Holding

The Act does not grant a right of absorption; such matters are factual and for labour tribunals, but the Court, considering prior interim orders, directed absorption of long‑serving contract workers as regular employees.

Summary

The petitioners, contract labourers employed through various contractors at SAIL's Rourkela plant for 10‑20 years, filed a writ petition under Article 32 seeking parity in pay and absorption as regular employees, alleging that the contractor arrangement was a camouflage to deny them rights. The Supreme Court held that the Contract Labour (Regulation and Abolition) Act, 1970 does not create a statutory right for contract workers to be absorbed by the principal employer; such questions of fact are ordinarily for Labour Courts or Industrial Tribunals under the Industrial Disputes Act. However, because the Court had already issued several interim orders allowing many of these workers to continue, it directed that all workers who had continuously served for ten years, were medically fit and below the age of superannuation, be absorbed as regular employees of SAIL, with seniority determined department‑wise and without entitlement to past wage differentials. The Court also laid down procedural details for identification and retrenchment. The writ petition was allowed and the related petitions were disposed.

Issues considered

The Contract Labour (Regulation and Abolition) Act, 1970, confers any right on contract labourers to be absorbed as regular employees of the principal employer.
Whether the engagement of labour through a contractor amounts to a camouflage that should be treated as direct employment under the Industrial Disputes Act.
Whether the Supreme Court can, under Article 32, direct absorption of contract labourers given the existence of prior interim orders.
The appropriate forum for adjudicating factual disputes concerning the employer‑employee relationship in contract labour cases.

Legislation cited

Constitution of Indias. Article 32
Contract Labour (Regulation and Abolition) Act, 1970s. 10, s. 12, s. 20, s. 21, s. 2(1)(b), s. 2(1)(c)
Industrial Disputes Act

Subjects

contract labourabsorptionregularisationArticle 32Supreme CourtIndustrial Disputes Actprincipal employerlabour rights

Judgment

A R.K. PANDA AND ORS.
v.
STEEL AUTHORITY OF INDIA AND ORS.

MAY 12, 1994

B [KULDIP SINGH, P.B. SA WANT AND N.P. SINGH, JJ.]

Contract Labour (Regulation and Abolition) Act 197(}-Held, does not
confer any light on contract labourers to be absorbed or to beco1ne em11toyees
of tlie principal en1ploye1--Question whether engage1ne11t of labourers through
C a contractor is a canlollflage, held, to be 1101n1ally decided under lndust1ial
Disputes Act-However, in view of the fact that interint relief had already been
given by Court, directions regarding abso1ption given in Article 32 peti-
tion-Practice and procedure.

A Writ Petition under Article 32 of the Constitution was filed on
D behalf of workers employed through contractors at the Rourkela Plant of
the Steel Authority of India (SAIL) contending that they had been working
for periods ranging from HJ to 20 years under different contractors. They
contended that they were doing jobs which are being done by the regular
employees of SAIL. They claimed parity in pay with the regular employees
E and regularisation. After the Writ petition was entertained in 1986, several
interin1 orders were passed by the Court.

Allowing the Writ Petition with certain directions, this Court

HELD : 1. The framers of the Contract Labour (Regulation and
F Abolition) Act 1970 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 any exploitation of the contract
labourers by the contractor or the establishment. For achieving that object
statutory restrictions and responsibilities have been imposed on the con-
tractor as well as on the principal employer. Of course, if any expenses are
'
G incurred for providing any amenity to the contract labourers or towards
the payment of wages by the principal employer ~e is entitled to deduct the
same from the bill of the contractor. The Act also conceives that the
appropriate Government may after consultation with the Central Board
or the State Board, as the case may be, prohibit by notification in the
H Official Gazette, employment of contract labour in any process, operation
l
1034
R.K PAND/\ 1·. Si\IL 1035

or other work in any establi:<ilunent, taking all facts and circumstances of A
employment of contract,Jabour in such process, operation or the work into
consideration. (1038-F-H, 1039-A]

