Labor Laws Chapter-03 - CLRA

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The Contract Labour

3 (Regulation and Abolition)


Act, 1970

The object of the Contract Labour (Regulation and Abolition) Act, 1970 is to prevent
exploitation of contract labour and also to introduce better conditions of work. 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 contractor. Contract workmen are indirect employees.
Contract labour differs from direct labour in terms of employment relationship with the
establishment and method of wage payment.
Contract labour, by and large, is not borne on pay-roll nor is paid directly. Contract
workmen are hired, supervised and remunerated by the contractor, who, in turn, is remunerated
by the establishment hiring the services of the contractor.

Definition of Contract Labour


The International Labour Organization (ILO) has defined the contract labour as follows:
“For the purposes of the proposed Convention the term “contract labour” should mean work
performed for a natural or legal person (referred to as a “user enterprise”) by a person
(referred to as a “contract worker”), pursuant to a contractual arrangement other than a
contract of employment with the user enterprise, under actual conditions of dependency
on or subordination to the user enterprise, where these conditions are similar to those that
characterise an employment relationship under national law and practice.”1

What is Contract Labour?


Contract labour is one of the several terms which are widely used to describe work arrangements
which do not fall within the traditional understanding or definition of employment. Other such
terms include casual workers, sub contractors and daily labourers. These terms are being used
throughout the world but because of the variations in national law and practice, there is no
internationally agreed definition of these terms. Surveys of national law and practice, on the
use of contract labour reveal that there are two consistent elements which must be present for
a work arrangement to be a contract labour situation.
First of all, there should be a contractual arrangement under which a worker undertakes
work for a person or organisation other than under a contract of employment. In other words,
there is an agreement to perform work but the worker is not employed by the person for
whom he/she performs the work.
1. http://homepages.iprolink.ch/~fitbb/IFBWW_Campaigns/ILO_Contract_Labour_Conv.html
277
278  Labour and Industrial Laws

Secondly, there should be some element of economic or organisational subordination or


dependency between the worker and the person for whom the work is performed. The worker,
for example, might be told how, when and where to perform the work and may be provided
with the necessary tools and equipment by the person for whom the work is done. If the work
is not done in a satisfactory manner, the worker may be disciplined or dismissed.
It is clear that contract labour is neither an employment relationship nor a commercial
arrangement.

Employment Relationship
Traditional or normal employment relationships are based on a contract of employment under
which the worker agrees to perform certain work for the employer. The employer undertakes
to provide the material and resources, with which the worker performs the work, and to pay
for the work. Typically, the worker provides nothing more than the skills or qualifications with
which the task is performed. This relationship is characterised by economic and organisational
dependency and is commonly seen as a “master–servant” or “employer–employee” relationship.

Commercial Relationships
Employers frequently enter into commercial contracts with other enterprises to obtain goods
and/or services that are needed for the purpose of carrying on his/her business. In the building
industry, many specialists such as plumbers, electricians or carpenters may tender for contracts
on a construction project when the general builder does not have the necessary skills.
These contracts are entered into by two separate businesses and are deemed to be
between independent parties placed on an equal footing. The party performing the work will
generally provide the tools, equipment, labour and skills necessary to complete the agreed
task. The commercial contract does not afford either party with any special legal protection
beyond those laws which support the contract.

How Does Contract Labour Arise?2


Contract labour often arises in situations where an enterprise hires workers for the normal
work of its business through another person or intermediary. This does not include situations
where a worker is hired through a recruitment agency. The enterprise will have the
supervision and control of the workers but the intermediary will pay the workers or retain
some degree of control over them. This form of labour sub contracting is very common in
the building and construction industries. In many countries these labour suppliers or
intermediaries have a special name and a recognised place in the labour market. Labour sub
contracting can be very informal, such as the case where a bus or van picks up people looking
for work and delivers them to a site for a day’s work; or it can be more formal such as where
a builder has a team of labourers for whom he/she regularly finds general work on local sites.
Similarly, the enterprise may contract directly with the worker or a group of workers for
the performance of a certain task for a set fee but not for a wager. This form of agreement is
often made with casual or short-term workers. If the work is not performed, then no payment

2. Ibid.
Chapter 3  The Contract Labour (Regulation and Abolition) Act, 1970 279
is made. These workers may be individuals or teams who move from job to job, site to site
or plantation to plantation looking for work; they may equally agree to work on a single fee
basis where the pay for a completed job is the same regardless of how many individuals work
to complete the job.
A contract labour situation can also arise when an employer hires workers to carry out
the normal business of his/her enterprise but seeks to give them the status of an independent
subcontractor or self-employed contractor. This situation is distinct from that where the worker
is genuinely self-employed and able to enter into a commercial business arrangement with the
enterprise.
Often an individual trades person may not be able to find work with a company or
enterprise and may be forced to look for work for themselves. In the building and wood
industries, this situation will generally force the worker to travel from one site to the next
looking for work. The worker may be hired to work on a site for a period of time to complete
a certain task such as plumbing, concrete pouring or harvesting. The enterprise may decide to
treat the worker as a self-employed contractor or as an independent sub-contractor as a means
to avoid their employment responsibilities. Although the enterprise might call the worker
self-employed or independent, the reality is very different. Independent workers, in this
situation, almost never have the same degree of independence or equality needed to establish
a commercial contract for work as outlined above. By referring to the worker as self-employed
or independent, the enterprise is creating an illusion of a commercial contract as a means of
avoiding employment responsibilities towards the worker.

Why is Contract Labour Increasing?


Contract labour is becoming an increasingly prominent feature of the labour market throughout
the world. An international trend is emerging whereby traditional employment patterns based
on long-term or open ended employer–employee relationships are being replaced by non-
standard arrangements. Increasingly large numbers of the workforce are now engaged in a
typical work arrangements and many of these workers are contract labourers.
Since the 1980s and 1990s, enormous political, economic and social changes have
taken place in the world which have resulted in a more open and liberal global economy.
Previously distinct national economies have become increasingly integrated into international
market-places. These changes have resulted in an increased level of international competition
to secure trade and business which, in turn, have led to the decentralisation and specialisation
of production processes and work organisation.
Globalisation, together with periods of economic recession at sectoral, national and
international level, has been used as a justification by many employers and enterprises to
seek ways to reduce labour costs. Many businesses experience variations in the workload and
maintaining a full workforce through quieter periods can prove to be expensive. The use of
non-standard work practices allows employers to retain a core workforce of skilled, permanent
employees and to retain access through casual or contract labour, to a peripheral workforce
of general labour.
Labour shortages in certain areas have led to an increase in labour migration at both
national and international levels. Migrant labourers are often unaware of their labour rights
280  Labour and Industrial Laws

in the host country or are classed as illegal immigrants and so they are particularly likely to
undertake contract labour. In addition to developing a more flexible workforce, employers
perceive that access to contract labour affords them the benefit of avoiding their obligations
under employment laws and protections. Contract labourers are rarely organised in trade
unions and therefore the use of contract labour also allows employers to avoid the constraints
that they associate with union representation and collective bargaining.
From the workforce perspective, the need for income is too often a greater concern
than how it is earned. Paid work on a contract labour basis is frequently the worker’s only
alternative to unemployment. The economic need of workers effectively places them in
a weak position from which they have to negotiate improved terms and conditions. Demographic
surveys reveal that increasing numbers of women and older workers are entering the paid
workforce. It is argued that these groups are more likely to accept or even chose more flexible
employment arrangements. The availability of workers looking for casual, part time or home-
based work encourages employers to adopt non-standard work practices.

What are the Effects of Contract Labour?


The increased use of contract labour has adverse consequences both for the workers and for
the industries that they work in. It is also important to note that the effects and problems
associated with contract labour affect all countries. This is not simply a problem for either
developing or developed countries, nor is it linked to any particular political or economic
philosophy, neither to any one industry or trade. Contract labour is a global issue.

Use of Contract Labour


Contract labour
(i) Deprives workers of protections under national legislation and internationally
accepted labour standards.
(ii) Denies workers of contractual rights such as overtime, sick and holiday pay.
(iii) Prevents workers acquiring continuity of employment and building experience.
(iv) Limits workers access to national insurances and social security benefits where
available.
(v) Denies workers access to redundancy payments and unemployment benefits.
(vi) Restricts workers ability to build up any form of work related pension.
(vii) Leaves workers with no recourse in the event of work related disease, accident
or death.
(viii) Limits the availability of industry training and apprenticeships.
(ix) Lowers industry standards of skill and quality.
(x) Threatens workplace health and safety standards causing accident, absences
and even death.
(xi) Allows the evasion of taxes and social contributions by both workers and employers.
The history of exploitation of labour is as old as that of civilization itself. There has
been an ongoing struggle by labourers and their organizations against such exploitation, but
Chapter 3  The Contract Labour (Regulation and Abolition) Act, 1970 281
it continues in one form or the other. After the advent of the Constitution of India, the State
is under an obligation to improve the standard of living of the working class that can be seen
from the Directive Principles of State Policy. Article 43, in particular, mandates the State
to endeavour to secure, by a suitable legislation or economic organization or in any other
way for all workers, agricultural, industrial or otherwise, work, a living wage, conditions
of work ensuring a decent standard of life and full enjoyment of leisure and social and
cultural opportunities. Therefore, the Contract Labour (Regulation and Abolition) Act, 1970
was enacted by Parliament to deal with the abuses of contract labour system. It appears that
Parliament adopted twin measures to curb the abuses of employment of contract labour—the
first is to regulate employment of contract labour suitably and the second is to abolish it in
certain circumstances. This approach is clearly discernible from the provisions of the Contract
Labour (Regulation and Abolition) Act that came into force on February 10, 1971. A perusal
of the Statement of Objects and Reasons shows that in respect of such categories as may be
notified by the appropriate Government, in the light of the prescribed criteria, the contract
labour will be abolished and in respect of the other categories, the service conditions of the
contract labour will be regulated.

Statement of Objects and Reasons


The Government of India has been deeply concerned about the exploitation of workers under
the contract labour system. With a view to remove the difficulties of contract labour and bearing
in mind the recommendations of various commissions and committees and the decisions of
the Supreme Court, particularly in the case of Standard Vacuum Refining Company in 1960,
the Contract Labour (Regulation and Abolition) Act was enacted in 1970. This Act seeks to
regulate the employment of contract labour in certain establishments and to provide for its
abolition under certain circumstances. The Statement of Objects and Reasons of the Act are
as follows:
The system of employment of contract labour lends itself to various abuses. The
question of its abolition has been under the consideration of Government for a long time. In
the second five-year plan, the Planning Commission made certain recommendations, namely,
undertaking of studies to ascertain the extent of the problem of contract labour, progressive
abolition of system and improvement of service, conditions of contract labour where the
abolition was not possible. The matter was discussed at various meetings of Tripartite
Committees at which the State Governments were also represented and general consensus
of opinion was that the system should be abolished wherever possible or practicable and
that in cases where this system could not be abolished altogether, the working conditions
of contract labour should be regulated so as to ensure payment of wages and provisions of
essential amenities.
“The proposed Bill aims at abolition of contract labour in respect of such categories
as may be notified by appropriate Government in the light of certain criteria that have been
laid down, and at regulating the service conditions of contract labour where abolition is not
possible. The Bill provides for the setting up of Advisory Boards of a tripartite character,
representing various interests, to advise Central and State Governments in administering the
legislation and registration of establishments and contractors. Under the scheme of the Bill, the
provision and maintenance of certain basic welfare amenities for contract labour, like drinking
282  Labour and Industrial Laws

water and first-aid facilities, and in certain cases rest rooms and canteens, have been made
obligatory. Provisions have also been made to guard against details in the matter of wage
payment.”3

Act in a Nutshell
The Contract Labour (Regulation and Abolition) Act contains 35 provisions and is divided
into seven chapters. The Central Act, as its preamble shows, is to regulate the employment
of contract labour in certain establishments and to provide for the abolition in certain
circumstances and for matters connected therewith. Under sub-section (4) of S. 1, the Act
applies to the establishments mentioned therein as well as to every contractor who employs
the number of workers referred to in Cl. (b). There is no controversy that the Act applies to
the appellant establishment. Section 2 defines the various expressions such as “appropriate
Government”, “contract labour”, “contractor”, “establishment” and “principal employer”.
Chapter II deals with the Advisory Boards. Section 3(1) empowers the Central
Government to constitute the Central Advisory Contract Labour Board to advise it with
regard to matters arising out of the administration of the Act. Sub-section (2) provides for
the composition of the said Board and from Cl. (c), it is seen that among other persons, the
said Board is to consist of the representatives of the contractor, workmen and the industries
concerned. Under the proviso to sub-section (3), the number of members nominated to
represent the workmen shall not be less than the number of members nominated to represent
the principal employers and the contractors. Section 4 deals with the constitution of a similar
Advisory Board by the State Government. The said State Advisory Board is also to comprise,
among other persons, the representatives of the industry, the contractor and the workmen.
A proviso to sub-section (3) of S. 4, similar to the proviso to sub-section (3) of S. 3, has also
been enacted.
Chapter III, containing Ss. 6 to 10, deals with the registration of establishments
employing contract labour. Section 6 deals with the appointment of registering officers by
the appropriate Government by notification in the Official Gazette. Section 7 makes it
compulsory on the part of every principal employer of an establishment to which the Act applies
to make an application to the registering officer within the time prescribed for registration
of the establishment. Section 8 deals with revocation of registration in the circumstances
mentioned therein. Section 9, dealing with the effect of non-registration, prohibits the principal
employer of an establishment to which the Act applies from employing contract labour if the
establishment has not been registered under S. 7 within the time prescribed, or in the case
of an establishment in respect of which registration has been revoked under S. 8. Section 10,
which prohibits the employment of contract labour and which is an important provision, is as
follows:
(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 in contract labour in
any process, operation or other work in any establishment.

3. B.H.E.L. Workers Association, Hardwar v. Union of India, AIR 1985 SC 409.


Chapter 3  The Contract Labour (Regulation and Abolition) Act, 1970 283
(2) Before issuing any notification under sub-s. (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 following points emerge from S. 10(1). The appropriate Government has power to
prohibit the employment of contract labour in any process, operation or other work in any
establishment; (2) Before issuing a notification prohibiting contract labour, the appropriate
Government has to consult the Central or State Board, as the case may be; (3) Before issuing
any notification under sub-section (1), prohibiting the employment of contract labour, the
appropriate Government is bound to have regard not only to the conditions of work and
benefits provided or the contract labour in a particular establishment, but also other relevant
factors enumerated in Cls. (a) to (d) of sub-section (2); and (4) under the Explanation, which
really relates to Cl. (b), the decision of the appropriate Government on the question whether
any process, operation or other work is of perennial nature, shall be final.
Chapter IV deals with licensing of contractors. Two sections in this chapter have to be
noted, namely Ss. 11 and 12. Section 11 deals with the appointment of licensing officers by
the appropriate Government for the purpose of Chapter IV. Sub-section (1) of S. 12 prohibits
a contractor to whom the Act applies from undertaking or executing any work through
contract labour except under and in accordance with the licence issued in that behalf by
the licensing officers. Sub-section (2) of S. 12 provides for a license issued to a contractor
containing conditions relating to hours of work, fixation of wages and other essential amenities
in respect of contract labour, which the appropriate Government may deem fit to impose by
the rules made under S. 35. Sections 13, 14 and 15 relate to the procedure for the grant of
licence, revocation, suspension and amendment of licences and appeals by persons aggrieved
by the orders made under Ss. 7, 8, 12 and 14.
Chapter V deals with the welfare and health of contract labour. There are provisions
made for the establishment of canteens and rest houses and to provide other facilities to the
contract labour by the contractor. Section 20 casts a liability on the principal employer to
provide the amenities referred to under Ss. 16, 17, 18, and 19 for the benefit of contract
labour employed in his establishment if the contractor fails to provide these amenities. That
section also enables the principal employer, if he provides those amenities, to recover from
the contractor expenses so incurred by him. Section 21 makes the contractor responsible for
284  Labour and Industrial Laws

payment of wages to the contract labour. Sub-section (2) of S. 21 makes it obligatory on


every principal employer to nominate a representative duly authorised by him to be present at
the time of disbursement of wages by the contractor. The said sub-section also casts a duty
on such representative to certify the amounts paid as wages as prescribed by the rules. Sub-
section (4) makes the principal employer liable to pay wages in full or the unpaid balance
due, as the case may be, in case the contractor fails to make the payment within the period
prescribed. It also enables the principal employer to recover from the contractor the amount
so paid to the labour.
Chapter VI provides for penalty for a person who contravenes any of the provisions of
the Act or the Rules.
Chapter VII deals with miscellaneous matters. Section 29 makes it obligatory on a
principal employer and contractor to maintain the registers and records as provided therein.
Section 30 provides that the Central Act shall have effect notwithstanding anything inconsistent
therewith contained in any other law or in the terms of any agreement of contract of service
or in any standing orders applicable to the establishment whether made before or after the
commencement of the Act. No doubt, the said section also saves any agreement or contract
or standing order where under the contract labour gets more benefits than those conferred on
them under the Act. Section 33 gives power to the appropriate Government to make rules for
carrying out the purpose of the Act and also in respect of various other matters mentioned in
Cls. (a) to (p) of sub-section (2).4

Constitutional Validity of the Act


The Supreme Court examined the validity of the Act in Gammon India Ltd. v. Union of India5
and found that there is no unreasonableness in the measure. Repealing the contention that the
application of the Act in respect of pending work amounted to unreasonable restriction on the
contractors under Art. 19(1)(g), it was held that the pendency of contract is not a relevant
consideration. The subject matter of the legislation is not contract. It is contract labour. The
Supreme Court also rejected the contention that the provisions of the Act are unconstitutional
and unreasonable because of impracticability of implementation. The canteens, rest rooms,
supply of drinking water, latrines, urinals, first-aid facilities are amenities for the dignity of
human labour and are not in excess of the object of the Act. There is no violation of Art. 14.
The classification is not arbitrary. The legislature has made uniform laws for all contractors.

