Supreme Court Allows Appeal by Principal Employer in Contract Labour Dispute — No Automatic Absorption Without Section 10 Notification or Sham Contract Finding. Contract Labourers Cannot Be Deemed Employees of Principal Employer Under CLRA Act Absent Prohibition Notification or Evidence of Sham Contract.

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2026-05-18 12:42:18

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Case Note & Summary

The case involves an appeal by Kirloskar Brothers Limited (the principal employer) against the judgment of the Madhya Pradesh High Court which upheld the Industrial Tribunal's order directing reinstatement of six workmen (respondents 1-6) as employees of the appellant. The workmen were originally employed by respondent No. 7, a contractor engaged by the appellant under a contract dated 22.04.1995, which was renewed periodically. The contract ended on 07.10.1996, and the contractor dispensed with the services of the workmen. The workmen approached the Labour Court claiming they were employees of the appellant and had been orally terminated. The Labour Court found that the contractor had a valid license under the Contract Labour (Regulation and Abolition) Act, 1970 (CLRA Act) and that the workmen were employees of the contractor, not the appellant. However, the Industrial Tribunal reversed this decision, holding that contract labourers automatically become employees of the principal employer, and ordered reinstatement. The High Court confirmed this order. The Supreme Court allowed the appeal, setting aside the orders of the Industrial Tribunal and the High Court. The Court held that in the absence of a notification under Section 10 of the CLRA Act prohibiting contract labour, and without any finding that the contract was sham, the workmen could not be deemed employees of the appellant. The Court emphasized that there is no automatic absorption of contract labour under the CLRA Act, and the mere payment of statutory dues by the principal employer does not create an employer-employee relationship. The Court also noted that the MPIR Act cannot override the CLRA Act in case of inconsistency.

Headnote

A) Contract Labour - Automatic Absorption - Section 10 of Contract Labour (Regulation and Abolition) Act, 1970 - In the absence of a notification under Section 10 prohibiting contract labour, contract labourers do not automatically become employees of the principal employer - The court held that there is no provision under the CLRA Act for automatic absorption of contract labour upon termination of the contract, and the relationship of master and servant does not emerge between principal employer and contract labour merely because a contractor engages them (Paras 4.1-4.4).

B) Contract Labour - Sham Contract - Burden of Proof - The court held that unless there are allegations or findings that the contract is sham and not genuine, contract labourers cannot be held to be employees of the principal employer - In this case, no such pleading or evidence was presented (Para 4.3).

C) Industrial Law - Employer-Employee Relationship - Payment of Statutory Dues - The court held that mere payment of salary or PF contributions by the principal employer, due to default by the contractor, does not create an employer-employee relationship between the principal employer and the contract labourers - Such payments are recoverable from the contractor (Para 4.2).

D) Constitutional Law - Repugnancy - Article 254 of Constitution of India - The court noted that the MPIR Act cannot be invoked to override the provisions of the CLRA Act, which is a central legislation, in case of inconsistency (Para 3.3).

Issue of Consideration

Whether contract labourers can be deemed employees of the principal employer in the absence of a notification under Section 10 of the Contract Labour (Regulation and Abolition) Act, 1970, and without any finding that the contract was sham.

Final Decision

The Supreme Court allowed the appeals, setting aside the judgment and order of the Industrial Tribunal dated 05.02.2004 and the impugned judgments of the High Court. The Court held that the contesting respondents (workmen) were employees of the contractor, not the appellant, and were not entitled to reinstatement as employees of the appellant.

Law Points

Contract labour does not automatically become employees of principal employer
No automatic absorption without Section 10 notification under CLRA Act
Sham contract must be pleaded and proved
MPIR Act cannot override CLRA Act in case of inconsistency
Payment of statutory dues by principal employer does not create employer-employee relationship

Case Details

2022 LawText (SC) (12) 9

Civil Appeal Nos. 8446-8447 of 2022

2022-12-05

M.R. Shah

Shri Anupam Lal Das, learned Senior Advocate for the appellant

Kirloskar Brothers Limited

Ramcharan and Ors.

Nature of Litigation

Appeal against High Court order confirming Industrial Tribunal's direction for reinstatement of contract labourers as employees of principal employer.

Remedy Sought

Appellant (principal employer) sought setting aside of the orders of the Industrial Tribunal and High Court which held that the respondent workmen were its employees and ordered reinstatement.

Filing Reason

The appellant challenged the Industrial Tribunal's order that contract labourers automatically become employees of the principal employer, arguing that no notification under Section 10 of CLRA Act existed and no sham contract was alleged or proved.

Previous Decisions

Labour Court (14.03.2002) held that workmen were employees of contractor; Industrial Tribunal (05.02.2004) reversed, ordering reinstatement; Single Judge of High Court (09.03.2018) dismissed writ petition; Division Bench (12.11.2018) dismissed writ appeal as not maintainable.

Issues

Whether contract labourers can be deemed employees of the principal employer in the absence of a notification under Section 10 of the CLRA Act and without a finding that the contract was sham. Whether the MPIR Act can override the CLRA Act in determining employer-employee relationship.

Submissions/Arguments

Appellant argued that no notification under Section 10 of CLRA Act existed, no sham contract was alleged or proved, and the workmen were employees of the contractor, not the principal employer. Appellant contended that payment of statutory dues by principal employer does not create employer-employee relationship. Appellant submitted that MPIR Act cannot override CLRA Act due to Article 254 of Constitution.

Ratio Decidendi

In the absence of a notification under Section 10 of the CLRA Act prohibiting contract labour, and without any pleading or finding that the contract is sham, contract labourers cannot be held to be employees of the principal employer. There is no automatic absorption of contract labour under the CLRA Act. Payment of statutory dues by the principal employer does not create an employer-employee relationship.

Judgment Excerpts

There is no provision under Section 10 of the CLRA Act that the workers/employees employed by the contractor automatically become the employees of the appellant and/or the employees of the contractor shall be entitled for automatic absorption and/or they become the employees of the principal employer. In the absence of a notification under Section 10 of the CLRA Act unless there are allegations or findings with regard to a contract being sham, private respondents herein, who are as such the workmen/employee of the contractor, cannot be held to be employees of the appellant and not of the contractor.

Procedural History

The workmen filed a claim before the Labour Court, which dismissed it on 14.03.2002. On appeal, the Industrial Tribunal reversed on 05.02.2004, ordering reinstatement. The appellant challenged this in a writ petition before the Madhya Pradesh High Court, which was dismissed by the Single Judge on 09.03.2018. A writ appeal was dismissed by the Division Bench on 12.11.2018 as not maintainable. The appellant then appealed to the Supreme Court.