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Title ?Employer?s Liability under Contract Labour (Regulation and Abolition) Act, 1970?
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Article by Avneesh Kumar
Category Law Students

 Author’s Introduction

Name-     Avneesh Kumar, 3rd year student of B.A.LL.B. (Hons), Dr. Ram Manohar Lohiya National Law University

Title of the Paper-   

 Course-     B.A.LL.B. (Hons)

Year-   3rd year

Institute- Dr. Ram Manohar Lohiya National law university, Lucknow

Correspondence Address-  Avneesh Kumar, Student 3rd year B.A.LL.B.(Hons), Room No. – 272, Boys Hostel, Dr. Ram Manohar Lohiya National Law University, Sector D1, LDA, Kanpur Road Scheme, Lucknow- 226012 (Uttar Pradesh) India.

E-mail-   akakak.kumar7@gmail.com

Mob-        (0) 9548306485.

Mob- 2    (0) 9319396563



The system of employing contract labour there in most industries in different occupations including skilled and semi skilled jobs. Even it may be in the agriculture and allied services. .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 as per section 2(b) of the Contract Labour (Regulation and Abolition). One more thing is stipulated by the section that, that worker is hired with or without the knowledge of the employer, is immaterial.Contract workmen are indirect employees; they are persons, hired, supervised and remunerated by a contractor who, they are compensated by the establishment. Contract labourers may be employed for a specific work, which is for specific duration. But there are so many problems under the system of contract labour as like inferior labour status in comparison to the other regular workers, casual nature of employment, lack of security in work, and poor economic conditions. One perspective that is economic factors as like cost effectiveness may justify contract labour, but the extent of it must be determined another perspective, that is social justice.  

The Supreme Court of India in the case of Standard Vacuum Refinery Company Vs. their workmen[1] observed that-  If the work is of  perennial nature which must be done day by day, then the employer can easily hire the regular workers for it. Further the court went on to say that the situation would be different when the work is of intermittent or temporary nature or was so little that it would not be possible to employ full time workmen for this purpose.


The Contract Labour (Regulation and Abolition) Act, 1970 was enacted to regulate the conditions employment of Contract Labour in certain establishments and to abolition it in certain circumstances and for other matters connected therewith. The principal employers of those establishments, which are covered under the act, are required to be registered as principal employers under section 7 of the act, and further the contractors are required to obtain a licence and they shall not execute any work through contract labour except under and in accordance with the license issued in that behalf by the licensing officer as per section 12(1). The licence granted is subject to such conditions, including as to hours of work, fixation of wages and other essential amenities in respect of contract labour as laid down in the rules.


Payment of Wages

Section 21 deals with the liability of contractors and employers for the paying of wages. It is provided by section 21 (1), that contractor shall be liable to pay wages, in case he fails to do so the liability would lie upon the principle employer to pay the wages as per sec 21(4).


In the case of Senior Regional Manager, Food Corp. Of India, Calcutta. v Tulsi Das Bauri & Ors.[2]The employer agreed that section 21 imposes liability upon the employer to pay wages in case of default by contractor, but their contention was that the arrears of wages are not wages under Section 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. But it was held by the Supreme Court “we find no force in the contention. The principal employer is statutorily responsible to ensure payment of the wages as per the law. The term `wages' includes the balance of wages or arrears, so employer would be liable to pay”.


Absorption of Labourers on Abolition of Contract Labour

Section 10 is about Prohibition of employment of contract labour.- it says (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.


In Gujarat State Electricity Board v Union of India case[3], it was recommended by the Supreme Court that the Central Government should amend the Act by incorporating a suitable provision to refer to industrial adjudicator for providing direct employment for the workers of the ex-contractor in the principal establishments, when the appropriate Government abolishes the contract labour in some establishment, so that erstwhile worker would not be trouble.


In Air India Statutory Corporation v United Labour Union & Others case[4], the Supreme Court held that in spite of no express provision in the Act for absorption of employees in establishments where contract labour system is abolished by publication of the notification under section 10 (1) of the Act, the principal Employer is under statutory obligation to absorb the contract labourers. The linkage between the contractor and employee stood snapped and direct relationship stood restored between principal employer and contract labour as its employees as when the contract labour is abolished.


In the case of Steel Authority of India Ltd. Vs National Union of Waterfront Workers & Others[5], the Supreme Court dealt with the issue of absorption of the employees of the contract labour in case of the prohibition of the contract labour. In this case the appellant was Steel Authority of India, as per the notification of the government of West Bengal dated 15 July 1989, contract labour was abolished by exercising the powers under section 10 (1) in 4 specified stockyards of the company. Now, it was demand by the contract labourers that now they should be absorbed in the regular employment

In this case the contention of the Principal Employer were following-

  • The responsibilities of the principal employer under the CLRA Act arise only in the event of failure of the contractor to fulfil his statutory obligations under different sections and in such an event he is bound to reimburse the principal employer, therefore the relationship of master and servants exists between the contract labourers and the contractor and not between the principal employer and contract labourers.
  • When the government or its instrumentality will entrust some work to a contractor then the labourers cannot be taken as the servants of the principal employer (government), because their recruitment had not been done in conformity with the statutory service rules. If we take contrary approach given result would be creating a status of government servant for a person who was selected and appointed by contractor without conforming to the statutory requirements. It will obliterate the constitutional scheme for government employees, and further will create un-contemplated and un-imaginative burden on government.
  • The provisions of  Contract Labour Act do not make the contractor an agent for creating relationship of master and servant between the principal employer and the contract labour, in all such cases if the right for absorption is given it would amount to opening a new channel of recruitment and it could not have been the intention of the Parliament in enacting CLRA Act.
  • The statement of the objects and reasons did not talk about the automatic absorption the contract labour, which shows that the Parliament did not deliberately make a provision for it.

