise. In short, the Supreme Court indicated that each case has to be decided on its own peculiar facts. 46. The issue regarding claim of permanent status by the contract employees was recently considered by the Supreme Court in International Airport Authoirty of India v. International Air Cargo Workers' Union and Anr. (JT 2009(8) SCC 661). The Supreme Court held that it is open to the the industrial adjudicator to grant the relief sought for by the workmen, if it finds that contract between principal employer and the contractor was sham, nominal and merely a camouflage to deny employment benefits to the employees and that there is in fact a direct employment. The Supreme Court indicated the following tests in such matters. (i) Who pays the salary; (ii) who has the power to remove/dismiss from service or initiate disciplinary action; (iii) who can tell the employee the way in which the work should be done, (iv) who has direction and control over the employee. The application of the tests in the facts of a given case was indicated by the Supreme Court thus:"20. .......The tests that are applied to find out whether a person is an employee or an independent contractor may not automatically apply in finding out whether the contract labour agreement is a sham, nominal and is a mere camouflage. For example, if the contract is for supply of labour, necessarily, the labour supplied by the contractor will work under the directions, supervision and control of the principal employer but that would not make the worker a direct employee of the principal employer, if the salary is paid by contractor, if the right to regulate employment is with the contractor, and the ultimate supervision and control lies with the contractor. The principal employer only controls and directs the work to be done by a contract labour, when such

labour is assigned/allotted/sent to him. But it is the contractor as employer, who chooses whether the worker is to be assigned/allotted to the principal employer or used otherwise. In short worker being the employee of the contractor, the ultimate supervision and control lies with the contractor as he decides where the employee will work and how long he will work and subject to what conditions. Only when the contractor assigns/sends the worker to work under the principal employer, the worker works under the supervision and control of the principal employer but that is secondary control. The primary control is with the contractor." 47. In International Airport Authority the Supreme Court noted that the workers Union did not plead that the arrangement was sham and nominal. THE STATUTE:48. In accordance with the mandate of Section 46 of the Factories Act, 1948 the Government of Tamil Nadu have framed rules with respect to the conduct of canteens. Rules 65 to 71 relates to the provision of canteens in factories and the nature of working arrangement in such canteens. 49. The salient features of the rules regarding conduct of statutory canteen reads thus:"(a) The occupier of the factory shall provide in the factory or near the factory an adequate canteen according to the standards prescribed in the rules. {Rule 65(2)} (b) The occupier or the Manger of the factory shall submit for the approval of the Chief Inspecto, Plans and site plan of building to be constructed or adapted for the use as a canteen. {Rule 65(3)} (c) The canteen building shall be constructed in accordance with the plan approved by the Chief Inspector and shall accommodate at least a dining hall, kitchen room, pantry and washing places separately for workers and for utensils. {Rule 65(5)} (d) The specifications of the canteen building. {Rule 65(6) to 65(9)} (e) The canteen shall be maintained in a clean and sanitary condition. Suitable arrangement shall be made for the collection and disposal of garbage. {Rule 65(10)}

(f) Specifications of the dining hall, floor area of the dining hall and separate enclosure for women workers in proportion to their number and washing places. {Rule 66(1) to 65(3)} (g) Sufficient tables, chairs or benches shall be available for the number of diners. {Rule 66(4)} (h) Soaps and towels should be provided at the washing place in the canteen for the use of the workers. {Rule 66(5)} (i) Sufficient utensils, crockery, cutlery, furniture and any other equipment necessary for the efficient running of the canteen shall be provided and maintained. Suitable clean clothes for the employees serving in the canteen shall also be provided and maintained. {Rule 67(1)} (j) The Furniture, utensils and other equipment shall be maintained in a clean and hygenic condition. {Rule 67(2)} (k) Food and food materials should be stored in fly-proof safe and handled with the help of wooden ladles or suitable metal forceps whichever is convenient. Vessels once used should be scalded before being used again. {Rule 67(3)} (l) Medical Examination of canteen staff who handles food stuffs; routine and bacteriological testing of faeces and urine for germs of dysentery and typhoid fever at intervals of not more than six months; routine blood examination at intervals of not more than twelve months and other examinations including chest x-rays are prescribed. {Rule 67-A (i) to (iii)} (m) Medical charges shall be paid by the occupier. {Rule 67-A (a) & (b)} (n) Rule 68 deals with the prices to be charged. {Rule 68} (o) While computing the price of food items certain items of expenditure like rent for the land and building; depreciation and maintenance charges of the building and equipments provided for the canteen; cost of purchase, repairs and replacement of equipments including furniture, crockery, cutlery and utensils; water charges and

expenses for providing lightning and ventilation; interest on the amount spent on provision and maintenance of the building, furniture and equipment provided for the canteen; the cost of the fuel required for cooking or heating foodstuffs or water shall be excluded from consideration. {Rule 68(1-A) (a) to (f)} (p) While calculating the price of food stuffs, wages of the employees serving in the canteen and the cost of uniform if any provided to them shall be excluded. {Rule 68(1-A) (g)} (q) All books of accounts, registers and any other documents used in connection with the running of canteen shall be produced on demand to the Inspector of Factories. {Rule 69(1)} (r) The accounts pertaining to the canteen shall be audited once in every twelve months by registered accountants and auditors. {Rule 69(2)} (s) The manger shall appoint a canteen Managing Committee which shall be consulted from time to time as to the quality and quantity of food stuffs to be served in the canteen, the arrangements of the menu; time of meals in the canteen and any other matter as may be directed by the Committee. {Rule 70(1)} (t) The functions of the Managing Committee was enumerated in Rule 70(2) to (5). {Rule70 (2) to (5)} (u) In case the workers of a factory in which a canteen has been provided by the occupier in accordance with Rules 65 to 67 for the use of the workers, desire to run the canteen by themselves on a co-operative basis with share capital contributed by themselves, the management may permit them to run the canteen in accordance with the by-laws of the Co-operative Society. {Rule 70(6)} (v) The provisions regarding Rules 68(1), 69(2) and 70(1) to (5) shall not apply to canteens which are run on co-operative basis by the workers themselves and which are recognised by the Chief Inspector. {Rule 70(7)}"

50. The statutory rules as indicted above clearly shows that the management was obliged to provide a canteen. The cost of food stuffs and other items served in the canteen shall be fixed on non-profit basis. A careful reading of Rules 65 to 70 clearly shows that the management was bound to run the canteen by managing the affairs through the canteen Managing Committee. The exception to such arrangement is the formation of a Co-operative Society by the workers in case the workers exercises such an option. The entrustment and conduct of canteen by a private contractor or by a Cooperative Society without the participation of the workers of the factory, were outside the purview of Rules 65 to 70. In fact Rule 70(7) indicates that it was only in case the Society was run by the workers of the factory, the provisions with regard to fixation of prices, maintenance of accounts and the constitution of a managing committee could be waived. Therefore there was a clear indication in the Rules that the canteen has to be conducted only by the management. The Society as formed in the subject case was not the one contemplated under Rule 70(6) of the Tamil Nadu Factories Rules, 1950. 5`1. The Rules provide only one exception to the conduct of canteen directly by the management. The said exception relates to formation of a Society by the workers of the factory. However such a desire has to originate from the workers. In short, in case no expression of interest was shown by the workers to form a Society to run the canteen by themselves on Co-operative basis with share capital contributed by them, the canteen has tobe provided and run by none other than the management. 52. The issue as to whether the second respondent Society was sham and nominal has to be considered in the light of the Factories Act and Rules made thereunder. The issue has also to be considered in the light of the by-laws of the Society. BY-LAWS OF THE SOCIETY:53. The relevant provisions of the by-laws reads thus:(i) MEMBERSHIP:(a) Those persons who are above eighteen years of age, working as on the date of registration of the Society under the contractors engaged for Canteen, Santitation at BHEL, Ranipet.

(b) Those persons whose lands were acquired for the establishment of BHEL, Ranipet and are eligible for employment in BHEL but not employed in BHEL on the date of registration of the Society. (c) The management of BHEL. (ii) ADMISSION OF MEMBERSHIP:The Board of Directors shall be the competent authority to grant admission of membership in the Society. (iii) BOARD OF MANAGEMENT:(a) Executive Management of the Society shall vest in the Board of Directors consisting of not more than seven Directors as follows:(1) Nominees of BHEL : 3 (2) State Government Nominee : 1 (3) Worker Member Nominees : 3 (b) Members of the Board of Directors other than the nominees of BHEL and State Government shall be elected by the General Body for a period of three years from amongst the members. (c) The quorum for the Board meeting shall be five. (d) The President or the other presiding member shall have a casting vote. (e) The President shall have a general control over the affairs of the Society and shall keep in touch with the day-to-day administration of the Society. (f) There shall be a whole time Secretary of the Society, who will be responsible for the Executive Management of the day-to-day affairs of the Society, without a voting right. (g) A suitable officer of the State Government on deputation may act as Secretary to the Society. The condition of deputation of such official shall be decided by the Board of Directors in consultation with the Management of BHEL.

(iv) GENERAL BODY:The ultimate authority of the Society shall vest in the General Body. The General Body, shall not, however, interfere with the action of Board of Directors in exercise of the powers conferred on them by the by-laws. (v) BUSINESS:The Board of Directors shall be competent to obtain contract from BHEL and other Government and Public Bodies. (vi) DISPOSAL OF NET PROFITS:The net profits of the Society as declared by the Registrar every year shall be appropriated in the manner shown indicated in by-law No.21. AMENDED BY-LAWS:54. The by-laws were amended subsequently. As per the amended by-law BHEL was entitled to nominate three Directors. The President and Vice President shall always be the nominees of BHEL. Therefore election would take place only to elect the three Directors from the workers of the canteen. The President, who is the nominee of BHEL was given the casting vote. This is a clear indication that BHEL was exercising persuasive control over the Society. The total Directors being seven and BHEL having three Directors nominated by it with the President exercising the casting vote in respect of any decision, naturally only the decision of BHEL management would prevail. 55. The moto of the Co-operative movement is "Each for all and all for each". Democratic functioning is the hall mark of a co-operative institution. The normal practice would be to elect the President and Vice President from among the elected Directors of the Society. Therefore every Director would be given a chance to contest the election to the office of the President and Vice President at all point of time. However very strangely by way of an amendment to the by-laws, BHEL has retained the power to nominate the President and Vice President. The President is the principal functionary in the day-to-day management of the Society. The President discharges his functions through the Secretary. The Secretary has no other independent powers except to execute the decision taken by the Board. Therefore the presence of a paid Secretary or

an officer on deputation from the Government will not suggest that the management of the Society vests only on the Chief Executive Officer. 56. Before the Labour Court, several documents were marked to demonstrate the functioning of the Society. The minutes of the meetings of the Board of Directors was marked as Ex.M.9 for the purpose of considering the nature of functioning. I have gone through the minutes of the meetings of the Board of Directors and the decisions taken in such meetings. The following particulars are material for arriving at the decision as to whether BHEL has got any say in the functioning of the Society. RECORDS SPEAKS ITSELF:(i) BOARD RESOLUTION DATED 2.1.1988:Sub: Recruitment of workers to the Society in future. Resolution:- It has been resolved that it will be done in consultation with Personal and Administration Department of BHEL, Ranipet. (ii) BOARD RESOLUTION DATED 18.4.1988:Sub: Categorisation of worker members. Resolution:- It is resolved to send a letter to M/s.BHEL Management about new requirement which will be forwarded by the Secretary on 25th April, 1988 after having detailed discussion with Member Directors and with Vice-President. (iii) BOARD RESOLUTION DATED 06.1.1990:(a) Sub: To record the letters from BHEL, Ranipet regarding enhancement of the wages to the workers to Rs.25/- per day per head and the service charges payable to the Society at Rs.36.50 w.e.f. 28.11.1989 (vide letter of BHEL dated 29.12.1989) Resolution:Recorded. (b) Sub: Commissioning of the new dining hall in the Administrative building on 10.1.1990.

Resolution:- In view of the letter dated 6.1.1990 from the Senior Manager (Personnel) BHEL, Ranipet it is resolved to commission the new dining hall in the Administrative Building on 10.1.1990 and to avail the following facilities. (1) Enhancement of the daily wage to the workers to Rs.25/- per day. (2) Receipt of a lumpsum grant of Rs.3,400/- per month for the payment of cooking allowance at the rate of Rs.3/- per day per head for the 25 kitchen staff and 6 Supervisors and Night duty allowance of Re.1/- per day per head for the workers attending to the duty in Night Shifts. (iv) BOARD RESOLUTION DATED 10.8.1990:Sub: Payment of arrears of wages and lumpsum amount to the members and staff of the Society. Resolution:- Resolved to pay a sum of Rs.5/- per day as wage arrears for the period from 1.9.1989 to 27.11.1989 to all the workers and staff of the Society together with a lumpsum amount of Rs.300/- each as per M/s.BHEL letter dated 7.8.1990. (v) BOARD RESOLUTION DATED 20.11.1990:Sub: Disciplinary action against Thiru S.Rajendran, Sanitary member, who is said to have involved in a criminal case. Resolution:- Resolved to suspend Thiru S.Rajendran, Sanitary worker-member until further on the basis of the letter received from Senior Security Officer, BHEL dated 20.11.1990. 57. The management of BHEL as per letter dated 30.7.1988 agreed to pay over time wages in respect of four employees on account of break-fast service introduced during the third shift. As per Ex.W.2 dated 22.10.1986 the management sanctioned ex-gratia of Rs.4,500/- to the Society. Ex.W.5 dated 18.4.1988 shows that the management has agreed to pay wages to the workers of the canteen and the amount of wages were also fixed by none other than BHEL. In the said letter there was an indication that a sum of Rs.23/- was agreed to be paid to the Society, the break up being a sum of Rs.15/towards wages to the workers, Rs.1.25 as bonus, Rs.1.50 as Provident Fund, Rs.1.50 as Uniform and Washing allowance and a sum of Rs.4/- as Establishment charges.

