List of cases

1.
2.
3.
4.
5.
6.
7.

B.H.E.L Workers Association v. UOI

Catering Cleaners of Southern Railway v. UOI
Sankar Mukherjee v. UOI
R. K . Panda v. SAIL
National Federation of Railways Porters, Vendors & Bearers v. UOI
Gujarat Electricity Board v. Hind Mazdoor Sabha
Steel Authority of India Ltd v. National Union Waterfront Workers &
Others

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CONTENTS
1. ABSTRACT................................................................................................................4
2. Contract labour: law and rights.......................................................................................4
3. Contract labour.......................................................................................................5
4. Contract labour in india..........................................................................................6
5. Status of Contract Labourers..................................................................................7
6. The contract labour (regulation & abolition) act 1970...............................................9
7. Constitutional validity of the act.............................................................................9
8. Regulation of contract labour.........................................................................................9
9. Supreme court on rights of contract labour..................................................................13
10. Analysis of the judgments on rights of contract labour..........................................16
11. Conclusion.................................................................................................................20
12. Bibliography.....................................................................................................................22

ABSTRACT

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Contract labour is a reality of the large sector of employed group in India. There are varied
legislations in force to protect the rights of workers, employees and even contract labour.
Contract labour can be distinguished from the direct labour in terms of employment
relationship with the principal establishment and the method of wage payment. A workman is
deemed to be a contract labour when he/she is hired in connection with the work or contract for
service of an establishment by or through a contractor. They are indirect employees; persons
who are hired by or through a contractor who, in turn is compensated by the establishment. In
either form, contract labour is neither borne on pay roll or muster roll or wages paid directly to
labour1.
To protect the rights of contract labour all the three systems of the government are equally
responsible and they play a crucial role in deciding the faith of these contract labours. The
present work is a study of the judgement of the Supreme Court of India in the landmark
judgement of Steel Authority of India & others v. National Union Water Front Workers 2 and in
Air India Statutory Corporation v. United Labour Union & Others 3, and the effect of these
judgements on the right of the contract labour, especially their right to automatic absorption in
PSUs. The judgement of Supreme Court in SAIL case sent awe throughout the contract labours
of the country and those struggling for their rights. The present work is an endeavour to find out
the protections ensured to the contract labour through the Act and the effect of the judgements on
the existing rights of contract labours.

CONTRACT LABOUR: LAW AND RIGHTS

A Contract labour is a workman employed in or in connection with the work of an establishment
when he is hired in or in connection with such work by or through a contractor, with or without
the knowledge of the principle employer. This system of employment is not new to India even
though globalization has strengthened its roots in recent times. Employers prefer contract labour
1

Report of the National Commission on Labour, 1969.

AIR 2007 SC 3527.

AIR 1997 SC 645

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as it promotes labour market flexibility and increases competitiveness of the enterprise1. Contract
labour is more productive as they work for longer hours, are cheaper, can be more easily
deployed and the liability in cases of accident is lower. Such a system provides flexibility in the
working of the establishments as terminating a contract with the contractor offers a much simpler
course than retrenching their own workers who may take recourse to the industrial disputes Act.
Also, employers save money by engaging labour without having to extend social welfare benefits
such as leave wages, employees state insurance or provident fund contributions, and bonus2. In
all this the interest of contract labour is ignored and they become an exploited and deprived lot.
Even with the enactment of the Contract Labour (Regulation and Abolition) Act, 1970 the
contract labour force has not received much respite.
On the abolition of the contract labour the labour are in much difficult position then first, as they
can neither be employed by contractor nor is there any obligation cast on the principle employer
to engage them in his establishment.
Regulation Of Contract Labour
Contract Labour:Contract Labour is one of the acute form of unorganized labour. Under the system of contract
labour workers may be employed through contractor on the contract basis. Workmen shall be
deemed to be employed as contract labour or in connection with the work of an establishment
when he is hired in or in connection with such work by or through a contractor, with or without
the knowledge of the principal employer. In this class of labour the contractors hire men
(contract labour) who do the work on the premises of the employer, known as the principal
employer but are not deemed to be the employees of the principal employer. The range of tasks
performed by such contract workers varies from security to sweeping and catering and is steadily
increasing. It has been felt, and rightly too, that the execution of a work on contract through a
contractor who deployed the contract labour was to deprive the labour of its due wages and
privileges of labour class.
The contract worker is a daily wager or the daily wages are accumulated and given at the end of
the month. The industries justify contract labour on the grounds that the requirement is
temporary or seasonal. Nonetheless, there are ready instances of contract labour being deployed
for tasks as security, sweeping and cleaning, though it is difficult to comprehend how these tasks
are temporary and do not justify full time regular employees. The managements try to by-pass
the provisions of social legislations unless they are legally trapped or forced by circumstances,
while the judiciary has always upheld the concept of social justice, dignity of human rights and
workers welfare.
Contract Labour in India:The system of employing contract labour is prevalent in most industries in different occupations
including skilled and semi skilled jobs. It is also prevalent in agricultural and allied operations
and to some extent in the services sector. A workman is deemed to be employed as Contract
Labour when he is hired in connection with the work of an establishment by or through a
1
2