Main Features of the Act


(1) The Act applies to every establishment in which twenty or more workmen are
employed or were employed on any day of the preceding twelve months as contract
labour and to every contractor who employs or who employed on any day of the
preceding twelve months twenty or more workmen. The appropriate Government
is further empowered to extend the provisions of the Act to every establishment
or contractor employing such number of workmen being less than twenty to be
specified in the notification.
4. Vegoils Pvt. Ltd v. Workmen, AIR 1972 SC 1942.
5. AIR 1974 SC 960.
Chapter 3  The Contract Labour (Regulation and Abolition) Act, 1970 285
(2) The Act does not apply to establishments where the work performed is of inter-
mittent or casual nature. The Act applies to establishments of the Government and
local authorities as well.
(3) The Central Government and the State Government are required to set up Central
Advisory Board and State Advisory Boards which are authorised to constitute
committees as deemed proper. The functions of the Boards would be advisory on
matters arising out of the administration of the Act as may be referred to them. The
Boards are also to carry out the functions assigned to them under the Act.
(4) Every establishment covered under the Act will have to be registered by the principal
employer. In case of non-registration of an establishment, which should have been
registered, the employment of contract labour is prohibited and in case of breach
could be visited by penal consequences. Likewise, every contractor to whom the Act
applies shall obtain a licence and shall not undertake or execute any work through
contract labour except under and in accordance with the licence issued.
(5) The Act authorises the appropriate Government to make rules for the establishment
of canteens. For the welfare and health of contract labour, provision is to be made
for rest-rooms, first-aid, wholesome drinking water, latrines and urinals. In case
of failure on the part of the contractor to provide the said facilities, the principal
employer is made liable to provide the amenities.
(6) The contractor is required to pay wages and a duty is cast on him to ensure the
disbursement of wages in the presence of the authorised representative of the principal
employer. In case of failure on the part of the contractor to pay wages either in part
or in full, the principal employer is liable to pay the same. The principal employer
is authorised to recover the amount either by deductions from the amount due to the
contractor or as debt payable by the contractor.
(7) The Act makes provision for the appointment of an inspecting staff, for maintenance
of registers and records, for penalties for the contravention of provisions of the
Act and rules thereunder, and for making rules for carrying out the purpose of
the Act.
(8) Apart from the regulatory measures provided under the Act for the benefit of the
contract labour, the appropriate government is authorised, 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.
(9) In order to carry out the purposes of the Act, rules have to be framed both by
the Central and the State Governments. If any government fails to frame rules, the
provisions of the Act would be ineffective.

Non-observance of provisions of the Act violative of Article 21


Article 21 of the Constitution speaks about the protection of life and personal liberty of an
individual and it reads:
No person shall be deprived of his life or personal liberty except according to the
procedure established by law.
286  Labour and Industrial Laws

In the well-known public interest litigation case relating to workmen engaged in various
Asiad projects.6 The Supreme Court, while considering the preliminary objection that a writ
petition under Art. 32 could not be maintainable unless it complained of a breach of some
fundamental right and since writ petitions before the Supreme Court merely alleged violation
of the labour laws, held that the same was not maintainable and was liable to be dismissed.
But the Court observed:
“…there is the complaint of non-observance of the provisions of the Contract Labour
(Regulation & Abolition) Act 1970 and the inter-State Migrant Workmen (Regulation
of Employment and Conditions of Service) Act 1979 and this is also in our opinion a
complaint relating to violation of Art. 21. This Article has acquired a new dimension as
a result of the decision of this Court in Maneka Gandhi v. Union of India (1978) 2 SCR
621(663): (AIR 1978 SC 597) and it has received its most expansive interpretation in
Francis Coralie Mullin v. The Administrator, Union Territory of Delhi (1981) 2 SCR 516:
(AIR 1981 SC 746). Where it has been held by this Court that the right of life guaranteed
under this Article is not confined merely to physical existence or to the use of any faculty
or limb through which life is enjoyed or the soul communicates with outside world but it
also includes within its scope and ambit the right to live with basic human dignity and the
State cannot deprive any one of this precious and invaluable right because no procedure by
which such deprivation may be effected can ever be regarded as reasonable, fair and just.
Now the rights and benefits conferred on the workmen employed by a contractor under the
provisions of the Contract Labour (Regulation and Abolition) Act 1970 and the Inter-State
Migrant Workmen (Regulation of Employment and Conditions of Service) Act, 1979 are
clearly intended to ensure basic human dignity to the workmen and if the workmen are
deprived of any of these rights and benefits to which they are entitled under the provisions
of these two pieces of social welfare legislation, that would clearly be a violation of Art.
21 by the Union of India, the Delhi Administration and the Delhi Development Authority
which, as principal employers, are made statutorily responsible for securing such rights and
benefits to the workmen.”7

Chapter I

PRELIMINARY

Section 1: Short title, extent, commencement and application


(1) This Act may be called the Contract Labour (Regulation and Abolition) Act, 1970.
(2) It extends to the whole of India.
(3) It shall come into force on such date as the Central Government may, by
notification in the Official Gazette, appoint and different dates may be appointed
for different provisions of this Act.
(4) It applies—
(a) to every establishment in which twenty or more workmen are employed or were
employed on any day of the preceding twelve months as contract labour;

6. Peoples’ Union for Democratic Rights v. Union of India, AIR 1982 SC 1473.
7. Ibid. at p. 1485 per Bhagwati, J.
Chapter 3  The Contract Labour (Regulation and Abolition) Act, 1970 287
(b) to every contractor who employs or who employed on any day of the preceding
twelve months twenty or more workmen:
Provided that the appropriate government may, after giving not less than two months’
notice of its intention so to do, by notification in the Official Gazette, apply the provisions
of this Act to any establishment or contractor employing such number of workmen less than
twenty as may be specified in the notification.
(5) (a) It shall not apply to establishments in which work only of an intermittent or
casual nature is performed.
(b) If a question arises whether work performed in an establishment is of an
intermittent or casual nature, the appropriate Government shall decide the
question after consultation with the Central Board or, as the case may be, a
State Board, and its decision shall be final.
Explanation: For the purpose of this sub-section, work performed in an establishment
shall not be deemed to be of an intermittent nature—
(i) if it was performed for more than one hundred and twenty days in the preceding
twelve months, or
(ii) if it is of a seasonal character and is performed for more than sixty days in a year.

Long Title and Preamble to the Act


The long title and preamble to the Act prescribes that it is an Act to regulate the employment
of contract labour in certain establishments and to provide for its abolition in certain
circumstances and for matters connected therewith. The long title itself suggests that the Act
does not provide or intend for the total abolition of contract labour, but only abolition of
certain circumstances, and for the regulation of the employment of contract labour in certain
circumstances. Such intention can be gathered after reading the total legislation as a whole.
Section 10 of the Act is the only provision that prohibits employment of contract labour
in any process, operation or other work in any establishment. The other provisions of the
Act, either directly or indirectly, facilitate for regulating the condition of employment of the
contract labour. The Supreme Court has rightly observed in Deena Nath v. National Fertilizer
Ltd.8 that the Act, as can be seen from the scheme of the Act, is merely to regulate the
employment of contract labour in certain establishments and provides for its abolition in
certain circumstances. The Act does not provide for total abolition of contract labour but it
provides for abolition by the appropriate Government in appropriate cases under S. 10 of the
Act. In other words, it can be said that the framers of the Act have allowed and recognised
contract labour and they have never purported to abolish it in its entirety. The primary object
appears to be that there should not be exploitation of the contract labourers by the contractor
or the establishment.9 The Act was passed to prevent the exploitation of contract labour and
also to introduce better conditions of work. The Act provides for regulation and abolition

8. AIR 1992 SC 457.


9. R.K. Panda v. SAIL, (1994) 5 SCC 304.
288  Labour and Industrial Laws

of contract labour. The underlying policy of the Act is to abolish contract labour, wherever
possible and practicable, and where it cannot be abolished altogether, the policy of the Act is
that the working conditions of the contract labour should be so regulated as to ensure payment
of wages and provision of essential amenities. That is why the Act provides for regulated
conditions of work and contemplates progressive abolition to the extent contemplated by S. 10
of the Act. Section 10 of the Act deals with abolition while the rest of the Act deals mainly
with regulation. The dominant idea of S. 10 of the Act is to find out whether contract labour
is necessary for the industry, trade, business, manufacture or occupation which is carried on
in the establishment.10

Applicability and Non-applicability of the Act


So far as applicability of the Act is concerned, S. 1(4) may be looked from two angles, one
from the establishment point of view and the other from contractor point of view. The Act
applies to all establishments in which 20 or more workmen are employed or were employed
on any day of the preceding twelve months as contract labour and to every contractor who
employs or who employed on any day of the preceding twelve months 20 or more workmen.
Even if this number of contract labour or workmen is less than twenty, the Act would still be
applicable if the said limit of twenty had reached for even a day during the preceding twelve
months. The appropriate Government has also power under proviso to S. 1(4) to apply the Act
to any establishment or contractor employing such lesser number of workmen than twenty as
may be specified. This power can be exercised by issuing a notification in the Official Gazette
after giving at least two months’ notice of its intention to do so.
Section 1(5) makes the Act inapplicable to establishments in which work only of an
intermittent or casual nature is performed and the appropriate Government has been empowered
to decide all questions whether the work performed in an establishment is or is not of an
intermittent or casual nature. It has been clarified that in case the work in any establishment
was performed for more than one hundred and twenty days in the preceding twelve months,
or in the case of establishments of seasonal character, for more than sixty days in a year, it
will not be deemed to be of an intermittent nature.

Act Applicable to Government


According to S. 1(4), the Act shall apply to all establishments in which 20 or more workmen
are employed or were employed on any day of the preceding 12 months as contract
labour and to every contractor who employs or has employed on any day of the preceding
12 months, 20 or more workmen. The Act does not apply to establishments in which work
of an intermittent or casual nature alone is performed. Section 2(e) defines an establishment
as meaning: (i) any office or department of the government or a local authority; or (ii) any
place where any industry, trade, business, manufacture or occupation is carried on. The
definitions ‘establishment’ and ‘principal employer’ clearly do not exclude but, on the other
hand, expressly include the government or any of its departments and the Act applies to them
too. The Act is not applicable to private employers only.
10. Gammon India Ltd. v. Union of India, AIR 1974 SC 960.
Chapter 3  The Contract Labour (Regulation and Abolition) Act, 1970 289
Computation of Twenty or More Workmen
It is the aggregate of the contract labour employed in an establishment, either for different
purposes or through different contractors, that has to be taken into account to determine the
number of workmen for the purposes of applicability of the Act to an establishment.

Work of an Intermittent or Casual Nature


The Act does not define ‘works of an intermittent or casual nature’. The explanation at the
end of sub-section (5) clarifies that in case the work in any establishment was performed for
more than one hundred and twenty days in the preceding twelve months, or, in the case
of establishments of seasonal character, it is performed for more than sixty days in a year,
it shall not be deemed to be of an intermittent nature. This only means that work which
may otherwise be of an intermittent nature in the ordinary, popular and natural sense of the
expression, shall not be deemed to be of an intermittent nature if it is performed for more than
the prescribed number of days. This does not mean that work which is not otherwise of an
intermittent nature shall be deemed to be of an intermittent nature if it is performed for less
than the prescribed number of days. The number of days is obviously not intended to be the
sole test to justify exemption under sub-section (5). If it were so, the sub-section would have
been worded in a simpler language, with no necessity for removal of doubts by the appropriate
government, or for the explanation.

Section 2: Definitions
(1) In this Act, unless the context otherwise requires,—
(a) appropriate Government means,—
(i) in relation to an establishment in respect of which the appropriate
government under the Industrial Disputes Act, 1947 (14 of 1947), is the
Central Government, the Central Government;
(ii) in relation to any other establishment, the Government of the State in which
that other establishment is situated;
(b) a workman shall be deemed to be employed as contract labour 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 principal employer;
(c) contractor, in relation to an establishment, means a person who undertakes to
produce a given result for the establishment, other than a mere supply of goods
or articles of manufacture to such establishment, through contract labour or who
supplies contract labour for any work of the establishment and includes a sub-
contractor;
(d) controlled industry means any industry the control of which by the Union has
been declared by any Central Act to be expedient in the public interest;
(e) establishment means—
290  Labour and Industrial Laws

(i) any office or department of the Government or a local authority, or


(ii) any place where any industry, trade, business, manufacture or occupation is
carried on;
(f) prescribed means prescribed by rules made under this Act;
(g) principal employer means—
(i) in relation to any office or department of the Government or a local
authority, the head of that office or department or such other officer as the
Government or the local authority; as the case may be, may specify in this
behalf,
(ii) in a factory, the owner or occupier of the factory and where a person has
been named as the manager of the factory under the Factories Act, 1948 (63
of 1948), the person so named.
(iii) in a mine, the owner or agent of the mine and where a person has been
named as the manager of the mine, the person so named,
(iv) in any other establishment, any person responsible for the supervision and
control of the establishment.
Explanation: For the purpose of sub-clause (iii) of this clause, the expressions “mine”,
“owner” and “agent” shall have the meanings respectively assigned to them in clause (j),
clause (l) and clause (c) of sub-section (1) of section 2 of the Mines Act, 1952 (35 of 1952);
(h) wages shall have the meaning assigned to it in clause (vi) of section 2 of the
Payment of Wages Act, 1936 (4 of 1936);
(i) workman means any person employed in or in connection with the work of any
establishment to do any skilled, semi-skilled or unskilled manual, supervisory,
technical or clerical work for hire or reward, whether the terms of employment
be express or implied, but does not include any such person—
(A) who is employed mainly in a managerial or administrative capacity; or
(B) who, being employed in a supervisory capacity draws wages exceeding five hundred
rupees per mensem or exercises, either by the nature of the duties attached to the
office or by reason of the powers vested in him, functions mainly of a managerial
nature; or
(C) who is an out-worker, that is to say, a person to whom any article and materials are
given out by or on behalf of the principal employer to be made up, cleaned, washed,
altered, ornamented, finished, repaired, adapted or otherwise processed for sale for
the purposes of the trade or business of the principal employer and the process is to
be carried out either in the home of the out-worker or in some other premises, not
being premises under the control and management of the principal employer.
(2) Any reference in this Act to a law which is not in force in the State of Jammu
and Kashmir shall, in relation to that State, be construed as a reference to the
corresponding law, if any, in force in that State.
A definition is a statement that sets forth and delimits the meaning of a word, phrase and
expression used in the Act. It performs two functions, namely (i) the avoidance of ambiguities;
Chapter 3  The Contract Labour (Regulation and Abolition) Act, 1970 291
and (ii) the avoidance by means of abbreviation of tedious repetitions. Once an expression
has been defined, that expression, whenever it occurs in the Act, rules and notification issued
thereunder, should be taken in the same sense. The Courts are also not free to construe
otherwise unless it is so warranted. The Supreme Court in Barsi Light Railway Co. Ltd. v.
K.N. Joglekar and others11 observed:
“That there is no doubt that when the Act itself provides dictionary for the words used, we
must look into that dictionary first for an interpretation of the word used in the statute. We
are not concerned with any presumed intention of the legislature; our task is to get at the
intention as expressed in the statute.”12

Section 2(1)(b) Contract Labour


“A workman shall be deemed to be employed as “contract labour” 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 principal employer.”
The following propositions may be drawn after reading the definition of contract labour
mentioned above:
(i) he must be a workman as per S. 2(1)(i) of the Act;
(ii) he is hired by or through a contractor;
(iii) he is hired in connection with the work of an establishment defined under S. 2(1)(e)
of the Act;
(iv) knowledge of his engagement to the principal employer is immaterial.

