Factories: Approval, Licensing and the Occupier

Section 81 answers the opposite problem, the workshop below the threshold. A place employing eight workers with power is not a factory under section 2(1)(w), however dangerous it is. Section 81 lets the appropriate Government bring it in by notification.

Some words this chapter uses

Occupier, section 2(1)(zs), is the person who has ultimate control over the affairs of the factory, with three deeming provisos: for a firm or association of individuals, any one of the partners or members; for a company, any one of the directors, except an independent director within section 149(6) of the Companies Act 2013; and for a factory owned or controlled by the Central or a State Government or a local authority, the person or persons appointed to manage its affairs. A further proviso deals with a ship under repair in a dry dock available for hire, where the owner of the dock is deemed the occupier except for prescribed matters directly related to the condition of the ship.

Previous permission is permission obtained before the site is used or the factory built or extended.

Extension of a factory does not include, by the Explanation to section 79, the mere replacement of plant or machinery, or an addition within prescribed limits, if it does not reduce the minimum clear space required for safe working around the plant or machinery, or adversely affect environmental conditions through the evolution or emission of steam, heat, dust or fumes injurious to health.

Jointly and severally means each is liable for the whole, and the person owed may proceed against any of them.

Manufacturing process is defined in section 2(1)(zi).

Section 79: approval, licensing and the deemed permission

Section 79(1), the rule making power. The appropriate Government may make rules in respect of a factory or class or description of factories for:

• (a) the submission of plans, including specifications, their nature and certification;
• (b) the previous permission for the site on which the factory is to be situated, and for its construction or extension; and
• (c) subject to section 119, licensing and renewal, including the fees payable.

Section 79(2), the deemed permission. Learn this sub-section. If, on an application for permission under clause (b), accompanied by the plans and specifications required by the rules, sent to the State Government or the Chief Inspector-cum-Facilitator in the electronic mode, no order is communicated to the applicant within such period not exceeding thirty days, the permission applied for shall be deemed to have been granted.

Four conditions are packed into that sentence and all four must be satisfied.

The application must be for the site, construction or extension permission under clause (b).

It must be accompanied by the plans and specifications required by the rules. An incomplete application does not start the clock.

It must be sent electronically to the State Government or the Chief Inspector-cum-Facilitator.

The trigger is failure to communicate an order, and the period is not exceeding thirty days, so the rules may fix a shorter one.

Section 79(3), the appeal. Where a State Government or a Chief Inspector-cum-Facilitator refuses to grant permission to the site, construction or extension of a factory, or refuses licensing of a factory, the applicant may, within thirty days of the date of such refusal, appeal to the Central Government if the decision appealed from was of the State Government, and to the State Government in any other case.

Note the two destinations. A refusal by the State Government goes to the Central Government; a refusal by the Chief Inspector-cum-Facilitator goes to the State Government. Note also that the period runs from the date of refusal, not from its communication, which is stricter than section 52 in the contract labour Part.

The Explanation, what is not an extension. A factory is not deemed to be extended by reason only of the replacement of plant or machinery, or, within prescribed limits, the addition of plant or machinery, if the replacement or addition does not reduce the minimum clear space required for safe working around the plant or machinery and does not adversely affect the environmental conditions from the evolution or emission of steam, heat, dust or fumes injurious to health.

The Explanation is practical and examinable. It lets a factory replace a worn machine without a fresh permission, and it fixes the two tests by which the exemption is lost: clear space and emissions.

Section 80: the industrial estate

Where any premises or separate buildings are leased to different occupiers for use as separate factories, the owner of the premises and the occupiers of the factories utilising the common facilities shall be jointly and severally responsible for the provision and maintenance of such common facilities and services as the appropriate Government prescribes.

The common facilities are listed and the list should be reproduced, because it shows how much the section covers: safety and fire prevention and protection, access, hygiene, occupational health, ventilation, temperature, emergency preparedness and response, canteens, shelter, rest rooms and creches.

Two features carry the weight.

Joint and several liability. The Inspector-cum-Facilitator, or a worker, need not establish which of the several occupiers should have maintained the fire system. Each is responsible for the whole, and they may sort out contribution between themselves.