58. BHEL found that the Society was in a difficult situation and accordingly a sum of Rs.5,000/- per month was sanctioned with effect from 25.3.1988. Ex.W.6 dated 27.10.1989 shows that the request of the Society to pay higher wages to the workers was considered by BHEL. The proposal to revise the wages was examined and it was decided as an interim measure to enhance the rate of wages to the workers by Rs.5/- with effect from October, 1989. 59. Ex.W.14 contains an amendment made to by-law No.13(a) whereby and whereunder BHEL was permitted to nominate the President, Vice-President and one women Director. Ex.W.7 dated 29.10.1993 also shows the wages fixed by BHEL in respect of supervisors, cooking staff, service and cleaning staff and sanitation workers of the Society. Ex.W.10 shows that BHEL has recommended the case of an individual for appointment into the canteen department. The employment notification issued by the Society shows that only the relatives of BHEL staff members were eligible to apply for employment in the canteen. 60. Before the Labour Court both the management as well as Union adduced oral evidence. The Union examined two witnesses. EVIDENCE:61. W.W.1 Nedunchezhian joined the canteen during 1983. In his evidence, W.W.1 deposed that originally a contractor had been running the canteen on behalf of BHEL. Subsequently the second respondent Society was floated and he continued to work in the said establishment. During his cross examination W.W.1 deposed that canteen and sanitary workers employed in BHEL alone are the members of the Society. The contractor, who was running the canteen earlier was replaced by the Society. 62. W.W.2 M.Muthusamy was working as cook and he was in the service since 2.9.1981. In his evidence he has stated that all the workers, who are working in the canteen under the contractor were employed in the statutory canteen subsequent to the formation of the Society. It was his evidence that bonus and other payments were decided only by BHEL. Similarly it was his evidence that supervisors are deputed by BHEL to supervise the canteen. Those supervisors are permanently working in the canteen. The function of the supervisors includes maintaining quality of food. They supervise the work of purchasing the materials required for the canteen. The supervisors deputed by BHEL would work in shift system. One of the supervisors would work in the first shift from

6.00 a.m. to 2.00 p.m. and another supervisor would work in the shift from 2.00 p.m. to 8.00 p.m. The store keeper is also an employee of BHEL. 63. The management examined their Supervisor Thangaraj as M.W.1. He has given an account of the usual functioning of the canteen including the supervision by BHEL. The relevant cross examination reads thus:"CROSS EXAMINATION ON BEHALF OF THE PETITIONER:One Gopinath who is an employee under the control of the first respondent like me, is working as a supervisor with me in the canteen run by the 2nd respondent. Similarly, the employees of R.1 namely Muthukumar and Neelamegam are working as Assistant Supervisor in the aforesaid canteen. Similarly the three persons namely, Thiru Devadas, Sampath and Dakshinamoorthy who are the employees of the 1st respondent are working as in-charge of the godown in the canteen. In a similar line, the employees of the 1st respondent namely, Ananda Gounder, Murugesan and Saroja are working as Attender in the Canteen. The canteen is not run by R.2. But, the workers in the Canteen work on behalf of R.2. The Special Officer appointed by the government worked as the President of R.2 Society. R.1 appoints the President of the Administrative Committee in the Society run by R.2. The Deputy General Manager of the first respondent Thiru Mohan is the Vice-President of the Administrative Committee of the R.2 Society. Similarly, Thiru Jayaprakash working as Labour Officer in the factory of R.1 is the Vice President of the Administrative Committee of the R.2 Society. In a similar manner, Selvi. Banumathy, the Labour Officer of the first respondent Factory is working as another Vice-President of R.2 Society. The management of the R.1 factory issued necessary order in respect of the aforesaid persons namely, Thiru Mohan, Thiru Jayaprakash, Selvi Banumathi to act in the R.2 Society. The materials required for the preparation of food items in the canteen will be purchased by R.1 and stored in the R.2 society building. Those materials required will be taken by the employees of R.1 who are in-charge of the godown and given for the daily usage. The aforesaid canteen is situated within the premises of R.1 factory. The office of R.2 society is not found within the aforesaid canteen. But, the R.1 factory is functioning in a separate building situated within the premises. The first respondent only gives the money required for the purchase of materials to prepare the food items in the canteen. That work is not

undertaken by R.2 society. The other equipments fitted in the aforesaid canteen were given by R.1. Those equipment do not belong to the R.2 society. The canteen workers have to work in accordance with the 'shift system' that is followed in the R.1 factory. So, accordingly, the employees of R.1 only allows the workers to enter the premises of the factory as per their timings. If there is any enhancement of salary to the canteen workers, it will not be decided by R.1. It would be decided only by R.2 society. I am not aware of the fact as to who gives the additional salary to the workers. I do not know as to whether bonus is granted to the canteen workers as given to the R.1 factory employees. I am not aware of the fact as to whether the R.2 society was established as per the instruction specified in Ex.M.1. I am a B.Com., graduate and have obtained a diploma in Catering Technology. The first respondent appointed me on the basis of my educational qualification. I do not know the details regarding the fact asto whether the profit gained in the canteen to have food has to pay the money to the concerned employee, get the token, give that to the concerned section and get the required food. This procedure is followed in the canteen. The work of giving the coupon and getting the money is being done only by the R.1 factory worker. If it is stated that, the salary and other statutory benefits are granted to the canteen workers only by the R.1 factory, then, I do not know regarding that. If it is stated that, R.1 factory gives the amount towards the salary in respect of the canteen workers as grant, then, I am not aware of the said fact. Apart from the administrative committee of R.2 factory as stated above, there is another organisation as Food Administrative Committee. The President and members of the said Food Administrative Committee are selected by the workers of the R.1 Factory. Thiru Raj, the Deputy General Manager of the Factory is functioning as the President of the Food Administrative Committee." 64. The learned counsel for the petitioner contended that BHEL was only paying fixed amount to the Society and it was up to the Society to pay wages to the workers as per the rate fixed by them. However the facts projected in this case speaks otherwise. Ex.W.6 shows that BHEL has decided to enhance the rate of wages for workers by Rs.5/provisionally. 65. There are similar indications in other exhibits also which goes to show that right from the purchase of provisions and vegetables and till settling the accounts, BHEL plays a predominant role. Ex.M.7 shows that the election was only to elect three Directors from among the workers as BHEL has already nominated the President, Vice-

President and a women Director. Ex.W.10 gives an indication that the workers were appointed as per the recommendation of BHEL. 66. The learned counsel for the petitioner attempted to explain the position as according to him Ex.W.10 was only a stray letter and the same cannot be made use of against the management to decide that the entire work force in the canteen were recruited only at the instance of BHEL. However the vacancy notification dated 9.1.1988 and the contents of the document in Ex.W.10 shows that even in the selection of workers it was only BHEL which exercises persuasive control. 67. The agreement executed between BHEL and the Society also shows that BHEL was given an upper hand. The company was given the right to terminate the agreement and the Society has no such liberty. If it is an ordinary licensee, BHEL was liable only to pay the service charges. There was no necessity for BHEL to fix the wages and to revise the same periodically like any other employer. In fact in Ex.M.4 there was a clear observation that the wage revision for the canteen workers could be considered only after the wage revision of BHEL employees. In case workers of the Society were not treated as workers of BHEL, there was no necessity for BHEL to take up the issue regarding revision of wages with the Society. Similarly it was not necessary to link the revision of wages of the workers of the Society with that of the workers of the factory. 68. M.W.1 deposed that two Assistant Supervisors are functioning as Supervisors in the canteen. Similarly six other workers of BHEL are working as godown in-charge as well as attenders of the canteen. 69. The Supreme Court in Indian Petrochemicals Corpn. Ltd. case (1999) 6 SCC 439, indicated the broad features of a statutory canteen for the purpose of arriving at a decision as to whether there was an employer-workmen relationship between the management and the workers of the canteen. 70. In Indian Overseas Bank v. I.O.B. Staff Canteen Workers' Union, (2000) 4 SCC 245 the Supreme Court indicated that the formula evolved cannot be concretised into fixed formula for universal application and the mere availability of any one or more or their absence in a given case cannot by itself be held to be decisive.

71. Therefore it is necessary to consider the facts of this case in the light of the facts projected in Indian Petrochemicals Corpn. Ltd. case (1999) 6 SCC 439, as well as the tests indicated therein.

COMPARITIVE TABLE SL. NO. Indian Petrochemicals Corpn. Ltd.

v. Shramik Sena (1999) 6 SCC 439 BHEL CASE (SUBJECT CASE) a The canteen has been there since the inception of the appellant's factory. Same position b The workmen have been employed for long years and despite a change of contractors the workers have continued to be employed in the canteen. Same position c

The premises,furniture, fixture, fuel, electricity, utensils etc. have been provided for by the management. BHEL provided the entire equipments and premises. d The wages of the canteen workers have to be reimbursed by the appellant. Wages fixed by BHEL was given to the Society for payment. e The supervision and control on the canteen is exercised by the appellant through its authorised officer, as can be seen from the various clauses of the contract between the appellant and the contractor. The Supervision and control is exercised by BHEL through the Board. The President of the society is always a nominee of BHEL. Similar is the case of Vice-President and lady Director . The President is given a casting vote. The day-to-day affairs is managed by the President through the Secretary. Therefore BHEL is in a position to exercise the control of the canteen through those officers. The disciplinary powers are also exercised by BHEL and the action taken against one S.Rajendran as per the direction given by the Senior Security Officer of BHEL was an indication of such disciplinary powers of BHEL. f The contractor is nothing but an agent or a manager of the appellant, who works completely under the supervision, control and directions of the appellant. Here again it was only BHEL who controls the entire management through the President. The entire establishment belongs to BHEL. The supervisors, Assistant Supervisors, godown clerks and attenders are all paid employees of BHEL. The wages of the workers of canteen were fixed by none other than BHEL. g The workmen have the protection of continuous employment in the establishment. The by-law provides for such protection in the matter of employment.

72. The Supreme Court in Indian Petrochemicals Corpn. Ltd. Case further observed that the above factors taken cumulatively, in addition to the fact that the canteen in the establishment of the Management is a statutory canteen, would prove that the workmen were in fact only the workmen of the Management. ADDITIONAL FACTORS IN BHEL CASE:73. (a) The persuasive control is always with BHEL on account of their strategic position in the Board of Management. The President and Vice-President would be nominated only by BHEL. It was not possible for the workers to become the President or VicePresident of the Society at any point of time. The by-laws were suitably amended and a specific clause was inserted to the effect that only the nominees of BHEL could become the President and Vice-President of the Society. (b) Appointments in the canteen were restricted to the family members of BHEL employees. (Employment notification dated 9.1.1988 Ex.W.9) (c) BHEL recommends the candidature for appointment in canteen. (Ex.W.10) (d) Disciplinary proceedings were initiated at the instance of BHEL against the workman of the Society. (Minutes dated 20.11.1990 Ex.M.9) (e) Wages to be paid to the workers of the canteen including revision of wages were decided only by BHEL. (Minutes dated 6.1.1990) (f) The entire provisions, vegetables and other materials were supplied only by BHEL. (g) Materials were kept in the custody of BHEL. (h) Supervisors, Assistant Supervisors, godown incharge and attenders were deputed only by BHEL. (i) The wage revision to the employees of the canteen were made only after wage revision given to the BHEL employees.

VERY RELEVANT ASPECT:74. The Tamil Nadu Factories Rules and more particularly Rules 65 to 70 mandates that a canteen has to be provided and maintained by the occupier. The Management of the canteen by the workers of the factory at their option alone was the exception. The workers of BHEL never opted for floating a Society for the purpose of running a canteen. Therefore the workers of the factory have no say in the functioning of the canteen. The necessary conclusion is that canteen was the one opened and operated by BHEL. 75. It is true that the letter sent by the Labour Commissioner was also a source of inspiration for incorporating the second respondent Society. However, the said initial step cannot be taken as a conclusive proof to show that the Society was an independent entity and BHEL has no control over it. The fact that BHEL got the by-laws amended and incorporated a fresh provision that the President and Vice-President of the Society shall always be the nominees of BHEL would speak volumes. BHEL wanted to exercise the financial, supervisory and actual control over the affairs of the Society. It was only in such circumstances, BHEL got the by-law amended. Because of this amendment one section of members of the Society could never become the President or Vice President. In fact this amended by-law which gives power to BHEL to nominate the President and Vice-President on permanent basis goes against the spirit of the Co-operative movement. 76. The learned counsel for the petitioner placed strong reliance on the judgment in M.E. Ilangovan and Ors. v. Madras Refineries Ltd. (2005(1) MLJ 686), Haldia Refinary Canteen Employees Union v. Indian Oil Corportion Ltd., 2005 (5) SCC 51 and International Airport Authoirty of India v. International Air Cargo Workers' Union and Anr. (JT 2009(8) SCC 661) in support of his contention. 77. In Haldia Refinary Canteen Employees Union case the Supreme Court found that a free hand has been given to the contractor with regard to engagement of workers in the canteen. There was no clause in the agreement stipulating that the canteen contractor unlike in the case of Indian Petrochemicals Corporation Ltd., shall retain and engage compulsorily the employees, who were already working in the canteen under the previous contractor. Similarly there was no stipulation in the contract that the employees working in the canteen at the time of commencement of the contract must be retained by the contractor.

However in BHEL case (subject case) that was not the position. The Society itself was formed by the erstwhile workers of the contractor. The Society was bound to employ the workers, who were working hitherto under the contractor. 78. In Haldia Refinary Canteen Employees Union case there was no reimbursement of wages by the management. However in the present case the rate of wages itself was fixed only by BHEL and periodical revision was also made by BHEL. The Society was only disbursing the wages fixed by BHEL. 79. In Haldia Refinary Canteen Employees Union case free hand was given to the contractor to recruit personnel. However in the subject case BHEL was recommending cases for appointment and the family members of the workers alone were eligible for appointment. 80. Similarly in Haldia Refinary Canteen Employees Union case the quality of service was a matter to be looked after by the independent contractor. However in the subject case the entire quality of the service was looked after only by the Supervisors and Assistant Supervisors of BHEL. Even attenders were appointed only by BHEL. 81. In Haldia Refinary Canteen Employees Union case there was no disciplinary powers to the Company against the employees of the Society. However in BHEL case the management was exercising the disciplinary powers, which was evident from the action taken against an employee of the canteen at the instance of BHEL. 82. The other factor which was taken in Haldia Refinary Canteen Employees Union case not to follow the judgment in Indian Petrochemicals Corporation Ltd., was the fact of settlement arrived at between the contractor and the workmen of the canteen in the presence of Assistant Labour Commissioner. The said fact was taken into account by the Supreme Court to decide the point that the workmen were treating themselves to be the employees of the contractor and not that of the management.

However there was no such settlement between the employees of the Canteen and the second respondent Society in the instant case. 83. The learned counsel for the petitioner by placing reliance on the judgment of Supreme Court inInternational Airport Authoirty of India v. International Air Cargo Workers' Union and Anr. (JT2009(8) SCC 661) contended that mere supervision would not prove that the Society was actually run only by BHEL. According to the learned counsel, it was only in accordance with Tamil Nadu Factories Rules, the management was exercising the supervisory control. Therefore it cannot be said that on account of such supervisory control, the canteen becomes the establishment of the management. 84. The issue before the Supreme Court in International Airport Authoirty of India case was regarding the claim made by Loaders and Packers of M/s.Airfreight engaged in connection with ground handling work. The International Aircargo Workers Union took up the issue. There were series of proceedings and the Supreme Court indicated them as first round to seventh (current) round. The Supreme Court examined the issue as to whether there were materials to hold that wages were being directly paid by the International Airport Authority to the contract labourers. It was found that the contract between International Airport Authority and the Society contains a provision that a lumpsum consideration has to be paid by the Corporation to the Society and the Society was responsible for payment to its members who were working as contract labourers. The workers did not produce any document to show that payment was made by the Corporation directly. The Industrial Tribunal committed a factual mistake by concluding that the documents produced by the workers established that the payment was directly made. In such circumstances the Supreme Court observed that the finding was perverse as no evidence was adduced to show that the payment was direct. 85. It is true that in the present case, payment was made only by the Society to its workers. However there is enough evidence before this Court to conclude that the quantum of wages were fixed by none other than BHEL. Whenever there was a claim for revision of wages, it was only BHEL who took the decision for such revision. Extra amount necessary for running the canteen was provided by none other than BHEL. Therefore though there was no direct payment, the evidence clearly shows that the Society was acting only as a Post-Office to distribute the amount received from BHEL.