Work of an establishment
The phrase work of an establishment is categorically interpreted and described by the Supreme
Court in Gammon India Ltd. v. Union of India13 and the following observations are made.
The petitioners contend that they are not contractors within the definition of the Act.
They advance two reasons. First, the work of the petitioners is not any part of the work of
the principal employer nor is it the work “in connection with the work of the establishment”,
namely, principal employer. Second, the work of the petitioners is normally not done in
the premises of the “establishment” of the principal employer. By way of illustration, it is
said that if a banking company, which is an establishment and which carries on its business
in Delhi, employs the petitioners to construct a building in Allahabad, the building to be
constructed is not the work of the bank. It is said that the only work of the bank as an
establishment is banking work and, therefore, the work of construction is not the banking
work of the establishment. Therefore, the petitioners contended that the workmen employed by
the petitioners are not workmen in connection with the work of the establishment.
The Court observed that the contention of the petitioners is unsound. When the banking
company employs the petitioners to construct a building, the petitioners are in relation to

11. AIR 1957 SC 121.


12. Ibid. at p. 126 per S.K. Das, J.
13. AIR 1974 SC 960.
292  Labour and Industrial Laws

the establishment contractors who undertake to produce a given result for the bank. The
petitioners are also persons who undertake to produce the result through contract labour.
The petitioners may appoint sub-contractors to do the work. To accede to the petitioners
contention that the construction work which is away from the place where the industry, trade,
business of the establishment is carried on is not the work of the establishment is to render
the words “work of any establishment” devoid of ordinary meaning. The construction of
the building is the work of the establishment. The building is the property of the establish-
ment. Therefore, the construction work is the work of the establishment. That is why a
workman is deemed to be employed as contract labour in connection with the work of an
establishment.
The place where business or trade or industry or manufacture or occupations is carried on
is not synonymous with “the work of the establishment” when a contractor employs contract
labour in connection with the work of the establishment. The error of the petitioners lies in
equating the work of the establishment with the actual place where the business, industry or
trade is carried on and the actual work of the business, industry or trade.
The expression “work of an establishment” means the work site where the construction
work of the establishment is carried on by the petitioners by employing contract labour. Every
clause of a statute is to be construed with reference to the context and other provisions of
the Act to make a consistent and harmonious meaning of the statutes relating to the subject
matter. The interpretation of the words will be by looking at the context, the collocation of
the words and the object of the words relating to the matters. The words are not to be viewed
detached from the context of the statute. The words are to be viewed in relation to the whole
context. The definitions of contractor, workmen, contract labour, establishment, principal
employer all indicate that the work of an establishment means the work site of the establish-
ment where a building is constructed for the establishment. The construction is the work
of the establishment. The expression “employed in or in connection with the work of the
establishment” does not mean that the operation assigned to the workmen must be a part
or incidental to the work performed by the principal employer. The contractor is employed
to produce the given result for the benefit of the principal employer in fulfilment of the
undertaking given to him by the contractor. Therefore, the employment of the contract labour,
namely the workmen by the contractor, is in connection with the work of the establishment.
The petitioners are contractors within the meaning of the Act. The work which the petitioners
undertake is the work of the establishment.
Now it is construed that if the work of the contractor is part and parcel of the work
of the establishment and is not a separate activity carried on by the contractor for his own
purpose, then such work would definitely be the work of an establishment. However, what
is to be seen in each particular case is, what is the main purpose of the activity carried
on by the person. If the main purpose of the activity is totally unrelated to the activity of
the establishment, though incidentally it may be pertaining to the work undertaken by the
establishment, then such an activity undertaken by the person would not be covered by
the mischief of the provision. In each particular case, therefore, what is to be determined is,
whether there is a direct nexus between the activity of the establishment and the activity of
the person with whom the establishment has entered into some transaction.
Chapter 3  The Contract Labour (Regulation and Abolition) Act, 1970 293
The next thing to be determined is, whether there is any direct nexus established between
the activity of the establishment and the end product of the activity of the person with whom
the establishment has entered into the transaction.14

In connection with the work of an establishment


The work which is the prime factor is the work of the establishment. It follows that any
person who is in some manner or other connected with the work of the establishment
would come within the ambit of contract labour. The use of the word ‘such’ before ‘work’ is
significant.
The work incidental or preliminary to the work of the establishment would be work in
or in connection with the work of the establishment. Where the petitioner had undertaken to
collect and manufacture, when necessary, quarry products to be supplied to the railway and
the work of such collection and manufacture was done for and on behalf of the railway, it
was held that the workmen employed by the petitioner for such work were to be deemed as
‘contract labour’ under the Act and that the petitioner was a contractor.15

Section 2(1)(c)
“Contractor, in relation to an establishment, means a person who undertakes to produce
a given result for the establishment, other than a mere supply of goods or articles of manufacture
to such establishment, through contract labour or who supplies contract labour for any work of
the establishment and includes a sub-contractor.”
The above definition can be analysed as follows:
(i) A contractor is a person who undertakes to produce a given result for the establish-
ment through contract labour;
(ii) A contractor is a person who supplies contract labour for any work of the
establishment;
(iii) A contractor includes a sub-contractor;
(iv) A person whose only obligation towards the establishment is a mere supply of
goods or articles of manufacture to such establishment cannot be a contractor for
the purpose of the Act.
Furthermore, the definition may be divided into three parts, such as substantive part,
exclusive part and inclusive part. The substantive part may be the first part of the definition,
i.e. contractor, in relation to an establishment, means a person who undertakes to produce a
given result for the establishment; exclusive part may be the second part of the definition,
i.e. other than a mere supply of goods or articles of manufacture to such establishment; and
inclusive part may be the last part of the definition which speaks contractor includes sub-
contractor.
Thus, the basic requirement for a person to be ‘contractor’ in terms of the definition is
that he must either execute his contract through ‘contract labour’ or supply ‘contract labour’.

14. State of Gujarat v. Sarabhai Chimanlal Sheth & Co. [1984] 2 LLJ 334.
15. H.C. Bothra v. Union of India [1976] Lab IC 1199 (Gau).
294  Labour and Industrial Laws

Chapter II

THE ADVISORY BOARDS

Section 3: Central Advisory Board


(1) The Central Government shall, as soon as may be, constitute a Board to be called
the Central Advisory Contract Labour Board (hereinafter referred to as the Central
Board) to advise the Central Government on such matters arising out of the
administration of this Act as may be referred to it and to carry out other functions
assigned to it under this Act.
(2) The Central Board shall consist of—
(a) a Chairman to be appointed by the Central Government;
(b) the Chief Labour Commissioner (Central), ex officio;
(c) such number of members, not exceeding seventeen but not less than eleven,
as the Central Government may nominate to represent that government, the
Railways, the coal industry, the mining industry, the contractors, the workmen
and any other interests which, in the opinion of the Central Government, ought
to be represented on the Central Board.
(3) The number of persons to be appointed as members from each of the categories
specified in sub-section (2), the term of office and other conditions of service of,
the procedure to be followed in the discharge of their functions by, and the manner
of filling vacancies among, the members of the Central Board shall be such as may
be prescribed:
Provided that the number of members nominated to represent the workmen shall not
be less than the number of members nominated to represent the principal employers and the
contractors.
In pursuance of S. 3 of the Act, the Central Government is authorised to constitute a
Central Advisory Board as soon as possible and the direction is mandatory. The object of
constituting such Central Board is two-fold:
(i) to advise the Central Government on such matters arising out of the administration
of this Act as may be referred by the Central Government to the Central board, and
(ii) to carry out other functions assigned to it under this Act.
It is implied that the Central Government is having discretionary power either to refer or
not to refer any matter for advice as well as the choice of the matter to be referred for advice
rests with the Central Government.
If the Central Government is an appropriate Government, then the Central Government
is bound to consult the Central Board before exercising its powers as appropriate Government
under S. 1(5)(b) and S. 10(1) of the Act. Section 1(5)(b) provides that If a question arises
whether work performed in an establishment is of an intermittent or casual nature, the
appropriate government shall decide the question after consultation with the Central Board or,
Chapter 3  The Contract Labour (Regulation and Abolition) Act, 1970 295
as the case may be, the State Board, and its decision shall be final. Section 10(1) empowers
the appropriate Government to prohibit the employment of contract labour in any process,
operation or other work in any establishment after consultation with the Central Board or,
as the case may be, a State Board. When the Central Government is the appropriate Government,
the Central Board has to be consulted under both these Sections and where a State Government
is the appropriate Government, the State Board concerned has to be consulted.
Sub-section (2) provides for the composition of the Central Board and it is seen that
the Board is constituted by the representatives of the contractor, workmen and the industries
concerned. Sub-section (3) prescribes that the number of workmen represented in the Board
shall not be less than the number of members nominated to represent the principal employers
and contractors. The intention may be for effective participation with equal power to that of
other group in order to protect their interest.

Section 4: State Advisory Board


(1) The State Government may constitute a Board to be called the State Advisory
Contract Labour Board (hereinafter referred to as the State Board) to advise the State
Government on such matters arising out of the administration of this Act as may be
referred to it and to carry out other functions assigned to it under this Act.
(2) The State Board shall consist of—
(a) a Chairman to be appointed by the State Government;
(b) the Labour Commissioner, ex officio, or in his absence any other officer
nominated by the State Government in that behalf;
(c) such number of members, not exceeding eleven but not less than nine, as the
State Government may nominate to represent that Government, the industry,
the contractors, the workmen and any other interests which, in the opinion of the
State Government, ought to be represented on the State Board.
(3) The number of persons to be appointed as members from each of the categories
specified in sub-section (2), the term of office and other conditions of service of, the
procedure to be followed in the discharge of their functions by, and the manner of
filling vacancies, among, the members of the State Board shall be such as may be
prescribed:
Provided that the number of members nominated to represent the workmen shall not
be less than the number of members nominated to represent the principal employers and the
contractors.
Like S. 3, S. 4 requires that the number of members nominated to represent workmen
shall not be less than the members nominated to represent the principal employers and
contractors on the State Advisory Board.

Section 5: Power to constitute committees


(1) The Central Board or the State Board, as the case may be, may constitute such
committees and for such purpose or purposes as it may think fit.
296  Labour and Industrial Laws

(2) The committee constituted under sub-section (1) shall meet at such time and places
and shall observe such rules of procedure in regard to the transaction of business at
its meetings as may be prescribed.
(3) The members of a committee shall be paid such fees and allowances for attending
its meetings as may be prescribed:
Provided that no fees shall be payable to a member who is an officer of Government or
of any corporation established by any law for the time being in force.
The Supreme Court in Food Corporation of India Workers’ Union v. Food Corporation
of India16 misread S. 5 of the Act as it issued the writ of mandamus and accordingly directed
all the State Governments except the State of Madhya Pradesh for appointing a committee
under S. 5 of the Act within three months.
It is submitted that S. 5 of the Act empowers only the Central Board or the State Board,
as the case may be, to constitute the committees and it has nothing to do with the State
Government. After reading Ss. 3, 4 and 5, the following points are noted.
Section 3: The Central Government shall, as soon as may be, constitute a Board.
Section 4: The State Government may constitute a Board.
Section 5: The Central Board or the State Board, as the case may be, may constitute
such committees.
Section 3 is a mandatory one whereas S. 4 is discretionary. If the State Government
will not exercise its power under S. 4, it is presumed that the State Government cannot be
directed to constitute a State Advisory Board, so writ of mandamus may not lie; whereas the
Central Government can be directed to constitute a Central Board in case of non-compliance
of mandatory provision of S. 3 of the Act. The Court can issue the writ of mandamus and
direct the Central Government to constitute a Board as required under S. 3 of the Act.
Section 5 provides altogether a different connotation. Section 5 provides that the Central
Board constituted under S. 3 and the State Board constituted under S. 4, as the case may be,
may constitute such other committees as it may think fit. So it appears that S. 5 confers a
discretionary power on the Central and State Boards to constitute such other committees.

Chapter III

REGISTRATION OF ESTABLISHMENTS
EMPLOYING CONTRACT LABOUR

Section 6: Appointment of registering officers


The appropriate Government may, by an order notified in the Official Gazette—
(a) appoint such persons, being Gazetted Officers of Government, as it thinks fit to be
registering officers for the purposes of this Chapter; and
(b) define the limits, within which a registering officer shall exercise the powers
conferred on him by or under this Act.
16. AIR 1985 SC 488.
Chapter 3  The Contract Labour (Regulation and Abolition) Act, 1970 297
This section makes it clear that only the Gazetted Officers of the Government can be
appointed as registering officers under the Act and such appointment has to be made by an
order notified in the Official Gazette. This section empowers the appropriate Government to
define the limits within which a registering officer shall exercise the powers conferred on him
by or under this Act.

Section 7: Registration of certain establishments


(1) Every principal employer of an establishment to which this Act applies shall, within
such period as the appropriate Government may, by notification in the Official
Gazette, fix in this behalf with respect to establishment generally or with respect to
any class of them, make an application to the registering officer in the prescribed
manner for registration of the establishment:
Provided that the registering officer may entertain any such application for registration
after expiry of the period fixed in this behalf if the registering officer is satisfied that the
applicant was prevented by sufficient cause from making the application in time.
(2) If the application for registration is complete in all respects, the registering officer
shall register the establishment and issue to the principal employer of the establish-
ment a certificate of registration containing such particulars as may be prescribed.
This section imposes an obligation on the principal employer to apply for registration
in the prescribed manner. If the application for registration is complete in all respects, the
registering officer shall register the establishment and issue to the principal employer of
the establishment a certificate of registration containing such particulars as may be prescribed.
If an establishment falls within the purview of the Act and the principal employer does not
apply for registration of the establishment to the registering officer as required under S. 7 the
Act, the principal employer will not be permitted to employ the contract labour as per S. 9
of the Act.

Section 8: Revocation of registration in certain cases


If the registering officer is satisfied, either on a reference made to him in this behalf or
otherwise, that the registration of any establishment has been obtained by misrepresentation
or suppression of any material fact, or that for any other reason the registration has become
useless or ineffective and, therefore requires to be revoked, the registering officer may, after
giving an opportunity to the principal employer of the establishment to be heard and with the
previous approval of the appropriate Government, revoke the registration.
The registering officer may revoke the registration of any establishment on the following
grounds:
1. that the registration of any establishment has been obtained by misrepresentation; or
2. that the registration of any establishment has been obtained by suppression of any
material fact, or
3. that for any other reason the registration has become useless or ineffective.
298  Labour and Industrial Laws

The word misrepresentation has not been defined in the Contract Labour (Regulation &
Abolition) Act, 1970. Hence it is worthwhile to refer S. 18 of the Indian Contract Act, 1872.
Section 18 of the Indian Contract Act, 1872 defines ‘misrepresentation’ as follows:
“Misrepresentation” means and includes—
(1) the positive assertion, in a manner not warranted by the information of the person
making it, of that which is not true, though he believes it to be true;
(2) any breach of duty which, without an intent to deceive, gains an advantage to the
person committing it, or anyone claiming under him; by misleading another to his
prejudice, or to the prejudice of any one claiming under him;
(3) causing, however innocently, a party to an agreement, to make a mistake as to the
substance of the thing which is subject of the agreement.
The registering officer has to provide reasonable opportunity to the principal employer
of the establishment to be heard before revoking the registration of any establishment and to
obtain the previous approval of the appropriate Government for such revocation.

Section 9: Effect of non-registration


No principal employer of an establishment, to which this Act applies, shall—
(a) in the case of an establishment required to be registered under section 7, but which
has not been registered within the time fixed for the purpose under that section;
(b) in the case of an establishment the registration in respect of which has been revoked
under section 8,
employ contract labour in the establishment after the expiry of the period referred to in
clause (a) or after the revocation of registration referred to in clause (b), as the case may be.
If an establishment, to which this Act applies, has not been registered required to be
registered under S. 7 within the stipulated time fixed for the purpose, or the registration of any
establishment has been revoked under S. 8, the principal employer is not entitled to engage
contract labour thereafter.