http://www.lawteacher.net/employment-law/essays/abolition-and-absorption-of-contract-labour-employmentlaw-essay.php last visited on 06.11.2014

Ibid

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contractor. Contract workmen are indirect employees; persons who are hired, supervised and
remunerated by a contractor who, in turn, is compensated by the establishment. Contract labour
has to be employed for work which is specific and for definite duration. Inferior labour status,
casual nature of employment, lack of job security and poor economic conditions are the major
characteristics of contract labour. While economic factors like cost effectiveness may justify
system of contract labour, considerations of social justice call for its abolition or regulation. The
condition of contract labour in India was studied by various Commissions, Committees, and also
Labour Bureau, Ministry of Labour, before independence and after independence. All these have
found their condition to be appalling and exploitative in nature. The Supreme Court of India in
the case of Standard Vacuum Refinery Company Vs. their workmen observed that contract
labour should not be employed where:
(a) The work is perennial and must go on from day to day;
(b) The work is incidental to and necessary for the work of the factory;
(c) The work is sufficient to employ considerable number of whole time workmen; and
(d) The work is being done in most concerns through regular workmen.
Status of Contract Labourers:The practice of employing labour through contractors and other agencies, thus, avoiding the
direct nexus between the employers and their workmen, was very common. Thus, entire factories
were farmed out to contractors requiring them to produce the goods in such factories through
machinery owned by the employers, and thereafter, the goods were marked under the employers
brand name. This ensured that the workmen were paid much lower wages than they would be
entitled to under direct employment. This system led to whole-scale exploitation of labour, and a
series of demands were made before tribunals for the abolition of contract labour system. The
tribunals entertained the claims, and in many cases, granted the demands through their awards. In
case of Standard Vacuum Refining Co. of India Ltd. v. Workmen, a leading case on the subject,
the Supreme Court upheld the right of workmen to seek abolition of contract labour on behalf of
the contractors workmen, and enumerated some of the circumstances in which such abolition
can be directed.
There was considerable agitation by the workmen and their unions for the abolition of contract
labour, especially in certain cases where it was absolutely necessary to regulate the terms and
conditions of service under which such labour could be employed. Thus the Contract Labour
(Regulation & Abolition) Act 1970, was passed by the Parliament and ame into force on
September 1970.
The Contract Labour (Regulation & Abolition) Act 1970:In India, contract labourers are protected by the Contract Labour Regulation and Abolition Act,
1970. A contract labourer is defined in the Act as one who is hired in connection with the work of
an establishment by a principal employer through a contractor. While a contractor is the supplier
of contract labour for the organization, a principal employer is the person responsible for the
control of the establishment. This act applies to any establishment in which 20 or more workmen
are employed on a contract basis on any day of the last one year and also to all contractors who
employ or have employed 20 or more workmen on any day of the preceding twelve months.
Every principal employer to whom this act applies should register his establishment in the
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prescribed manner for employing contract labour. Unlike the industry sector, generally, there is
no provision for remaining unregistered. If the Government at any point of time is dissatisfied
with the practices followed, it can revoke the registration of an establishment.
Contract workers need to be paid as per the minimum wage act. For the health and welfare of
contract labourers certain provisions have been made mandatory by the Contract Labour Act
such as safe drinking water, canteen facilities, first aid facilities etc. Social security covers in
terms of provident fund benefits and medical facilities need to be also given to the contract
employees.
It is the primary responsibility of the contractors to provide all facilities to the workers as
delineated in the Act. However, the principal employer should ensure the presence of his
authorized representative at the place and time of disbursement of wages by the contractor to the
workmen and it is the duty of the contractor to ensure the disbursement of wages in his/her
presence. However, if the contractor fails to pay wages or provide other facilities, the
responsibility falls on the principal employer. Field officers of labour department are supposed to
conduct regular inspections to detect violations of the provisions of the Act. Apart from the
regulatory measures provided under the Act for the benefit of the contract labour, a government
can prohibit employment of contract labour in any establishment in any process operation or
other work. Such restrictions are often decided on the basis of whether the work is perennial in
nature or the work is incidental for an establishment. In such cases it is also examined whether
