Does the Factories Act Apply to Our Construction Yard? Seeking Your Insights on Compliance

Dear Colleagues,

Subject: Is the Factories Act Applicable to Construction Companies?

We are constructing a bridge across the river. Adjacent to the bridge location, we have taken land on lease and established a yard where we manufacture the segments (part of construction and will be placed on the pillars in the river).

The Inspector of Factories says that the location of the bridge will not come under the Factories Act, but the yard where we cast the segments will come under the Act.

I invite your views on this matter.

Regards,
Ramesh

If you are conducting a manufacturing process at any premises as per Section 2(k) of the Factories Act, 1948, with the number of workers as detailed in Section 2(m), then you are covered under the Factories Act. Considering your brief, the Inspector of Factories has rightly asked you to implement this law. If a construction company is involved in any manufacturing process, it is also covered under the Factories Act. To finalize the matter of coverage, we are required to refer to the definitions of a factory, manufacturing process, and worker under the Factories Act, 1948.

Opinion submitted as requested.

Regards,
R.N.KHOLA

Dear Sir, Thanks for the reply. I wish to submit some more information in this regard. As per our activity, manufacturing means some kind of concreting process to construct a segment (similar to a slab), and these segments (slabs) will be placed on the pillars to join them together to pave the way for vehicles, etc.

Since we cannot make these slabs in the river, we are carrying out this process near the river and then transporting them into the river. Therefore, we consider it as part of the bridge construction.

Kindly spare a few minutes to express your opinion, which will be very much helpful to us.

Regards,
Ramesh

In my opinion, construction work is not covered under the purview of the Factories Act, 1948. However, if materials like brick kiln, steel, cement, etc., are manufactured nearby or at any other premises, then in that case, that establishment will be covered under this Act. Therefore, the Inspector of Factories may be advising the implementation of the Factories Act.

Regards,
R.N.KHOLA

Dear Mr. Ramesh, have you obtained BOCW Registration for this construction? If your answer is yes, then obviously it will not be considered as Factories. However, if the factories inspector has been entrusted with the BOCW Act, then he will behave like a factories inspector, as in Gujarat. He will try to find faults like a factory inspector and try to extract some details from you.

BOCW is not applicable for those registered under the Factories Act and Mines Act. ESI is not applicable for those registered and obtained a license under the Contract Labour Act.

Thank you for the reply and information. Yes, we have obtained registration under the BOCW Act. Here in Andhra Pradesh, the BOCW Act is monitored by the Labour Department only, not by the Factories Department. As you mentioned, ESI is not applicable to us, as we have obtained registration under the Contract Labour Act.

Case Details: The Factories inspector visited our site and insisted on registration under the Factories Act. Although our company has not obtained registration in any state, our site management agreed to register to avoid unnecessary complications with government departments. However, the inspector demanded a significant amount to provide the registration. We refused to pay, and as a result, he filed a case in court. We are currently challenging this in court.

Thanks and Regards,
Ramesh

Dear Mr. Ramesh, On Ugadi day, while discussing with a Joint Commissioner of Labour in AP, he mentioned that the inspecting authority for the BOCW Act is entrusted to the Factories Inspector, as the technical aspect is more emphasized in the BOCW Act. The ALO will only issue licenses and Construction Worker ID cards at any construction site.

If the work period is within a 2-month period, you need not go through any retrenchment formalities. However, when closing with subcontractors, ensure to obtain a certificate confirming that the subcontractors have settled all dues with the workers, paid their wages in full, and have no outstanding payments to any worker. In the event of a complaint, the subcontractor will bear full responsibility for clearing any dues and must provide the necessary certificates and documents to the appropriate authority.

The aforementioned certificate serves to hold the subcontractor accountable for their duties. On the other hand, you cannot absolve yourself of the responsibility for any unpaid wages to subcontracted workers, as the obligation for wage payment under the Minimum Wages Act lies with the Principal Employer and not with the Contractors or Sub-contractors.

I trust I have adequately addressed your query. For any amendments or alterations, please do not hesitate to inform me.

Dear Mr. Ramesh,

On Ugadi day, while discussing with one Joint Commissioner of Labour in AP, he mentioned that the inspecting authority for the BOCW Act is entrusted to the Factories Inspector as the technical aspect is more emphasized in the BOCW Act. The ALO will only issue licenses and Construction Worker ID Cards at any construction site.

If the work period is within a 2-month timeframe, you do not need to follow any retrenchment formalities. However, when closing subcontractors, please ensure to obtain a certificate confirming that the subcontractors have made full and final settlements to all workers, clearing all wages due with no outstanding payments to any worker. In case of any complaints, the subcontractor will bear complete responsibility for settling dues and must obtain the necessary certificates and documents to present to the appropriate authority.

The aforementioned certificate is intended to bind the subcontractor to fulfill their duties. However, you cannot waive your responsibility for any unpaid wages owed to subcontracted workers. The onus of wage payment, as per the Minimum Wages Act, lies with the Principal Employer and not with contractors or subcontractors.

I trust I have addressed your query adequately. Should you require any amendments or alterations, please do not hesitate to inform me.

Dear Mr. Bhaskar,

Thank you for your response. We commenced work on this project two years ago and engaged temporary workers such as drivers and helpers exclusively for this project. Due to a decrease in workload, we now need to downsize our workforce. Kindly advise on the formalities to be followed in the retrenchment process.

I look forward to your prompt response.

Regards,
Ramesh

Dear Ramesh, in continuation of your question, is the Factories Act applicable for construction activities when registered under BOCW? Do we really have to register under a factory? What was the judgment when you challenged it in court? Looking forward to your valuable time and feedback. Thanks in advance, sir.

Scope of the Two Acts

The scope of the two Acts is different. While construction activity is not a manufacturing process, a workshop or fabricating unit therein would amount to a manufacturing process and come within the definition of a factory.

Exception of the law in the Simon Carves India Limited case

The exception of the law laid down in the judgment of the Hon'ble High Court of Gujarat, decided on 06.02.1973 in Simon Carves India Limited and Anr. vs. The State of Gujarat, is that work incidental, ancillary, and in connection with the main activity of the company where 10 or more workers are working with the aid of power may not fall under the provisions of the Factories Act, 1948. The Hon'ble Judge stated, "In order for the provisions of the Act to be attracted, it has to be shown that a manufacturing process with the aid of power was being carried out by engaging 10 or more workers in a fixed place as the main and predominant function of the company. If the company, temporarily for the purpose of executing the contract for construction, carries out such a manufacturing process at a site temporarily provided by the owner for whom they are doing the job, it cannot be said that they are running a factory within the meaning of the Act. If a too literal construction is put on the term 'factory' as contended by the learned Advocate for the opponent, it would not be in consonance with the object and purpose of the Act."