2. No right flows from the provisions of the Act for the contract
labourers to be absorbed or to become the employees of the principal
employer. Many principal employers while renewing the contracts have B
been insisting that the contractor or the new contractor retains the old
employees, such a clause in the contract which is benevolently inserted in
the contract to protect the continuance of the source of livelihood of the
contract labourers cannot by itself give rise to a right to regularisation in
the employment of the principal employer. (1039-B-C; 1040-D] C

3. Whether the contract labourers have become the employees of the
principal employer in course of time and whether the engagement an.d
employment of labourers through a contractor is a mere camouflage and
a smoke screen, as has been urged in this case is a question of fact and
has to be established by the contract labourers on the basis of the requisite D
material. Normally the Labour Court and the Industrial Tribunal under
the Industrial Disputes Act are the competent fora to adjudicate such
disputes on the basis of the oral and documentary evidence produced
before them. (1040-F-H]

4. Normally, the petitioners herein would have been directed to
E
pursue the same remedy, but in view of various interirn orders already
passed by this Court since 1986 as a result of which the majority of
contract labourers are continuing in employment it is directed that all
labourers who had been initially engaged through contractors, but have
been continuously working with the Respondent SAIL for the last 10 yeras F
on different jobs assigned to them in spite of the replacement and change
of contractors shall be absorbed by the Respondent as their regular
en1ployees subject to their being medically fit and below the age of super-
nnuation viz. 58 years. [1041-A, 1042-D]

Gammon India Ltd. v. Union of India, (1974] 1 SCC 596= [1974] G
SCC (L & S) 252; BHEL Worken' Assn. v. Union of India, [1985] 1 SCC
630= [1985] SCC (L & S) 371 =AIR (1985) SC 409; Mathura Refi11e1y
Mazdoor Sang v. Indian Oil Cmpn. ltd., [1991] 2 SCC 176= (1991] SCC
(L & SJ 533 and Dena Nath v. National Fotilizers Ltd.. [1992] 1 SCC
695 = [1992) SCC (L & SJ 349, relied on. H
1036 SUPREME COURT REPORTS I1994J 3 S.C.R.
A ORIGINAL JURISDICTION : Writ Petition (C) No. 617 of 1986.

(Under Article 32 of the Constitution of India.)

Altai Ahmed, Additional Solicitor General Shanti Bhushan, A.K.
Ganguli, Prashant Bhushan, Madan Lokur, Gaurav Banerjee, P.K. Sinha,
B M.P. Sharma, K.J. John, A.K. Panda, Ms. Kitty Kumaramangalam, (NP),
S.N. Terdal, Ms. Sushma Suri, (NP), Ms. Indu Malhotra, Ms. Aysha Khatri,
Ms. Dania Pradhan, Ms. Jaishree Suryanarayan, Parijat Sinha, (NP), Ms. <""
Madhu Moolchandani and N.R. Choudhary for the appearing parties.

The Judgment of the Court was delivered by
c
N.P. SINGH, J. This writ petition has been filed on behalf of the
petitioners, alleging that, they had been employed by the respondent - Steel
Authority of India (hereinafter referred to as the 'Respondent') through
various contractors at its Rourkela plant, but they are doing jobs which are
D perennial in nature and identical to the jobs which are being done by the
regular employees of the said respondent. As such they are entitled to same
pay which is being paid to the regular employees of the respondent and
are entitled to be treated as the regular employees of the respondent. It is
alleged that the respondent in order to frustrate the claims of the
petitioners and other labourers similarly situated, to be treated as regular
E employees of the respondent, designated them as contract labourers. It has
been asserted that the petitioners had been working for the respondent for
the last 10 to 20 years under different contractors. The contractors used to
be changed, but while awarding the contract, one of the terms incorporated
in the agreement used to be, 11 thc incoming contractors shall employ the
F workers of the respective outgoing contractors subject to the requirement
of the job". Reading the agreement aforesaid, it appears that the workers
concerned had been employed through the contractros concerned for
different purposes like construction and maintenance of roads and build-
ings within the plant premises, public health, horticulture, water supply
G (town) etc. In the said agreement, it has been stated that parties shall be
governed by the provisions of Contract Labour (Regulation and Abolition)
Act, 1970 as well as Payment _of Bonus Act. But one of the terms of the
agreement is that incoming contractor shall employ the workers of outgoing
contractor.