Section 10: Prohibition of employment of contract labour


(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;
Chapter 3  The Contract Labour (Regulation and Abolition) Act, 1970 299
(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 Act was passed to prevent the exploitation of contract labour and also to introduce
better conditions of work. The Act provides for regulation and abolition of contract
labour. The underlying policy of the Act is to abolish contract labour, wherever possible
and practicable, and where it cannot be abolished altogether, the policy of the Act is that
the working conditions of the contract labour should be so regulated as to ensure payment
of wages and provision of essential amenities. That is why the Act provides for regulated
conditions of work and contemplates progressive abolition to the extent contemplated by
S. 10 of the Act. Section 10 of the Act deals with abolition while the rest of the Act deals
mainly with regulation. The dominant idea of S. 10 of the Act is to find out whether contract
labour is necessary for the industry, trade, business, manufacture or occupation which is
carried on in the establishment.17

Notwithstanding Anything Contained in this Act


Section 10(1) opens with a non-obstante clause, which means notwithstanding any statute
to the contrary. A non-obstante clause is usually used in a provision to indicate that that
provision should prevail despite anything to the contrary in the provision mentioned in such
non-obstante clause. In case there is any inconsistency or a departure between the non-obstante
clause and another provision, one of the objects such clause is to indicate that it is the non-
obstante clause which would prevail over the other clause, provided, of course, that there
is no repugnancy between the two provisions. In view of this, and particularly in view of
the aims and objective of the Act that it is passed for abolition of the contract labour where
possible must prevail over the other provisions of the Act which merely relate to regulation
of contract labour.

Consultation With the Board


The appropriate Government is duty bound under S. 10(1) to consult with the Central Board
or the State Board, as the case may be, before prohibiting employment of contract labour in
any process, operation or other work in any establishment. However, it does not mean that
the appropriate Government is bound to accept the advice given by the Board. The role of
the Central Board or the State Board is only advisory but the ultimate discretion to prohibit
engagement of contract labour in any process, operation or other work in any establishment
rests with the appropriate Government. What is expected that the appropriate Government

17. Gammon India Ltd. v. Union of India, AIR 1974 SC 960.


300  Labour and Industrial Laws

should not bypass the Board constituted under the Act before issuing notification under
S. 10(1). Consultation with the Central Board or the State Board, as the case may be, is
mandatory and condition precedent to the issuance of prohibition notification under S. 10(1)
of the Act.

Other Work in Any Establishment


Section 10(1) empowers the Government to prohibit employment of contract labour in any
process, operation or other work in any establishment. The meaning of the phrase ‘other work
in any establishment’ came before the Supreme Court for consideration because similar words,
namely, ‘work of an establishment’ and ‘any work of the establishment’ are found in the
definition of ‘contract labour’ provided under S. 2(1)(b) and the definition of ‘contractor’
provided under S. 2(1)(c) of the Act, respectively. The Supreme Court in Gammon India Ltd.
v. Union of India17 observed that the words “other work in any establishment” in S. 10 of
the Act are important. The work in the establishment will be apparent from S. 10(2) of the
Act as incidental or necessary to the industry, trade, business, manufacture or occupation that
is carried on in the establishment. The Government, before notifying prohibition of contract
labour for work which is carried on in the establishment, will consider where the work is of
a perennial nature in that establishment or work is done ordinarily through regular workmen
in that establishment. The words “work of an establishment” which are used in defining a
workman as contract labour being employed in connection with the work of an establishment
indicate that the work of the establishment is not the same as work in the establishment
contemplated in S. 10 of the Act. The words “other work in any establishment” in S. 10
are to be construed as ejusdem generis. The expression “other work” in the collocation of
words process, operation or other work in any establishment occurring in S. 10 has not the
same meaning as the expression “in connection with the work of an establishment”, spoken in
relation to workmen or contractor.

Shall Have Regard to


The phrase ‘shall have regard to’ only implies a guideline for the appropriate Government
to consider the conditions of work and benefits provided for contract labour engaged in that
establishment in question before prohibiting the employment of contract labour along with
other relevant factors mentioned in Cls. (a) to (d) of S. 10(2) of the Act.

Other Relevant Factors, Such as


Section 10(2) of the Act prescribes guidelines for the appropriate Government to consider
before issuing a notification prohibiting the employment of contract labour in any process,
operation or other work in any establishment. They are:
(i) condition of work of the contract labour in the establishment in question;
(ii) benefits provided for the contract labour in that establishment;
(iii) other relevant factors mentioned in the sub-clauses (a) to (d) of S. 10(2) of the Act.
Chapter 3  The Contract Labour (Regulation and Abolition) Act, 1970 301
The use of the words such as makes it clear that the phrase other relevant factors
mentioned in the sub-clauses (a) to (d) of S. 10(2) of the Act is not exhaustive, rather
illustrative only. Hence, the appropriate Government may consider, if it so likes, other relevant
factors also in addition to the above mentioned factors. The other relevant factors could be:
financial condition of the principal employer or whether there would be sufficient work for all
the workmen if contract labour would be absorbed or the practice in vogue in other industries,
and the like.

Process, Operation or Other Work


A notification was issued by the Government of Karnataka under S. 10 of the Act on
11-4-1997 prohibiting with effect from the date of publication of the notification employment
of contract labour in industrial canteens and factories employing 250 workers or above in the
State of Karnataka. Writ petitions were filed before the High Court of Karnataka challenging
the validity of the same on various grounds. However, the High Court upheld the validity
of the said notifications and dismissed the writ petitions. Hence, these petitions came to the
apex court under Art. 136 of the Constitution. The Supreme Court in Barat Fritz Werner Ltd.
v. State of Karnataka18 held that S. 10 of the Act provides for prohibition of employment
of contract labour in any process, operation or other work in an establishment. The words
“process, operation or other work” need not be interpreted to mean only the core activity
and not peripheral activity as is sought to be suggested by learned counsel for petitioners. In
sub-section (2) of S. 10 of the Act, certain guidelines have been provided for the Government
before the issue of any notification to find out 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. The expression used therein is wide in ambit to cover other
activity arising in industry and not merely the actual manufacture. Otherwise to understand
the expression “process, operation or other work” other than the meaning given in Cl. (a) of
sub-section (2) of S. 10 would be to narrow down the meaning thereto. That does not seem
to be the intention of the enactment at all.
The following points emerge from S. 10(1) of the Act:
(i) The appropriate Government has power to prohibit the employment of contract
labour in any process, operation or other work in any establishment.
(ii) Before issuing a notification prohibiting contract labour, the appropriate Govern-
ment has to consult the Central or State Board, as the case may be, comprising the
representatives of the workmen, contractor and the industry.
(iii) Before issuing any notification under S. 10(1), prohibiting the employment of
contract labour, the appropriate Government is bound to have regard not only to
the conditions of work and benefits provided for the contract labour in a particular
establishment, but also other relevant factors enumerated in Cls. (a) to (d) of
S. 10(2) and any other conditions if in the opinion of the appropriate Government
they are relevant for the purpose.

18. AIR 2001 SC 1257.


302  Labour and Industrial Laws

(iv) Under the Explanation which really relates to Cl. (b), the decision of the appropriate
Government on the question whether any process, operation or other work is of
perennial nature, shall be final.
In 2003, two important cases, i.e. National Thermal Power Corporation Ltd. v. Karri
Pothuraju19 and Mishra Dhatu Nigam Ltd. v. M. Venkataiah20 were decided by the Supreme
Court on 13-08-2003 where facts of both the cases were very much similar and both the
cases were decided by the same judges, namely S. Rajendra Babu and Doraiswamy Raju, JJ.
As both the cases deal with the same issue, it is not necessary to discuss both the cases in
detail. Hence National Thermal Power Corporation Ltd. case is considered for discussion. In
National Thermal Power Corporation Ltd. case, an appeal had been filed against the order
dated 27-11-1996 of a Division Bench of the Andhra Pradesh High Court in Writ Appeal
No. 385 of 1996, whereunder the Division Bench, while setting aside the order of the learned
Single Judge in Writ Petition No. 3793 of 1992, allowed the claims in the writ petition
to the extent and subject to the conditions specified in the order. The appellant, National
Thermal Power Corporation Ltd., Ramagundam Super Thermal Power Station, is a Public
Sector Undertaking of the Government of India. It started a canteen in the year 1983 for the
benefit of the employees of their unit through a contractor, and from that time onwards, it
was being run through contractors engaged from time to time. The total number of employees,
at the relevant point of time, were said to be 2300 and about 54 persons were said to have
been working in the canteen in various capacities—cooks, servers, cleaners, etc. It is not in
controversy that the appellant is a factory governed by the provisions of the Factories Act and
S. 46 of the said Act, 1948 casts a mandatory duty and obligation on the appellant to provide
and maintain a canteen for the benefit of all those serving in the unit. The respondents, at least
many of them, were said to be working from the year 1983, though engaged by contractors.
The Deputy Manager, Administration and his subordinates were said to supervise the working
of the canteen in respect of preparation, service and maintenance, to ensure quality of service
and make beneficial to the workers. It is also claimed that the said authority issued identity
cards also to the workers for entering the factory premises. Apparently, taking advantage of
certain decisions of courts, including the Supreme Court, the respondent-workers moved the
High Court by means of the writ petition filed under Art. 226 of the Constitution, seeking for
a direction to the appellant to regularize their services with attendant benefits.
The appellants disputed the claim, contending that the canteen was run as a beneficial
measure, to cater to the needs of workers in the unit, that contractors used to be engaged
periodically, at times different contractors for different period, depending upon the successful
offer made pursuant to invitation of tenders, that they have nothing to do with the total
strength of workers engaged by such contractors, that they are neither workers relating to the
manufacturing activities of the appellant-undertaking nor they perform any work incidental
thereto or by any means could claim to be workers of the appellant within the meaning of the
Industrial Disputes Act, 1947. The control, if at all, was said to be to ensure that there is no
industrial unrest on account of the manner of running the canteen and proper food articles are
made available hygienically and at the rates stipulated without sacrificing the quality of the

19. AIR 2003 SC 3647.


20. AIR 2003 SC 3124.
Chapter 3  The Contract Labour (Regulation and Abolition) Act, 1970 303
food stuffs, eatables and beverages and such supervision cannot make them workers under the
control of the appellant and that the relationship of master and servant and disciplinary control
over them was also with their employer-contractor, at all times.
The learned Senior Counsel appearing on behalf of the appellant placed strong reliance
upon the decisions given in Indian Petrochemicals Corporation Ltd. & Another v. Shramik
Sena & Others21 and other related decisions to contend that the Division Bench went wrong
in reversing the decision of the learned Single Judge and that the respondent-workers, who
are indisputably the workers in the canteen, engaged by the contractor, cannot claim to be
a part of the appellant’s establishment and claim for regularisation in the service of the
appellant-undertaking and consequently the order under challenge is liable to be set aside.
Per contra, the learned Senior Counsel appearing for the respondent-workers placed reliance
upon the decisions reported in Indian Overseas Bank v. I.O.B. Staff Canteen Workers’ Union
& Another22 as well as Steel Authority of India Ltd. & Others v. National Union Waterfront
Workers & Others23 and in VST Industries Ltd. v. VST Industries Workers’ Union &
Another24 to contend that the decision of the Division Bench does not require any interference
in this appeal. Reliance was also placed on an earlier decision of the Supreme Court in
The Saraspur Mills Co. Ltd. v. Ramanlal Chimanlal & Others25 for sustaining the decision of
the High Court under challenge.
An analysis of the cases, discussed above, shows that they fall in three classes.
(i) Where contract labour is engaged in or in connection with the work of an establish-
ment and employment of contract labour is prohibited either because the industrial
adjudicator/court ordered abolition of contract labour, or because the appropriate
Government issued notification under S. 10(1) of the Act, no automatic absorption
of the contract labour working in the establishment was ordered.
(ii) Where the contract was found to be a sham and nominal, rather a camouflage, in
which case the contract labour working in the establishment of the principal employer
were held, in fact and in reality, the employees of the principal employer himself.
Indeed, such cases do not relate to abolition of contract labour but present instances
wherein the Court pierced the veil and declared the correct position as a fact at the
stage after employment of contract labour stood prohibited.
(iii) Where in discharge of a statutory obligation of maintaining a canteen in an
establishment the principal employer availed the services of a contractor, the Courts
have held that the contract labour would indeed be the employees of the principal
employer.
Basing on the above discussion, the Court held:
“Consequently, we consider it to be too late in the day for the appellant, which had an
obligation under the Factories Act, 1948 to run the canteen to contend to the contrary. So
far as the case on hand is concerned, the Division Bench has chosen to leave liberty to the

21. (1996) 6 SCC 439.


22. (2000) 4 SCC 245.
23. (2001) 7 SCC 1.
24. (2001) 1 SCC 298.
25. (1974) 3 SCC 66.
304  Labour and Industrial Laws

appellant to consider the claims of the workers as to whether they satisfy the requirements
and whether they are otherwise unfit for confirmations. In the light of all these, we are
unable to countenance the challenge to the decision of the High Court, as either legitimate
or valid one. The appeal, therefore, fails and shall stand dismissed. No costs.”26

Non-Compliance of Section 10 vis-à-vis Notification Issued by the Appropriate


Government Prohibiting the Employment of Contract Labour
The impugned notification issued by the Central Government on December 9, 1976, reads as
under:
“S.O. No.779(E)8/9-12-76 in exercise of the power conferred by sub-section (1)
of Section 10 of the Contract Labour (Regulation and Abolition) Act, 1970 (37 of 1970)
the Central Government after consultation with the Central Advisory Contract Labour
Board hereby prohibits employment of contract labour on and from the 1st March, 1977,
for sweeping, cleaning, dusting and watching of buildings owned or occupied by the
establishments in respect of which the appropriate Government under the said Act is the
Central Government…”.
Such notification was challenged on the ground of non-application of mind of the Central
Government and non-compliance of the conditions mentioned in S. 10 of the Act. The Supreme
Court in Steel Authority of India Ltd. v. National Union Waterfront Workers27 observed that
before issuing notification under sub-section (1) of S. 10 in respect of an establishment, the
appropriate Government is enjoined to have regard to: (i) the conditions of work; (ii) the
benefits provided for the contract labour; and (iii) other relevant factors like those specified
in Cls. (a) to (d) of sub-section (2) of S. 10 of the Act. The list is not exhaustive. The
appropriate Government may also take into consideration other relevant factors of the nature
enumerated in sub-section (2) of S. 10 before issuing notification under S. 10(1) of the Act.
Now reading the definition of “establishment” in S. 10, the position that emerges is that before
issuing notification under sub-section (1), an appropriate Government is required to: (i) consult
the Central Board/State Board; (ii) consider the conditions of work and benefits provided for
the contract labour and (iii) take note of the factors such as mentioned in Cls. (a) to (d) of
sub-section (2) of S. 10, referred to above, with reference to any office or department of the
Government or local authority or any place where any industry, trade, business, manufacture
or occupation is carried on. This clearly indicates that the Central Government had not
adverted to any of the essentials, referred to above, except the requirement of consultation with
the Central Advisory Board. Consideration of the factors mentioned above has to be in respect
of each establishment, whether individually or collectively, in respect of which notification
under sub-section (1) of S. 10 is proposed to be issued. The impugned noti-fication apart
from being an omnibus notification does not reveal compliance of sub-section (2) of S. 10.
This is ex-facie contrary to the postulates of S. 10 of the Act. Besides, it also exhibits non-
application of mind by the Central Government. Therefore, the impugned notification cannot
be sustained.