the work is being done ordinarily through regular workmen in that establishment or a similar
establishment. Though the Act lays rules as to how the contractual employment should be
maintained and there are government officials for inspection to detect violations of the norms,
because of the presence of two separate management systems, viz., the cont ractor and the
principal employer, employer-employee relationship often becomes blurred. Consequently,
contract labour often does not get its due and this has given rise to a number of litigations. One
of the important sources of controversy is whether contract labour can be used in the core
activities of an establishment together with the regular employees. A set of perennial or core
activities is defined in terms of what a company had declared as its main activities at the time of
registration under the Factories Act of 1948. Several litigations arose because of the use of
contract labour in the so called core activity and number notifications were issued prohibiting
the companies to employ contract labour for some specified work. At present, an establishment is
not prohibited, in general, to employ contract labour for the core activities. A state government,
however, can amend this provision of the act. A few state governments have gone ahead with
such amendments.
Constitutional Validity of the Act:The benefits conferred by the Act and the rules are in their nature, social welfare legislative
measures. There is a rational relation between the impugned Act and the objects to be achieved,
and the provisions are not in excess of those objects. There is no violation of Article 14. The
application of the Act does not amount to an unreasonable restriction on the rights under Art
19(1)(g). Moreover, the Contract Labour (Regulation & Abolition) Act 1970 is not a complete
code on contract labour. The Act serves two purposes that is-1) regulations of conditions of
service of workers employed by the contractor who is engaged by a principal employer; and 2)
the appropriate government abolishing contract labour altogether in certain Central Government
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or by any appropriate government, provide that upon the abolition of contract labour, the said
labour would be directly absorbed by the principal employer.
Regulation of Contract Labour:For regulation of contract labour an appropriate government by an order notified in the Official
Gazette may appoint persons being Gazetted officers of Government, as it thinks fit to be
licensing officers for the purposes of this Act that is for the purpose of the regulation of contract
labour. The appropriate government also defines limit, within which a licensing officer shall
exercise the powers conferred on licensing officers by or under the Act. Further with effect from
such date as the appropriate Governement may, by notification in the Official Gazette, appoint,
no contractor to whom this Act applies, shall undertake or execute any work though contract
labour except under and in accordance with a license issued in that behalf by the licensing
officer. The license given to the contractors includes in particular, conditions as to hours of work,
fixation of wages and other essential amenities in respect of contract labour as the appropriate
Government may deem fit to impose in accordance with the rules, if any, made under Section 35
and shall be issued on payment of such fees and on deposit of such sum, if any, as security for
the due performance of the conditions as may be prescribed.
Section 16-21 deals with Welfare and Health of Contract Labour. The appropriate Government
where in the contract labour is numbering one hundred or more is ordinarily employed by a
contractor, one or more canteens shall be provided and maintained by the contractor for the use
of such contract labour. Without prejudice to the generality,such rules also apply as to the
foodstuffs which may be served there in and the charges which may be made therefore, the
number of canteens that shall be provided, accommodation, other equipment of the canteens etc.
In Gammon India Ltd v. Union of India, it was held that the requirement of providing canteens
even in road construction work is not unreasonable, and there is no constitutional infirmity
involved.
In ever place wherein contract labour is required to halt at night in connection with the work of
an establishment to which this Act applies and in which work requiring employment of contract
labour is likely to continue for such period as may be prescribed, there shall be provided and
maintained by the contractor for the use of contract labour such number of rest-rooms or such
other suitable alternative accommodation within such time as may be prescribed. The rest-rooms
shall be sufficiently lighted and ventilated and shall be maintained in a clean and comfortable
condition.
It will be unreasonable to require a labourer to halt at night at place of work without the
provision of a rest room where the provision is not constitutionally invalid.
Section 18 of the Act speaks of facilities like supply of drinking water, conveniences of latrines
urinals and washing facilities.
First-aid facilities shall be provided and maintained by the contractor so as to be readily
accessible during all working hours a first-aid box equipped with the prescribed contents at every
place where contract labour is employed by him.