86. In International Airport Authoirty of India case the Supreme Court found that finding was rendered by the Tribunal that penal and disciplinary action by suspending and punishing the contract labour was indicative of the employer-employee relationship. The Supreme Court observed that such a finding was based on no evidence. Not even a notice of suspension or show cause notice for disciplinary action or order imposing punishment was passed by the Airport Authority. However in the present case, the minutes marked as Ex.M.9 shows that the Society was taking disciplinary action as per the direction issued by BHEL. 87. The other contention in International Airport Authoirty of India case was regarding direct supervision and control exercised by the Officers of Air port Authority. The Supreme Court observed that the contract labour were engaged in handling cargo i.e.Loading and unloading and movement of cargo in the Cargo Complex of International Air Port Authority of India. Naturally the work had to be done under the supervision of the officers of the Airport authority. It was only in such circumstances the Supreme Court held that exercise of some control over the activities of contract labour while they discharge their duties as labourers is inevitable and such exercise is not sufficient to hold that the contract labour will become the direct employees of the principal employer. 88. The facts in the present case is entirely different. In case the Society was a separate entity there was no necessity for BHEL to depute its own supervisors. It is true that a duty was cast on the management to ensure cleanliness in the canteen and to supply healthy food to the workers. The facts of the subject case shows that Supervisors, Assistant Supervisors, godown keepers and attenders were provided only by BHEL. The purchase of articles were made only by BHEL. It was kept in the godown of BHEL in the canteen. The godown was operated by the permanent staff of BHEL. Coupons were issued only by BHEL and it was collected from the workers at the entry point again only by the staff of BHEL. The contribution under various labour legislations were also paid by BHEL. 89. The control exercised by BHEL was an absolute control and it was not partial in nature. The documents produced by the Society shows that even bonus was liable to be paid only by BHEL. For example Profit and Loss account for the year ending 31 March, 2007 shows that a sum of Rs.5,09,452/- was paid as bonus for the year 2006-07. In the

receivable column it was recorded that a sum of Rs.5,09,452/- has to be received from BHEL on account of bonus paid to the workers. In case BHEL has nothing to do with the Society, they were not bound to pay bonus to the workers of the canteen. 90. The Tamil Nadu Factories Rules and more particularly Rule 65 clearly shows that the occupier was bound to provide a canteen. The rules gives a clear indication that the canteen has to be run only by the management. The only exception was running a canteen by a Co-operative Society of the workers of the factory if such a proposal was mooted by the workers. 91. The workers of BHEL at no point of time made a proposal for running a canteen. The canteen was earlier run by a private contractor. After the incorporation of the second respondent Society, the canteen was entrusted to the Society. The rules no where provides for constitution of such a society by the erstwhile workers of the canteen. The Society constituted in this matter is unique in nature. While considering the background of such Society, the correspondences which originated at that point of time assumes significance. The document in Ex.W.1 dated 12.6.1986 contains details of meetings attended by the workmen and BHEL. The said document narrates the background facts leading to the formation of the second respondent Society. 92. There was a reference in Ex.W.1 that BHEL expressed its difficulty to absorb all the workmen on regular basis for want of man power sanctioned and agreed to organise a Co-operative Society. Though the second respondent was constituted as an independent Co-operative Society, in its actual functioning, the Society acted as an organ of BHEL. In fact BHEL was running the canteen. The second respondent Society was only a name lender. The canteen was a statutory canteen in all respects, opened and operated by BHEL. 93. The learned counsel has also placed reliance on the judgment of the Division Bench in M.E. Ilangovan and Ors. v. Madras Refineries Ltd. (2005(1) MLJ 686). In the said case the Division Bench found that the workmen never contended that the Society was sham and bogus. The Division Bench observed that on the basis of mere averments in the affidavit, it was not possible to declare that the contract entered into by the Madras Refineries with the contractors were sham and nominal. 94. The order challenged before the Division Bench in Madras Refineries Case was an order passed by a learned Judge in a writ petition. The Division Bench found that the

claim was made only by way of an affidavit. There was an indication in the judgment that it was not possible to decide the issue of such sham transactions on the basis of the averments in the affidavit. 95. In the present case, it was the contention of the Union at all point of time that the transaction between the petitioner and the second respondent Society was sham and nominal and the canteen was run by none other than BHEL. Before the Labour Court, the parties adduced evidence. The Labour Court on the basis of evidence both oral and documentary arrived at a finding that the canteen was run only by BHEL. The facts in Madras Refineries Ltd. Case being entirely different, the ratio of the said decision has no application to the facts of the present case. 96. The findings rendered by the Labour Court that there was an employer-employee relationship between the petitioner and the workmen of the canteen was on the basis of evidence and as such no interference is called for in the said finding. 97. The dispute raised by the Union was referred to the Labour Court for adjudication. The entire matter was at large before the Labour Court. The Management as well as workmen adduced evidence in support of their respective contentions. The matter was considered by the Labour Court, in the light of the pleadings and evidence. The Labour Court categorised the type of control and answered the issues. The Labour Court is the final Court of facts. The findings rendered by the Labour Court could not be said as one without the support of evidence. Similarly it cannot be said that the Labour Court has taken into consideration irrelevant piece of evidence and omitted to consider relevant piece of evidence. 98. Unless and until the petitioner demonstrates that the finding was perverse and no reasonable man would come to such a conclusion from the given facts of the case, it is not possible to interfere in the factual finding rendered by the Labour Court. Even if two views are possible from the given set of facts, the view taken by the Labour Court which had the benefit of considering the demeanour of the witness has to be preferred. 99. The dispute was considered by the Labour Court on the facts of the case with due application of law. I do not find any error or illegality in the said finding warranting interference by this Court by exercising the power of judicial review. THE RELIEF:-

100. The next question is regarding the correctness of the direction given by the Labour Court to grant the status of permanent employees from 23.11.1987 and to pay the entire arrears. 101. The Labour Court gave a positive declaration that the workers of the Canteen are regular workers of BHEL and entitled for such status with effect from 23.11.1987 on which date they made a demand. While granting such a declaration the Labour Court has not indicated the reasons for such retrospective grant of benefits. 102. The canteen workers of BHEL made a demand for absorption followed by a strike notice. The Labour Officer attempted to arrive at a compromise. However it was not successful and ultimately the Government referred the matter to the Labour Court for adjudication. The reference was taken on file as I.D.No.93 of 1992. The Labour Court passed the award on 17.12.1999. Admittedly the canteen workers were employed during the particular point of time. They continued to work during the pendency of the proceedings before the Labour Court. By giving retrospective effect the Labour Court directed the management to pay arrears from 23.11.1987 onwards. 103. The principle that payment of backwages is not automatic with an order of reinstatement has to be applied in this case, though the case is one in the nature of absorption. 104. It is true that the Union initiated proceedings for absorption of canteen workers and the dispute was referred at their instance. It was answered in their favour on 17.12.1999. There is no dispute that the employees worked continuously and they were paid the prevailing wages with periodical revision. There was no special reason or circumstances warranting retrospective absorption with payment of differential wages at the full rate. Therefore I am of the view that interest of justice would be sub-served in case the absorption is directed to take effect from 17.12.1999 with 50% of differential wages. CONCLUSION:105. In the result, the award of the Labour Court regarding declaration of status is confirmed with modification regarding the effective date and payment of differential wages.

106. The writ petition is allowed in part as indicated above. No costs. 04.1.2010 Index:Yes/No Internet:Yes/No Tr/ To 1. The Secretary Indco Service Society Ltd., BHEL, Factory Complex Ranipet-632 406. 2. The Presiding Officer Labour Court Vellore. K.K.SASIDHARAN, J Tr Pre-delivery order in W.P.NO.10861 of 2000
MONDAY, SEPTEMBER 14, 2009

BHEL staff on strike for wage revision

About 11,000 employees of Bharat Heavy Vehicle Ltd (BHEL), led by the Labour Progressive Front (LPF), struck work on Monday demanding wage revision negotiations and pension benefits.

According to sources, various unions of BHEL employees of Tiruchy, Ranipet, Bangalore and Hyderabad units had planned to go on strike on Monday pressing their charter of demands.

The demands included wage revision from January 2007, reduction of wage revision duration from 10 years to five years, fixing pay scales for contract employees and pension benefits.

In the Tiruchy unit 15 unions, including LPF, Indian National Tradu Union Congress (INTUC), Centre of Indian Trade Union (CITU), Dr Ambedkar Labour Union, All Indian Anna Dravida Munnetra Kazhagam (AIADMK), Marumalarchi Dravida Munnetra Kazhagam (MDMK) and Desiya Murpokku Dravida Kazhagam (DMDK) unions, organised the strike.

Tense moments prevailed when LPF president Ethiraj and other leaders stopped the employees at the BHEL gate when they tried to report for work.

The administration has invited us for talks on September 18. We hope our demands would be conceded, Ethiraj said.

A heavy posse of police was deputed at the spot to avoid any untoward incident. Attempts by Superintendent of Police A Kaliyamoorthy and others to intervene led to tension.

Maruti boss hints at political conspiracy

TNN | Jun 7, 2011, 06.54AM IST NEW DELHI: Maruti Suzuki chairman R C Bhargava on Monday hinted at a political conspiracy behind the strike1 at the company's Manesar plant. Bhargava, who has been associated with the car major right since its inception, said political parties--which want a foothold in Maruti-could be behind the agitation. Terming the strike as illegal2, he claimed that it took place "without any notice or charter of demands"3, and a month before union elections are due.

1 2

What is a strike? When is a strike illegal? Where is it defined? 3 Is a notice necessary for a strike? What is the notice period? Is a charter of demand a precondition for a strike?

"There could be another agenda, a political party wanting a foothold in Maruti. The way it (strike) has happened , without any background , makes me wonder why. Why one month before union elections," Bhargava said. He refused to name any political party. The Gurgaon-Manesar belt-which was the cradle of the auto revolution in India--has seen some of the country's worst labour troubles. Increasing trade union activities-many times blamed on CPI-affiliated All India Trade Union Congress (AITUC) -has made the area infamous for troubled management-labour relations. Suresh Gaur, the Gurgaon district president of AITUC , said the trade union body will "take up the cause" of Maruti's striking workers4. "Even though the unions at Maruti are independent, we have decided to take up their cause. AITUC believes in the welfare of workers and this is not liked by managements of companies." Maruti, Hero Honda and Honda Motorcycle and Scooter India (HMSI) are present in the belt. Many component suppliers are also present there. However, labour troubles have been a constant feature in the area, forcing many companies to scout for alternate locations when expanding . Bhargava said the recurring labour troubles could affect future investment prospects in the region. "People have to understand that if the industry feels difficult to do business, then the losers will be the workers. The industry always has the option to move. But where will the workers move?" He said efforts were on to end the stir at the earliest as production suffered. "We have decided not to produce as we do not want a confrontation . The strikers are within the plant." Bhargava said the production of SX4 and Dzire sedans and Swift and AStar hatchbacks at Manesar plant would remain suspended till the time the company sorts out the labour trouble. On the issue of the rebel union, Bhargava said the company would not recognize anyone without backing of the workers. He said the rebels are free to participate in the elections if they are confident of support from the workers. "We have a democratic process of elections and they can stand on the platform and ask for support, based on their demands."

Is it legal for outsiders to lead a labour agitation inside a plant/company? Where do you think provisions regulating these could be found

Maruti strike continues, loss at Rs 270 crore

PTI | Jun 9, 2011, 07.09PM IST MANESAR/CHANDIGARH: The strike at Maruti Suzuki India's (MSI) plant is threatening to spread to Gurgaon-Manesar belt, with a panel of workers of various firms in the region warning of a similar stir if demands of their agitating colleagues' at India's largest carmaker are not met. A concerned state government said authorities were trying their best to end the standoff between agitating workers and management5, even as the Haryana Labour department said it could take three months to give nod to the new union of MSI workers at the Manesar plant6. "If the issues are not resolved immediately, then a similar strike can happen in other factories in the Gurgaon-Manesar industrial belt," AITUC Gurgaon District Secretary Harjeet Grover, who is also the General Secretary of HMSI Employees Union, told PTI. He said a joint committee7 comprising representatives of all trade unions and various elected members from unions in different companies, including Hero Honda, Honda Motorcycle and Scooter India (HMSI) and Rico Auto, has been formed to support the MSI workers. Reacting to the development, Haryana Industries Minister Randip Singh Surjewala expressed concern but insisted that authorities were trying their best to end the standoff between agitating workers and management. "We are concerned that no industrial dispute8 takes place which has the capacity to hamper growth (of automobile industry)," he said. "Labour department is examining the issue minutely and is in constant touch with the both the parties (workers and management) so that the dispute could be amicably settled9," Surjewala said. Over 1,000 workers from different firms in the Gurgaon -Manesar industrial belt gathered at the gate of MSI's Manesar plant today to stage 'satyagraha' supporting the strike.

5 6

What is the role of Government? Which Government should intervene here State or Central? What does nod to the new union mean? What does Government have to do with it? 7 What is the legal status of such a joint committee? 8 What is Industrial Dispute? Has it been defined anywhere? 9 What are the ways of settling a dispute?

Around 2,000 workers at MSI's plant here have been on strike since Saturday demanding recognition of a new union -- Maruti Suzuki Employees Union (MSEU) -- formed by those working at the Manesar plant, among other things10. "As per our labour policy, union can be formed in three months after filing proper documentation and pursuing due procedure," a senior official of Labour department said. Workers of Maruti Suzuki's Manesar plant had applied for forming a new union on June 3 with the Labour department. On the sixth day of the strike, production loss touched 5,400 units at an estimated value of Rs 270 crore. MSI's scrips closed the day on the BSE at Rs 1,217.25 per share, down 0.72 per cent.

Haryana declares ban11 on Maruti strike

TNN | Jun 11, 2011, 06.38AM IST MANESAR (Haryana):An uneasy calm prevailed in Manesar after the Haryana government declared a ban on the seven-day strike at Maruti factory, raising fears of a forceful eviction of the agitators and possible violence. The strike is assuming serious proportions by the day as central trade unions like AITUC, CITU and Hind Mazdoor Sabha join in. And, it is headed for a full-fledged industrial stir after labour unions of over 100 auto and autoancillary units operating in the area set a two-day deadline to resolve the issue. Late night negotiations, though, were on. The agitation started over the recognition of a rebel union outfit at Manesar that has refused to go with Maruti's existing Gurgaon union12. It has crippled production not only at Maruti but also at many of its ancillaries. The Haryana government termed the stir as illegal13, paving the way for a showdown if the agitators continue the stir and the company refuses to acknowledge their demands. The Haryana government, under the provisions of Industrial Disputes Act 1947, referred the matter to the Labour Court14.

10 11

How are Unions recognized? Who recognizes a Union? What is the importance of recognition? How can the Government ban a strike? Is strike not a fundamental right? 12 Why do you think Manesar employees want a separate Union? 13 When is a strike legal? When is it illegal? 14 What is a labour court? Why has the Government referred the dispute to the Labour court instead of either the Management or the Workers?