26. National Thermal Power Corporation Ltd. v. Karri Pothuraju, AIR 2003 SC 3647 at p. 3649 per
Rajendra Babu, J.
27. AIR 2001 SC 3527.
Chapter 3  The Contract Labour (Regulation and Abolition) Act, 1970 305
Writ Jurisdiction vis-à-vis Abolition of Contract Labour
In view of the provision in S. 10 of the Act, it is only the appropriate Government which has
the authority to abolish the system of contract labour in accordance with the provisions of
the said section. No court including the industrial adjudicator has jurisdiction to do so. The
exclusive jurisdiction to abolish contract labour in any establishment lies with the appropriate
Government and therefore the High Court can neither issue a writ to abolish the contract labour
nor prevent a principal employer from engaging contract labour where no order under S. 10
of the Act, abolishing contract labour, is passed by the appropriate Government. The Supreme
Court has categorically dealt with the issue in B.H.E.L. Workers Association, Hardwar v.
Union of India28 and observed that it is not possible for this Court in an application under Art.
32 of the Constitution to embark into an enquiry whether these thousand and odd workmen
working in various capacities and engaged in multifarious activities do work identical with
work done by the workmen directly employed by the B.H.E.L. and whether for that reason
they should be treated not as contract labour but as direct employees of the B.H.E.L.
The learned counsel appearing for the B.H.E.L. Workers Association advanced the
extreme argument that the Court must declare a total ban on the employment of contract
labour in public sector undertakings. It was argued that the employment of contract labour has
been frowned upon by various committees appointed by the Government and the Parliament
itself thought that the employment of contract labour was undesirable and, therefore, enacted
the Contract Labour (Regulation and Abolition) Act, 1970. It was submitted that in order to
give effect to the intention of Parliament as well as the Directive Principles of State Policy, the
Court should declare illegal the employment of contract labour by the State or by any public
sector undertaking as a public sector undertaking is a State for the purposes of Art. 12 of
the Constitution of India. In other words, the counsel wants the Supreme Court by its writ to
abolish the employment of contract labour by the State and by all public sector undertakings.
But their Lordships observed:
“We are afraid that, that would be nothing but the exercise of activity with which function
the Court is not entrusted by the Constitution…. It is not for the court to enquire into the
question and to decide whether the employment of contract labour in any process, operation
or other work in any establishment should be abolished or not. This is a matter for the
decision of the Government after considering the matters required to be considered under
S. 10 of the Act.”29
In Steel Authority of India Ltd. v. Union of India (AIR 2006 SC 3229) which is popularly
known as SAIL-II case wherein the Supreme Court held that the CLRA Act is a complete
code by itself. It not only provides for regulation of contract labour but also abolition thereof.
Relationship of employer and employee is essentially a question of fact. Determination of the
said question would depend upon a large number of factors. Ordinarily, a writ court would
not go into such a question. The Court further held that neither the Labour Court nor the writ
court could determine the question as to whether the contract labour should be abolished or
not, the same being within the exclusive domain of the Appropriate Government.

28. Ibid., f.n. 3. AIR 1985 SC 409.


29. Ibid. at pp. 411 & 413 per Chinnappa Reddy, J.
306  Labour and Industrial Laws

In A.P.S.R.T.C. v. G. Srinivas Reddy (AIR 2006 SC 1465) there was no notification


under Section 10(1) of CLRA Act, prohibiting contract labour. There was also neither a
contention nor a finding that the contract with the contractor was sham and nominal and
the contract labour working in the establishment were, in fact, employees of the principal
employer. In view of the principles laid down in SAIL-I case, the Supreme Court held that the
High Court could not have directed absorption of respondents who were held to be contract
labour, by assuming that the contract labour system was only a camouflage and that there was
a direct relationship of employer and employee between the Corporation and the respondents.
If respondents want the relief of absorption, they will have to approach the Industrial Tribunal/
Court and establish that the contract labour system was only a ruse/camouflage to avoid labour
law benefits to them. The High Court could not, in exercise of its jurisdiction under Article
226, direct absorption of respondents, on the ground that work for which respondents were
engaged as contract labour, was perennial in nature.

Consequence After Abolition the Employment of Contract Labour


What would be the consequence that ensues from abolition is the question? It is true that
we find no express provision in the Act declaring the contract labour working in the
establishment of the principal employer in the particular service to be the direct employees of
the principal employer. Does the Act intend to deny the workman to continue to work under
the Act or does it intend to denude him of the benefit of permanent employment and, if so,
what would be the remedy available to him? This question was discussed by the Supreme
Court in Air India Statutory Corporation v. United Labour Union30 and it held that the
Act does not provide total abolition of the contract labour system under the Act. The
Act regulates contract labour system to prevent exploitation of the contract labour. The
Preamble to the Act furnishes the key to its scope and operation. The Act regulates not only
employment of contract labour in the establishment covered under the Act and its abolition
in certain circumstances covered under S. 10(2) but also “matters connected therewith”. The
phrase “matters connected therewith” gives clue to the intention of the Act. The enforcement
of the provisions to establish canteen in every establishment under S. 16 is to supply food to
the workmen at the subsidised rates as it is a right to food, a basic human right. Similarly,
the provision in S. 17 to provide rest rooms to the workmen is a right to leisure enshrined in
Art. 43 of the Constitution. Supply of wholesome drinking water, establishment of latrine
and urinals as enjoined under S. 18 are part of the basic human right to health assured under
Art. 39 and right to just and humane conditions of work assured under Art. 42. All of them
are fundamental human rights to the workmen and are facets of right to life guaranteed
under Art. 21.
When the principal employer is enjoined to ensure those rights and payment of wages
while the contract labour system is under regulation, the question arises whether after
abolition of the contract labour system those workmen should be left in a lurch, denuding
them of the means of livelihood and the enjoyment of the basic fundamental rights provided
while the contract labour system is regulated under the Act? The Advisory Committee

30. AIR 1997 SC 645.


Chapter 3  The Contract Labour (Regulation and Abolition) Act, 1970 307
constituted under S. 10(1) is required to consider whether the process, operation and other
work is incidental to or necessary for the industry, trade, business, manufacture or occupation
that is carried on in the establishment, whether it is of a perennial nature, that is to say,
whether it is of substantive duration having regard to the nature of industry, trade, business,
manufacture or occupation carried on in that establishment, whether it is done ordinarily
through regular workmen in the establishment or an establishment similar thereto, whether
it is sufficient to employ considerable number of wholetime workmen. Upon consideration
of these facts, recommendation for abolition is made by the Advisory Board, and then the
appropriate Government examines the question and takes a decision in that behalf. The
explanation to S. 10(2) provides that when any process or operation or other work is of
perennial nature, the decision of the appropriate Government thereon shall be final. It would
thus give indication that on the abolition of the contract labour system by publication of the
notification in the Official Gazette, the necessary concomitant is that the wholetime workmen
are required for carrying on the process, operation or other work being done in the industry,
trade, business, manufacture or occupation in that establishment. When the condition of the
work which is of perennial nature, etc., as envisaged in sub-section (2) of S. 10, is satisfied,
the continuance of contract labour stands prohibited and abolished. The concomitant result
would be that the source of regular employment became open.
The plea that the contractor might have employed a number of workmen who may be in
excess of the requirement and, therefore, the principal employer on abolition of the contract
labour may be burdened with excess workmen is more imaginary than real. The principal
employer as a worldly businessman in his practical commercial wisdom would not allow the
contractor to do so. On the contrary, the principal employer would see to it that the contractor
brings only those number of workmen who are required to discharge their duties to carry
out the work of the principal employer on his establishment through, of course, the agency
of the contractor. In fact, the scheme of the Act and regulations framed thereunder clearly
indicate that even the number of the workmen required for the given contract work is to be
specified in the licence given to the contractor. And all the more, even, apart from that, after
the absorption of the erstwhile contract workmen by the principal employer on abolition of
contract labour system under S. 10, it is always open for the employer as an entrepreneur, in
an appropriate case, if the excess working staff is not found to be required by him, to retrench
such excess staff in accordance with the provisions of the Industrial Disputes Act, 1947.
His Lordship S.B. Majumdar, J., in his concurring judgment, observed that S. 10 nowhere
provides in express term that on abolition of contract labour the workmen would become
direct employees of the principal employer. It is obvious that no such express provision was
required to be made as the very concept of abolition of a contract labour system wherein the
work of the contract labour is of perennial nature for the establishment and which otherwise
would have been done by regular workmen, would posit improvement of the lot of such
workmen and not its worsening. Implicit in the provision of S. 10 is the legislative intent
that on abolition of contract labour system, the erstwhile contract-workmen would become
direct employees of the employer on whose establishment they were earlier working and were
enjoying all the regulatory facilities under Chapter V prior to the abolition of such contract
labour system. Though the legislature has expressly not mentioned the conse-quences of
such abolition, the very scheme and ambit of S. 10 of the Act clearly indicates the inherent
308  Labour and Industrial Laws

legislative intent of making the erstwhile contract labourers direct employees of the employer
on abolition of the intermediary contractor. If it is held that on abolition of contract labour
system the erstwhile contract labourers are to be thrown out of the establishment lock, stock
and barrel, it would amount to throwing the baby out with the bathwater.
Therefore, it is submitted that the Court took a pragmatic approach and cast a duty
on the principal employer to absorb the contract labour once a notification for abolition of
the contract labour is made under S. 10(1) of the Act. Otherwise, the true intention of the
Act would be frustrated. The intention of the Act is to abolish the contract labour wherever
and whenever there is possibility, but not throwing the workers out of job rather through
absorption.
However, the Air India case was overruled prospectively in Steel Authority of India
Ltd. v. National Union Waterfront Workers27 and the Supreme Court took just a diametrically
opposite view to that of Air India case. The Court in this case observed that neither S. 10 of the
CLRA Act nor any other provision in the Act, whether expressly or by necessary implication,
provides for automatic absorption of contract labour on issuing a notification by appropriate
Government under sub-section (1) of S. 10, prohibiting employment of contract labour, in any
process, operation or other work in any establishment. Consequently, the principal employer
cannot be required to order absorption of the contract labour working in the establishment
concerned.
The concept of automatic absorption of the contract labour on issuance of notification
under S. 10 prohibiting employment of contract labour in an establishment is neither alluded
to in the report of the Joint Committee of Parliament on the Contract Labour (Regulation and
Abolition) Bill, 1967 nor in the statement of Objects and Reasons of the Act. The scheme of
the Act is to regulate conditions of workers in contract labour system and to provide for its
abolition by the appropriate Government as provided in S. 10 of the CLRA Act. The various
regulatory and welfare measures provided under the various provisions of the Act clearly
bespeak treatment of contract labour as employees of the contractor and not of the principal
employer. It is, therefore, difficult to perceive in S. 10 any implicit requirement of automatic
absorption of contract labour by the principal employer in the establishment concerned
on issuance of notification by the appropriate Government under S. 10(1) prohibiting
employment of contract labour in a given establishment.
It is important to mention here the view expressed by the Hon’ble Finance Minister
while presenting 2001–02 Budget. He said that the rigidities inherent in the existing
legislation regarding contract labour inhibit growth in the employment in many service
activities. Section 10 of the existing Act envisages prohibition of contract labour in work/
process/operation if the conditions set therein like perennial nature of job, etc. are fulfilled.
Section 10 enables the contract labour engaged in prohibited jobs to become direct employees
of the principal employer. To overcome this difficulty and at the same time to ensure the
protection of labour, it is proposed to bring an amendment to facilitate outsourcing of
activities without any restriction as well as to offer contract appointments. It would not
differentiate between core and non-core activities, and provide protection to labour engaged
in outsourced activities in terms of their health, safety, welfare, social security, etc. It would
also provide for larger compensation based on last drawn wages as retrenchment compensation
for every year of service.
Chapter 3  The Contract Labour (Regulation and Abolition) Act, 1970 309
The aforesaid measures, according to the Finance Minister, would promote industrial
investment in labour-intensive and export-oriented activities, providing for renewed industrial
growth, while, at the same time, would safeguard the interest of workers.
The aforesaid statement of the Finance Minister received mixed reaction from the
employers’ and workers’ Federation. The Employers’ Federation of Southern India (EFSI)
welcomed Mr. Sinha’s announcement as a ‘major step’. They felt that the proposal would
benefit the medium scale industries, which are the ones that need to adopt new technology and
reduce the labour force. They also felt that if the amendments go through, the labour market
will become more flexible, more workers can be hired legitimately.
On the other hand, the Trade Unions feel that with the proposed amendment of the
Contract Labour (Regulation and Abolition) Act, employers would go in for more contractual
appointments. Further, the proposed amendment would facilitate outsourcing of activities to
contract labour and also ease the appointment of contract labour.
As per the recent press statement, the Government’s Draft Bill to amend the Contract
Labour (Regulation and Abolition) Act is ready and is proposed to be introduced in
Parliament in its current session. The Amendment Bill will take away from the 1970 Act
its power to abolish contract labour in various jobs, which are of perennial nature. The
amendment Bill seeks to delete the provision under which any contract employment can be
prohibited. It will provide complete freedom to an employer to decide the activities “which
he will like to outsource”.31
The Second National Commission on Labour recommended on this issue as follows:
The Commission is conscious of the fact that in the fast changing economic scenario and
changes in technology and management, which are entailed in meeting current challenges, there
cannot be a fixed number of posts in any organisations for all time to come. Organisations
must have the flexibility to adjust the number of this workforce based on economic efficiency.
It is essential to focus on core competencies if an enterprise wants to remain competitive. We
would, therefore, recommend that contract labour shall not be engaged for core production/
services activities. However, for sporadic seasonal demand, the employer may engage temporary
labour for core production/service activity. We are aware that off-loading, perennial, non-core
services like canteen, watch and ward, cleaning etc. to other employing agencies to take care
of three aspects:
1. there have to be provisions that ensure that performed perennial core services are not
transferred to other agencies or establishments;
2. where such services are being performed by employees on the payrolls of the
enterprises, no transfer to other agencies should be done without consulting,
bargaining(negotiating) agents; and
3. where the transfer of such services does not involve any employee who is currently
in service of the enterprise, the management will be free to entrust the service to
outside agencies. The contract labour will, however, be remunerated at the rate of a
regular worker engaged in the same organisation doing work of a comparable nature
or if such worker does not exist in the organisation, at the lowest salary of a worker

31. See S.C. Srivastava, Impact of Repeal of Section 10 of the Contract Labour (Regulation and Abolition)
Act, 1970, Management of Contract Labour in India, Shri Ram Centre, New Delhi (2004), p. 119.
310  Labour and Industrial Laws

in a comparable grade, i.e. unskilled, semi-skilled or skilled. The principal employer


will also ensure that the prescribed social security and other benefits are extended
to the contract worker. There is a reason that compels us to make this recommenda-
tion. At many of the centres we visited, we were told during evidence, that there
were cases of contractors making deductions from the wages of contract workers as
their contribution towards social security, and then absconding without depositing
either the contribution realised from the workers or their own contributions into the
appropriate social security fund.32

Chapter IV

LICENSING OF CONTRACTORS

Section 11: Appointment of licensing officers


The appropriate Government may, by an order notified in the Official Gazette,—
(a) appoint such person, being Gazetted Officers of Government, as it thinks fit to be
licensing officers for the purposes of this Chapter; and
(b) define the limits, within which a licensing officer shall exercise the powers conferred
on licensing officers by or under this Act.
This section makes it clear that only Gazetted Officers of the Government can be
appointed as licensing officers under the Act and such appointment has to be made by an
order notified in the Official Gazette. This section empowers the appropriate Government to
define the limits within which a licensing officer shall exercise the powers conferred on him
by or under this Act.

Section 12: Licensing of contractors


(1) With effect from such date as the appropriate Government may, by notification in
the Official Gazette, appoint, no contractor to whom this Act applies, shall undertake
or execute any work through contract labour except under and in accordance with a
licence issued in that behalf by the licensing officer.
(2) Subject to the provisions of this Act, a licence under sub-section (1) may contain
such conditions including, 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 the deposit of
such sum, if any, as security for the due performance of the conditions as may be
prescribed.

32. Government of India (2002), Report of the Second National Commission on Labour, Chapter 13,
pp. 47–48, Para 6.109.
Chapter 3  The Contract Labour (Regulation and Abolition) Act, 1970 311
Section 12 provides two aspects, namely licensing of contractors from undertaking or
executing any work through contract labour except under and in accordance with a licence.
A licence may contain such conditions including conditions as to hours of work, fixation
of wages and other essential amenities in respect of contract labour. Such licence is issued
on payment of such fees and on the deposit of such sum, if any, as security for the due
performance of the conditions as may be prescribed.