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If any amenities mentioned in Section 16, 17, 18 and 19 for the benefit of contract labour
employed in an establishment is not provided by the contractor within the time prescribed
therefore, such amenity shall be provided by the principal employer within such time as may be
prescribed. All the expenses incurred by the principal employer in providing the amenity may be
recovered by the principal employer from the contractor either by deduction from any amount
payable to the contractor under any contract or as a debt payable by the contractor.
A contractor shall be responsible for payment of wages to each worker employed by him as
contract labour and such wages shall be paid before the expiry of such period as may be
specified. Every principal employer shall nominate a representative duly authorized by him to be
present at the time of disbursement of wages by the contractor and at shall be the duty of such
representative to certify the amounts paid as wages in such manner as may be prescribed. It shall
be the duty of the contractor to ensure the disbursement of wages in the presence of the
authorized representative of the principal employer. In case the contractor fails to make payment
of wages within the prescribed period or makes short payment, then the principal employer shall
be liable to make payment of wages in full or the unpaid balance due, as the case may be, to the
contract labour employed by the contractor and recover the amount so paid from the contractor
either by deduction from any amount payable to the contractor under any contract or as a debt
payable by the contractor.
The appropriate government must tighten up its enforcement machinery and ensure that
thorough and careful inspections are carried out by fairly senior officers at short intervals, with a
view to investigating as to whether the labour laws are being properly observed. It is the duty of
the contractor to ensure that disbursement of wages is made in the presence of the authorized
representative of the principal employer.
The governments failure to perform its obligation amounts to a violation of Article 21, and the
workers can enforce their right by a writ petition under Article 32.
Section 21 has nothing to do with the wage rates. The object and purpose of the said section is to
ensure that wages payable in law by a contractor to his workmen are paid. If the contractor fails
to pay his wages legally payable by him, then under this section, the principal employer is under
an obligation to pay the wages and get them reimbursed from the contractor.
Whoever obstructs an inspector in the discharge of his duties under this Act or refuses or
willfully neglects to afford the inspector any reasonable facility for making any inspection,
examination, inquiry or investigation authorised by or under this Act in relation to an
establishment to which, or a contractor to whom, this Act applies, shall be punishable with
imprisonment for a term which may extend to three months, or with fine which may extend to
five hundred rupees, or with both. Whoever willfully refuses to produce on the demand of an
inspector any register or other document kept in pursuance of this Act or prevents or attempts to
prevent or does anything which he has reason to believe is likely to prevent any person from
appearing before or being examined by an inspector acting in pursuance of his duties under this
Act, shall be punishable with imprisonment for a term which may extend to three months, or
with fine which may extend to five hundred rupees, or with both. Whoever contravenes any
provision of this Act or of any rules made thereunder prohibiting, restricting or regulating the
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employment of contract labour, or contravenes any condition of a licence granted under this Act,
shall be punishable with imprisonment for a term which may extend to three months, or with fine
which may extend to one thousand rupees, or with both, and in the case of a continuing
contravention with an additional fine which may extend to one hundred rupees for every day
during which such contravention continues after conviction for the first such contravention.
The reference to the labour court or the industrial tribunal could ne as to whether it is necessary
for the management to employ contract labour directly or indirectly; to ascertain whether the
employment of contract labour is bona fide or was a camouflage. Merely because the contractor
or employer has violated any provisions of the Act or rules, the court cannot issue a mandamus
for deeming the contract labour as having become the employees of the principal employer. It is
not the High Court to inquire into the question and decide whether the employment of contract
labour in any process, operation or in any other work in any establishment should be abolished or
not; which is a matter fit for the decision of the government.
If any person contravenes any of the provisions of this Act or of any rules made thereunder for
which no other penalty is elsewhere provided, he shall be punishable with imprisonment for a
term which may extend to three months, or with fine which may extend to one thousand rupees,
or with both.
If the person committing an offence under this Act is a company, the company as well as every
person in charge of, and responsible to, the company for the conduct of its business at the time of
the commission of the offence shall be deemed to be guilty of the offence and shall be liable to
be proceeded against and punished accordingly: Provided that nothing contained in this subsection shall render any such person liable to any punishment if he proves that the offence was
committed without his knowledge or that he exercised all due diligence to prevent the
commission of such offence.
Notwithstanding anything contained in sub-section (1), where an offence under this Act has been
committed by a company and it is proved that the offence has been committed with the consent
or connivance of, or that the commission of the offence is attributable to any neglect on the part
of any director, manager, managing agent or any other officer of the company, such director,
manager, managing agent or such other officer shall also be deemed to be guilty of that offence
and shall be liable to be proceeded against and punished accordingly.
SUPREME COURT ON RIGHTS OF CONTRACT LABOUR
The judiciary has been running away from answering the question of automatic absorption of
contract labour. For instance in B.H.E.L Workers Association v. UOI3 the court observed that to
abolish and absorb labour was legislative activity which was not entrusted with the court under
the Constitution4. Further in the case of Catering Cleaners of Southern Railway v. UOI5 the
3