Various unions operating in the area threatened to hold similar protests across other companies. Many issued notices to their companies, urging intervention in the matter or face protests. There are about 55 autoworkers unions in the Gurgaon-Manesar area, most affiliated to the central unions. The companies whose unions served notices include Rico Auto, Omaxe, Honda Motorcycles and Scooters India and Satyam Auto. The unions said formation of a separate union at Manesar was legal, something acknowledged by the Haryana government earlier. They demanded that Maruti also take back the eleven sacked employees. Raj Kumar, president of Rico Auto Workers Union said: "We have said in the notice that if immediate steps are not taken to resolve the crisis and if force is used, we are willing to take on the fight." Omaxe Auto Workers Union president Surinder Bhati said it could take legal recourse. "We have sent copies to the labour commissioner's office too," he said. As the situation became tense, Gurgaon joint commissioner of police Alok Mittal said additional forces had been deployed at the plant that has a daily production of 1200 cars. Loss of production for Maruti stands at around 6,650 cars or about Rs 330 crore. The protesters complained that the Maruti management had taken away many of the facilities. They alleged that the campus canteen was shut and water supply was disconnected. "Two of our workers have been admitted to hospital after falling ill as they were unable to bear the heat," a worker said. Narendra Kumar, Gurgaon district treasurer of HMS, said that even toilet facilities were inadequate. "There may be differences but what the company is doing to the workers is inhuman."

Maruti softens stand, workers say reinstate sacked colleagues

PTI | Jun 12, 2011, 09.20PM IST NEW DELHI: In the first signs of a resolution to the over week-long strike at its Manesar plant, Maruti Suzuki India on Sunday said it is willing to recognise the new union -- the main demand of the workers. The workers also said they are willing to end the stir provided 11 of their sacked colleagues are reinstated. "One of the possibilities is to have individual local plant unions with an umbrella governing council that has members taken from the local plant's union," MSI managing executive officer

(Administration) SY Siddiqui said. It is understood that the governing council will take part in charting out future company policies in order to avoid worker unrest. The company, however, was silent on the demand for reinstating the sacked workers, although sources said it was unlikely that they would be taken back. Maruti Suzuki Employees Union (MSEU) general secretary Shiv Kumar claimed that the company management has agreed to reinstate five out of the 11 sacked workers, but the union is demanding that all of them be taken back. "If they (management) can take back five, why not all the 11? We are willing to end the strike if all of them are taken back," he said. Meanwhile, the All-India Trade Union Congress (AITUC) said workers in the Gurgaon-Manesar industrial belt will hold a two-hour tool-down strike15 on Tuesday in support of their striking colleagues at the MSI Manesar plant. "Public meetings will be held tomorrow at different factories in the Gurgaon-Manesar belt. On Tuesday, there will be a two-hour tool-down strike in about 60-65 factories in the region," AITUC Secretary D L Sachdev said. Sachdev, along with AITUC general secretary Gurudas Dasgupta, had met Haryana chief minister Bhupinder Singh Hooda twice last week over the strike at MSI's plant. Different workers' unions, including those from Hero Honda, Honda Motorcycle and Scooter India and Rico Auto, have been supporting the strike at MSI's plant. Around 2,000 workers at MSI's Manesar plant have been on strike since June 4, demanding the recognition of a new union -- Maruti Suzuki Employees Union (MSEU) -- formed by those working at the Manesar plant, among other things. Cracking the whip, the company fired 11 workers for allegedly inciting others to go on strike. The company is set to enforce the no work-no pay policy, although it would not necessarily
15

Is tool down strike, a strike?

strictly apply the eight days salary deduction for every day of strike16, a source said.

Violence at Maruti's Manesar plant, 5 injured

PTI | Sep 15, 2011, 01.32PM IST GURGAON: The labour unrest at Maruti Suzuki India's Manesar plant turned violent today when a group of supervisors were attacked on their way to work, with five of them sustaining injuries. According to the police, one Dhiraj Soni, a worker at the Manesar plant of the company, has been detained in relation to the incident. "A medical examination of two injured employees is being carried out now and an FIR will be filed after that," a police official told PTI. Another three supervisors that sustained injuries in the attack were admitted to Artemis Hospital
16

Should one get paid for the day(s) one is on strike? Why 8 days of wage for one days strike?

here and later discharged after first aid, the police said. In a statement, the company condemned the attack on its supervisors, saying, "This was another desperate action by the striking workers, using violence and fear." "By such violent acts, the striking workers have polluted the environment in Manesar. Such actions are damaging for the industrial climate in the Manesar belt. This will destroy jobs and prosperity in the region," it said. The incident took place this morning when a group of 11 supervisors were stopped on their way to work by a group of people near the factory of Honda Motorcycle and Scooter India's Manesar plant and were allegedly attacked. Representatives of the agitating workers at MSI's Manesar plant could not be reached for comments, as repeated calls remained unanswered. The MSI management and workers have been locked in a standoff since August 29, when the management prevented workers from entering the factory premises unless they signed a 'good conduct' bond17, after alleged sabotage and deliberate compromise on the quality of cars being produced. The bond required the workers to declare they would "not resort to go slow, intermittent stoppage of work, stay- in-strike, work-to-rule, sabotage or otherwise indulge in any activity, which would hamper normal production in the factory". In support of their colleagues at MSI's Manesar plant, workers at three factories operated by two of Japan's Suzuki Motor Corp's subsidiaries located in the Gurgaon-Manesar industrial belt -Suzuki Powertrain India Ltd and Suzuki Motorcycle India Pvt Ltd -- have been on strike since Wednesday afternoon.

17

Why do companies insist on good conduct bond? Is it not implicit in the employment contract or the conduct rules?

Maruti freezes ops over labour trouble

TNN | Sep 16, 2011, 12.57AM IST New Delhi/Manesar: The labour stir at Maruti Suzuki took a turn for the worse as disruption of supplies from group company Suzuki Powertrain-whose workers joined the stir on Wednesdayforced the automaker to call for closure at both Manesar and Gurgaon plants, where it manufactures a majority of its models, on Friday. On Thursday, there were also violent protests in the area.

Maruti has been facing labour unrest since August 29 when it asked workers at Manesar plant to sign a "good conduct bond" before entering the factory. So far, it was making up for the loss of production by using senior staff and some temporary workforce. However, the disruption of supplies from Suzuki Powertrain-which makes diesel engines and transmissions for certain petrol engines-is a setback to Maruti's efforts to maintain operations.

"Supply of components from Suzuki Powertrain is important for Maruti and if the stir continues, the situation will be difficult for the carmaker," a source said. Suzuki Powertrain is 70% owned by Suzuki and the remaining stake is held by Maruti. Powertrain can produce up to 300,000 diesel engines a year. Industry watchers said perhaps after seven years Maruti's Gurgaon plant will be shut down due to a labour issue. With Friday's closure, Maruti's two factories in Haryana will remain shut for three days in a row. While Saturday will be a holiday on account of 'viskwakarma puja', Sunday is a routine holiday. Sources said Maruti's senior management is trying to sort out the labour trouble at Suzuki Powertrain before the next week begins. Workers are not only showing solidarity with Manesar plant agitators, but also making demand over a new wage settlement that is being worked out.

Meanwhile, the company said some supervisors were attacked early this morning. "As many as 11 supervisors were injured in the attack. This was another desperate action by the striking

workers, using violence and fear. Three of the injured supervisors were admitted to a hospital at Gurgaon, while eight others were taken to the company's Medical Centre in Manesar," the company said. The Manesar police detained one worker on the complaint of the injured employees.

Strike at Maruti's Manesar unit enters sixth day

PTI | Oct 12, 2011, 10.37AM IST NEW DELHI: The ongoing strike at Maruti Suzuki's Manesar plant entered its sixth day today, with no production taking place at the unit, as workers continue to demand that the management take back all suspended and casual employees. The strike by workers at Suzuki Powertrain India Ltd (SPIL) and Suzuki Motorcycle India Pvt Ltd (SMIPL) in support of their colleagues at Maruti Suzuki India's (MSI) Manesar plant has worsened the situation. "The plant is still captive in the hands of striking workers. There is no production today also at the Manesar plant," a company spokesperson told PTI. The company has been hit hard, not only by strike of its own workers, but also due to the supply shortage of engines and transmissions from SPIL. MSI's production is now heading toward a complete halt, with its main unit in Gurgaon rolling out 64 per cent less cars yesterday than the normal daily output of 2,800 units due to parts supply constraints caused by the strike at SPIL. On October 10, the Haryana Labour Department slapped a notice on workers for "breach of settlement" in connection to the agreement that was signed on October 1 to end the 33-day-long impasse and asked them to respond within the next 48 hours. On the other hand, all big national trade unions cutting across party lines -- AITUC, CITU, HMS, INTUC, BMS, AIUTUC, TUCC, AICCTU and UTUC -- lashed out at the company management, accusing it of "high-handed provocative activities" and said not allowing casual workers to join duty is "an absolute act of vengeance".

The series of strikes at the Manesar plant since June this year has resulted in excise revenue losses to the tune of nearly Rs 350 crore for the government, while the company has already suffered a hit of up to Rs 1,540 crore, with a total production loss of 51,375 units till yesterday. Because of the strike, exclusive component suppliers to MSI fear heavy losses during the festive season and have sought the intervention of Haryana chief minister Bhupinder Singh Hooda, who along with his ministerial colleagues are busy with the Hisar by-elections on October 13, to help resolve the issues. Workers at MSI's Manesar plant went on a stay-in strike on Friday afternoon, completely affecting production at the plant. The number of workers who went on strike was around 2,000, including regular and contract employees, apprentices and trainees. The number, however, came down to about 1,500 after the company "rescued" some workers, who were "held under duress". The company alleged that the striking workers attacked co-workers, supervisors and executives in multiple incidents of violence and damaged factory properties inside the plant. The workers, however, denied any such acts and said they were "manhandled by company bouncers". They have gone on strike, demanding the reinstatement of over 1,000 casual workers and 44 permanent employees, who were suspended during the standoff that started on August 29. On Sunday, MSI dismissed 10 workers, terminated five trainees and suspended 10 employees in connection "with the strike and violence at the Manesar factory premises". As per the agreement reached on October 1, the company had agreed to conditionally take back suspended 18 trainees. The workers, in turn, had agreed to sign the 'good conduct bond', which said they would "not resort to go-slow, intermittent stoppage of work, stay-in-strike, work-to-rule, sabotage or otherwise indulge in any activity, which would hamper normal production at the factory".

Neo-Functionalism Reflected the Political Dynamics in the Early Years of European Integration. In What Ways is it Still a Useful Approach Today? As intellectuals surveyed the ruins of Europe after two world wars, (Weigall and Stirk: 1992: 20), many, such as the European Union of Federalists, believed that the maintenance of a realist state system of individual nation states would inevitably lead to the kind of nationalist politics which had been responsible for

two world wars. They hoped that a United States of Europe might emerge to shape post-war Europe (Geddes 2004: 49). Nonetheless, advocates of this form of federalism were left dissatisfied when nation states were restored throughout the continent. Instead, these advocates of closer integration had to seek a different approach. Neo-functionalism, as outlined by Ernst Haas in the mid1950s, would seek to provide closer integration without forcing countries to integrate too far or too quickly. Neo-functionalism is generally associated with the political and economic goals, as well as the integration strategies, of the founding fathers of the European Coal and Steel Community. Jean Monnet, one of the chief architects of European unity, believed that in achieving integration in one sector of common policy amongst sovereign states, this would eventually lead to a spillover into other policy areas. This would then lead to integration in these policy areas and in turn, more spillover. The Schuman Plan of 1950, influenced by Monnet, which led to the creation of the European Coal and Steel Community in 1951, can therefore be viewed as a pragmatic approach to closer integration by stealth, in the full knowledge that a rush to create a United States of Europe could not be achieved. Schuman had planned for much more to be integrated than merely coal and steel and saw the ECSC as a first step on the road to further integration in many other areas. If the six nations cooperated in one policy sector, i.e. coal and steel, under the authority of central institutions, this would result in pressure for the integration of neighbouring policy areas such as taxation, trade and wages (Wallace 2004: 15). This first small step taken in pursuance of The Schuman Plan would, in theory, snowball to the point where national political systems and economies would become so entangled that as functions were transferred, then so too could the loyalties of Europeans as they became focused upon these new institutions (Geddes 2004: 50). Essentially, it is the process of generating new political goals (Cini 2004: 85). Despite the spillovers being the natural consequences of integrating specific inter-national policy areas, they nevertheless generate the need for further harmonisation of policies (EilstrupSangiovannni 2005: 123). Whilst the constant shift from national autonomy to supranational autonomy is generally intended by policy-makers in the individual countries to further their own national interests, the transfer of power to Europe tends towards an integration that is in the interest of Europe as a whole (Rosamund 1999: 60). This means that integration is, in all but theory, irreversible. With regard to whether or not neo-functionalism is still a useful approach today, it can be strongly argued that, despite Haas declaring the theory obsolescent in the mid-1970s, it has not been wrong in its predictions thus far. Haas argued that the European Commission was a complex political system that should therefore not be seen solely as an integration project. Nonetheless, even taking this into account, there is still no doubt that integration in one policy area will

inevitably lead to spillover into another. One area where this can be seen is in the recent fiscal union of the countries in the Eurozone. Neo-functionalism could explain this phenomenon as follows. In 1985, the European Economic Community created the Internal Market Programme, in which tariff barriers that prevented the freedom of movement of goods between member states were removed. This led to much more trade between the member states, e.g. today the United Kingdoms biggest trading partner is the EU. With the freedom of movement of goods, national laws that discriminated against imports from other EEC countries were removed, and, in turn, the freedom of movement was expanded to include people, services and capital. Furthermore, by the end of the 1980s a number of nation states around Germany formed an Optimal Currency Area, which aligned their monetary policies with the Deutschmark and the Bundesbank (Verdun 2004: 87). However, this new internal market was vulnerable to the inflation and deflation of the various members national currencies, which resulted in the demand for a common currency. This paved the way for the creation of the Economic and Monetary Union between 1992 and 2002 which made the establishment of the euro a seemingly logical functional step to encourage prosperity (Jenson 2010: 76). The spillover effect can quite readily be seen in the economic and monetary policies of recent times, with neofunctionalism therefore explaining how the euro came about within a period of less than twenty years due to the spillover effects from relatively unrelated policy areas. Just as neo-functionalism can explain how the eurozone came about, it can also be used to critique it, and to explain the eurozone crisis of the past three years. Neo-functionalism would argue that having a common currency necessitates a common policy in regards to spending. Because the individual members of the eurozone are either reluctant to agree to a common spending policy or because it would not logistically be possible, the weaker members of the eurozone have been forced to borrow at high interest rates, are weak in the bond markets and are unable to defend themselves in the usual way by, for example, devaluing their currency. Ian Cooper (2011) has argued that the spillover effect should be allowed to take effect in the form of Eurobonds, a financial instrument that would allow all Eurozone members to borrow at a common rate. He concludes by stating that if the Eurozone does become a fiscal union as well as a monetary union, then Ernst Haas has already identified the underlying logic behind the event. A focus upon the European Court of Justice from a neo-functionalist point of view can prove to us that the theory is still useful today. The ECJ is a truly supranational institution over which the individual nation states have little to no influence. The neo-functionalist would argue that the supranational actors, such as the thirteen ECJ judges, in partnership with sub-national actors, such as barristers and lawyers, sought to integrate legally the European justice system as it would be they who benefitted from the process (Burley and Mattli 1993: 235-