Effect of Non-compliance With S. 7 and/or S. 12 of the Act


The question involved is that if the principal employer does not get registration under S. 7
of the Act and/or the contractor does not get a licence under S. 12 of the Act whether the
persons so appointed by the principal employer through the contract would be deemed to
be the direct employees of the principal employer or not.
There is a direct conflict between the decisions of the High Courts of Punjab, Kerala
on the one hand, and the decisions of Madras, Bombay, Gujarat and Karnataka High Courts,
on the other. The view of the Punjab and Kerala High Courts is that the only consequence of
non-compliance either by the principal employer under S. 7 of the Act or by the contractor in
complying with S. 12 of the Act is that they are liable for prosecution under the Act; whereas
the view of the High Courts of Madras, Bombay, Gujarat and Karnataka is that in such a
situation, the contract labour becomes directly the employee of the principal employer.
The Division Bench of the Punjab and Haryana High Court in Gian Singh v. F.C.I.,33
held that if the principal employer does not get registration as required under S. 7 of the Act
and/or the contractor does not get the licence under S. 12 of the Act, the only consequence
is the penal provisions contained in Ss. 23 and 24 of the Act and that the principal employer
or contractor can be prosecuted under those sections, but the Act nowhere provides that
employees employed through the contractor would become the employees of the principal
employer. The High Court of Kerala in the case of P. Karunakaran v. The Chief Commercial
Superintendent,34 took the same view as taken by the Punjab and Haryana High Court. A
similar view was expressed by the Delhi High Court in the case of New Delhi General
Mazdoor Union v. Standing Conference of Public Enterprises.35 The Bombay High Court in
the case of United Labour Union v. Union of India36 held that the combined effect of these
provisions makes it clear that for a valid employment of contract labour, two conditions must
be fulfilled, viz. (1) every principal employer of an establishment must be registered, and
(2) the contractor must have a valid licence. In other words, the mere registration by the
principal employer or the holding of licence by the contractor alone will not enable the
management to treat the workmen as contract labour. Where either or both the conditions are
not fulfilled, the necessary implication would be that the workmen remain workmen of the
principal employer.
The Division Bench of the Gujarat High Court in the case of Food Corporation of India
Workers’ Union v. Food Corporation of India37 observed that the Certificate of Registration
33. (1991) 1 Pun LR 1.
34. (1988) Lab I.C. 1346.
35. (1991) 2 Delhi Lawyer 189.
36. (1990) (60) Fac. L.R. 686.
37. (1990) Lab I.C. 1968.
312  Labour and Industrial Laws

is required to be obtained by the principal employer, issued by the appropriate Government


under the provisions of S. 7 of the Act. The licence is to be obtained by the contractors under
the provisions of S. 12 of the Act. The workmen can be employed as contract labour only
through licensed contractors. Unless both these conditions are complied with, the provisions
of the Contract Labour (Regulation and Abolition) Act, 1970 would not be attracted. Both
these conditions are required to be fulfilled, if one wishes to avail of the provisions of the
Act. Even if one of the conditions is not complied with, the provisions of the Contract Labour
(Regulation and Abolition) Act, 1970 would not be attracted. Therefore, in a situation wherein
either of these two conditions is not satisfied, the position would be that a workman employed
by an intermediary would be deemed to have been employed by the principal employer. In the
result, it is declared that during the period when the two conditions of obtaining registration
under S. 7 by the principal employer and of holding licence by the contractor are not complied
with and the workmen are employed by contractor, the workmen can claim to be the direct
employees of the principal employer.
The Supreme Court in Dena Nath v. National Fertilisers Ltd.38 observed that the only
consequence provided in the Act where either the principal employer or the labour contractor
violates the provision of Ss. 9 and 12 respectively is the penal provision, as envisaged under
the Act for which reference may be made to Ss. 23 and 25 of the Act. The Supreme Court
has also endorsed a similar view in Labourers Working on Salal Hydro-Project v. State of
J. and K.39 and categorically observed that if contractors undertake or execute any work
through contract labour without obtaining a licence required under S. 12 of the Act, they
would be guilty of a criminal offence punishable under S. 23 or S. 24 of the Act.

Section 13: Grant of licences


(1) Every application for the grant of a licence under sub-section (1) of section 12
shall be made in the prescribed form and shall contain the particulars regarding the
location of the establishment, the nature of process, operation or work for which
contract labour is to be employed and such other particulars as may be prescribed.
(2) The licensing officer may make such investigation in respect of the application
received under sub-section (1) and in making any such investigation the licensing
officer shall follow such procedure as may be prescribed.
(3) A licence granted under this Chapter shall be valid for the period specified therein
and may be renewed from time to time for such period and on payment of such fees
and on such conditions as may be prescribed.
This section provides for the grant and renewal of licence to contractors. After receiving
the application for grant of licence, the licensing officer is required to make such investigation
in order to satisfy himself about the eligibility of the applicant for a licence.

Section 14: Revocation, suspension and amendment of licences


(1) If the licensing officer is satisfied, either on a reference made to him in this behalf
or otherwise, that—
38. AIR 1992 SC 457.
39. AIR 1984 SC 177.
Chapter 3  The Contract Labour (Regulation and Abolition) Act, 1970 313
(a) a licence granted under section 12 has been obtained by misrepresentation or
suppression of any material fact, or
(b) the holder of a licence has, without reasonable cause, failed to comply with the
conditions subject to which the licence has been granted or has contravened any
of the provisions of this Act or the rules made thereunder,
then without prejudice to any other penalty to which the holder of the licence may be liable
under this Act, the licensing officer may, after giving the holder of the licence an opportunity
of showing cause, revoke or suspend the licence or forfeit the sum, if any, or any portion
thereof deposited as security for the due performance of the conditions subject to which the
licence has been granted.
(2) Subject to any rules that may be made in this behalf, the licensing officer may vary
or amend a licence granted under section 12.

Section 15: Appeal


(1) Any person aggrieved by an order made under section 7, section 8, section 12 or
section 14 may, within thirty days from the date on which the order is communi-cated
to him, prefer an appeal to an appellate officer who shall be a person nominated in
this behalf by the appropriate Government:
Provided that the appellate officer may entertain the appeal after the expiry of the said
period of thirty days, if he is satisfied that the appellant was prevented by sufficient cause
from filing the appeal in time.
(2) On receipt of an appeal under sub-section (1), the appellate officer shall, after giving
the appellant an opportunity of being heard dispose of the appeal as expeditiously as
possible.

Chapter V

WELFARE AND HEALTH OF CONTRACT LABOUR

Section 16: Canteens


(1) The appropriate Government may make rules requiring that in every establishment—
(a) to which this Act applies,
(b) wherein work requiring employment of contract labour is likely to continue for
such period as may be prescribed, and
(c) wherein contract labour 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.
314  Labour and Industrial Laws

(2) Without prejudice to the generality of the foregoing power, such rules may provide
for—
(a) the date by which the canteens shall be provided;
(b) the number of canteens that shall be provided, and the standards in respect of
construction, accommodation, furniture and other equipment of the canteens; and
(c) the foodstuffs which may be served therein and the charges which may be made
therefore.

Section 17: Rest-rooms


(1) In every place wherein contract labour is required to halt at night in connection with
the work of an establishment—
(a) to which this Act applies, and
(b) 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 the contract labour
such number of rest-rooms or such other suitable alternative accommodation within such time
as may be prescribed.
(2) The rest-rooms or the alternative accommodation to be provided under sub-
section (1) shall be sufficiently lighted and ventilated and shall be maintained in
clean and comfortable condition.

Section 18: Other facilities


It shall be the duty of every contractor employing contract labour in connection with the work
of an establishment to which this Act applies, to provide and maintain—
(a) a sufficient supply of wholesome drinking water for the contract labour at convenient
places;
(b) a sufficient number of latrines and urinals of the prescribed types so situated as to
be convenient and accessible to the contract labour in the establishment; and
(c) washing facilities.

Section 19: First-aid facilities


There 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.

Section 20: Liability of principal employer in certain cases


(1) If any amenity required to be provided under section 16, section 17, section 18 or
section 19 for the benefit of the contract labour employed in an establishment is not
Chapter 3  The Contract Labour (Regulation and Abolition) Act, 1970 315
provided by the contractor within the time prescribed therefor, such amenity shall be
provided by the principal employer within such time as may be prescribed.
(2) All 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 by the
contractor.
This section casts responsibility on the principal employer to provide amenities if any
amenity required to be provided under Ss. 16, 17, 18 or 19 is not provided by the contractor.
The principal employer will be entitled to recover the expenses incurred by him in this respect.
The provisions relating to canteen and rest-room provided under Ss. 16 and 17 of the Act
read with Central Rules 40 to 56 and Rule 25(2)(vi) were challenged before the Supreme
Court in Gammon India Ltd. v. Union of India40 as being incapable of implementation
and also expensive as to amount to unreasonable restrictions under Art. 19(1)(g) of the
Constitution of India. The plea was rejected by the Supreme Court on the ground of that
these measures are amenities for the dignity of human being and in the interest of the public.

Section 21: Responsibility for payment of wages


(1) 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 prescribed.
(2) Every principal employer shall nominate a representative duly authorised by him to
be present at the time of disbursement of wages by the contractor and it shall be the
duty of such representative to certify the amounts paid as wages in such manner as
may be prescribed.
(3) It shall be the duty of the contractor to ensure the disbursement of wages in the
presence of the authorised representative of the principal employer.
(4) 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 object and purpose of S. 21 is to ensure that wages are paid by the contractor. If
the contractor fails to pay wages that he is legally bound to pay, then the principal employer
is under an obligation to pay the said wages and get reimbursed or consider as a debt payable
by the contractor, as the case may be, under S. 21 of the Act.

Senior Regional Manager, Food Corporation of India, Calcutta v. Tulsi Das


Bauri41
This appeal by special leave arose from the judgment of the Division Bench of the High Court

40. AIR 1974 SC 960.


41. AIR 1997 SC 2446.
316  Labour and Industrial Laws

of Calcutta that respondents were engaged as contract labour by Bhagwat Prasad Choudhury,
contractor, and while they were working, they were refused payment of the full wages. As
a consequence, they laid claim for payment of the amount. Ultimately, the Division Bench
directed, by the impugned judgment, that the appellant shall be liable to pay the arrears of the
balance of the amount of the wages.
The learned counsel appearing for the appellant contended that the arrears of wages are
not wages under S. 21 of the Contract Labour (Regulation and Abolition) Act, 1973 and that,
therefore, the appellant is not liable to make the payment to the respondents. The Supreme
Court rejected the contention and observed that S. 21 postulates the responsibility for payment
of wages. Under S. 21(1), a contractor shall be responsible for the 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 prescribed.
Whereas S. 21(4) prescribes that 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 deducting from any amount payable to the contractor under any contract
or as a debt payable by the contractor. That liability has been prescribed under sub-section (2)
of S. 21 of the Act thereof which says that every principal employer shall nominate a
representative duly authorised by him to be present at the time of disbursement of wages by
the contractor and it shall be the duty of such representative to certify the amounts paid as
wages in such manner as may be prescribed. Thus, it is clear that the principal employer is
required to pay the wages. The term ‘wages’ includes the balance of wages or arrears thereof.
Under these circumstances, the Supreme Court dismissed the appeal.

Chapter VI

PENALTIES AND PROCEDURE

Section 22: Obstructions


(1) Whoever obstructs an inspector in the discharge of his duties under this Act or
refuses or wilfully 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.
(2) Whoever wilfully 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.
Chapter 3  The Contract Labour (Regulation and Abolition) Act, 1970 317
Section 23: Contravention of provisions regarding employment
of contract labour
Whoever contravenes any provision of this Act or of any rules made thereunder prohibiting,
restricting or regulating the 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.

Section 24: Other offences


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.

Section 25: Offences by companies


(1) 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 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 sub-section 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.
(2) 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.
Explanation: For the purpose of this section—
(a) “company” means any body corporate and includes a firm or other association of
individuals; and
(b) “director”, in relation to a firm, means a partner in the firm.

Section 26: Cognizance of offences


No court shall take cognizance of any offence under this Act except on a complaint made by,
or with the previous sanction in writing of, the inspector and no court inferior to that of a
318  Labour and Industrial Laws

Presidency Magistrate or a Magistrate of the first class shall try any offence punishable under
this Act.

Section 27: Limitation of prosecutions


No court shall take cognizance of an offence punishable under this Act unless the complaint
thereof is made within three months from the date on which the alleged commission of the
offence came to the knowledge of an inspector:
Provided that where the offence consists of disobeying a written order made by an
inspector, complaint, thereof may be made within six months of the date on which the offence
is alleged to have been committed.

Chapter VII

MISCELLANEOUS

Section 28: Inspecting staff


(1) The appropriate government may, by notification in the Official Gazette, appoint
such persons as it thinks fit to be inspectors for the purposes of this Act, and define
the local limits within which they shall exercise their powers under this Act.
(2) Subject to any rules made in this behalf, an inspector may, within the local limits
for which he is appointed—
(a) enter, at all reasonable hours, with such assistance (if any), being persons in the
service of the Government or any local or other public authority as he thinks
fit, any premises or place where contract labour is employed, for the purpose of
examining any register or record or notice required to be kept or exhibited by
or under this Act or rules made thereunder, and require the production thereof
for inspection;
(b) examine any person whom he finds in any such premises or place and who, he
has reasonable cause to believe, is a workman employed therein;
(c) require any person giving out work and any workman, to give any information,
which is in his power to give with respect to the names and addresses of the
person to, for and from whom the work is given out or received, and with
respect to the payments to be made for the work;
(d) seize or take copies of such register, record of wages or notices or portions
thereof as he may consider relevant in respect of an offence under this Act
which he has reason to believe has been committed by the principal employer
or contractor; and
(e) exercise such other powers as may be prescribed.
(3) Any information required to produce any document or thing or to give any information
required by an inspector under sub-section (2) shall be deemed to be legally bound
Chapter 3  The Contract Labour (Regulation and Abolition) Act, 1970 319
to do so within the meaning of section 175 and section 176 of the Indian Penal
Code, 1860 (45 of 1860).
(4) The provisions of the Code of Criminal Procedure, 1898 (5 of 1898), shall, so far
as may be, apply to any search or seizure under sub-section (2) as they apply to any
search or seizure made under the authority of a warrant issued under section 98 of
the said Code.

Section 29: Registers and other records to be maintained


(1) Every principal employer and every contractor shall maintain such registers and
records giving such particulars of contract labour employed, the nature of work
performed by the contract labour, the rates of wages paid to the contract labour and
such other particulars in such form as may be prescribed.
(2) Every principal employer and every contractor shall keep exhibited in such manner
as may be prescribed within the premises of the establishment where the contract
labour is employed, notices in the prescribed form containing particulars about the
hours of work, nature of duty and such other information as may be prescribed.

Section 30: Effect of laws and agreements inconsistent with


this Act
(1) The provisions of this Act shall have effect notwithstanding anything inconsistent
therewith contained in any other law or in the terms of any agreement or contract
of service, or in any standing orders applicable to the establishment whether made
before or after the commencement of the Act:
Provided that where under any such agreement, contract of service or standing orders
the contract labour employed in the establishment are entitled to benefits in respect of any
matter which are more favourable to them than those to which they would be entitled under
this Act, the contract labour shall continue to be entitled to the more favourable benefits in
respect of that matter, notwithstanding that they received benefits in respect of other matters
under this Act.
(2) Nothing contained in this Act shall be construed as precluding any such contract
labour from entering into an agreement with the principal employer or the contractor,
as the case may be, for granting them rights or privileges in respect of any matter
which are more favourable to them than those to which they would be entitled under
this Act.
Any clause which begins with the expression “notwithstanding anything contained in
this Act or in any other law for the time being in force” provides an overriding effect over
all the provisions of the Act as well as any other law for the time being in force in case
of conflict. By virtue of these words used in S. 30, it becomes clear that S. 30 will have
overriding effect over any provision of any other law, agreement or contract of service, or in
any standing orders in case of inconsistency.
320  Labour and Industrial Laws

The proviso further clarifies that the contract labour will continue to be entitled to the
more favourable benefits available to them under any agreement, contract of service or standing
orders in respect of any matters notwithstanding that they received benefits in respect of other
matters under this Act. Section 30(2) authorises the contract labour to enter into agreements
with the principal employer or contractor, as the case may be, for more favourable terms than
are provided under this Act.

Section 31: Power to exempt in special cases


The appropriate Government may, in the case of an emergency, direct, by notification in the
Official Gazette, that subject to such conditions and restrictions, if any, and for such period
or periods, as may be specified in the notification, all or any of the provisions of this Act or
the rules made thereunder shall not apply to any establishment or class of establishments or
any class of contractors.

Section 32: Protection of action taken under this Act


(1) No suit, prosecution or other legal proceedings shall lie against any registering
officer, licensing officer or any other Government servant or against any member of
the Central Board or the State Board, as the case may be, for anything which is in
good faith done or intended to be done in pursuance of this Act or any rule or order
made thereunder.
(2) No suit or other legal proceeding shall lie against the Government for any damage
caused or likely to be caused by anything which is in good faith done or intended
to be done in pursuance of this Act or any rule or order made thereunder.

Section 33: Power to give directions


The Central Government may give directions to the Government of any State as to the carrying
into execution in the State of the provisions contained in this Act.

