Confused About BOCW Act Coverage for Factory Construction? Here's What You Need to Know

Applicability of the BOCW Act to Factory Premises

There have been differences of opinion about the applicability of the Building and Other Construction Workers (Regulation of Employment and Conditions of Service) Act, 1996, to operations or civil constructions carried out within a factory premises that is part of the factory covered under the Factories Act.

This is mainly due to the lack of clarity in the definition of construction work as given in section 2(d) of the BOCW Act, which excludes building and construction work to which the provisions of the Factories Act and Mines Act will apply. Obviously, when construction work is carried out within the factory premises, it is natural for the employer to assume they are under the coverage of the Factories Act and therefore, no cess is payable as per the BOCW Act.

Understanding Factory Licensing and Worker Coverage

However, it should be understood that the factory license is given for work connected with manufacturing activities. For a factory meant for the manufacture of, say, cement, it is for the manufacturing of cement that the license is issued. Similarly, the Factories Act provides for the health, welfare, and safety of workers employed in the factory, and these workers are those employed for manufacturing and not those employed for the construction of buildings.

Conclusion: BOCW Act Coverage and Cess Payment

Therefore, such construction activities will come under the purview of the BOCW Act, and cess as per the Welfare Fund Act should be paid. The Supreme Court verdict is attached for reference.

Respected Madhu ji, you have rightly said that there are differences of opinion about the applicability of the Building and Other Construction Workers (Regulation of Employment and Conditions of Service) Act, 1996, to operations or civil constructions carried out within a factory premises, which is part of the factory covered under the Factories Act.

In light of the landmark judgment of the Hon'ble Supreme Court in Lanco Anpara Power v/s State of Uttar Pradesh & Ors, rendered in Civil Appeal No 6223 of 2016 (reported in (2016) 10 SCALE 99), unfortunately, you cannot take the benefit of exclusion carved out under Section 2(1)(d) of the BOCW Act. Now you have no option but to obtain a Registration Certificate under the BOCW Act and also to pay Cess.

The Hon'ble SC, while coming to its conclusion, adopted a purposive interpretation of Section 2(1)(d) of the BOCW Act, giving primacy to the 'superior purpose' contained in the BOCW Act and the Welfare Cess Act, such purpose being the welfare of the unorganized labor class involved in construction activity. The Hon'ble SC further held that a literal interpretation, as desired by the construction companies, would result in a situation where the construction workers would be deprived of the benefits of both the BOCW Act and the Factories Act, which could not have been the legislative intent and therefore could not be accepted by the Courts.

The entire judgment of Lanco Anpara (supra) revolved around the issue of whether the provisions of the BOCW Act could be made applicable to those establishments, which intended to construct a factory and for which they had obtained a license under the Factories Act and where the manufacturing process had not commenced.

However, there is a recent judgment of the HC at Chhattisgarh, WPC No. 2636 of 2010, delivered on 16.02.2018. According to this judgment, what I understood is that if you take up an expansion project in the premises of the running factory, the provisions of BOCW would not be attracted, including the payment of cess. Once the manufacturing process starts in an establishment, thereafter the provisions of the BOCW Act cannot be made applicable, and the provisions of the BOCW Act would stand excluded. This decision of the HC at Chhattisgarh is based on the decision of the Hon'ble Supreme Court in Arnit Das vs. State of Bihar reported in (2000) 5 SCC 488.

Sorry, sir, I didn't get the judgment, but the given citation is about a criminal case. Can you please clarify? Moreover, in the Lanco Anpara Power case, it is an extension and not construction of a new factory building because the Factories Act will be applicable once the factory is functional.

Applicability of BOCW Act and Legal Obligations

At last, I wish to say the latest practices and legal applicability are like this. The BOCW Act and rules apply to all workers involved in construction activities within factory premises, new factory construction on a site, or expansion and extension of already existing factories. This also applies to workers fixing newly imported machinery in the factory.

For any construction work, the Cess Act applies, and the employer has to pay cess at one percent of the total construction cost to the government authorities responsible for plan approval.

Any construction worker involved in the construction site works of a factory premises is entitled to all the benefits of the BOCW Act and the Workmen's Compensation Act (now known as the Employees Compensation Act). This applies like a WiFi connection, providing rescue and protection to the construction worker in case of death, severe injury, or permanent disability, benefiting the worker's family. This applies not only to those working on the factory construction but also to any worker registered as a beneficiary under the BOCW Act, working off-premises.