238). The integrated European justice system would then benefit Europe as a whole, with the spillover effect leading to integration of policy areas related to justice, such as citizenship or human rights. However even though respective judgements made by the ECJ have led to more and more spillover in the policy areas in which judgements have been made, it could be argued that the ECJ is only allowed to operate within set boundaries laid down by the nation states. This has been especially true since the Maastricht Treaty, which sought to exclude the ECJ from foreign and security policy and increase the cooperation between national judicial systems (Burley and Mattli 1993: 239). The imposition of a limit upon the spillover effect would be an example of policy made from an intergovernmental standpoint. Supporters of intergovernmentalism might state that the interests of individual nation states play a more important role nowadays and that neo-functionalism is an outdated idea. They would argue that the state still plays a more central role in the external affairs and foreign policies of the member states than the EU itself. Supranational institutions, such as the European Parliament and the European Commission are explained as emerging out of the integration process that results from the member states securing their own interests. Member states will feel more stable in the anarchical system of states if they are able to anticipate and gain security through knowing how other states will act (Moravcsik 2002: 70). Hoffman and Moravcsik have both argued that it is indeed the individual governments which control the speed of integration within the European Union, thus rejecting the spillover effect, because any increase in the power of the supranational institutions comes from a direct decision from the governments (Moravcsik 2002 and Hoffman 1991). An example of this in recent times might be the decision of David Cameron to veto the proposed treaty to strengthen fiscal discipline in the EU in December of last year, thus slowing down or even halting integration in that policy area. Nonetheless, nowadays it seems diplomatically difficult to avoid policy spillovers in the European Union. To date, neo-functionalism seems to have taken its course, with the original economic integration giving rise to the integration of the social and political systems of the European Union. Even though the predictions of Haas, that the citizens of Europe would eventually take as much interest in European government as they do in national government, and that national sovereignty would give way to supranational authority (Schmitter 2005: 268), did not come to fruition, there still lies the possibility of further integration within the European Union. This is bound to happen, especially in regards to further integration of monetary policy and political power. Recent efforts to save the euro and the expansion of the powers of the European Parliament, demonstrate that there is no limit to where this spillover may lead. It is my opinion that neofunctionalism will continue to be proven true and that the predictions of further integration over the years will also be proven correct. Bibliography

Burley, A. and Mattli, W. (1993), Europe Before the Court: A Political Theory of Legal Integration, International Organization, 47/1: 41-76 Cini, M. (2004) European Union Politics Oxford: Oxford University Press Cooper, I. (2011) The euro crisis as the revenge of neo-functionalism EU Observer http://euobserver.com/7/113682 date accessed 17/03/2012 Eilstrup-Sangiovanni, M. (2005), Debates on European Integration: A Reader (Basingstoke: Palgrave Macmillan) Geddes, A (2004) The European Union and British Politics Basingstoke: Palgrave Macmillan Hoffman, S. (1991) The New European Community: Decisionmaking and Institutional Change Colorada: Westview Press Jensen, C.S. 2010. Neo-functionalism In: Cini, M. & N. Prez-Solrzano Borragn. European Union Politics. Oxford: Oxford University Press Moravcsik, A. (2002) In Defence of the Democratic Deficit: Reassessing Legitimacy in the European Union Journal of Common Market Studies40/4: 603624 Rosamond, B. (1999), Theories of European Integration (Basingstoke: Palgrave Macmillan) Schmitter, P.C. (2005) Ernst B. Haas and the Legacy of NeoFunctionalism Journal of European Public Policy 12/2: 255-272 Wallace, H., Pollack, M. and Young, A. R. (2005), Policy-Making in the European Union. Oxford: Oxford University Press Weigall, D. and Stirk, P. (1992) The Origins and Development of the European Community Leicester: Leicester University Press
Why there is a Democratic Deficit in the EU: a Response to Majone and Moravcsik

ANDREAS FOLLESDAL
University of Oslo

SIMON HIX London School of Economics

Abstract

Giandomenico Majone and Andrew Moravcsik have argued that the EU does not suffer a democratic deficit. This article differs on one key element: whether a democratic polity requires contestation for political leadership and over policy. This aspect is an essential element of even the thinnest theories of democracy, yet is conspicuously absent in the EU.

Introduction

The fate of the Constitutional Treaty for Europe after the French and Dutch referendums will no doubt prompt further volumes of academic books and articles on the democratic deficit in the European Union (EU). The topic already receives huge attention, with ever-more convoluted opinions as to the symptoms, diagnoses, cures and even side-effects of any medication. However, two major figures in the study of the European Union, Giandomenico Majone and Andrew Moravcsik, have recently focused the debate, by disentangling the various forms of dissatisfaction authors have expressed. Not only have these intellectual heavy-weights entered the fray, they have attempted to argue against much of the current received wisdom on the subject and argue, in a nutshell, that the EU is in fact as democratic as it could, or should, be. This article assesses some of the contributions of Majone and Moravcsik together. Sections I and II articulate a contemporary standard version of the democratic deficit, before reviewing how far these two scholars are able to refute the various elements of the received wisdom. Sections III and IV highlight our points of agreement and disagreement with the positions of Majone and Moravcsik as expressed in some of their articles. Specifically, this articles differs on one key element: whether a democratic polity requires contestation for political leadership and argument over the direction of the policy agenda. This aspect, which is ultimately the difference between a democracy and an enlightened form of benevolent authoritarianism, is an essential element of even the thinnest theories of democracy, yet is

conspicuously absent in the EU. Section V discusses what can be done to reduce the democratic deficit in the EU, and whether the Constitutional Treaty would go some way to achieving this goal. Other issues that Majone or Moravcsik raise also merit attention, but must await later occasions. These include the status and implications of federal or multi-level elements of the EU, and of various non-majoritarian democratic procedures (Majone, 1998; Moravcsik, 1998b, 2001).

I. The Standard Version of the Democratic Deficit, circa 2005

There is no single meaning of the democratic deficit. Definitions are as varied as the nationality, intellectual positions and preferred solutions of the scholars or commentators who write on the subject. Making a similar observation in the mid-1990s, Joseph Weiler and his colleagues set out what they called a standard version of the democratic deficit. This, they said, was not attributable to a single figure or group of scholars, but was rather a set of widely-used arguments by academics, practitioners, media commentators and ordinary citizens (Weiler et al., 1995). Weilers contribution did not lay the debate on the democratic deficit to rest in due course it become ever more diverse. An upgraded standard version of the democratic deficit, supplemented by a more substantive yet thin normative theory of democracy helps assess the valuable contributions of Moravcsik and Majone, and indicate remaining issues of contestation for further research. The democratic deficit could be defined as involving the following five main claims. First, and foremost, European integration has meant an increase in executive power and a decrease in national parliamentary control (Andersen and Burns, 1996; Raunio, 1999). At the domestic level in Europe, the central structure of representative government in all EU Member States is that the government is accountable to the voters via the parliament. European parliaments may have few formal powers of legislative amendment (unlike the US Congress). But, the executive is held to account by the

parliament that can hire and fire the cabinet, and by parliament scrutiny of the behaviour of government ministers. The design of the EU means that policy-making at the European level is dominated by executive actors: national ministers in the Council, and government appointees in the Commission. This, by itself, is not a problem. However, the actions of these executive agents at the European level are beyond the control of national parliaments. Even with the establishment of European Affairs Committees in all national parliaments, ministers when speaking and voting in the Council, national bureaucrats when making policies in Coreper or Council working groups, and officials in the Commission when drafting or implementing legislation, are much more isolated from national parliamentary scrutiny and control than are national cabinet ministers or bureaucrats in the domestic policy-making process. As a result, governments can effectively ignore their parliaments when making decisions in Brussels. Hence, European integration has meant a decrease in the power of national parliaments and an increase in the power of executives. Second, and related to the first element, most analysts of the democratic deficit argue that the European Parliament is too weak. In the 1980s, some commentators argued that there was a direct trade-off between the powers of the European Parliament and the powers of national parliaments, where any increase in the powers of the European Parliament would mean a concomitant decrease in the powers of national parliaments (Holland, 1980). However, by the 1990s, this position disappeared as scholars started to see European integration as a decline in the power of parliamentary institutions at the domestic level relative to executive institutions. The solution, many argued, was to increase the power of the European Parliament relative to the governments in the Council and the Commission (Williams, 1991; Lodge, 1994). Successive reforms of the EU Treaties since the mid-1980s have dramatically increased the powers of the European Parliament, exactly as many of the democratic deficit scholars had advocated. Nevertheless, one can still claim that the European Parliament is weak compared to the governments in

the Council. Although the European Parliament has equal legislative power with the Council under the co-decision procedure, a majority of EU legislation is still passed under the consultation procedure, where the Parliament only has a limited power of delay. The Parliament can still only amend those lines in the EU budget that the governments categorize as non-compulsory expenditure. And, although the European Parliament now has the power to veto the governments choice for the Commission President and the team of the Commissioners, the governments are still the agenda-setters in the appointment of the Commission. In no sense is the EUs executive elected by the European Parliament. Third, despite the growing power of the European Parliament, there are no European elections. EU citizens elect their governments, who sit in the Council and nominate Commissioners. EU citizens also elect the European Parliament. However, neither national elections nor European Parliament elections are really European elections: they are not about the personalities and parties at the European level or the direction of the EU policy agenda. National elections are fought on domestic rather than European issues, and parties collude to keep the issue of Europe off the domestic agenda (Hix, 1999; Marks et al., 2002). European Parliament elections are also not about Europe, as parties and the media treat them as mid-term national contests. Protest votes against parties in government and steadily declining participation at European elections indicate that Reif and Schmitts famous description of the first European Parliament elections as second-order national contests is as true of the sixth European elections in June 2004 as it was of the first elections in 1979 (Reif and Schmitt, 1980; van der Eijk and Franklin, 1996; Marsh, 1998). Blondel, Sinnott and Svensson (1998) provide some evidence that at the individual level participation in European elections is related to citizens attitudes towards the EU. However, this effect is substantively very small, and more recent research has shown that, if anything, the main second-order effects of European elections whereby governing parties and large parties lose while opposition and small parties win irrespective of these parties EU policies have increased rather than decreased (Mattila, 2003; Kousser, 2004; Hix and Marsh, 2005).

The absence of a European element in national and European elections means that EU citizens preferences on issues on the EU policy agenda at best only have an indirect influence on EU policy outcomes. In comparison, if the EU were a system with a genuine electoral contest to determine the make-up of government at the European level, the outcome of this election would have a direct influence on what EU leaders do, and whether they can continue to do these things or are forced to change the direction of policy. Fourth, even if the European Parliaments power were increased and genuine European elections were able to be held, another problem is that the EU is simply too distant from voters. There is an institutional and a psychological version of this claim. Paradoxically, both may have given rise to the frustration vented in the referendums on the Constitutional Treaty. Institutionally, electoral control over the Council and the Commission is too removed, as discussed. Psychologically, the EU is too different from the domestic democratic institutions that citizens are used to. As a result, citizens cannot understand the EU, and so will never be able to assess and regard it as a democratic system writ large, nor to identify with it. For example, the Commission is neither a government nor a bureaucracy, and is appointed through an obscure procedure rather than elected by one electorate directly or indirectly (see, for example, Magnette, 2001). The Council is part legislature, part executive, and when acting as a legislature makes most of its decisions in secret. The European Parliament can not be a properly deliberative assembly because of the multi-lingual nature of debates in committees and the plenary without a common political backdrop culture. And, the policy process is fundamentally technocratic rather than political (Wallace and Smith, 1995). Fifth, European integration produces policy drift from voters ideal policy preferences. Partially as a result of the four previous factors, the EU adopts policies that are not supported by a majority of citizens in many or even most Member States. Governments are able to undertake policies at the European level that they cannot pursue at the domestic level, where they are constrained by

parliaments, courts and corporatist interest group structures. These policy outcomes include a neoliberal regulatory framework for the single market, a monetarist framework for EMU and massive subsidies to farmers through the Common Agricultural Policy. Because the policy outcomes of the EU decision-making process are usually to the right of domestic policy status quos, this policy drift critique is usually developed by social democratic scholars (Scharpf, 1997, 1999). A variant of this social democratic critique focuses on the role of private interests in EU decision-making. Since a classic representative chamber, such as the European Parliament, is not the dominant institution in EU governance, private interest groups do not have to compete with democratic party politics in the EU policy-making process. Concentrated interests such as business interests and multinational firms have a greater incentive to organize at the European level than diffuse interests, such as consumer groups or trade unions, and the EU policy process is pluralist rather than corporatist. These features skew EU policy outcomes more towards the interests of the owners of capital than is the case for policy compromises at the domestic level in Europe (e.g. Streeck and Schmitter, 1991).

II. Defence of the Titans: Majone and Moravcsik

Giandomenico Majone and Andrew Moravcsik, two of the most prominent scholars of European integration, have recently struck back at the flood of articles, pamphlets and books promoting one or more of the elements of the standard-version of the democratic deficit.

Majone: Credibility Crisis Not Democratic Deficit

Majones starting point is his theoretical and normative claim that the EU is essentially a regulatory state (Majone, 1994, 1996). In Majones thinking, regulation is about addressing market failures, and

so by definition is about producing policy outcomes that are Pareto-efficient (where some benefit and no one is made worse off) rather than redistributive or value-allocative (where there are both winners and losers). The EU governments have delegated regulatory policy competences to the European level such as the creation of the single market, the harmonization of product standards and health and safety rules and even the making of monetary policy by the European Central Bank to deliberately isolate these policies from domestic majoritarian government. From this perspective, the EU is as a glorified regulatory agency, a fourth branch of government, much like regulatory agencies at the domestic level in Europe, such as telecoms agencies, competition authorities, central banks, or even courts (Majone, 1993a). Following from this interpretation, Majone asserts that EU policy-making should not be democratic in the usual meaning of the term. If EU policies were made by what Majone calls majoritarian institutions, EU policies would cease to be Pareto-efficient, insofar as the political majority would select EU policy outcomes closer to their ideal short-term policy preferences and counter to the preferences of the political minority and against the majoritys own long-term interests. In this view, an EU dominated by the European Parliament or a directly elected Commission would inevitably lead to a politicization of regulatory policy-making. Politicization would result in redistributive rather than Pareto-efficient outcomes, and so in fact undermine rather than increase the legitimacy of the EU (Majone, 1998, 2000, 2002a, b; Dehousse, 1995). For example, EU social policies would be used to compensate losers or supplement the market rather than only correct its failures (Majone, 1993b). For Majone, then, the problem for the EU is less a democratic deficit than a credibility crisis (Majone, 2000). The solution, he believes, is procedural rather than more fundamental change. What the EU needs is more transparent decision-making, ex post review by courts and ombudsmen, greater professionalism and technical expertise, rules that protect the rights of minority interests, and better

scrutiny by private actors, the media, and parliamentarians at both the EU and national levels. In this view, the European Parliament should focus on scrutinising the European Commission and EU expenditure, and perhaps increasing the quality of EU legislation. It should not try to move EU legislation beyond the preferences of the elected governments or trying to influence the policy positions of the Commission through the investiture and censure procedures. Majone consequently holds that if the EU could increase the credibility of its policy-making by introducing such procedural mechanisms, then the public would or should accept the EU as legitimate and concerns about the democratic deficit would disappear.