H With the industrial growth, the relation between the employer and
R.K PANDA v. SAIL [N.P. SJNGH,J.] 1037

the employees also has taken a new turn. At one time the establishment A
being the employer all persons working therein were the employees of such
employer. But slowly the employers including Central and State Govern-
ments started entrusting many of the jobs to contractors. Contractors in
their turn employed workers, who had no direct relationship with the
establishment in which they were employed. Many contractors exploited
the labourers engaged by them in various manners including the payment
B
of low \Vages. Hence, the Contract Labour (Regulation and Abolition) Act
1970 was enacted to regulate the employment of contract labour in certain
establishments and to provide for its abolition in certain circumstances and
for matters connected therewith.
c
The "contract labour" has been defined in Section 2(1}(b} to mean a
workman, who has been 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. Section 2(1)(c) defines "contractor" to mean a D
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. "Principal
employer" has been defined to mean (i) in relation to any office or
department of the Government or a local authority, the head of that office E
or department or such other officer as the Government or the local
authority, as the case may be, may specify in this behalf and (ii) in a factory,
the owner or occupier of the factory. In view of Section 10, 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, F
employment of contract labour "in any process, operation or other work in
any establishment." Sub-section (2) of Section 10 requires that before
issuing any such notification, in relation to an establishment, the ap-
propriate Government shall have regard to the conditions of work and
benefits provided for the contract labour in that establishment and other
relevant factors. One of the relevant factors, which is to be taken into G
consideration is whether the work performed by the contract labourers is
of perennial nature. Section 12 enjoins that no contractor to whom this Act
is applicable shall undertake or execute any work through contract labour
except under and in accordance with a licence issued in that behalf by the
licensing authority. The licence so issued may contain conditions in respect H
1038 SUPREME COURT REPORTS [1994] 3 S.C.R.

A of hours of \\.'ork, fixation of wages and other essential am"nitics in respect
of contract labour as the appropriate Government may dccn1 fit to impose
in accordance \Vith rules. Section 20 provides that ir any an1cnity required
lo be provided under Section 16, Section 17, Section 18 or Section 19 for ,
the benefit of the contract labour cn1ployed in an establishment, is not
provided by the contractor within the time prescribed therefor, such
B amenity shall be provided by the principal employer within such time as
may be prescribed and 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 payable to the contractor11 •
C Section 21 says that a contractor shall be responsible for the payment of
wages to each worker employed by him as contract labour but at the same
time in order to protect the interest of such contract labour, it requires
every principal employer to nominate a representative duly authorised by
him to be present at the time of disbursement of wages by the contractor.
D It shall be the duly of such representative lo certify the amounts paid as
wages in such manner as may be prescribed. The same section also enjoins
a duty on the contractor to ensure the disbursement of wages in the
presence of the authorised representative of the principal employer. Be-
cause of sub-section (4) of Section 21, if the contractor fails to make
payment of wages within the prescribed period, then the principal
E employer shall be liable to make payment of wages in full to the contract
labour employed by the contractor and recover the amount so paid from
the contractor. Any contravention of the provisions aforesaid has been
made penal for which punishment can be imposed.