Section 34: Power to remove difficulties


If any difficulty arises in giving effect to the provisions of this Act, the Central Government
may, by order published in the Official Gazette, make such provisions not inconsistent
with the provisions of this Act, as appears to it to be necessary or expedient for removing
the difficulty.
Section 34 of the Act was challenged before the Supreme Court as unconstitutional on
the ground of excessive delegation of power to the executive by the legislature in Gammon
India Ltd. v. Union of India.40 Reliance was placed by the petitioners on the decision of
the Supreme Court in Jalan Trading Co. v. Mazdoor Union.42 Section 34 of the Act in that
case authorised the Government to provide by order for removal of doubts or difficulties in

42. AIR 1967 SC 691.


Chapter 3  The Contract Labour (Regulation and Abolition) Act, 1970 321
giving effect to the provisions of the Act. The Court held that it is for the legislature to make
provisions for removal of doubts or difficulties. The section in that case contained a provision
that the order must not be inconsistent with the purposes of the Act. Another provision in the
section made the order of the Government final. The Court held that in substance there was
the vice of delegation of legislation to executive authority. Two reasons were given. First, the
section authorised the Government to determine for itself what the purposes of the Act were
and to make provisions for removal of doubts or difficulties. Secondly, the power to remove
the doubts or difficulties by altering the provisions of the Act would, in substance, amount
to exercise of legislative authority and that could not be delegated to an executive authority.
In the present case, neither finality nor alteration is contemplated in any order under S. 34
of the Act. Section 34 is for giving effect to the provisions of the Act. This provision is
an application of the internal functioning of the administrative machinery. Difficulties can
only arise in the implementation of rules. Therefore, S. 34 of the Act does not amount to
excessive delegation.

Section 35: Power to make rules


(1) The appropriate Government may, subject to the condition of previous publication,
make rules for carrying out the purposes of this Act.
(2) In particular, and without prejudice to the generality of the foregoing power, such
rules may provide for all or any of the following matters, namely—
(a) the number of persons to be appointed members representing various interests
on the Central Board and the State Board, the term of their office and other
conditions of service, the procedure to be followed in the discharge of their
functions and the manner of filling vacancies;
(b) the times and places of the meetings of any committee constituted under this Act,
the procedure to be followed at such meetings including the quorum necessary
for the transaction of business, and the fees and allowances that may be paid to
the members of a committee;
(c) the manner in which establishments may be registered under section 7, the levy
of a fee therefor and the form of certificate of registration;
(d) the form of application for the grant or renewal of a licence under section 13
and the particulars it may contain;
(e) the manner in which an investigation is to be made in respect of an application
for the grant of a licence and the matters to be taken into account in granting or
refusing a licence;
(f) the form of a licence which may be granted or renewed under section 12 and
the conditions subject to which the licence may be granted or renewed, the fees
to be levied for the grant or renewal of a licence and the deposit of any sum as
security for the performance of such conditions;
(g) the circumstances under which licences may be varied or amended under section
14;
(h) the form and manner in which appeals may be filed under section 15 and the
procedure to be followed by appellate officers in disposing of the appeals;
322  Labour and Industrial Laws

(i) the time within which facilities required by this Act to be provided and
maintained may be so provided by the contractor and in case of default on the
part of the contractor, by the principal employer;
(j) the number and types of canteens, rest-rooms, latrines and urinals that should be
provided and maintained;
(k) the type of equipment that should be provided in the first-aid boxes;
(l) the period within which wages payable to contract labour should be paid by the
contractor under sub-section (1) of section 21;
(m) the form of registers and records to be maintained by principal employers and
contractors;
(n) the submission of returns, forms in which, and the authorities to which, such
returns may be submitted;
(o) the collection of any information or statistics in relation to contract labour; and
(p) any other matter which has to be, or may be, prescribed under this Act.
(3) Every rule made by the Central Government under this Act shall be laid as soon as
may be after it is made, before each House of Parliament while it is in session for
a total period of thirty days which may be comprised in one session or in two
successive sessions, and if before the expiry of the session in which it is so laid or
the session immediately following, both Houses agree in making any modification
in the rule or both Houses agree that the rule should not be made, the rule shall
thereafter have effect only in such modified form or be of no effect, as the case may
be; so, however, that any such modification or annulment shall be without prejudice
to the validity of anything previously done under that rule.
(4) Every rule made by the State Government under this Act shall be laid, as soon as
may be after it is made, before the State Legislature.

Same or Similar Kind of Work


Rule 25 (Central) provides inter alia as follows:
“In cases where the workmen employed by the contractor perform the same or similar kind
of work as the workmen directly employed by the principal employer of the establishment,
the wage rates, holidays, hours of work and other conditions of service of the workmen of
the contractor shall be the same as applicable to the workmen directly employed by the
principal employer of the establishment on the same or similar kind of work:
   Provided that in the case of any disagreement with regard to the type of work, the same
shall be decided by the Chief Labour Commissioner (Central).”

In State of Haryana v. Charanjit Singh (AIR 2006 SC 161) the Supreme Court held
that the doctrine of ‘equal pay for equal work’ is not an abstract doctrine and is capable
of being enforced in a Court of law. But equal pay must be for equal work of equal value.
The principle of ‘equal pay for equal work’ has no mechanical application in every case. If
the educational qualifications are different, then also the doctrine may have no application.
A mere nomenclature designating a person as say a carpenter or a craftsman is not enough
to come to the conclusion that he is doing the same work as another carpenter or craftsman
Chapter 3  The Contract Labour (Regulation and Abolition) Act, 1970 323
in regular service. The quality of work which is produced may be different and even the
nature of work assigned may be different. It is not just a comparison of physical activity. The
application of the principle of ‘equal pay for equal work’ requires consideration of various
dimensions of a given job. The accuracy required and the dexterity that the job may entail
may differ from job to job. It cannot be judged by the mere volume of work. There may be
qualitative difference as regards reliability and responsibility. Functions may be the same but
the responsibilities made a difference. Thus normally the applicability of this principle must
be left to be evaluated and determined by an expert body. These are not matters where a
writ Court can lightly interfere. Normally a party claiming ‘equal pay for equal work’ should
be required to raise a dispute in this regard. In any event the party who claims ‘equal pay
for equal work’ has to make necessary averments and prove that all things are equal. Thus,
before any direction can be issued by a Court, the Court must first see that there are necessary
averments and there is a proof. If the High Court, is on basis of material placed before it,
convinced that there was equal work of equal quality and all other relevant factors are fulfilled
it may direct payment of equal pay from the date of the filing of the respective writ petition.
Rule 25 requires that the Commissioner is to analyse the pleadings, evidence and
documents placed on record and to arrive at a conclusion as to whether the workmen are
performing the same duties as have been performed by the regular employees.
In Panki Thermal Station v. Vidyut Mazdoor Sangthan (AIR 2009 SC 2373) the Supreme
Court provides guidelines to the Labour Commissioner how to reach into conclusion that both
contract labour and pay-roll employees are performing same and similar work so that Rule
25 could be applied. The Supreme Court held that in the Commissioner’s order there is no
discussion as to how the Commissioner arrived at the conclusion about similarity of work. The
Commissioner ought to have considered on the basis of pleadings and materials placed by the
parties. The Commissioner was required to arrive at a conclusion that the workmen had been
performing the same duties as are being performed by regular employees.
In U.P. Rajya Vidyut Utpadan Board v. U.P. Vidyut Mazdoor Sangh [AIR 2010 SC
(Supp) 300] the Supreme Court interpreted the concept of “same and similar” and provides
some inputs what constitutes same and similar thereby Rule 25 would be attracted. The fact
of the case is as follows:
Uttar Pradesh Vidyut Mazdoor Sangh (hereinafter referred to as ‘Union’), made an
application under Rule 25(2)(v)(a) of the Uttar Pradesh Contract Labour (Regulation and
Abolition) Rules, 1975, (‘Rules, 1975’ for short) before the Labour Commissioner, Kanpur
praying therein that order be passed for payment of the same wages and other facilities in
favour of contract labour working in second filtration plant of Anpara Thermal Power Project
as are being paid by the employer to its employees in the main filtration plant. The Union set
up the case that there are two filtration plants in Anpara Thermal Power Project; out of these
plants in one plant (for the sake of convenience, hereinafter referred to as ‘main plant’) regular
employees are employed by the Electricity Board while in the other filtration plant, contract
labour is being employed through contractors. In both filtration plants, the nature of work
done by all these employees is same but the workers are paid their wages at different rates.
Twenty six workers, who have been directly appointed by the Electricity Board, are being
paid regular pay scale with permissible allowances etc. while twenty eight contract workers
engaged through two contractors are paid at the rate of ` 61 per day for unskilled work and
324  Labour and Industrial Laws

` 71.50 per day for semi-skilled work. The Union asserted that work in both the filtration
plants is of the same nature.
U.P. Rajya Vidyut Utpadan Board resisted the application made by the Union on diverse
grounds. That there are two water filtration plants in Anpara Thermal Power Project was
admitted. However, it was submitted that main filtration plant is permanent having the capacity
of treating three million gallons water per day while the second one is temporary having the
capacity of treating three lac gallons per day. It was further submitted that from permanent
filtration plant, supply is given to the entire colony and ITI passed/trained operators are being
appointed by the department to run it; these appointments are made by the selection committee
through selection procedure on the basis of eligibility and advertisement by the Board. The
permanent plant runs 24 hours; it has six pumps and each has the capacity of 170 H.P. The
chemicals are mixed at this plant mechanically and for its operation eligible and responsible
employees are required. In the other filtration plant which is of temporary nature, employees
are engaged through contractor for its operation. The temporary filtration plant is operated by
skilled and semi-skilled employees who are engaged by contractors. These workers are paid
wages at the rate declared by the labour department. The Board submitted before the Labour
Commissioner that the work of the employees in the two filtration plants cannot be compared
and, therefore, the employees working in the temporary filtration plant are not entitled to the
same wages and facilities as are being paid to the regular employees working in the main
filtration plant.
The Labour Commissioner, however, did not considered the reply submitted by the Board
and vide his order dated October 24, 1998 held that the contract labour in temporary filtration
plant should be paid the wages at the rate admissible to the workers in the main plant.
The Board challenged the order of the Labour Commissioner by filing writ petition
before the High Court of Allahabad. The Single Judge dismissed the writ petition on May 14,
1999 holding that the findings recorded by the Labour Commissioner required no interference.
Same view was also endorsed by the Divisional Bench as well.
The Supreme Court observed that Rule 25(2)(v)(a) incorporates the principle of ‘equal
pay for equal work’. By statutory provision, it is mandated that the employees engaged by
the employer through contractor who perform the same or similar kind of work must be
paid the same wages and facilities as being paid to the employees employed directly by the
principal employer of the establishment. In case of any controversy as to whether the workmen
employed by the contractor perform the same or similar kind of work as employed directly by
the principal employer of the establishment, the Labour Commissioner has been empowered
to resolve such dispute.
The Supreme Court further observed that (which may be considered the most important
observation from the management’s perspective):
“Nature of work, duties and responsibilities attached thereto are relevant in comparing and
evaluating as to whether the workmen employed through contractor perform the same or
similar kind of work as the workmen directly employed by the principal employer. Degree
of skill and various dimensions of a given job have to be gone into to reach a conclusion
that nature of the duties of the staff in two categories are on par or otherwise. Often the
difference may be of a degree. It is well settled that nature of work cannot be judged
by mere volume of work; there may be qualitative difference as regards reliability and
responsibility.”
Chapter 3  The Contract Labour (Regulation and Abolition) Act, 1970 325
In the instant case, the Labour Commissioner has not evaluated the facts placed before
it. The order of the Labour Commissioner passed on October 24, 1998 which reads as follows:
“I have fully considered all the facts and perused the records and documents produced
by the parties. On the basis of the facts submitted, there is no reason before me on the
basis of which the contract labour engaged through contractors who is working the similar
work, should be given wages at a lesser rate than the permanent employees. Only minimum
qualification could be the basis for the worker of both the plants to some extent. Therefore,
considering all the facts my opinion is that 28 contract labour in temporary plant through
contractor M/s. Eastern Engineering Corporation and M/s. Kheroni Constructions Company
should be paid the wages at the rate admissible to the workers/labours in permanent plant.
This is my decision in respect of application ... .”
As a matter of fact, the present appellants specifically set out the details of works in
two water filtration plants thus:
There are two water filtration plants in Anpara Project. One is permanent having
the capacity of treating 3 million Gallon water per day (3 M.G.D.) or 30 lacs gallon per
day and the second is temporary having capacity of treating 3 million Gallons per day i.e.
3 lacs gallons per day. From permanent treatment plant, water supply is given to the entire
permanent colony. This plant is very important and permanent. Therefore, I.T.I. passed/
trained operators are being appointed by the department to run it. The appointments are being
made by the Selection Committee through selection procedure on the basis of eligibility and
advertisement by the Board. Therefore, the operators and employees appointed on this plant
are permanent employees of the department and they are fully responsible for the work done
by them. The equipments installed at this plant are of permanent nature and it is being run
24 hours (day and night). There are 6 pumps at this plant and each has the capacity of
170 H.P. and consumes 9302.40 watts electricity. The chemicals are mixed at this plaint
mechanically and for its operation eligible and responsible employees are required. The salary
of these employees comes in the payscale of permanent employees who have been appointed.
There are 26 employees have been appointed and working in this plant.
The other filtration plant is of temporary nature and is being operated till the next phase
of the project is completed and after the completions of next phase it will be closed. From this
plant water is supplied to the temporary colony and project area. It is being operated through
contractor. The Department makes the payment to the contractor on the basis of item wise
as per the work executed and not labour wise. The contractor used to make payment to his
employees on the basis of minimum wages declared by the Government from time to time
and not less than that amount. The contractor gets this plant operated by his 3 unskilled and
3 semi-skilled employees.
It is submitted that the above facts show that it will not be justiciable to compare the
work and facilities of the employees working in permanent filtration plant with the employees
working in Temporary Filtration Plant. The Labour Commissioner did not apply its mind
judiciously rather reached into conclusion which is unwarranted. The Labour Commissioner
ought to have evaluated to the nature of duties of the staff in the two categories, degree
of skill and dimensions of the job for reaching the conclusion that the work done by the
contract labour in the second filtration plant is same or similar to the kind of work done by
the employees employed by the principal employer directly in the main plant. There is no
discussion at all by the Labour Commissioner as to how he arrived at the conclusion about
326  Labour and Industrial Laws

similarity of work. The evidence let in by the parties and the materials placed by them seem
to have not at all been considered by the Labour Commissioner.
Therefore the Supreme Court allowed the appeal and held as follows:
“We are afraid, the consideration of the question as to whether the workmen employed
by the contractors in the second filtration plant perform the same or similar kind of work
as the employees directly employed by the principal employer in the main plant by the
Labour Commissioner as well as High Court is highly unsatisfactory. In a situation such as
this, we are constrained to set aside the impugned judgment of the High Court as well as
the order dated October 24, 1998 passed by the Labour Commissioner, Uttar Pradesh. The
application made by the Union under Rule 25(2)(v)(a) of the Rules, 1975 is restored to the
file of Labour Commissioner, Kanpur, Uttar Pradesh for fresh consideration in accordance
with law.”