It reaches the owner who runs no factory at all. The landlord of an industrial estate is liable for the common facilities even though he manufactures nothing, which is the point: he is the only person who controls the staircase.

Section 81: bringing in a place that is not a factory

Section 81(1). The appropriate Government may, by notification, declare that all or any of the provisions of this Part shall apply to any place wherein a manufacturing process is carried on, with or without the aid of power, or is ordinarily carried on, irrespective of the number of workers working in the factory.

Section 81(2), the three deemings. After a place is so declared:

• it shall be deemed to be a factory for the purposes of this Code;
• the owner shall be deemed to be the occupier; and
• any person working therein shall be deemed to be a worker.

The Explanation. For this section, owner includes a lessee or mortgagee with possession of the premises.

The section is the answer to the small dangerous workshop. A place employing six people with power is not a factory under section 2(1)(w), and every duty in the Code that turns on being a factory passes it by. Section 81 lets the appropriate Government apply all or any of the provisions of Part VII to it irrespective of the number of workers.

The three deemings in sub-section (2) are not a formality. Without them the declaration would apply provisions to a place with no occupier answerable for them and no workers to be protected. Deeming the owner to be the occupier is particularly important, because these are places where nobody has been formally appointed to anything; and the Explanation prevents the owner escaping by pointing to a lessee, since a lessee or mortgagee in possession is himself within the word.

Who is the occupier: the leading case

The word that carries the whole of factory law is occupier, because almost every duty in the Code, and every prosecution, is addressed to him. Section 2(1)(zs) says he is the person who has ultimate control over the affairs of the factory, and then deems certain people to be that person.

Facts. J.K. Industries Ltd. v. Chief Inspector of Factories and Boilers, (1996) 6 SCC 665, was decided by the Supreme Court on 25 September 1996. The Chief Inspector refused to accept factory licence renewal applications signed by employees whom the companies had nominated as the occupier, and directed that the application be signed by a director. The companies argued that the definition of occupier, which speaks of the person having ultimate control over the affairs of the factory, allowed a company to vest that control by resolution of its board in any employee it chose.

Held. The petitions and appeals were dismissed. In the case of a company which owns a factory, only one of the directors of the company can be notified as the occupier. Ultimate control over the affairs of a factory vests in the owner, and in the case of a company in its Board of Directors, and cannot be vested in anyone else without completely transferring control over the factory to that other person. A board resolution purporting to give ultimate control to an officer or employee who is not a director is, in the Court's own words, a camouflage or an artful circumvention.

Why it still governs. The Factories Act 1948 is repealed by section 143(1)(a), but section 2(1)(zs) of this Code reproduces the same scheme: the occupier is the person having ultimate control over the affairs of the factory, and in the case of a company any one of the directors is deemed to be the occupier. The reasoning of the case is the reasoning of that deeming.

And the Code adds one thing the case did not have to consider. Proviso (ii) excludes an independent director within the meaning of section 149(6) of the Companies Act 2013. That is a sensible qualification of the principle rather than a departure from it: the case reasoned that ultimate control lies with those who really direct the company, and an independent director, by definition, is not of the management.

A worked example

Sagar Chemicals proposes to build a factory on a plot in an industrial area. It is a company with seven directors, two of whom are independent directors.

What must it do before building? Obtain the previous permission for the site and for the construction under rules made under section 79(1)(b), submitting plans and specifications as required by rules under clause (a), and thereafter comply with licensing under clause (c) and section 119.

It sends the application with plans electronically on 1 March and hears nothing. If no order is communicated within the prescribed period, not exceeding thirty days, the permission applied for is deemed to have been granted: section 79(2).

Suppose instead the Chief Inspector-cum-Facilitator refuses. Sagar Chemicals may appeal within thirty days of the date of refusal to the State Government, because the decision appealed from was not that of the State Government: section 79(3). Had the State Government refused, the appeal would lie to the Central Government.