F From the provisions referred to above, it is apparent that the framers
of the Act have allowed and recognised contract labour and they have
never purported to abolish it in its entirely. The primary object appears to
be that there should not be any exploitation of the contract labourers by
the contractor or the establishment. For achieving th<Jt object, statutory
restrictions and responsibilities have been imposed on the contractor as
G wel1 as on the principal employer. Of course if any expenses are incurred
for providing any amenity to the contract labourers or to\vards the payment
of wages by the principal employer he is entitled to deduct the same from
the bill of the contractor. The Act also conceives that appropriate Govern-
ment may after consultation with the Central Board or the State Board, as
H the case may be, prohibit by notification in official Gazette, employment
R.K PANDAv. SAIL[N.P.SINGH,J.] 1039

of contract labour in any process, operation or other work in any estab- A
lishment, taking all facts and circumstances of employment of contract
labour in such process, operation or the work into consideration.

Of late a trend amongst the contract labourers is discernible that
after having worked for some years, they make a claim that they should be
absorbed by the principal employer and be treated as the employees of the B
principal employer especially when the principal employer is the Central
Government or the State Government or an authority which can be held
to be State within the meaning of Article 12 of the Constitution, although
no right flows from the provisions of the Act for the contract labourers to
be absorbed or to become the employees of the principal employer. This C
Court in the case of Gammon India Ltd. v. Union of India, [1974] 1 SCC
596, pointed out the object and scope of the Act as follows :-

"The Act was passed to prevent the exploitation of contract
labour and also to introduce better conditions of work. The Act D
provides for regulation and abolition of contrract labour. The
underlying policy of the Act is to abolish contract labour, wherever
possible and practicable, and where it cannot be abolished al-
together, 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 E
provides for regulated conditions of work and contemplates
progressive abolition to the extent contemplated by Section 10 of
the Act."

In the case of B.H.E.L. Workers' Association v. Union of India, AIR (1985) F
SC 409 = (1955] 1 SCC 630, it was pointed out that Parliament has not
abolished the contract labour as such but bas provided for its abolition by
the Central Government in appropriate cases under Section 10 of the Act.
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. That has to be decided G
by the Government after considering the relevant aspects as required by
Section 10 of the Act. Again in the case of Mathura Refinery Mazdoor Sangh
v. Indian Oil Corporation Ltd., (1991] 2 SCC 176, this Court refused to
direct the Indian Oil Corporation Ltd., to absorb the contract labourers in
its employment, saying that, the contract labourers have not been found to H
1040 SUPREME COURT REPORTS [1994[ 3 S.C.R.

A have direcl connection with the refinery. In other words, there was no
relationship of employer and employee between the Indian Oil Corpora-
tion Ltd., and the contract labourers concerned. Again in Dena Nath v.
National Fe1tiiisen· Ltd., [1992] I SCC 695, this Court pointed out that the
aforesaid Act has two purposes to serve (i) to regulate the conditions of
service of the workers employed by the contractor who is engaged by a
B princial employer and (ii) to provide for the abolition of contract labour
altogether, in certain notified processes, operation or other \Vorks in any
establishment by the appropriate Government, under Section 10 of the Act.
It was further stated that neither the Act nor the Rules framed by the
Central Government or by any appropriate Government provide that upon
c abolition of the contract labour, the labourers would be directly absorbed
by the principal employer.

It is true that with the passage of time and purely with a view to
safeguard the interests of workers, many principal employers while renew-
D ing the contracts have been insisting that the contractor or the new con-
tractor retains the old employees. In fact such a condition is incorporated
in the contract itself. However, such a clause in the contract which is
benevolently inserted in the contract to protect the continuance of the
source of livelihood of the contract labour cannot by itself give rise to a
E right to regularisation in the empoloyment of the principal employer.
Whether the contract labourers have become the employees of the prin-
cipal employer in course of time and whether the engagement and employ-
ment of labourers through a contractor is a mere camouflage and a smoke
screen, as has been urged in this case, is a question of fact and has to be
established by the contract labourers on the basis of the requisite material.
F It is not possible for High Court or this Court, while exercising writ
jurisdiction or jurisdiction under Article 136 to decide such questions, only
on the basis of the affidavits. It need not to be pointed out that in all such
cases, the labourers are initially employed and engaged by the contractors.
As such at what point of time a direct link is established between the
G contract labourers and the principal employer, eliminating the contractor
from the scene, is a matter \vhich has to be established on material
produced before the Court. Normally, the Labour Court and the Industrial
Tribunal, under the Industrial Disputes Act arc the competent fora to
adjudicate such disputes on the basis of the oral and documentary evidence ~- -
H produced before them.
R.K. PANDAv. SAIL(N.P. SINGH,J.] 1041