Supra Note 1

1985 AIR 409, 1985 SCR (2) 611

MANU/SC/0431/1987

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court held that writ of mandamus directing central government to abolish the contract labour
system cannot be issued because sec.10 had vested the power in the appropriate government6. In
the circumstances, the appropriate order to make according to court, was to direct the central
government to take suitable action under Sec.10 of the Act within six months form the date of
order. It was also observed that without waiting for the decision of the central govt. the Southern
Railway was free on its own motion to abolish the system and regularize the services of the
employees.
Interestingly it was in case of Sankar Mukherjee v. UOI 7 the SC which had earlier refused to
interfere in cases to abolish and absorb contract labour directed the abolition and subsequent
absorption of the employees stressing on the fact that the CLRA Act, 1970 should be construed
liberally so as to effectuate its objects. In R. K . Panda v. SAIL8 the court held that normally it
would not exercise its jurisdiction under Article 32 or 136 to adjudicate over matters of
absorption but in this case it directed that the contract labour as were continuing in respondents
employment for the last 10 years in spite of change of contractors should be absorbed as regular
employees. In National Federation of Railways Porters, Vendors & Bearers v. UOI 9 the court
gave the direction to regularize employees based on a report of Central Assistant Labour
Commissioner.
The major case of Gujarat Electricity Board v. Hind Mazdoor Sabha10 it was held that only
appropriate government can abolish contract labour in accordance with Sec.10 and no court or
industrial adjudicator has jurisdiction. On the matter of absorption the SC observed that on the
abolition of the contract labour, the labour seem to be employed by the contractor nor is there
any obligation cast on the principle employer to engage them in his establishment by the CLRA
Act, 1970.
They tried to gauge the legislative intent in this regard and concluded that no provision for
automatic absorption must be out of fear that such a provision would amount to forcing the
contract labour of the principle employer. The court concluded that in this regard the industrial
adjudicator could be of help. He has the jurisdiction to change the contractual relationship and
also make new contracts between the employer and employees under the Industrial Disputes Act,
1947.
But, who could raise such an industrial dispute? Section 10 applies only where there exists a
genuine contract. If contract is not genuine then the workers of the so called contractor can raise
an industrial dispute for declaring that they were always employees of the principle employer
and can ask for subsequent absorption. However, in case the adjudicator decides that the contract
was genuine he may refer the workmen to appropriate government for abolition under section 10
6

Abolition and absorption of Contract Labour taken from http://www.lawteacher.net/employmentlaw/essays/abolition-and-absorption-of-contract-labour-employment-law-essay.php last visited on 04.10.2013