From the side of the workers following contentions were advanced-


  • that a contractor employing contract labour for any work of an establishment would, in law, create relationship of master and servant between the establishment (the principal employer) and the labour. The very fact that the workers were employed in connection with the industry creates such relationship.
  • If the automatic absorption is not provided to the workers then they would be even in worse position then they were before.
  • The primary objects of the labour laws is to effectuate the Directive Principles of State Policy and the provisions of CLRA Act should also be interpreted accordingly. The Act is enacted for improving the conditions of the workers, and automatic absorption is necessary for it.
  • Section 10 is there to remove the contractor from the picture, and if the condition of the automatic absorption is not applied than the situation will be worse than the evil which is sought to be removed.

After considering the argument and the counter arguments of both of the parties, that prior to Independence contract labour was a great problem for the labourers and it worked for the benefit of the workmen. For this reason there have been provisions in the Contract Labour Act, to abolish the practice in some establishments, and even where it is allowed, there have been provisions for providing different type of facilities, and payment of wages. But, the court said that it did not find under section 10 (deals with prohibition of Contract Labour), any inherent requirement which provides for automatic absorption in case of abolition of contract labour. Further the court dealt with some previous cases, specially the case of National Federation of Railway Porters, Vendors & Bearers vs. Union of India & Ors[6],in which workers were held to the workers not of contractor but of the principal employer, but the courts distinguished the case on the point that here the workers cannot be said to the workers of the principal employer. The court further went on to say that the principle that a welfare legislation is to be construed in favour of the class for whose benefit it was intended, would not be applicable as the sec. 10 or any other part of the act does not provide by necessary implication either directly or indirectly for the absorption of the workers.



Employer Liable to Pay Same Wages to Contract Labourer as to a Regular Labourer

In the case of B.H.E.L. Workers' Association Haridwar & Ors., Vs. UoI[7],.The petitioner-union contended in the writ petitions to this Court that out of the 16,000 and odd workers working within the premises of the respondent undertaking as many as one thousand workers were put in the category of  'contract labour' and they were put at the mercy of contractors and that although they did the same work as the regular workers directly employed by theundertaking, they were low than the wages paid to the regular workers, and further in spite of their conditions of service the same. It was further alleged that the management pays to the contractors and in turn the contractors pay them their salary after deducting very big commissions out of it and that the wages received by them bear no comparison with the wages paid to the directly employed worker by the undertaking.


It was held by the court that no particular distinction should be made only on the basis of contract labour. Contract labourers are entitled to the same wages, holidays, hours of work, and conditions of service as are applicable to workmen directly employed by the principal employer of the establishment on the same or similar conditions of work. They are entitled to recover their wages and their conditions of service in manner akin to as workers employed by the principal employer under the appropriate Industrial and Labour Laws.


The work which is done by the contract labour is similar to the work done by the regular workers or not, this thing is to be decided by the Chief Labour Commissioner under the provision to Rule 25 (ii) (v) (a) of the Contract Labour (Regulation and Abolition) Central Rules 1971. 


Further in the case of Steel Authority of India Ltd, vs. Authority under the Minimum Wages Act[8],it was reiterated by the High Court of Madhya Pradesh that Under Contract Labour (Regulation and Abolition) Act contractor's employees will be entitled to wages of regular employees if the same work has been performed by them.




Even today the contract labourers are not entitles to the same wages as the regular workers. In this regard there is proposed amendment in the Parliament.  As per the proposed amendment   contract workers will get the same wages, facilities and benefits as provided to the  regular employees. So even if contract workers have no security of tenure, they would get bettersalaries with health cover and social security benefits under the Employees’ State Insurance Corporation and Employees’ Provident Fund, respectively. Though there is no official fix on how many of India’s 450 million-odd workers are employed on contract[9], such workers’ exploitation is being seen as one of the reasons for rising industrial unrest in recent times. 
“Most contract workers are paid just 40% of regular wages with no social protection. To earn profit by exploiting labour cannot be allowed in a democratic country and welfare state.  The labour ministry also proposes a change in India’s contract law that will require all companies to mention wages paid to workers in the formal contract signed between companies and contractors who supply them the workers[10]. More over the judiciary is required to change its interpretation for the welfare of the weaker section i.e worker, although it would be much better if the Parliament would insert suitable provisions relating to automatic absorption of workers in the act itself.







  • Malik, P S, Industrial Law (21st edn EBC, Lucknow 2008)
  • Singh, Dr Avtar, Introduction to Labour and Indutrial Law’ (2nd edn LexisNexis Wadhwa, Nagpur 2008)

Internet References

[1]1960 AIR 948

[2]1997 II LLJ 747 (SC)

[3] 1995 AIR 1893.


[5] AIR 2001 SC 3527

[6]JT 1996 (6) 577 1996 SCALE (5)397

[7]1985 AIR 409.

[8]2007 LLR 79 (MP HC)

[9]Vikas Dhoot, ‘ Govt seeks to amend contract labor law’ 28 September, 2010 at http://economictimes.indiatimes.com/news/economy/policy/Govt-seeks-to-amend-contract-labour-law/articleshow/6640126.cms

[10]Maitreyee Handique, ‘Govt proposes law to ensure better wages for seasonal hires’ 17 January, 2010, at http://www.livemint.com/2010/01/17214535/Govt-proposes-law-to-ensure-be.html?d=1

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