- We would have also directed the petitioners herein to pursue the A
same remedy. But we,,are faced with different orders passed by this Court
since 1986 when this writ application was entertained by this Court. On
19.12.1986, this court was informed that services of a number of labourers
were to be terminated w.e.f. 1.1.1987 because the contract of the contractor
concerned was to expire on 31.12.1986. This Court, however, directed that
notwithstanding it, the labourers should be continued. On 21.4.1987 again
B
a direction was given to the new contractor to continue the employment of
the labourers who had been already working, taking into consideration the
fact that they had picked up expertise and therefore would be more suited
to the job. On 8.5.1987 yet another order was passed by this Court,
directing the respondent to see that the new contractors employ those who c
have been retrenched with effect from 1.4.1987 and 1.5.1987. In that very
order, it was said that in the event the contractors' jobs are taken over by
the respondent, the respondent will not employ any other war kers directly
without giving preference to the persons who were working for more than
three years. On 28.lG.1987, this Court was informed that the State Govern- D
ment of Orissa which is the appropriate Government under the Contract
Labour (Regulation and Abolition) Act, 1970, had appointed a Committee
to enquire into the question whether the contract labour in the Steel
Industry in the State of Orissa should be abolished. It appears to be an
admitted position that because of the different interim orders passed by
this Court, many contract labourers whose employment in normal course E
would have ceased, have continued with. the respondent and directions
have been given to the respondent to make payments to them from time
to time. Such contract Jabour had been employed in 246 jobs in the Steel
Plant. Out of thei:n 104 jobs have been identified in which the contract
labour has been abolished. But in 142 jobs the contract labour is being
F
continued and the contract labourers, who might have ceased to be working
with the respondent, are continuing by different interim orders passed by
this Court. On 6.8.1992, the following order was passed by this Court :

"Mr. Harish Salve learned counsel appearing for the respon-
dent states that there are 879 workmen holding notified jobs with G
the Management. According to him the Management is prepared
to give options to all of them either to accept voluntary retirement
on the terms offered by the management or agree to be absorbed
on the regular basis in the employment of the respondent-manage-
ment. The offer made by Mr. Salve is fair and is acceptable to the H
1042 SUPREME COURT REPORTS [1994] 3 S.C.R.

A learned counsel for the petitioner. We, therefore, modify the
interim orders passed by this Court till date to the extent that we
permit the respondent-management lo give the offered options lo
11
all the notified workmen •

We are informed that pursuant to the aforesaid order, several con-
B tract labourers have taken voluntary retirement. But majority of them are
continuing. On behalf of the respondent, it was brought to our notice that
a scheme of modernisation is in process of implementation, which may
result in the reduction of the labour force and many of the workmen may
have to be retrenched as a consequence. Hence taking all facts and
c circumstances of the case into consideration, we direct that :-

(i) All labourers, who had been initially engaged through con-
tractors but have been continuously working with the respon-
dent for the last 10 years on different jobs assigned to them
in spite of the replacement and change of the contractors,
D shall be absorbed by the respondent, as their regular
employees subject to being found medically fit and if they are
below 58 years of age, which is the age of superannuation
under the respondent.

(ii) While absorbing them as regular employees their inter se
E
seniority shall be determined department/job wise on the
basis of their continuous employment.