Sham and Camouflage


But where there is no abolition of contract labour under Section 10 of CLRA Act, but the
contract labours contend that the contract between principal employer and contractor is
sham and nominal, the remedy is purely under the Industrial Disputes Act. The principles
in Gujarat Electricity Board case (Gujarat Electricity Board, Thermal Power Station Ukai
v. Hind Mazdoor Sabha, AIR 1995 SC 1893) continue to govern the issue. The remedy of
the workmen is to approach the industrial adjudicator for an adjudication of their dispute that
they are the direct employees of the principal employer and the agreement is sham, nominal
and merely a camouflage, even when there is no order under Section 10(1) of CLRA Act.
The industrial adjudicator can grant the relief sought if it finds that contract between principal
employer and the contractor is sham, nominal and merely a camouflage to deny employment
benefits to the employees and that there is in fact a direct employment. The Supreme Court
evolved the following tests like:
(i) who pays the salary;
(ii) who has the power to remove/dismiss from service or initiate disciplinary action;
(iii) who can tell the employee the way in which the work should be done, in short who
has direction and control over the employee.
But 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 sham/nominal and camouflage,
then the question of directing the principal employer to absorb or regularize the services of
the contract labour does not arise. The tests that are applied to find out whether a person is
an employee or an independent contractor may not automatically apply in finding out whether
the contract labour agreement is a sham, nominal and is a mere camouflage. For example,
if the contract is for supply of labour, necessarily, the labour supplied by the contractor will
work under the directions, supervision and control of the principal employer but that would
not make the worker a direct employee of the principal employer, if the salary is paid by
the contractor, if the right to regulate employment is with the contractor, and the ultimate
supervision and control lies with the contractor. The principal employer only controls and
directs the work to be done by a contract labour, when such labour is assigned/allotted/sent to
him. But it is the contractor as employer, who chooses whether the worker is to be assigned/
Chapter 3  The Contract Labour (Regulation and Abolition) Act, 1970 327
allotted to the principal employer or used otherwise. In short, worker being the employee
of the contractor, the ultimate supervision and control lies with the contractor as he decides
where the employee will work and how long he will work and subject to what conditions.
Only when the contractor assigns/sends the worker to work under the principal employer,
the worker works under the supervision and control of the principal employer but that is
secondary control. The primary control is with the contractor.
In Secretary, Haryana State Electricity Board v. Suresh (AIR 1999 SC 1160) the
Supreme Court while considering the factual situations which are considered by the Labour
Court observed that it was found by the Labour Court and as confirmed by the High Court
that the so called contractor Kashmir Singh was a mere name lender and had procured labour
for the Board from the open market. He was almost a broker or an agent of the Board for that
purpose. The Labour Court also noted that the Management witness Shri A.K. Chaudhary also
could not tell whether Shri Kashmir Singh was a licensed contractor or not. That workman
had made a statement that Shri Kashmir Singh was not a licensed contractor. Under these
circumstances, it has to be held that factually there was no genuine contract system prevailing
at the relevant time wherein the Board could have acted as only the principal employer and
Kashmir Singh as a licensed contractor employing labour on his own account. It is also
pertinent to note that nothing was brought on record to indicate that even the Board at the
relevant time, was registered as principal employer under the Contract Labour Regulation
and Abolition Act. Once the Board was not a principal employer and the so called contractor
Kashmir Singh was not a licensed contractor under the Act, the inevitable conclusion that had
to be reached was to the effect that the so called contract system was a mere camouflage,
smoke and a screen and disguised in almost a transparent veil which could easily be pierced
and the real contractual relationship between the Board, on the one hand, and the employees,
on the other, could be clearly visualized.
The Constitution Bench of the Supreme Court, in SAIL 2001(SAIL-I) case made it
clear that neither Section 10 nor any other provision in CLRA Act provides for automatic
absorption of contract labour on issuing a notification by the appropriate Government under
Section 10(1) of the CLRA Act and consequently the principal employer cannot be required
to absorb the contract labour working in the establishment. The Court further held that on
a prohibition notification being issued under Section 10(1) of the CLRA Act, prohibiting
employment of contract labour in any process, operation or other work, if an industrial
dispute is raised by any contract labour in regard to conditions of service, the industrial
adjudicator will have to consider whether the contractor has been interposed either on the
ground of having undertaken to produce any given result for the establishment or for supply
of contract labour for work of the establishment under a genuine contract, or as a mere ruse/
camouflage to evade compliance with various beneficial legislations so as to deprive the
workers of statutory benefits. If the contract is found to be sham or nominal and merely a
camouflage, then the so-called contract labours will have to be treated as direct employees
of the principal employer and the industrial adjudicator should direct the principal employer
to regularize their services in the establishment subject to such conditions as it may specify
for that purpose. On the other hand, if the contract is found to be genuine and at the same
time there is a prohibition notification under Section 10(1) of CLRA Act, in respect of the
establishment, the principal employer intending to employ regular workmen for the process,
328  Labour and Industrial Laws

operation or other work of the establishment in regard to which the prohibition notification
has been issued, it shall give preference to the erstwhile contract labour if otherwise found
suitable, if necessary by giving relaxation of age. The Supreme Court in SAIL-I (2001)
case did not specifically deal with the legal position as to when a dispute is brought before
the Industrial Adjudicator as to whether the contract labour agreement is sham, nominal
and merely a camouflage, when there is no prohibition notification under Section 10(1) of
CLRA Act.
Further, the Supreme Court in 2009 in International Airport Authority of India v.
International Air Cargo Workers’ Union (AIR 2009 SC 3063) held that where there is no
abolition of contract labour under Section 10 of CLRA Act, but the contract labour contends
that the contract between principal employer and contractor is sham and nominal, the remedy
is purely under the Industrial Disputes Act. The industrial adjudicator can grant the relief
sought if it finds that contract between principal employer and the contractor is sham, nominal
and merely a camouflage to deny employment benefits to the employees and that there is in
fact a direct employment, by applying tests like:
(i) who pays the salary;
(ii) who has the power to remove/dismiss from service or initiate disciplinary action;
(iii) who can tell the employees the way in which the work should be done, in short who
has direction and control over the employees.
The facts of the International Airport Authority of India v. International Air Cargo
Workers’ Union (AIR 2009 SC 3063) are as follows:
The International Airport Authority of India (IAAI) established a cargo complex at
Madras. Under an agreement it granted a licence to a private company to be its ground
handling agent in respect of export, import and transshipment of cargo consignments. Under
the said agreement, licensee (Airfreight) was to receive payment from the owners of the cargo
for the work done, had to engage the services of required number of workers for handling
the cargo and be responsible for payment of wages to the workers. It was also required to
pay a licence fee to IAAI. Subsequently, IAAI decided to take over the ground handling
work and entrust it to a new licensee by inviting competitive tenders. Therefore, IAAI
informed its licensee that the ground handling agency operations should be handed over to
its officers. In the circumstances, the workers employed by the licensee in connection with
the ground handling work, who were likely to be retrenched/discharged, made an appeal to
IAAI to provide them employment. They also filed a writ petition seeking a direction to IAAI
to employ all those workers who had been employed by the licensee in connection with the
ground handling work at the Madras Airport cargo complex. In view of the appeal made by
the said workers, IAAI unilaterally came forward with a scheme to mitigate their hardship,
and filed a memo before the High Court. Under the scheme IAAI offered to accommodate
the workers, except by way of regular absorption, in services of IAAI till it makes its own
arrangement by giving contract for handling of cargo to a Society to be formed by workers of
erstwhile licensee. The High Court recorded the memo filed by IAAI and dismissed the writ
petition in view of the agreement expressed by the counsel for Workers Union. Thereafter,
a Society was formed and IAAI entered into a contract with the Society to provide workers
for handling of cargo. When the term of contract was coming to an end, the workers raised
Chapter 3  The Contract Labour (Regulation and Abolition) Act, 1970 329
an industrial dispute demanding direct employment in service of IAAI. On a reference being
made the Industrial Tribunal directed absorption of workers in services of IAAI on ground
that the memo filed by IAAI in writ petition was a ploy to defeat legitimate right of workers
to permanent status. The memo was a settlement and the Workers Union was pressurized to
enter into the settlement. The contract entered into with workers’ Society was sham, nominal
or camouflage.
The Supreme Court held that the memorandum filed by IAAI was not a settlement
between the parties, but was only an unilateral proposal by IAAI in a pending writ petition,
and in view of the fact that the Union was agreeable to such a course and did not press the
relief of absorption or direct employment under IAAI, it is not possible to hold that the terms
of the memorandum were terms of a settlement arrived at by IAAI from a dominant position,
by applying pressure on the workers. This is not a case of the workers giving up any right
or interest, but a case of a benefit or concession being voluntarily extended by IAAI as a
responsible organization, to mitigate hardship.
The finding that the workers were entitled to continue as direct casual labour of
IAAI but for change in their status as contract labour, affected by IAAI is incorrect. The
workers were the employees of licensee. IAAI had no obligation to give them employment
on termination of licence. It was only on humanitarian grounds and to mitigate the hardship
of these workers, IAAI proposed to give the cargo handling work to the society of workers.
It also agreed purely as an interim measure to employ them as casual labourers till contract
with society gets entered. Therefore, the direct casual employment given to the workers was
purely an interim or ad hoc measure as part of the package proposal made by IAAI in its
memorandum. The workers worked for less than 240 days as casual labourers under IAAI and
were not entitled to claim the benefit of neither Section 25F nor regularisation on the basis of
such short casual service as daily rated employees.
The fact that IAAI was directly making payment to workers of society and also was
taking penal action on workers is based on no evidence. As such the finding that the contract
for supply of contract labour was paper contract is improper. Merely because the contract
labours work is under the supervision of the officers of the principal employer, it cannot be
taken as evidence of direct employment under the principal employer.
In International Airport Authority of India case, the following three questions arise for
consideration of the Supreme Court:
(i) Whether the agreement between the contractor society and the IAAI in regard to
cargo handling work was sham and nominal and consequently, the workers engaged
as contract labour in regard to cargo handling work, were the direct employees of
IAAI?
(ii) Whether the status of loaders-cum-packers engaged in cargo handling work was
illegally changed from that of direct casual labour to contract labour in violation of
Section 9A of the Industrial Disputes Act, 1947?
(iii) In the absence of a notification under Section 10 of CLRA Act prohibiting
the employment of contract labour in the process/operation of cargo handling
work, whether the workmen employed as contract labour are entitled to claim
absorption?
330  Labour and Industrial Laws

Considering the facts of the case the Supreme Court held as follows:
(i) The contract labour agreement between IAAI and the society was not sham, nominal
or as a camouflage and the contract labour were not the direct employees of IAAI.
(ii) There was no violation of Section 9A of the Industrial Disputes Act.
(iii) In the absence of a notification under Section 10 of CLRA Act prohibiting the
employment of contract labour in the operation of cargo handling work, the workmen
employed as contract labour are not entitled to claim absorption.
In Bengal Nagpur Cotton Mills v. Bharat Lal, (2011) 1 SCC 635 where the Supreme
Court cited the decision of International Airport Authority v. International Air Cargo Workers’
(AIR 2009 SC 3063) which reads as follows:
“If the contract is for supply of labour, necessarily, the labour supplied by the contractor
will work under the directions, supervision and control of the principal employer but that
would not make the worker a direct employee of the principal employer, if the salary is paid
by contractor, if the right to regulate employment is with the contractor, and the ultimate
supervision and control lies with the contractor.
The principal employer only controls and directs the work to be done by a contract labour,
when such labour is assigned/allotted/sent to him. But it is the contractor as employer, who
chooses whether the worker is to be assigned/allotted to the principal employer or used
otherwise. In short, worker being the employee of the contractor, the ultimate supervision
and control lies with the contractor as he decides where the employee will work and how
long he will work and subject to what conditions. Only when the contractor assigns/sends
the worker to work under the principal employer, the worker works under the supervision
and control of the principal employer but that is secondary control. The primary control is
with the contractor.”

It is submitted that the Supreme Court has indirectly allowed the Principal Employer
to have only secondary supervision and secondary control which would not be a ground for
declaring the contract labour as the employee of Principal Employer and it may not fall within
the realm of sham and camouflage.
In 2014 in National Aluminium Co. Ltd v. Ananta Kishore Rout [AIR 2014 SC (Supp)
1469] where NALCO had established two schools for the benefit of the wards of its employees.
The Writ Petitions were filed by the employees of each school for a declaration that they be
treated as the employees of NALCO on grounds of, inter alia, real control and supervision
by NALCO. The Supreme Court while answering the issue observed that it is the duty of the
Court to ascertain whether there is complete control and supervision by the NALCO. In this
regard, reference was made to the case of Workmen of Nilgiri Coop. Mkt. Society Ltd. v. State
of T.N. (2004) 3 SCC 514, wherein this Court had observed as follows:
“The control test and the organization test, therefore, are not the only factors which can
be said to be decisive. With a view to elicit the answer, the Court is required to consider
several factors which would have a bearing on the result: (a) who is the appointing authority;
(b) who is the paymaster; (c) who can dismiss; (d) how long alternative service lasts;
(e) the extent of control and supervision; (f) the nature of the job e.g. whether it is
professional or skilled work; (g) nature of establishment; (h) the right to reject.”
Accordingly the Supreme Court held that there may have been some element of control
with NALCO because its officials were nominated to the Managing Committee of the said
Chapter 3  The Contract Labour (Regulation and Abolition) Act, 1970 331
schools. However, it was observed that the above-said fact was only to ensure that the schools
run smoothly and properly. In this regard, the Court observed as follows:
“. ... However, this kind of “remote control” would not make NALCO the employer of these
workers. This only shows that since NALCO is shouldering and meeting financial deficits,
it wants to ensure that the money is spent for the rightful purposes.”
In 2014 in Balwant Rai Saluja v. Air India Ltd. (2014) 9 SCC 407 the Supreme Court
while dealing with a statutory canteen issue held as follows:
“The workers engaged by a contractor to work in the statutory canteen of a factory would
be the workers of the said factory, but only for the purposes of the Act, 1948, and not for
other purposes, and further for the said workers, to be called the employees of the factory
for all purposes, they would need to satisfy the test of employer–employee relationship and
it must be shown that the employer exercises absolute and effective control over the said
workers.”
In 2018 in Chennai Port Trust v. The Chennai Port Trust Industrial Employees’ Canteen
Workers Welfare Association and Ors [2018 LLR 612 (S.C.)] where the Chennai Port Trust
engaged the contract labour through a Co-operative society called “Chennai Port Trust Industrial
Employees Co-operative Canteen Limited” to run and manage the canteen. It has been running
since 1964. The employees working in the canteen have formed an Association known as
“Chennai Port Trust Industrial Employees Canteen Workers Welfare Association.”(Here in
after Association)
The Association filed a writ petition in the High Court at Madras against the Chennai
Port Trust espousing the cause of their members (employees working in the Canteen) and
sought a writ of mandamus against the Chennai Port Trust directing the Port Trust to treat the
employees working in the Canteen to be the regular employees of the Chennai Port Trust and
accordingly pay them all attendant and monetary benefits at par with the regular employees
of the Chennai Port Trust.
The Chennai Port Trust mainly opposed the writ petition on two issues:
First, the Chennai Port Trust has no control whatsoever over any of the activities of the
Canteen in question including any control over its employees; and
Second, the question as to whether the canteen employees are to be treated as employees of
the Chennai Port Trust or not is a question of fact, and, therefore, the writ petition is not the
effective remedy to decide this question. According to the Chennai Port Trust, such issues
should be raised before the Industrial Tribunal for its adjudication.

The Writ Court (Single Judge) allowed the writ petition filed by the Association and
accordingly issued a writ of mandamus against the Chennai Port Trust and granted the reliefs
claimed by the Association. The Chennai Port Trust felt aggrieved and filed intra court appeal
before the Division Bench in the High Court. The Division Bench dismissed the appeal and
upheld the order of the Single Judge, which has given rise to filing of the present appeal
before the Supreme Court by way of special leave by the Chennai Port Trust.
The Supreme Court relied upon its earlier judgement of Indian Petrochemicals
Corporation Ltd. and Anr. v. Shramik Sena & Ors., [(1999) 6 SCC 439] where the issues and
facts of the Petrochemical Corporation case are similar to the case in hand. The fact of the
case reveals that:
332  Labour and Industrial Laws

(a) The Rules framed by the Society for running the canteen shall be subject to the
approval of the Chairman is not denied. This proves that the ultimate control of the
administration of the canteen is with the Port Trust.
(b) It is only the workers belonging to the Port Trust who are eligible to become
members of the Society and not others.
(c) It is only the nominee of the Port Trust who can act as the Chairman of the
Co-operative Society.
(d) The Port Trust administration has the right to audit the accounts of the canteen.
(e) Contractors shall be nominated by the Registrar only in consultation with the
Chairman of the Chennai Port Trust.
(f) The Executive Engineer (Mechanical) of the Port Trust has been nominated as the
President of the canteen and the entire canteen affairs are handled and controlled by
the Chief Mechanical Engineer of the Port Trust.
(g) The financial matters are controlled by the Financial Adviser and Chief Accounts
Officer of the Port Trust.
Therefore the Supreme Court dismissed the appeal and held that all canteen workers
would be declared as the employees of the Port Trust.
In 2018 in Food Corporation of India v. Gen. Secy. FCI India Employees Union and
Others [2018 LLR 1057 (S.C.)] where the FCI in its Chennai Branch Office engaged 955
contract labour through a Contract Labourers’ Society to carry out the business operation.
A dispute arose between FCI and around 955 employees working in the Branch office
at Chennai as to whether these 955 employees are the employees of the FCI or they are
employed by the Contract Labourers’ Society to work in the FCI to carry out their business
operation and secondly, whether these 955 employees are entitled to claim regularization of
their services as FCI employees.
As the dispute could not be resolved amicably hence the matter was referred to Industrial
Tribunal and the Tribunal held that 955 employees would be regularized by FCI. FCI filed
the writ petition where the Single Judge of the High Court dismissed the writ petition and
up held the award of Tribunal. FCI felt aggrieved and filed intra court appeal to the Division
Bench where the Division Bench also dismissed the appeal and hence FCI approached the
Supreme Court.
The Supreme Court observed that:
1. The agreement with the contract labourer for doing the work had come to an end in
1991 and thereafter it was not renewed;
2. All the 955 workers were being paid wages directly by the FCI;
3. The nature of work, which these workers were performing, was of a perennial nature
in the setup of the FCI;
4. All 955 workmen were performing their duties as permanent workers; and
5. No evidence was adduced by the FCI in rebuttal to prove their case against the
workers’ Union.
Therefore the Court held that 955 employees would be regularized.

*     *     *

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