Moravcsik: Checks-and-Balances Limit Policy Drift

Moravcsik (2002, 2003, 2004) goes further than Majone, and presents an extensive critique of all main democratic deficit claims. Moravcsik objects to four different positions in his writings on this subject: libertarian, pluralist, social democratic and deliberative. Rather than repeat his arguments as they relate to these four viewpoints, let us reconstruct his arguments against the five standard claims identified, above. Moravcsik has explicit answers to four of the five standard claims. First, against the argument that power has shifted to the executive, Moravcsik points out that national governments are the most directly accountable politicians in Europe. As he states (???, p. 612):

if European elections were the only form of democratic accountability to which the EU were subject, scepticism would surely be warranted. Yet, a more important channel lies in the democratically elected governments of the Member States, which dominate the still largely territorial and intergovernmental structure of the EU.

He goes on to argue that national parliaments and the national media increasingly scrutinize national government ministers actions in Brussels. Hence, while the EU remains a largely intergovernmental organization, decisions in the European Council and the Council of Ministers are as accountable to national citizens as decisions of national cabinets. In other words, his argument that the EU strengthens the state (meaning national executives) also challenges claims of a democratic deficit, since the democratically controlled national executives play dominant roles in the EU institutions underscoring the democratic accountability of the EU.
Second, against the critique that the executives are beyond the control of representative institutions, and hence that the European Parliament needs to be strengthened, Moravcsik points out that the most significant institutional development in the EU in the past two decades has been the increased powers of the European Parliament in the legislative process and in the selection of the Commission. In other words, he might grant that national governments no longer dominate outcomes where significant independent agenda-setting power has been delegated to the Commission, for example under the co-decision procedure and qualified majority voting in the Council. Hence, indirect accountability via national executives in the Council is weak under these supranational policy mechanisms, as particular national governments can be on the losing side on an issue-by-issue basis. However, the EU has addressed this potential problem by significantly increasing the powers of the European Parliament in exactly these areas. The European Parliament now has veto-power over the selection of the Commission and is increasingly willing to use this power against heavy lobbying from national governments, as was seen with the Parliaments veto of the first proposed line-up of the Barroso Commission in October 2004. Also, the reform of the co-decision procedure in the Amsterdam Treaty means that legislation cannot be passed under the co-decision procedure without majority support in both the Council and the European Parliament. So, if a party in government is on the losing side of a qualified majority vote in the Council it

has a chance of winning it back in the Parliament as Germany has done on several occasions (such as the Takeovers Directive in July 2001). Third, against the view that the EU is too distant and opaque, Moravcsik argues that the EU policy-making process is now more transparent than most domestic systems of government. The growing paranoia inside the EU institutions about their isolation from citizens and the new internal rules in response to public and media accusations, have made it much easier for interest groups, the media, national politicians, and even private citizens to access documents or information about EU policymaking easier indeed than access to information from national policy processes. Furthermore, EU technocrats are increasingly forced to listen to multiple societal interests. Both the European Court of Justice and national courts exercise extensive judicial review of EU actions, and the European Parliament and national parliaments have increased scrutiny powers (as in the European Parliaments censure of the Santer Commission in May 1999). Also, the introduction of an early warning mechanism, as envisaged in the Constitutional Treaty, would increase the power of national parliaments to scrutinize and block draft EU legislation before it even leaves the Commission. Fourth, Moravcsik argues against the so-called social democratic critique that EU policies are systematically biased against the (centre-left) median voter. The EUs elaborate system of checks-andbalances ensures that an overwhelming consensus is required for any policies to be agreed. There are high thresholds for the adoption of EU policies: unanimity for the reform of the Treaties, then either unanimity in the Council (in those areas where intergovernmental rules still apply) or a majority in the Commission plus a qualified-majority in the Council plus an absolute-majority in the European Parliament (where supranational rules apply), and then judicial review by national courts and the European Court of Justice. Also, no single set of private interests can dominate the EU policy process, as the Commission consciously promotes the access of diffuse interests, and diffuse interests have access

via those parties of party groups (on the left) in the Council and European Parliament (see, for example, Pollack, 1997; Greenwood, 2002). As a result, EU policies are inevitably very centrist: the result of a delicate compromise between all interest parties, from all Member States and all the main party positions. Only those on the political extremes are really excluded. So, free market liberals are just as frustrated with the centrist EU policy regime as social democrats. Just as Majones views of the EU democratic deficit are logical extensions of his general regulatory politics theory of the EU, Moravcisks views of the democratic deficit are extensions of his liberal-intergovernmental theory (Moravcsik, 1998). Basically, because the governments run the EU and there is hard bargaining in the adoption of all EU policies, the EU is unlikely to adopt anything which negatively effects an important national interest or social group. Also, because the Commission is simply an agent of the governments, there are no significant unintended consequences of the intergovernmental bargains. Hence, there is little gap between the preferences of the elected governments and final EU policy outcomes so, the EU is not undemocratic. Finally, Moravcsik does not address the claim directly that there are no European elections. But, his position would justify at least two answers to this concern. First, Moravcsik thinks that European Parliament elections do not really work and will not be genuine European contests for some time, since the issues the EU tackles are simply not salient enough for voters to take an interest in these contests. EU legislative and regulatory activity is inversely correlated with the salience of issues in the minds of European voters, so any effort to expand participation is unlikely to overcome apathy (Moravcsik, 2002, p. 615). Voters care primarily about taxation and spending and these issues are still the responsibility of Member States and tackled overwhelming at the national level. Hence, it is rational for voters to treat European elections as largely irrelevant contests.

Second, Moravcsik (2004) likes the idea that EU policy-making is largely isolated from majoritarian democratic contests. He agrees with Majone that it is a good thing that regulatory policymakers are isolated from democratic majorities. He cites three normative reasons. Firstly, universal involvement in government policy would impose costs beyond the willingness of any modern citizen to bear (Moravcsik, 2004; 2002, p. 614). Secondly, isolating particular quasi-judicial decisions is essential to protect minority interests and avoid the tyranny of the majority. Thirdly, and above all, isolated policy makers can correct for a bias inherent in majoritarian democratic contests. Here, Moravcsik argues that particularist (concentrated) interests can more easily capture majoritarian electoral processes than isolated regulators or courts. From this perspective, the EU may be more representative precisely because it is, in a narrow sense, less democratic (Moravcsik, 2002, p. 614).

III. Points of Agreement and Disagreement

The contributions of Majone and Moravcsik have greatly enhanced the democratic deficit debate, and raised it from the largely impressionist and descriptive contributions in the 1980s and early 1990s to a new level. Arguments are presented more fully, based on careful theoretical analysis backed up by empirical evidence. This analytic clarity is a welcome improvement, not least because it facilitates assessment and further improvement. Some of their theoretical arguments and empirical evidence are valid, while others are questionable.

Majone: Most EU Policies are Redistributive

Majones main theoretical assumption, that purely Pareto-improving policies with no redistributive effects may, on normative grounds, be isolated from majoritarian democratic process, is surely correct.

If policies reliably are, and are meant to be, purely Pareto-improving (with no losers) then decisionmaking in these areas via the usual democratic mechanisms, of electoral and parliamentary majorities, may well not produce the desired outcomes. The problem comes, however, at an empirical level, when trying to identify those policies that produce purely Pareto-improving policy outcomes with one unique solution. Majone would agree that many decisions would challenge a strict efficiency-redistributive dichotomy. This article questions the centrality of this distinction, when the empirical reality of decisions is a continuum between policies that are predominantly efficient and policies that are predominantly redistributive, with many mixes. For example, almost everyone would accept that judicial decisions, such as court adjudication of property rights, and certain technical decisions, such as consumer product standards and safety protection, are at the efficient extreme of a potential continuum: there is a very limited number of correct outcomes, where the distribution of benefits and burdens is largely settled in the process of deciding on the legal and technical standards. Courts and agencies, such as a food safety agency, might best be isolated from political interferences once the laws and other standards are identified. Next on an efficiency-redistibutive continuum are interest rate policies and competition policies. The aim of delegation to independent institutions in these areas is the time inconsistency of preferences and the need for trustworthiness, rather than the fact that these policies by definition are purely about the correction of market failures and the production of collective benefits (Beetham and Lord 1998, p. 20). Even though a majority of economists and political scientists believe that central banks and competition regulators should be independent from majoritarian institutions, these views are not universally held (e.g. McNamara, 2002). And there may be reasons for immediate action that outweigh the loss in trustworthiness: trade-offs that may best be handled by majoritarian, political accountable, agents.

Next are the bulk of policies at the European level which relate the construction and (re)regulation of a market. A larger market and harmonized national regulatory standards to secure market integration certainly have Pareto-improving elements, in that much of EU single market, environmental or social regulation aims to make the free market work more efficiently or to correct particular market failures, such as negative externalities of production (such as pollution), collectively disadvantageous practices of trade barriers, or information asymmetries in employment contracts such as rules on minimum health and safety at work. However, many EU regulatory policies have significant redistributive consequences. Private producers for domestic markets are losers from the liberalization of trade in a single market (e.g. Frieden and Rogowski, 1996). Similarly, producers tend to suffer from environmental process standards, such as factory emissions standards. On the other hand, some workers benefit from social policy process standards, such as equal rights for part-time and temporary workers. At the predominantly redistributive extreme are EU expenditure policies. It may seem that all Member States benefit in some way from EU expenditure policies. Yet, the identification of net contributors and net beneficiaries from the EU budget has always been a highly contested game in the negotiation of every EU multi-annual framework programme. Moreover, winners and losers are even more apparent at the individual level. Beneficiaries from EU expenditure policies, such as farmers, depressed regions, or research scientists, tend to be concentrated groups who receive large amounts from the EU budget as a percentage of their income. On the other hand, the consumers and taxpayers who pay into the EU budget are highly diffuse, with widely varying net benefits of larger markets. Majone might wish that all EU market regulation or reregulatory policies are or should be purely Pareto-efficient. The current reality is rather different. Many EU regulatory policies have identifiable winners and losers (Pierson and Leibfried, 1995, pp. 43265; Joerges, 1999). At an empirical level, Majones argument that EU policy-making is or should primarily be about Pareto-improving outcomes is

thus either implausible, or requires a drastic reversal of many competences back to the Member States. Majone provides good reasons why certain EU policies, such as competition policy or food safety regulation, should be delegated to independent, non-majoritarian, institutions. But his arguments do not apply to policies which allow choices with distributive or even redistributive effects. He offers no reason why they should be isolated from democratic contestation. Where there are short- and longterm winners and losers, Majones argument does not diminish the need for democratic, responsive and accountable decision-makers.

Moravcsik: Democratic Contestation Would Produce Different Policies

In Moravcsiks view:

Constitutional checks and balances, indirect democratic control via national governments, and the increasing powers of the European Parliament are sufficient to ensure that EU policymaking is, in nearly all cases, clean, transparent, effective and politically responsive to the demands of European citizens. (2002, p. 605)

Much of this is disputed in this article. Essentially, because of the requirement of oversized majorities in multiple institutions, EU policy outcomes are invariably centrist. Yet, this response to the social democratic concern is insufficient insofar as the status quo of noagreement does not secure centrist but rather right-of-centre outcomes, as the near-constitutional status of market freedoms suggests. Moravcsik must then go on to argue that this no-agreement point is not skewed against the political parties on the left. On this issue the jury still seems to be out. On the one hand, as Paul Pierson (2001, p. 82) finds: the available evidence casts doubt on the claim that in the absence of growing economic integration welfare states would be under dramatically less pressure, and

national policy makers markedly more capable of addressing new public demands. Signs of cut-backs and retrenchments may have other causes. On the other hand, the demographic changes may otherwise have entailed increases rather than stand-still in public expenditures. Thus, Anton Hemerijck (2002) notes that: The empirical evidence suggests that tax competition has so far been limited But this may be misguided. For one, when we consider increasing unemployment, rising poverty, expanding pensions and health care costs, we would have expected that taxation should have risen. Instead, during the 1980s most welfare states turned to deficit spending. Indirect control via national governments certainly provides some control over EU policy outcomes, although it is greater in those areas where intergovernmentalist decision-making rules operate (such as police co-operation, foreign and defence policies, and some aspects of monetary union) than in areas where supranational decision-making rules operate (such as the regulation of the single market and now asylum and immigration policies). Increasing the powers of the European Parliament has certainly improved the legitimacy of policy outcomes in precisely those areas where the indirect control of governments over outcomes has been weakened by the move to qualified majority voting and the delegation of significant agenda-setting power to the Commission. Essentially, the authors are willing to accept, both theoretically (because of the design of representation in the Council and Parliament and the rules of agenda-setting and decision-making) and empirically (the balance between the neo-liberal and social market elements of the EU policy regime), that policy outcomes from the EU may be relatively close to some abstract European-wide median voter. The social democratic critique of the EU is insufficiently defended and argued; it is also quite possibly incorrect. There are still two problems for Moravcsiks theory, however, concerning the link between voters policy preferences and the policies of the EU. First, the match between preferences and policies should not only occur as a matter of fact, but there should be mechanisms that reliably ensure that this power will indeed be so used. Democratic accountability is one such mechanism that sometimes at least

serves to kick rascals out and sometimes serves to prevent domination and disempowerment (Shapiro, 1996). The defence of institutions as legitimate must thus not only show that present outcomes are acceptable. Proponents must also show that these institutions can reliably be expected to secure more acceptable outcomes in the future than the alternatives considered, for instance because they are sufficiently responsive to the best interests of voters. These are the problems with benevolent but nonaccountable rulers: their subjects have no institutionalized mechanisms that make them trustworthy. And, there are no reliable selection processes for selecting their benevolent successor at most, the processes ensure selection of the next ruler, who may turn out to be much less benevolent (Rawls, 1999; Follesdal, 2005). Second, voters preferences are not fixed or purely exogenously determined. If voters preferences over policies are completely exogenous to the political process and permanently fixed then there would perhaps be no difference between a fully-democratic majoritarian policy and an isolated policy regime a form of regulated benevolent authoritarianism that produces policies that voters subjectively want in some interesting sense of that phrase. Both democratic and (enlightened) nondemocratic regimes would produce policy outcomes close to the median or otherwise decisive-voter (assuming a single dimension of preferences). A key difference between standard democratic and non-democratic regimes, however, is that citizens form their views about which policy options they prefer through the process of deliberation and party contestation that are essential elements of all democracies. Because voters preferences are shaped by the democratic process, a democracy would almost definitely produce outcomes that are different to those produced by enlightened technocrats. Hence, one problem for the EU is that the policy outcomes of the EU may not be those policies that would be preferred by a political majority after a debate about these policies.

