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Do workers employed by the contractor automatically become the employees of the principal employer in absence of legal provision?


 In the case at hand, feeling aggrieved and dissatisfied with the impugned judgement and order dated 09.03.2018, passed by the learned Single Judge of the High Court of Madhya Pradesh at Indore in W.P. (S) No. 1083 of 2004, as well as the impugned judgement and order dated 12.11.2018, passed by the Division Bench of the High Court in W.A. (S) No. 813 of 2018, the High Court dismissed the said appeal(s) preferred by the appellant herein – employer, confirming the judgement and order passed by the Industrial Tribunal ordering reinstatement and directing that the workmen were employees of the appellant – principal employer, the appellant – Kirloskar Brothers Limited has preferred the current appeals.

Respondents Nos. 1–6 in this case were contractual labourers of respondent No. 7, who was a contractor hired by the appellant under a contract dated 22.04.1995, which was renewed on various occasions, including on 01.08.1995. The appellant and respondent No. 7 – contractor executed the requisite compliances under the Contract Labour (Regulation and Abolition) Act, 1970 (CLRA Act) upon entering into the contract. The labour contract expired on October 7, 1996. As a result, the contractor forewent the services of the responders. As a result, on January 25, 1997, the appellant submitted a return under the CLRA Act indicating that the contract with respondent No. 7 had ended.

According to the appellant, all statutory payouts, including workmen’s salaries, were paid by the contractor because, under the CLRA Act, the appellant would bear ultimate responsibility if these were not paid by the contractor. By letter dated April 6, 1996, the appellant told the contractor that a sum of Rs. 7,224/- will be deducted from the bill payable for non-deposit of PF contribution for May, 1995. Following that, the respondents petitioned at the Labour Court, claiming, among other things, that they were workers of the appellant who had been orally discharged by respondent No. 7 and wished to be reinstated. That the learned Labour Court, in its judgement and order dated 14.03.2002, returned a categorical ruling that the Contractor had secured a licence under the CLRA Act and that the contesting respondents were the contractor’s employees, not the appellant’s.

Following an appeal, the National Industrial Tribunal issued a ruling on February 5, 2004, ordering reinstatement and finding that a contract labourer automatically becomes an employee of the major company. Following that, the Industrial Tribunal evaluated the definitions of ’employee’ and ’employer’ found in Sections 2(13) and 2(14) of the Madhya Pradesh Industrial Relations Act, 1960 (hereinafter referred to as the “MPIR Act”). The Industrial Tribunal’s judgement and decree were upheld by the High Court.

After hearing both sides, the Hon’ble Supreme Court observed that it is an admitted position in the current matter that no notification under Section 10 of the CLRA Act forbidding contract labour has been issued by the State Government. The appellant and respondent No. 7 – contractor also completed the requisite compliance under the CLRA Act. The contractor terminated the services of the contesting respondents after the labour contract expired.

No documentary evidence was offered that could be used to establish that the contesting respondents were employees of the appellant. Section 10 of the CLRA Act makes no provision for workers/employees employed by the contractor to automatically become the appellant’s employees or the contractor’s employees to be entitled to automatic absorption or to become the employees of the major employer. It should be highlighted that the contractor was always in direct control and supervision of the contending respondents. There is no evidence on the record that the appellant provided any benefits, uniforms, or punching cards to any of the respondents.

Even otherwise, as previously stated, in the absence of a notification under Section 10 of the CLRA Act, unless there are allegations or findings of a sham contract, private respondents herein, who are as such the contractor’s workmen/employee, cannot be held to be employees of the appellant and not the contractor. In the present case, no notification under Section 10(1) of the CLRA Act forbidding contract labour was given, nor were there allegations or even determinations that the contract is fraudulent.



 It was determined that both the Industrial Tribunal and the High Court made grave errors in reinstating the opposing respondents and ordered the appellant – principal employer to accept them as employees. The CLRA Act governs the parties, and any relief given might have been awarded under the CLRA Act rather than the MPIR Act. The High Court’s judgements(s) and order(s) in W.P.(S) No. 1083 of 2004 and W.A. No. 813 of 2018, as well as the Industrial Tribunal’s judgement and order, were therefore quashed and set aside. The Labour Court’s judgement and award are hereby restored.

The appeals were allowed.


Link to the Judgment –

Written by- Amruthavarshini, Student at Jindal Global Law School


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