1990 AIR 532

1994 SCC (5) 304

JT 1996 (6), 577 1996 SCALE (5)397

10 1995 AIR 1893

10 | P a g e

but only if the dispute is espoused by the direct workmen of the principle employer.
The Contract Labour Act was created with the objective of gradual abolition of casual labour
hiring, and to regulate the working conditions of casual labour, wherever permitted. Section 10
of the Contract Labour Act prevents firms from outsourcing most core functions or hiring
workers on temporary contracts for more than 120 days. Anyone so employed can demand
permanent employment from the company. Also, the appropriate government under section 10
is authorized, after consultation with the central board or state board, as the case may be, to
prohibit, by notification in the official gazette, employment of contract labour in any
establishment in any process, operation or other work.11
The above judgment neglects practical realities and has three fold limitations. Firstly, the court
does not define in practical sense what a genuine or a sham contract is. Secondly, inestimable
thrust has been imposed on regular employees of the principle employer to espouse the cause of
the contract labour, which is highly unimaginable in the real sense. Lastly, there is a long
experience of existence of inordinate delays in the reference of industrial disputes by the
appropriate government for adjudication. In this regard once industrial adjudicator refuses or
rejects the reference on the ground that the dispute is not an industrial dispute, the contract
labour cannot dream of resolving their grievances.
Subsequently, Air India Statutory Corporations v. United Labour Union12 ruled that on the
abolition of the system of contract labour the workmen were entitled for absorption, and the
court had powers under the Art.226 to direct the employers to absorb such workers. There is no
need to make a reference under Sec.10 of Industrial Dispute Act for adjudication of dispute for
absorption on abolition of contract labour in the industry. The raising of industrial dispute by the
contract labour which is to be espoused by the regular workmen once the system is abolished
was done away with. However, soon post-globalisation and liberalisation period showed the
judiciary wavering from its earlier stand. The judiciary was lead on this path by a series of
government initiatives to simplify labour laws and to provide more flexibility to employers to
hire and fire. In order to encourage investment and expansion by employers they felt justified
in their actions.
Air India decision was overruled by Steel Authority of India Ltd v. National Union Waterfront
Workers & Others13 a five judge bench, wherein the court held that even in the cases where the
system of contract labour is abolished, the erstwhile contract labour who might have put up years
of service as contract labour under the same principal employer cannot be absorbed as a matter
of right as there was no such provision in the Act. However, if it was a sham contract the contract
labour could raise an industrial dispute and deserve absorption. Thus prospectively it became
fruitless for the contract workers to approach either court or the appropriate Government to
abolish the system of contract under the sec.10 of the Act.
11 R.C.Dutta and Milly Sil; VIEWS OF WORKERS , PRINCIPAL EMPLOYERS AND TRADE UNIONS ON
CONTRACT LABOUR(REGULATION & ABOLITION) , ACT, 1970 as per Research Paper in Tata Institute of
Social Sciences, Mumbai.
12 AIR 1997 SC 645.
13 AIR 2007 SC 3527.