This leads to a weakness in Moravcsiks argument that the issues on the EU agenda are simply not salient enough for voters to want to have a debate about these policies, and hence allow their preferences to be shaped on these issues. The problem is that the saliency of a policy issue is also endogenous to the political process. Schattschneider (1960) famously called this the mobilization of bias. Without the articulation of positions on several sides of a policy debate, it is no wonder that a debate over a particular policy area does not exist and that issues lack voter salience. Moravcsik would still contend that such a democratic contest is more likely to be captured by private particularist interests than the EUs current system of checks-and-balances and isolated regulators, who can more easily consider diffuse and long-term interests. As it stands, this argument is incomplete. Reasons must also be provided for believing that regulators will indeed reliably use their discretion in such ways rather than for less legitimate objectives. Indeed, many democratic theorists and empiricists would actually think the opposite. Independent regulators are highly prone to capture, primarily because they are heavily lobbied by the producers who are the subjects of the regulation (Becker, 1983). Furthermore, constitutions with multiple checks-and-balances (or veto-points), as opposed to more majoritarian decision-making rules, allow concentrated (single-issue) interests to block policy outcomes that are in the interests of the majority as has been the case in the US system of government, where the gun-lobby has repeated blocked more restrictive gun control and private healthcare companies have repeatedly blocked provisions to introduce some form of universal health coverage, despite overwhelming public support for both these policies (Tsebelis, 1999, 2002).

Majone and Moravcsik extol the virtues of enlightened bureaucracy against the dangers of untrammeled popular democracy, or majoritarian rule in the current parlance. For Majone, the technocrats in the Commission, the Council working groups and the EU agencies are more likely to protect citizens interests than the majority in the European Parliament or a hypothetical majority in an

election of the Commission President. Moravcsik, less enthusiastic about technocratic rule, still sees no need for full-blown electoral democracy since the design of the EU already guarantees that any policies passed are in the interests of the majority of EU citizens. This article argues in the next section that there are good reasons to be slightly less optimistic about the comparative advantages of technocratic rule over constrained forms of democratic rule.

IV. Why Constrained Democracy is Better than Pareto Authoritarianism

One plausible defence of democracy is comparative, in the tradition of Winston Churchills quip that democracy is the worst form of government except for all the others that have been tried from time to time. Forms of democratic rule in terms of competitive elections to choose policies and leaders, is better than enlightened technocracy and the alternatives favoured by Moravcsik and Majone. This article builds the case for democracy from premises that the authors believe are shared by a broad range of democratic theorists. The main features of democracy are (see, for example, Follesdal, 1998):

1) institutionally established procedures that regulate, 2) competition for control over political authority, 3) on the basis of deliberation, 4) where nearly all adult citizens are permitted to participate in 5) an electoral mechanism where their expressed preferences over alternative candidates determine the outcome, 6) in such ways that the government is responsive to the majority or to as many as possible.

This is not intended as a complete definition, but rather as a statement about virtually all modern political systems that could normally be called democratic. The perennial dispute about the definition of democracy seems largely fruitless for the purposes of this article, and the authors hope to avoid it altogether. This sketch of democracy is robust in the sense that many theorists would agree to many of its components, though specifying them differently. Features 1, 2 and 3 are especially relevant for assessing Moravcsiks and Majones arguments. These are held in some form by most theorists. As an example, for Charles Beitz (1989, p. 17), democracy is conceived as:

a kind of rivalry for control over the states policy-making apparatus, with an electoral mechanism at its center in which all citizens are entitled to participate There is considerable room for variation in both the manner in which the rivalry itself might be regulated and the details of the electoral mechanism that determines its outcomes. The generic idea of democracy is indeterminate about these matters, but because not all of the possibilities are equally acceptable, some criterion is needed for selecting among them.

While for Schattschneider (1960, p. 141), modern democracy is a competitive political system in which competing leaders and organizations define the alternatives of public policy in such a way that the public can participate in the decision-making process. And for Brian Barry (1991, pp. 2461), a democratic procedure is a method of determining the content of laws (and other legally binding decisions) such that the preferences of the citizens have some formal connection with the outcome in

which each counts equally *and+ allow for the formulation, expression, and aggregation of political preferences. These first three components merit elaboration to identify the weaknesses of Majone and Moravcsiks arguments. Regarding the first component, the primary issue is institutional design, not policy outcomes. Many, though not all, democratic theorists would hold that the outputs matter when assessing such institutions. This article holds that in order to assess institutions more must be known about whether they can bring about certain outputs. Majones argument that EU institutions provide unbiased representation cannot be accepted without further defence. That such institutions may prevent capture by powerful minorities opposing the majoritys more diffuse, longer-term or less selfconscious concerns may be correct, but this is not enough. Indeed, much more must be known than their current output. There is also a need to know about the likely, least likely or typical outcomes, including the formative and strategic effects of institutions on strategies and preferences. Thus it is not enough to appeal only to present policy outcomes; their tendency to reliably be sufficiently responsive over time in comparison with alternative arrangements must also be considered. Their track record so far is not sufficient. Whether there are mechanisms that will reliably continue to ensure acceptable outcomes in ways that provide crucial trustworthiness must also be known. This is of course not to argue that constitutions determine everything, but that the choice of constitutional rules affects the bargaining positions within the democratic decision procedures. For example, an essential feature of the practice of democracy is an institutional design that allows for an opposition to the current leadership elites and policy status quos (Dahl, 1971). Providing incentives and arenas for oppositions to organize and articulate their positions is important to ensure that citizens understand differences between the present government and the (democratic) political order (Shapiro, 1996). If citizens cannot identify alternative leaders or policy agendas it is difficult for citizens to determine whether leaders could have done better or to identify who is responsible for

policies. Active opposition parties in parliament with many affected parties represented, and media scrutiny, are crucial for such fact-finding, attention and assessments. These benefits require freedom of association and information and real opportunity spaces for formulation and contestation of the agenda and policy choices. Consider those who favour an alternative set of policy outcomes to the current policies of the Commission, the Council and the Parliament. As the EU is currently designed there is no room to present a rival set of leadership candidates (a government in waiting) and a rival policy agenda. This is different from the growing anti-EU sentiment in many Member States, which often presents itself as the opposition to the EU establishment. But, such anti-EU parties and movements do not simply oppose the current policy balance at the European level, but advocate root-and-branch reform, or even abolition, of the EU system rather like the Anti-Federalists in the early years of American democracy. Indeed, it is precisely because there is not a visible quasi-official opposition, that citizens cannot distinguish between opposition to the current EU policy regime and opposition to the EU system as a whole. Regarding the second component, competitive elections are crucial to make policies and elected officials responsive to the preferences of citizens (see, for example, Powell, 2000). Electoral contests provide incentives for elites to develop rival policy ideas and propose rival candidates for political office. This identification of new alternatives is crucial: the definition of the alternatives is the supreme instrument of power (Schattschneider, 1960, p. 68). Competition among parties with different platform that express alternative, somewhat consistent, conceptions of public interest and public policies helps voters realize which choices may be made and give them some alternatives (see, for example, Manin, 1987, pp. 33868). Where the EU is concerned, policies might be in the interests of citizens when they were first agreed, but without electoral competition there are few incentives for the Commission or the governments to change these policies in response to changes in citizens preferences. For example, EU

policy-makers are trying to grapple with the structural reform of the European economy, which everyone seems to agree needs to be addressed at the European level. At the moment this is not salient for Europes voters, even though the distributive and redistributive consequences of any structural reforms are potentially huge. The EU has policy instruments to introduce labour market reform in Europe. For example, the Commission could propose a directive harmonising rules on the hiring and firing of workers for small and medium-sized enterprises. However, such a proposal would be politically explosive, as this would involve a radical shift from the policy status quo for most Member States. As a result, governments have tried to encourage each other to introduce labour market reforms through the softer process of the open method of co-ordination (OMC). But, faced with entrenched vested interests against labour market reform, domestic political parties have no incentive to follow the informal agreements made through OMC or to act unilaterally. The problem for the EU, in this case, is that there are few if any vehicles for encouraging a European-wide debate about structural reform of the European economy that can feed off and mobilize political opposition. In a normal democracy, rival groups of elites (parties) would have incentives to develop and promote competing policy positions, a majority would form in favour of a particular policy package, and a mandate for action would be established. Without such democratic contestation, the EU is simply less capable of assessing and addressing one of the central issues facing European policymakers. Regarding the third component, political competition is an essential vehicle for opinion formation. Competition fosters political debate, which in turn promotes the formation of public opinion on different policy options. Policy debates including deliberation concerning the best means and objectives of policies are an inherent by-product of electoral competition. Without such debates, voters would not be able to form their preferences on complex policy issues. Electoral contestation thus has a powerful formative effect, promoting a gradual evolution of political identities.

For example, in the history of American and European democracies, the replacement of local identities by national identities occurred through the process and operation of mass elections and party competition (Key, 1961; Lipset and Rokkan, 1967). Political parties appear to play particularly important roles in fostering and maintaining dual political loyalties in multi-level polities, to ones own sub unit and to the polity as a whole (McKay, 2004, pp. 2339, 2001). Likewise in the EU, rather than assuming that a European demos is a prerequisite for genuine EU democracy, a European democratic identity might well form through the practice of democratic competition and institutionalized co-operation. Our concern that Moravcsik and Majone ignore the role of preference formation in the EU does not stem from a greatly contested philosophically esoteric version of deliberative democracy. These effects of political discourse for identity formation are widely acknowledged, not only among communicatively oriented deliberative democrats though they sometimes seem to ignore that much of this is a shared democratic heritage (Weale, 1999, p. 37). Where different theorists disagree is instead in their assessment of the risks, possibilities and best institutions for regulating such preference formation and modification in a normatively preferred direction (Schumpeter, 1976; Riker, 1982; Schmitter 2000; Follesdal, 2000). As has also been argued by many other scholars, it is not necessarily the case that all such formation and modification is reliably for the better (Przeworski, 1998, pp. 14060; Elster, 1998, pp. 1 18; Follesdal, 2000, pp. 85110; Elster, 2003, pp. 13858). It is also incorrect that more and less constrained deliberation always makes for better democracy. This article is prepared to defend constitutional constraints on democratic decisions (Dryzek, 1990), and it accepts a constrained rather than populist account of democracy. It is prepared to accept the delegation of authority to regulators where policies should be Pareto-improvements with few distributive options or when needed to build trustworthiness. It is also prepared to consider checks and balances, for example, drawing on the US federalist tradition or the European consensus-democracy

tradition (Lijphart, 1999). And, it is prepared to welcome human rights constraints on parliaments to protect minorities and Member States, rather than exposing them to avoidable risks of unfortunate deliberations and resultant policy mistakes. Against this background, consider Moravcsiks claims that expanding participation is unlikely to overcome apathy, since EU legislative and regulatory activity is inversely correlated with the salience of issues in the minds of European voters, (Moravcsik, 2002, p. 615). It could be argued that perceived salience is partly endogenous, a consequence of lack of political contestation. Thus, for instance, this apathy is likely to change if media and political parties start to claim that EU decisions impact on highsalience issues such as health care provision, education, law and order, pensions and social security policy, and taxation. The links between domestic policies and EU institutional design may well be unclear in the minds of many, thereby depoliticizing the issue (Moravcsik, 2002, p. 616). But, increased political contestation would probably address and contest the nature of such links or lack thereof. Moravcsik holds that the formal list of EU competences is highly significant for assessing whether democratic contestation is appropriate. Surely the relevant terms of normative assessment are not the formal list of competences but the impact on citizens. Such claims about impacts is the stuff of democratic contestation and hence salience. Moravcsik may be correct that the EUs activities are limited to a policy agenda focused on cross-border economic activity, with a small budget to boot. Yet national politicians sometimes claim that their hands are tied, leaving much room for two-level diplomacy. Such claims and others emerge and are tested largely within democratic institutions. The links may well remain unclear, but hardly uncontested or not salient. Moravcsik dismisses some ways to give citizens reason to care about EU politics: Schmitters or Van Parijss suggestions regarding minimum income with massive redistribution may well be infeasible schemes, especially in the short run (Schmitter, 2000; Van Parijs, 1990). But other, politically more

realistic, agenda topics may also capture voters interests. The current implausibility of Schmitters and Van Parijss proposals are irrelevant for assessing claims that political contestation is important for enhancing democratic legitimacy.

V. Why the EU is Undemocratic and What Could be Done About It

Central weaknesses in Moravcsiks and Majones denials of EUs democratic deficit are that EU policies currently have large distributive consequences, rendering a purely unique Pareto-improvement argument insufficient. The low current salience about policy issues is not a justification for no democracy, as long as it may equally well be the result of a lack of democratic arenas for contestation. Currently there are several constitution-like and institutional features that insulate the EU from political competition. Most fundamentally, there is no electoral contest for political leadership at the European level or the basic direction of the EU policy agenda. Representatives at the EU level are elected, and so can formally be thrown out. However, the processes of electing national politicians and even the members of the European Parliament are not contests about the content or direction of EU policy. National elections are about domestic political issues, where the policies of different parties on issues on the EU agenda are rarely debated. Similarly, as discussed, European Parliament elections are not in fact about Europe, but are second-order national contests. They are fought by national parties on the performance of national governments, with lower turnout than national elections, and hence won by opposition and protest parties. At no point, then, do voters have the opportunity to choose between rival candidates for executive office at the European level, or to choose between rival policy agendas for EU action, or to throw out elected representatives for their policy positions or actions at the EU level.

Referendums on EU issues, such as membership of the EU or EMU or ratification of a new EU Treaty, do better than national elections or European Parliament elections in terms of allowing voters to express their preferences about the EU. National politics, such as the popularity of the government, still play a role in EU referendums (Franklin et al., 1995; Hug, 2002). However, referendums on EU issues are considerably less second order than European elections (Siune et al., 1994; Garry et al., 2004). The problem with referendums, however, is that they only allow voters to express their views about isolated fundamental constitutional issues and not on the specific policy content within a particular constitutional status quo. Referendums are hence ineffective mechanisms for promoting day-to-day competition, contestation among policy platforms, as well as articulation and opposition in the EU policy process. Interestingly, there is increasingly democracy at the European level, in terms of party organization and competition in the European Parliament. The political parties in the European Parliament are now more cohesive than the Republicans and Democrats in the US Congress, and what determines coalition formation between the parties in the Parliament is their distance from each other on the left-right continuum in other words, parties that are ideologically closer together vote together more often (Hix et al., 2005). Moreover, the powers of the parties in the European Parliament have evolved in terms of their influence over policy outcomes as the powers of the Parliament itself have grown, as has their control of resources inside the European Parliament (such as committee and rapporteurship assignments). As a result, the members of the European Parliament (MEPs) are increasingly likely to vote with their European party colleagues and against their national party leaderships when these two sets of interests are in conflict (Hix, 2002a). This tendency came into the open in October 2004, when a coalition of parties and MEPs in the European Parliament for the first time refused to support the proposed line-up for the new Commission, despite heavy lobbying by many

national governments from both right and left for their MEPs to break from their European party positions. Similarly, there is increasing policy contestation inside the Council of Ministers. There are a growing number of roll-call votes and what explains the number of times a government either abstains in a vote or votes against the winning qualified-majority is the left-right and pro- or anti-Europe position of the government relative to the other governments (Mattila and Lane, 2001; Mattila, 2004). But, without full transparency of amendment procedures, agenda-control rules and even the recording of roll-call votes when votes fail, it is very difficult for academics or the media, let alone the general public, to follow meaningfully what goes on inside the EUs primary legislative chamber. A bigger problem, however, is the lack of a connection between the growing democratic politics inside the European Parliament and EU Council and the views of the public. The parties in the European Parliament and the governments in the Council may well reflect the various positions of the voters they represent on the issues at stake. However, without an electoral contest connected to political behaviour in these EU institutions it is impossible for voters to punish MEPs or governments for voting the wrong way. Government responsiveness suffers. What is encouraging from the early seeds of democratic contestation in the European Parliament and Council, nevertheless, is that there really is potential for battles over the EU policy agenda. Opening the door for further contestation, to allow a greater connection between voters preferences and coalitions and alignments in the EU institutions, may not require massive constitutional overhaul. This article argues that these problems may be temporary, and may not require massive constitutional overhaul tinkering, time and controversies may engender Europe-wide debates, possibly spurred by parties and party families who see opportunities for votes. Nevertheless, it is worth pointing to some details of institutional design that seem important. For example, the Council of Ministers needs to be more transparent. This not only means publishing