Thank you.

High Court Judgment on L&T Case

Yes, the High Court judgment in the L&T case is very clear, and this distinguishes the building and construction activities in a proposed factory premises from those in a factory premises that have already started manufacturing activity.

Exclusion in the Definition of Building and Construction Work

Now, my interpretation is still focused on the exclusion part of the definition of building and other construction work as per Section 2(1)(d) of the BOCW Act, which states that construction activities to which the provisions of the Factories Act apply are excluded. A factory is registered to manufacture a given product. The operations may include allied activities like storage of materials, warehousing, etc., but in no case can it include the construction of a building. As such, building construction is not an operation covered by the Factories Act.

Definition of a Worker Under the Factories Act

The definition of a worker under the Factories Act covers only workers who are employed for manufacturing and allied activities. When the Factories Act is mandated for ensuring the health, safety, and welfare of the workers in the factory, will the occupier take care of the health, welfare, and safety of the workers engaged in construction? I don't think anybody will extend it to them. If the arrangement is such that the occupier purchases the required materials, engages workers, and gets the building constructed, then there will be a direct employer-employee relationship between the workers and the occupier, and certainly, it will be the occupier who would ensure the health, safety, and welfare of these workers. In such a situation, the provisions of the BOCW Act will not apply.

Role of Builders in Construction Activities

However, in reality, the arrangement is that there will be a builder who will undertake to construct a building as per the specifications of the occupier, and that builder will bring in materials, manpower, machines, etc. Here, the occupier does not know who all are engaged in the work or how many are engaged in the work. In this arrangement, the construction workers are workers of the builders, and as such, their health, safety, and welfare matters will be taken care of by the builders. To compensate for it, the occupier will pay a certain amount, say, one percent of the cost of construction, towards cess.

Ensuring Workers' Welfare

Therefore, what is important is whether the builders have ensured the health, safety, and welfare of their workers by paying them minimum wages, providing them medical aid, and other facilities required by the law. This would include PF, ESI, Bonus, etc. If the factory occupier is ready to bear it, the question of payment of cess or welfare fund does not come up, whereas if it is borne by the builders, it is their responsibility to establish that the workers' health, safety, and welfare were taken care of. Since the activity of construction of the building is carried out for the occupier, and in the absence of records to show that the construction workers were given PF, etc., the occupier should pay a certain amount, say, one percent of the cost of construction, to the Welfare Fund constituted for the construction workers.

Dear Madhuji, there is absolutely no hesitation in paying cess at 1% if the contractor gets it from the Principal Employer. The issue lies in the definition because contractors do not add up 1% extra against cess while quoting rates for any work within factory or mine premises.

The facility of EPF, ESI, and Bonus remains intact in the absence of B&OCW. The Lanco Anpara case is purely a B&OCW one, as it was a greenfield project. Therefore, one should not view both cases in a similar line, as they are legitimately different. At the same time, a bigger sum was paid as cess for the Tata Steel Project because the project was a greenfield one.

As of the current date, no verdict has been reached in the case of M/s Sterelite Ltd, as all cases have been declared disposed of along with the M/s Lanco Anpara case.

Dear Madhu T.K.,

With reference to the BOCW Act, I would like to know if it is applicable in the case of expansion (further construction of new buildings, canteens, etc.) carried out in a factory that is already operational. Additionally, could you please provide information on the procedure for paying the 1% cess, where to make the payment, and how to calculate the amount on which the cess is applicable?

I am eagerly awaiting a response from a senior professional like yourself.

Thank you.

Supreme Court and Chhattisgarh HC Verdicts on BOCW Act

This is what we have been discussing. When the Supreme Court verdict states that activities connected with the construction of a building within a factory premises fall under the purview of the BOCW Act and that the applicable cess should be paid, the Chhattisgarh HC verdict says it is not applicable to extensions or such construction activities in a factory that has already started manufacturing.

Welfare Fund Board and Cess Payment

Now, the answer to the second part of your question is that there will be a Welfare Fund Board constituted in your state following the BOCW Act. The cess, at the rate of 1% of the cost of the project, is payable to that Building and Other Construction Workers' Welfare Fund Board.

If we have BOCW certificate, then how do we enroll construction employees in ESIC? As per my knowledge, it is mandatory to submit ESIC contributions for construction labor.