Two years later it replaces a reactor with a newer one of the same footprint. That is not an extension. By the Explanation to section 79, a factory is not deemed extended by reason only of the replacement of plant or machinery, provided it does not reduce the minimum clear space required for safe working around it or adversely affect environmental conditions through steam, heat, dust or fumes injurious to health.

Who is the occupier? The person having ultimate control over the affairs of the factory; and because Sagar Chemicals is a company, any one of the directors is deemed to be the occupier under proviso (ii) to section 2(1)(zs). On the reasoning in J.K. Industries Ltd. v. Chief Inspector of Factories and Boilers, (1996) 6 SCC 665, it may not nominate its works manager instead.

It nominates one of the two independent directors. It may not. Proviso (ii) excludes an independent director within section 149(6) of the Companies Act 2013.

A different problem. Ridhi Estates owns a four storey building let to nine small units, each a separate factory. There is one staircase, one fire system, one water tank and a shared canteen. The fire system has not worked for a year.

Who is responsible? Under section 80, where premises or separate buildings are leased to different occupiers for use as separate factories, the owner of the premises and the occupiers utilising the common facilities are jointly and severally responsible for the provision and maintenance of the prescribed common facilities, which include safety and fire prevention and protection, access, hygiene, occupational health, ventilation, temperature, emergency preparedness and response, canteens, shelter, rest rooms and creches.

Ridhi Estates says it manufactures nothing. That is no answer. The section names the owner of the premises, and joint and several liability means proceedings may be taken against it for the whole.

A third problem. A workshop employing seven people electroplates metal with the aid of power.

Is it a factory? No. Section 2(1)(w) requires ten or more workers with power.

Can it be brought within the Part? Yes. Under section 81(1) the appropriate Government may by notification declare that all or any of the provisions of the Part apply to any place wherein a manufacturing process is carried on, with or without the aid of power, irrespective of the number of workers. On the declaration the place is deemed a factory, the owner deemed the occupier, and any person working there a worker: section 81(2).

The owner says he leased the shed and the lessee runs it. The Explanation to section 81 provides that owner includes a lessee or mortgagee with possession of the premises.

What this does NOT mean

Section 79 does not itself require permission. It empowers the appropriate Government to make rules for plans, permission, licensing and renewal.

The deemed permission is not automatic on any application. It requires an application under clause (b), accompanied by the plans and specifications required by the rules, sent electronically, with no order communicated within the period, which may not exceed thirty days.

The appeal in section 79(3) does not always lie to the same authority. Against the State Government, to the Central Government; in any other case, to the State Government.

Replacing a machine is not extending a factory, unless it reduces the minimum clear space for safe working or adversely affects emissions of steam, heat, dust or fumes.

Section 80 is not confined to the occupiers. The owner of the premises is liable, and liability is joint and several.

A declaration under section 81 does not make a small workshop a factory for all purposes automatically. The appropriate Government may apply all or any of the provisions of the Part; but once declared, the place is deemed a factory for the purposes of the Code, with the owner deemed occupier.

A company may not nominate an employee as occupier. On the case, and under proviso (ii) to section 2(1)(zs), it must be one of the directors, and not an independent director.

Limits and criticism

The deemed permission under section 79(2) transfers the risk of official delay onto the workers. A permission for the site and construction of a factory is the one decision in the whole scheme that cannot be revisited cheaply, and it may now be obtained by the passage of thirty days in which nobody looked at the plans. The Code provides no power to revoke a deemed permission if the plans turn out to be unsafe.

Everything else in section 79 is delegated. What the plans must show, who certifies them, when a licence is required at all and what it costs are matters for rules, so the section states a procedure and no standard.

The appeal period runs from the date of refusal, not from communication, so an applicant who learns late of an order may lose the appeal without any provision, as there is in section 52, for condoning delay for sufficient cause.

Section 80 depends entirely on rules to say what the common facilities are. The section lists the subjects and then makes the duty one to provide and maintain such common facilities and services as may be prescribed.

Section 81 is permissive and has no criteria. The Code gives no test of danger, no application by workers, and no procedure. Whether a small hazardous workshop is brought within the Part depends on the appropriate Government noticing it.