(iii) They will not be entitled to the difference in their contractual
and regular wages till the date of their absorption. After
F absorption as regular employees, they shall be paid wages,
allowances etc. at par with their counter_ part, working as
regular employees with the respondent. If in respect of any
group of contract laboµrers, no rate of wages or emoluments
have been fixed by the respondent because those jobs had not
been performed by the regular employees of the respondent
G in the past, the contract labourers so absorbed for performing
the said jobs, shall be paid at the minimum rate payable to
the unskilled workmen, doing. other similar job.

(iv) After absorption, the contract labourers will be governed
H exclusively by the terms and conditions prescribed by the
R.K. PANDA v. SAIL [N.P. SINGH, J.) 1043

respondent for its own employees irrespective of any existing A
contract or agreement between the respondent and the con-
tractors. No claim shall be made by the contractors against
the respondent for premature termination of their contracts
in respect of the contract labourers.

(v) The benefit of absorption shall not be extended to contract B
labourers who in terms of this Court's order referred to above
have taken voluntary retirement on payment of the retrench-
ment compensation.

(vi) The respondent shall be at liberty to retrench workmen so
absorbed, in accordance with law. This order shall not be
c
pleaded as a bar to such retrenchment.

(vii) If there is any dispute in respect of the identification of the
contract labourers to be absorbed as directed above, snch
dispute shall be decided by the Chief Labour Commissioner D
(Centrral), on material, produced before him by the parties
concerned.

(viii) This direction shall be operative only in respect of 142 jobs
out of 246 jobs, in view of the fact that contract labour has
already been abolished in 104 jobs. E

(ix) This order does not relate to the persons who have already
been absorbed.

(x) The persons, who had been retrenched, but in terms of the
directions of this Court, have been taken back, shall also be F
entitled to the benefit of this Order. If there is any dispute in
respect of the identity of such persons, that shall also be
decided by the Chief Labour Commissioner (Central).

(xi) For the purpose of calculating the payment of retrenchment
G
benefit, in the event of their retrenchment, hereafter, the 10
years period aforesaid shall be counted, in respect such
retrenched persons, although they are ab_sorbed after the
passing of this Order.

(xii) This Order shall be complied with by the respondent within H
1044 SUPREME COURT REPORTS [1994) 3 S.C.R.

A four months from today.

The Writ Application is allowed accordingly. But in the facts and
circumstances of the case, there shall be no order as to costs.

Wiit Petition (C) No. 1403 of 1989.
B r'
N.P. SINGH. J : This writ application has been filed on behalf of the
petitioner-Rourkella Mazdoor Sabha, for a direction to the respondents to
implement the provisions of the Contract Labour (Abolition and Regula-
tion) Act, 1976 and to implement the agreement entered into between the
petitioner and the respondents on 30.05.1987. No such grievance can be
c entertained in an application under Article 32 of the Constitution.
Petitioner, if so advised, pursue the remedy in accordance with the
provisions of the Industrial Disputes Act. So for as, the direction to treat
the workmen as regular employees of the respondents is concerned, we
have already issued directions in Writ Petition (C) No. 617 of 1986. No
D separate direction is required to be given in this writ application. This writ
application is dsisposed of accordingly.

Writ Petition (C) No. 1126 of 1989.

N.P. SINGH. J: This writ application has been filed on behalf of the
E petitioner· United Mines Mazdoor Union and others for a direction to the
respondent-Steel Authority of India Ltd. to treat the members of the
petitioner-Union as regular employees of the said respondent and to pay
them the rate of wages and other statutory benefits as admissible to regular
employees working under the said respondent. The workers in question
F had been employed as contract labourers initially through the contractors.
We have already issued directions in Writ Petition (C) No. 617 of 1986 to
the respondent-Steel Authority of India. No separate direction is required
to be given in this writ application which is accordingly disposed of.

R.R. W.P. No. 617/86 is allowed.
W.P. Nos. 1403/87 & 1126/89 as disposed of.

-