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ANALYSIS OF THE JUDGMENTS ON RIGHTS OF CONTRACT LABOUR

The SAIL judgment is very harsh on contract labour in the establishment where it is abolished.
On abolition, the contract of the principle employer with contractor in regard to contract labour
comes to an end. Though the contract labour is still employed under the contractor, he can as
well be terminated as a consequence of the notification, without payment of retrenchment
compensation or following provisions of Industrial dispute act. In this situation the contract
labour have limited options:
1. [They may try to prove the initial contract between the contractor and principle employer
was a sham or a camouflage essentially rendering them direct employees.
2. If Contract workers were engaged to discharge statutory duties, they may be absorbed.
3. They may raise an industrial dispute espoused by direct workmen to ask for their
absorption.
Here 1 and 2 are very special situations and cannot be used in every case. The third option is also
impractical. Though sub-contracting operations reduce the work of the permanent employees and
contribute to high profits which contribute towards high bonus, the regular employees are hardly
sympathetic to the interests of contract labour as they argue that sub-contracting hampers
creation of job opportunities. So, essentially a notification for abolition leaves a labour
unemployed and helpless for the lack of any judicial remedy.14
Another major resulting trend of SAIL case was that progressively more and more employers
requested for registration for employing contract labour and an unprecedented increase in
Contract labour. Prior to this judgment there was always a threat and chance that courts may rule
such contract as sham or illegitimate and direct for its abolition thus paving the way for the
absorption of such contract workers. But as this judgment removed all hopes of regularization of
the contract workers after the abolition of the contract labour it became futile for the workers to
seek any such abolition. Thus, The CLRA in effect started to protect the employers and not the
employees in terms of avoiding any long term employment relationship and consequent
liabilities including the benefits of working condition, collective bargaining and rightful
compensation package.
The SAIL judgment has overruled the Air India judgment, thus leading to the position that on the
abolition of contract labour the principal employer is under no obligation to absorb them, though
the judgment enjoins the principal employer to give preference to the erstwhile contract labour
while recruiting fresh workers. Interpreting automatic absorption into Section 10 will be far
beyond the principle of ironing out the creases and the scope of interpretative legislation and as
such clearly impermissible. The arguments given in support are as followsThe CLRA Act is a beneficial legislation, the benefits which the Parliament wanted to
confer on the contract labour are specified in the Act and the Court by way of
interpretation cannot add to those benefits.15
Though this is a valid argument, it should be kept in mind that this is not the first time that
14 Case Summaries of Judicial Nineties, taken from http://judicial-nineties.wikispaces.com/Case+Summaries+Absorption+of+Contract+Labour last visited on 12.11.14
15 See Supra Note 6.

12 | P a g e

judiciary has been creative in interpreting a statute and CLRA is no exception. Furthermore, by
reading absorption into the statute the Court is only forwarding the objectives of the Act.
Absorbing the contract labour would amount to opening a new channel of recruitment and it
could not have been the intention of the Parliament in enacting CLRA Act to provide for
appointment to the posts in various Government / non-Government establishments by
circumventing the service rules.
If the government has abolished Contract labour in a certain establishment, it has been done so
after consultation of advisory board by an appropriate government. Thus, a lot of thought has
gone into making this decision and it would hardly matter if after abolition the labour force in
absorbed. This can be done on seniority basis or based on other qualification required to become
a direct employee.
On abolition of contract system in an establishment, the contract labour nonetheless remains as
the workforce of the contractors who get contracts in various establishments where the contract
labour could be engaged and where they would be extended the same statutory benefits as they
were enjoying before.
The contract labour may not find employment again for a long time or they may be retrenched,
hence this argument holds no water. Section 10 is intended to work as a permanent solution to
the problem rather than to provide onetime measures by absorbing the existing contract labour.
This argument is baseless as even after absorption no more contract labour shall ever be allowed
in the industry. It could as well be that a contractor and his contract labour that were with an
establishment for a number of years were changed just before the issuance of prohibition
notification. In such a case there could be no justification to prefer the contract labour engaged
on the relevant date over the contract labour employed for longer period earlier. This refers to a
mere possibility which might or might not occur.
The Act clearly gives the penal consequences of violation of Sec.12 and Sec.7 in Sec.23 and
Sec25 but it is not up to the Court to substitute for penal consequences it no absorption.
Such an interpretation of provisions will be overstepping boundaries.
Keeping in mind the larger scheme and objects of the Act, this argument is petty and
inconsequential.
What SAIL has overlooked is how a social welfare legislation aimed to prevent exploitation of
labour leave contract labour unemployed on abolition under Sec.10? Surely, the legislature meant
to eliminate the intermediary from the equation and not render the contract labour unemployed
by the operation of section 10. Shedding more light on legislative intent, the Air India case refers
to the preamble of CLRA Act. The Act regulates contract labour and its abolition in certain
circumstances covered under Sec.10(2) but also matters connected therewith. The phrase
matters connected therewith in the Preamble would furnish the consequence of abolition of
contract labour.
Also, such an interpretation to the statute is not in harmony with the provisions of the
Constitution. i.e the ratio falls foul of the constitution goals of the trinity-the preamble, directive
principles of state policy and the fundamental rights. When the principle employer is enjoined to
ensure basic human rights and payment of wages while the contract labour system is under
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regulation, the question arises whether after abolition of the system workmen should be left in
lurch denuding them of means of livelihood and enjoyment of basic fundamental rights. It is
further required that interpretation of the constitution by the Court is done to further socioeconomic improvement of the poor and to sustain equality of opportunity and status and the law
should constantly meet the needs and aspirations of society in establishing the egalitarian social
order. 16
Also, due to economic constraints, though right to work was not declared as a fundamental right
and right to employment cannot, as a right, be claimed but after the appointment to a post or an
office, be it under the State, its agency instrumentality, juristic person or private entrepreneur it is
required to be dealt with as per public element and to act in public interest assuring equality,
which is a genus of Article 14 and all other concomitant rights emanating there from are species
to make their right to life and dignity of person real and meaningful.
CONCLUSION
The SAIL judgment reflects the sentiments of the new political-economy prevailing at that time
and coincided with liberalization and globalization in India. The abolition and automatic
absorption of contract labour would discourage investments and expansion of labour intensive
areas in this highly competitive market. This could be why the legislature was hesitant in
including absorption into the Act. Here judiciary could have used some creativity and continued
with the Air India position but it is rather unfortunate that such a landmark decision which could
have had far-reaching consequences for the labour market was overruled. Now it is up to the
legislature to amend the Act suitably to incorporate automatic absorption in the scheme but what
shall really benefit the labour class will be removing the intermediary from the equation. Also,
contract labour should be sufficiently empowered to raise industrial disputes without taking the
help of direct employees.
In this regard, the Second National Commission has recommended that the decision to abolish
contract labour should not be an executive one based on the recommendations of Contract
Labour Advisory Board concerned but must be a judicial one. It is unable to agree with the
recommendation of the Study Group that the judicial body vested with the responsibility for
making recommendation on abolition should also be empowered to order absorption by the
principal employer of such numbers of contract labour as considered just and reasonable.
The right to automatic absorption is guaranteed under section 10 of the Contract Labour
(Regulation and Prohibition) Act, 1970 which is a well reiterated fact in labour legislation in
India. But the Supreme Court judgement in SAIL Ltd. v. National Union Water Front Worker is
violating art.14, 16, 21 and 19 (1) (g) of the Constitution of India and deny valid rights of
contract labour. The judgment contradicts the very principle objective of the Indian Constitution,
which is social justice. The problems of contract labour have been long ignored but must be
16 Industria lRelations and Contract Labor in India by FICCI taken from
http://www.ficci.com/spdocument/20189/Industrial-Relations-and-Contract-Labour-in-India.pdf last visited on
07.10.2013