voting records, which has been the demand of many democratic deficit commentators for some time. It also means allowing the public, via the media, to see who proposed what, what coalitions formed, which amendments failed, and who then was on the winning and losing side. Now that the EU has expanded to 25 Member States, the Council will be forced to become ever more like a classic legislature, with standard rules of procedure determining the division of labour, agenda control and amendment rights. What needs to happen is that who gets what, when and how as a result of these rules, becomes public knowledge. Furthermore, the Commissions designated role regarding the European interest should not be formulated in such a way as to imply that the content of this term is uncontested, or that the Commission is the only institution able and willing to identify and pursue it. Now that the basic policycompetence architecture of the EU has been confirmed in terms of the regulation of the market at the European level and the provision of spending-based public goods at the national level the role of the Commission is not fundamentally different from other political executives. The purely Pareto-improving functions of the Commission, such as the merger control authority or the monitoring of legislative enforcement, could easily be isolated in new independent agencies. Then, the expressly political functions of the Commission, in terms of defining a work programme for five years, initiating social, economic and environmental laws, and preparing and negotiating the multi-annual and annual budgets, should be open to rigorous contestation and criticism. Such criticism should not be interpreted as euroscepticism or anti-federalism but rather as an essential element of democratic politics at the European level. Majone may well agree with this suggestion, though it remains to be seen how and where he would distinguish between purely Pareto-improving and other, (re)distributive, functions of the Commission (Dehousse and Majone, 1994). Related to these two ideas, an institutional mechanism needs to be found for generating debate and contestation about politics in, not only of, the EU. The most obvious way of doing this is

contestation of the office of the Commission President the most powerful executive position in the EU. For example, there could be a direct election of the Commission President by the citizens or by national parliaments (Hix, 2002b). Alternatively, a less ambitious proposal would be for government leaders to allow a more open battle for this office without any further Treaty reform. Now that the Commission President is elected by a qualified-majority vote (after the Nice Treaty), a smaller majority is needed in the European Council for a person to be nominated. This led to a dramatic increase in the number of candidates in the battle to succeed Romano Prodi and a linking of the nomination of a candidate to the majority in the newly elected European Parliament. However, the process could have been much more open and transparent with candidates declaring themselves before the European elections, issuing manifestos for their term in office, and the transnational parties and the governments then declaring their support for one or other of the candidates well before the horse-trading began. The Constitutional Treaty, if ratified, would be an improvement on the institutional status quo in terms of the possibility and likelihood of more democratic contestation. The Constitutional Treaty would increase transparency of the legislative process, increase the powers of the European Parliament and formally link the choice of the Commission President to European elections. The Constitutional Treaty would also give several new powers to national parliaments, underscoring that a post-national order has not come into being, rather what is in the process of being created is a complex, new, multi-level polity, with some classic federal features and some completely new institutional innovations. National parliaments would be able to monitor the application of the Subsidiarity Principle, and giving yellow cards when violations are suspected. This arrangement may well bolster political debate and contestation, since national parliaments are to get copies of legislative proposals, Commission consultation documents, copies of suggested Treaty reforms and European Council suggestions of when unanimity is not required by Council.

The increased transparency and powers of the European Parliament and of national parliaments may foster political contestation. This is not to deny that transparency also may carry costs regarding the quality and efficiency of agreements, for instance by foreclosing the creative exploration of new options (Elster, 1998, p. 98; Naurin, 2004). This loss of efficiency in individual cases does not outweigh the benefits of political contestation and more trustworthy institutions. This articles arguments for increased democratic contestation also withstand Dahls pessimism about enlightened decisions in large scale democracies. It is difficult if not impossible to determine the general good among a heterogenous population, even with contestation (Dahl, 1999). There seems to be a trade-off between citizen effectiveness in smaller units and system capacity which sometimes favours larger units. Surely, the relationship and division of functions among units in a complex polity requires careful and theoretically informed decisions. (Dahl and Tufte 1973, pp. 13942). Dahls and Tuftes arguments underscore an argument that this article shares: democratic constestation of these issues is not a perfect procedure. However, their arguments do not support non-democratic solutions, where these important decisions about subsidiarity and competence allocation should be taken by nonaccountable authorities without public contestation. Such non-democratic modes of decision-making would paper over such controversies and obscure the political choice. They are therefore over time likely to yield even worse, even less effective solutions than democratic mechanisms. EU decisions have contested effects, distributive and otherwise, and there are reasons to believe that several choices are arguably good faith specifications of the European interest. A worry about the efficiency loss of politicization therefore seems ill-founded. However, the Constitutional Treaty was a missed opportunity to be rather more bold in trying to promote contestation of the EU agenda. For example, there was considerable support in the Convention on the Future of Europe for allowing the majority in the European Parliament to nominate the Commission President instead of the European Council. This would have established a much clearer link

between the outcome of European elections and the formation of government at the European level. But a minority of governments, led by France and the United Kingdom, vetoed this change, fearing that this was too federalist. This was a mistake, as the potential impact of more democratic competition could be more or less policy from the EU, depending on the type of contest that develops and the candidate who wins. Such a reform would also have captured the publics imagination. With all the other Treaty reforms, the governments promised their voters a significant policy carrot if they ratified the Treaty: the Single European Act would produce a single market; the Maastricht Treaty would lead to EMU; the Amsterdam Treaty would create an area of freedom, security and justice; and the Nice Treaty would allow enlargement. In contrast, there is no major new policy project that could not be achieved if the Constitutional Treaty is not ratified. As a result, the potential costs of not ratifying the Constitutional Treaty are not obvious to most citizens. Hence, the governments should have been bolder in promising something new for the European public, such as a genuinely more democratic set of institutions.

Conclusion

If democracy is only about matching the present preferences of voters to policy outputs, it is difficult to explain what is wrong with the EU. However, there is broad agreement among democratic theorists that the citizens preferences that do matter are those that have had a chance of being created or modified within arenas of political contestation and that what matters are institutions that reliably ensure that policies are responsive to these preferences, rather than matching by happy coincidence. Thus, one important challenge is to create institutions that provide such opportunities and responsiveness. The endogeneity of voters preferences, while recognized and indeed a premise across many normative

democratic theories concerned with the legitimacy of democratic arrangements, seems to be handled less acceptably at the European level than at the domestic level. In particular, this article suggests that the lack of party competition and other lacunae concerning a political public sphere should make us more wary of Moravcsiks and Majones optimistic conclusions. It will be much more difficult to assume that EU policies are only or should only be concerned with Pareto-improvement to a unique solution if such claims are subjected to public political scrutiny by different political parties that have something to gain by convincing voters otherwise. All is not lost though, as change is on the way. Democratic contestation, in terms of transnational alignments and coalitions along left-right lines have started to emerge in both the EU Council and the European Parliament. What is still missing, though, is the connection between these developments and the divisions in the EUs society at large, in terms of the potential winners and losers of potential policy agendas. This may not even require fundamental reform of the EU Treaties. All that may be needed is for the political elites to make a commitment to open the door to more politicization of the EU agenda, for example via a battle for the Commission President, with governments and national and European parties backing different candidates and policy platforms. European Parliament elections would continue to be primarily second-order for some time. But, if there are new incentives for national party leaders to compete in these contests on European-level issues rather than purely national concerns, over time EU-wide coalitions and alignments between national and European actors would begin to solidify. Overall, Majone and Moravcsiks contributions should be welcomed. The authors of this article do not agree with all their claims and assertions. However, they share their enthusiasm for ditching abstract normative assertions in favour of careful normative reasoning and the assessment of empirical evidence. The proverbial bar has been raised to a new level of analytical rigour in the debate about the democratic deficit in the EU and what should be done about it.

Correspondence: Simon Hix London School of Economics Houghton Street London WC2A 2AE email: s.hix@lse.ac.uk

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Democratic deficit in the European Union

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European Union

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The concept of a Democratic deficit within the European Union is the idea that institutions of the European Union lack democratic accountability and legitimacy compared to the national governments of its member states. The term was initially used to criticise the transfer of legislative powers from national governments to the Council of ministers of the EU. This led to an elected European Parliament being created and given the power to approve or reject EU legislation. Since then, usage of the term has broadened to describe newer issues facing the European Union. Opinions differ as to whether the European Union has a democratic deficit[1] or how it should be remedied if it exists.[2][3] Proponents of Pro-Europeanism orEuropean unification argue that the European Union should reform its institutions to make them more accountable, while Eurosceptics argue that the European Union should reduce its powers.

Contents
[hide]

1 Use and meaning of the term

o o o

1.1 European executive 1.2 European parliament 1.3 European elections

2 Development of democratic legitimacy and transparency 3 See also 4 References 5 Further reading

Use and meaning of the term [edit]

The phrase democratic deficit is cited as first being used by the Young European Federalists in their Manifesto in 1977, which was drafted by Richard Corbett. It was also used by David Marquand in 1979, referring to the then European Economic Community, the forerunner of the European Union.[4] 'Democratic deficit' in relation to the European Union, refers to a perceived lack of accessibility to the ordinary citizen, or lack of representation of the ordinary citizen, and lack of accountability of European Union institutions. [5][6] The democratic deficit has been called a 'structural democratic deficit', in that it is inherent in the construction of the European Union as a supranational union that is neither a pure intergovernmental organisation, nor a true federal state. The German Constitutional Court, for instance, argues that decision-making processes in the EU remain largely those of an international organisation, which would ordinarily be based on the principle of the equality of states. The principle of equality of states and the principle of equality of citizens cannot be reconciled in a Staatenverbund.[2] In other words, in a supranational union or confederation (which is not a federal state) there is a problem of how to reconcile the principle of equality among nation states, which applies to international (intergovernmental) organisations, and the principle of equality among citizens, which applies within nation states.[3]

European executive [edit]

One criticism of democratic illegitimacy focuses on the role of the EU "executive", the European Commission, in initiating legislation. This criticism has, in turn, been criticised, using comparisons with the situation in national governments where few members' bills are ever debated and "fewer than 15% are ever successfully adopted in any form", while government proposals "generally pass without substantial or substantive amendments from the legislature".[7]

According to R. Daniel Kelemen, fragmented power systems like the European Union and the United States may tend to produce more detailed regulations that give member states less discretion in implementation.[8] Voting in the council is usually by qualified majority voting, and sometimes unanimity is required. This means that for the vast majority of EU legislation the corresponding national government has usually voted in favour in the Council. To give an example, up to September 2006, out of the 86 pieces of legislation adopted in that year the government of the United Kingdom had voted in favour of the legislation 84 times, abstained from voting twice and never voted against.[9]

European parliament [edit]

One criticism of democratic illegitimacy focuses on the alleged weakness of the European Parliament. This has been countered by political scientists who have compared the systems of governance in the European Union and the United States and concluded that the alleged powerless or dysfunctional nature of the European Parliament is now a "myth.[7] It is argued that there are important differences from national European parliaments, such as the role of committees, bipartisan voting, decentralized political parties, executivelegislative divide and absence of Government-opposition divide. All these traits are considered as signs of weakness or unaccountability, but these very same traits are found in the US House of Representatives to a lesser or greater degree, the European Parliament is more appropriately compared with the US House of Representatives.[7] In that sense, it is now a powerful parliament, as it is not controlled by a "governing majority": majorities have to be built afresh for each item of legislation by explanation, persuasion and negotiation. Legislative initiative in the EU rests solely with the commission, while in member states it is shared between parliament and executive; however less than 15% of legislative initiatives from MEPsbecome law when they do not have the backing of the executive. The European Parliament can only propose amendments, but unlike in national parliaments, the executive has no guaranteed majority to secure the passage of its legislation. In national parliaments, amendments are usually proposed by the opposition, who lack a majority for their approval and usually fail. But given the European Parliament's independence, and the need to obtain majority approval from it, proposals made by its many parties (none of which hold a majority alone) have an unusually high 80% success rate in the adoption of its amendments. Even in controversial proposals, its success rate is 30%, something not mirrored by national legislatures.[7] Liberal Democrat (ELDR) MEP Chris Davies, says he has far more influence as a member of the European Parliament than he did as an opposition MP in the House of Commons. "Here I started to have an impact on day one", "And there has not been a month since when words I tabled did not end up in legislation." [10]

European elections [edit]

The low turnout at European elections has been cited as weakening the democratic legitimacy of the European Parliament: the BBC commented that in Britain many more votes were cast in an election on the reality show Big Brother than in the 1999 European Parliament election. On the other hand, the President of the European Parliament compared the turnout for the European Parliament to the presidential elections in the United States:

Turnout across Europe (1999) was higher than in the last US presidential election, and I don't hear people questioning the legitimacy of the presidency of the United States

Pat Cox, President of the European parliament[10]

In fact,the figures that are compared, the European Parliament voter turnout from 1999 (49.51%)[11] and the US presidential voter turnout from 1996 (49%)[12] are only marginally different, and the US voter turnout for 1996 was the lowest turnout in the US since 1924 (when it was 48.9%). The turnout in European elections has also been declining every election without exception to a low of 43% in 2009. According to one observer, the EU democratic deficit can be viewed as having a formal component (which is likely to be remedied) but also a social component resulting from people's low acceptance of the EU, as evidenced by low voter turnout.[13]

Development of democratic legitimacy and transparency [edit]

Over time, a number of constitutional changes have been introduced to increase democratic legitimacy:

The Maastricht Treaty introduced

the status of EU citizenship, granting EU citizens the right to vote and stand in elections to the European Parliament and municipal elections in their country of residence, irrespective of their nationality (subject to age and residency qualifications).[14]

the legislative procedure known as the "co-decision procedure", giving the directly elected European Parliament the right of "co-deciding" legislation on an equal footing with the Council of the European Union.[14]

The Treaty of Lisbon, which came into force on 1 December 2009 introduced

a separate treaty title confirming that the functioning of the EU shall be founded on representative democracy and giving EU citizens both direct representation through the European Parliament and indirect representation via national governments through the Council of the European Union [15]

the establishment of the co-decision procedure as the standard ("ordinary") legislative procedure[15] a significant increase in the powers of the European Parliament[15]

Any EU citizen or resident now has the right to petition the European Parliament "on any matter which comes within the Union's field of activity and which affects him, her, or it directly".[Article 227 TFEU].[16]

Meetings of the Council are now public when there is a general debate and when a proposal for a legislative act is voted on. These debates can be viewed[17] in real time on the Internet.[18]

The Lisbon Treaty enhanced the role of national parliaments in EU legislation.[19] With the Treaty of Lisbon, the Charter of Fundamental Rights of the European Union, which was solemnly proclaimed by the European Parliament, the Council of the European Union and the European Commission in the year 2000 was given full legal effect.[20]