And the definition of occupier still allows the least engaged director to be nominated. The case established that it must be a director; it did not require it to be the director who in fact runs the factory. Excluding independent directors narrows the field but leaves a company free to nominate whichever of its remaining directors it chooses.

Quick revision

• Section 79(1): rules for (a) submission of plans and specifications, (b) previous permission for the site and for construction or extension, (c) licensing and renewal and fees, subject to section 119.
• Section 79(2): application for the clause (b) permission, with the required plans, sent electronically to the State Government or Chief Inspector-cum-Facilitator; if no order is communicated within a period not exceeding thirty days, the permission is deemed granted.
• Section 79(3): appeal against refusal within thirty days of the date of refusal, to the Central Government where the refusal was by the State Government, and to the State Government in any other case.
• Explanation: a factory is not extended by mere replacement, or addition within prescribed limits, of plant or machinery, if the minimum clear space for safe working is not reduced and emissions of steam, heat, dust or fumes are not adversely affected.
• Section 80: where premises are leased to different occupiers as separate factories, the owner and the occupiers using the common facilities are jointly and severally responsible for prescribed common facilities and services, which include safety and fire prevention and protection, access, hygiene, occupational health, ventilation, temperature, emergency preparedness and response, canteens, shelter, rest rooms and creches.
• Section 81: the appropriate Government may by notification apply all or any provisions of the Part to any place where a manufacturing process is carried on, with or without power, irrespective of the number of workers; the place is then deemed a factory, the owner deemed the occupier, and any person working there a worker. Owner includes a lessee or mortgagee in possession.
• Occupier, section 2(1)(zs): the person with ultimate control over the affairs of the factory; deemed to be, for a firm, any partner; for a company, any director except an independent director under section 149(6) of the Companies Act 2013; for a Government or local authority factory, the person appointed to manage it. J.K. Industries: in the case of a company, only a director may be notified, and a board resolution vesting ultimate control in an employee is a camouflage.

Test yourself

1. What does section 79(2) provide, and what four conditions must be met? That the permission applied for shall be deemed to have been granted. The application must be for the site, construction or extension permission under section 79(1)(b); it must be accompanied by the plans and specifications required by the rules; it must be sent in the electronic mode to the State Government or the Chief Inspector-cum-Facilitator; and no order must have been communicated to the applicant within the period, not exceeding thirty days.

2. Where does an appeal lie against a refusal under section 79? Within thirty days of the date of refusal: to the Central Government if the decision appealed from was that of the State Government, and to the State Government in any other case, which includes a refusal by the Chief Inspector-cum-Facilitator.

3. When is a factory not treated as extended? Where the only change is the replacement of plant or machinery, or an addition within prescribed limits, and it does not reduce the minimum clear space required for safe working around the plant or machinery and does not adversely affect the environmental conditions from the evolution or emission of steam, heat, dust or fumes injurious to health: the Explanation to section 79.

4. Nine factories in one leased building share a fire system that has failed. Who is liable? The owner of the premises and the occupiers of the factories utilising the common facilities, jointly and severally, for the provision and maintenance of the prescribed common facilities, which expressly include safety and fire prevention and protection: section 80. The owner is liable although he carries on no manufacture.

5. What are the three deemings in section 81(2)? The place is deemed to be a factory for the purposes of the Code; the owner is deemed to be the occupier; and any person working there is deemed to be a worker. By the Explanation, owner includes a lessee or mortgagee with possession.

6. Who may be the occupier of a factory owned by a company, and on what authority? Only one of the directors. Section 2(1)(zs) deems any one of the directors to be the occupier, excluding an independent director under section 149(6) of the Companies Act 2013; and in J.K. Industries Ltd. v. Chief Inspector of Factories and Boilers, (1996) 6 SCC 665, the Supreme Court held that ultimate control over the affairs of a factory vests in the Board and cannot be vested in an employee, so a resolution nominating one is a camouflage or artful circumvention.

7. Give one criticism of the deemed permission. That the one decision in the scheme which cannot cheaply be undone, permission for the site and construction of a factory, may be obtained by the mere passage of thirty days in which no order was communicated, and the Code provides no power to revoke a permission so obtained if the plans prove unsafe.