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redressed appropriately so to avoid the injustice to these men.

The employment of contract labour has been condemned and been referred to as archaic by the
Supreme Court. The courts have called it an improved version of bonded labour and sought to
abolish it. One of the greatest achievements of civilization in the 20th Century was the
accomplishment of human rights as an integral part of Governance of the State. Even then rights
such as the Right to Freedom of Association including the Right to form and join trade unions for
the protection of interests, and collective bargaining, equality at work, protection against forced
labour etc., all remain unattainable for the contract labour.
Constitutional mandates in the directive principles to the state policy, enunciating Right to
secure just and humane conditions of work (Article-42); Right to just and favourable
remuneration, conditions of work, ensuring a decent standard of life and full enjoyment of leisure
(Article-43); and Right to a standard of living adequate for him and his family (Article-39(a) and
47); remains a dream for these hapless workers.
The attitude of the State, Employer, Trade Union and the Judiciary has to be sympathetic to the
contract workers, to enable them the enjoyment of their human and constitutional rights. An early
positive action in this direction is imperative.

BIBLIOGRAPHY

V G Goswami, Labour and Industrial Laws, Central Law Agency, Ed 25th

S N Mishra, Labour and Industrial Law, Central Law Agency, Ed 25th

S K Puri, Introduction to Labour and Industrial laws, Allahabad Law Agency, 9th Ed

S M Chaturvedi, Labour and Industrial Laws, Central Law Agency, 13th Ed

S K Mishra, Labour and Industrial Laws of India, Allahabad Law Agency, 3rd EdKhan
and Khans, Labour Laws

WEBSITES REFERRED

http://www.ficci.com

www.judicial-nineties.wikispaces.com

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www.lawteacher.net

www.lawteacher.net/employment-law

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