Employees Employed By Contractor Cannot Automatically Become Employees Of Principal Employer Under Sec. 10 Contract Labour Act 1970: SC

The Supreme Court has observed that there is no provision under Section 10 of the Contract Labour (Regulation and Abolition) Act, 1970 that the workers/employees employed by the contractor automatically become the employees of the principal employer.

The Supreme Court reiterated that the question of directing the principal employer to absorb or regularise the services of contract labourers arises when under Section 10 of the Contract Labour (Regulation and Abolition) Act, 1970 (hereinafter referred to as "CLRA Act") it is contended that the contract between the principal employer and the contractor is sham and bogus and the remedy is purely under the Industrial Disputes Act.

The bench of Justice M.R. Shah and Justice Hima Kohli observed that "where there is no notification under Section 10 of the CLRA Act and where it is not proved in the industrial adjudication that the contract was a sham/nominal and camouflage, then the question of directing the principal employer to absorb or regularise the services of the contract labour does not arise."

In this case, the appeal has been preferred against the order of the Industrial Tribunal and Madhya Pradesh High Court wherein the Court has ordered reinstatement of the concerned respondents as they were the employees of the appellant.

Apparently, the Contesting respondents were contractual labourers of the respondent no.7, the contractor, who was engaged by the appellant in terms of contract and upon entering into the contract, necessary compliances under the CLRA Act was completed by the appellant and the respondent No. 7. The labour contract came to an end and the services of respondent were dispensed with by the contractor. The respondents aggrieved by their termination approached the Labour Court seeking reinstatement in service, which was rejected by the Labour Court and further were reinstated by the Industrial Tribunal and then by the Madhya Pradesh High Court.

Senior Advocate Anupam Lal Das appeared on behalf of the appellant and submitted that the contesting respondents were the employees of the contractor (respondent no. 7) and that in absence of a notification U/S 10 of CLRA Act and allegations or findings with regard to the contract being a sham, by any Court, the contesting respondents could not have been held to be the employees of the appellant and not of the contractor. It was further submitted that no provision of CLRA whether expressly or by necessary implication provided for the absorption of contract labour.

It was also submitted on behalf of the appellant that it was the responsibility of the appellant to pay the salary and PF to the contractor but this could not be a ground to have conferred the employer-employee relationship between the appellant and the respondents.

Section 10(1) of the CLRA Act provides that

"(1) Notwithstanding anything contained in this Act, the appropriate Government may, after consultation with the Central Board or, as the case may be, a State Board, prohibit, by notification in the Official Gazette, employment of contract labour in any process, operation or other work in any establishment.

(2) Before issuing any notification under sub-section (1) in relation to an establishment, the appropriate Government shall have regard to the conditions of work and benefits provided for the contract labour in that establishment and other relevant factors, such as--

(a) whether the process, operation or other work is incidental to, or necessary for the industry, trade, business, manufacture or occupation that is carried on in the establishment;

(b) whether it is of perennial nature, that is to say, it is of sufficient duration having regard to the nature of industry, trade, business, manufacture or occupation carried on in that establishment;

(c) whether it is done ordinarily through, regular workmen in that establishment or an establishment similar thereto;

(d) whether it is sufficient to employ considerable number of whole time workmen.

Explanation.--If a question arises whether any process or operation or other work is of perennial nature, the decision of the appropriate Government thereon shall be final."

The Apex Court observed that there was no provision under Section 10 of CLRA Act, which provides that the workers/employees employed by the contractor automatically become the employees of the appellant and/or the employees of the contractor shall be entitled for automatic absorption and/or they become the employees of the principal employer and that they were even under the direct control and supervision of the contractor and not the appellant.

The Apex Court relied upon the decision of this court in the case of Steel Authority of India Ltd. and Ors. Vs. National Union Waterfront Workers and Ors., (2001) 7 SCC 1 and International Airport Authority of India Vs. International Air Cargo Workers' Union and Anr. (2009) 13 SCC 374 and observed that "neither Section 10 of the CLRA Act nor any other provision in the Act, expressly or by necessary implication, provides for automatic absorption of contract labour on issuing a notification by the appropriate Government under sub-section (1) of Section 10, prohibiting employment of contract labour, in any process, operation or any other work in any establishment and consequently, the principal employer cannot be required to order absorption of the contract labour working in the establishment concerned."

Therefore, in absence of any notification under Section 10 of the CLRA Act and unless there are allegations or findings with regard to a contract being sham, respondents cannot be held to be the employees of the appellant and not of the contractor, said the Court.

The Apex Court further stated that both the Industrial Tribunal as well as the High Court have committed a serious error in reinstating the contesting respondents and directing the appellant to absorb them as their employees as there was no notification u/s 10 of CLRA Act and that there was no allegation that the contract was sham.

Accordingly, the appeal was allowed and the Judgment passed by the High Court and the Industrial Tribunal were quashed and set aside.

Cause Title- Kirloskar Brothers Limited v. Ramcharan & Ors.

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