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Contract Labour (Regulation and Abolition) Act, 1970 – A Critical Analysis

Labour administration is one of the most crucial tasks of an entrepreneur. In order to progress upon the rigorous labour regulations, the industry sector in India is largely resorting to contract/temporary workers. Such labourers are governed by the Contract Labour (Regulation and Abolition) Act, 1970. It is found that many of the stipulations made under the act to safeguard contract labour in India are not followed in practice. This research paper aims to discuss some of the aforementioned issues in the light of decided cases by the Courts. It also attempts at proposing certain reforms to promote the well being of contract labourers in India. Though the paper is based on Indian experience, it is relevant for a number of developing economies across the globe.


One of the offshoots of the processes of globalization and liberalization is the increase in the trend towards substitution of regular employment by contract employment and this trend is going to continue in the future as well. This trend is indicated by the fact that in most of the places, in manufacturing, services and trade, workers are being deployed on a contract basis, not only in permanent and perennial nature of jobs, in core jobs of the establishment as well. As a result, the whole profile of workforce has been changing fast owing to the fast track contractualisation of workplaces.

In various government departments, the number of contracts/temporary/extra-departmental workers is constantly increasing. In public sector units, both the Centre and the States, the proportion of the contract/temporary workers in the total workforce has already crossed the 50 percent mark on the average and in some Public Sector Undertakings like petroleum, mining, construction etc. the share of contract workers in total employment has crossed the mark of 70 percent.[1] In private sector establishments, the situation is all the more alarming. In such establishments, particularly those emerged after the initiations of the policy of globalization in 1991, overwhelming majority of the workers are deployed on the contract of various forms and nomenclatures.

Among different kinds of employment that have been created in various economies to circumvent labour laws, contract labour is becoming one of the prominent forms. The economic factors like cost effectiveness may justify the system of contract labour, however, the consideration of social justice calls for its regulation. In India, contract labourers are protected by the Contract Labour (Regulation and Abolition) Act, 1970 (“the Act”).

The character of contract is also undergoing changes. In order to evade the obligations and responsibility of principal employer, as stipulated in the Contract Labour (Regulation and Abolition) Act, 1970 (“the Act”), many companies, including PSUs are resorting to various different routes of contractualisation under the garb of ‘outsourcing’, ‘job-contract’, ‘ancillarisation’ and various other methods.[2] This has become a matter of concern, that a vast majority of workers, are thrown out of the coverage of the legislative protection under the Act, by adopting the above mentioned devices, and thus work in very poor conditions of work, for excessively long hours at abysmally low wages, as compared to workers doing similar work with a permanent status. Many of the fringe benefits such as provident fund, sickness, insurance, gratuity, privilege leave with pay, and so on, are usually not available to contract workers. On the whole, conditions of service of contract workers are substantially poorer as compared to regular employees of an employer. Because of factors like uncertainty of tenure, frequent changes in contracts and contractors, lack of proper employment records, and such other factors, contract workers find it extremely difficult to get organized in strong trade unions. So, providing some minimum social security measures and legal protection to them assumes paramount importance.

This paper aims at analyzing an interpreting the provisions of the Act, in light of judicial pronouncements given by the High Courts and Supreme Court at different points of time. It will also attempt to analyse the scope, coverage and limitations of this specific enactment in relation with other related laws. It aims to throw light upon the issue which still remain unaddressed and offer certain suggestions based on the experience of certain other select countries in the area of Contract Labour.


Contract labour is an expression which is often used to denote different ways of employing workers otherwise than under a usual employment contract. In common parlance, ‘contract labour’ refers to labour which is employed to perform some work, but has no direct employer-employee relationship with the principal employer i.e. the party for whom the work is being carried out. The relationship between the employee and the principal employer is mediated by one or more other parties who actually employ the workers, pay them and have an employer-employee relationship with them. These intermediaries between the ‘principal employer’ and the workers are the ‘contractors’, whose relation with the principal employer is governed by a contract between them. Often, the mediation between the principal employer and the workers is not by one contractor alone, but a chain of sub-contractors and sub-sub-contractors. This system of work done for a principal employer through contractor or a chain of contractors is referred to as ‘contract labour system’.

Contract Labour (Regulation and Abolition) Act, 1970 defines contract labour as under:

“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 on or in connection with such work by or through a contractor, with or without the knowledge of the principal employer.”[3]

Based on the above definitions, the ingredients of contract labour may be inferred as follows:

  • that the person concerned must be a workman;[4]
  • that he must be employed in or in connection with the work of an establishment;[5]
  • that the employment may be by or through a contractor;[6] and
  • that the employment as such may be with or without the knowledge of the principal employer.[7]

The contract labour arrangements provide an opportunity to the employer to secure the required number of workers for the time, he needs them. As far as the labour intensive traditional industries such as mining, plantations and commercial agriculture is concerned, the engagement of contract labour from far and remote places used to be and continues to be the common practice. The premium which is paid to the contractor supplying contract labour in a stringent labour situation is accepted as an inevitable cost without any grudge.

Another important factor is the temptation to lower the overall wage cost for similar quality and quantity of work. It allows employers to deliberately avoid social security legislation and even minimum wage regulations. It also provides the employers with flexibility to adjust the number of workers for specific periods of time in accordance with the fluctuations in the market. Another important factor which makes contract labour a specific form of organization is the possibility of minimizing supervisory responsibilities of the employer. It leads to closer supervision by labour contractor and thus higher productivity on the part of workers.

Contractors get benefits in the form of premium or commission for the contract labour they supply to the principal employer. They also receive charges and overcharges for various services they provide to these workers such as transport, accommodation and loans. The situations like surplus availability of labour and limited job opportunities compel the unemployed to accept contract employment. With limited alternatives, the workers have to accept high cost in order to have access to a job and the links which the labour contractors provide them, even though the cost involved may be very high, especially in cases of workers migrating from one place to another.[8]

Both the socio-economic context in which the contractual arrangements are in vogue and the attendant benefits to the employers and to the contractors as compared with its negative implications for workers depend largely on national situations including the legal framework, the characteristics of the industry, the strength of unions, etc. the advantages of contract labour system mainly go to the employers and contractors. The important issue, however, is whether these perceived advantages are real benefits and whether contract labour is a viable long term option or a short term crisis measure. If yes, then what are the minimum social security measures and conditions of work which need to be observed in order to meet the requirements of basic human rights, ‘just and humane conditions of work’ and to ensure decent and dignified human life to the persons engaged as contract labour.[9]


The genesis of government concern in India towards the plight of contract labour can be traced back to the decade beginning with 1860 when a modest legislative action was initiated with reference to the contract labour employed in plantations.[10] From then onwards up to the setting up of the Royal Commission of Labour in 1929, most of the protective and ameliorative measures can be characterized as sporadic, limited and half-hearted. The Royal Commission of Labour recommended the abolition of the jobber’s role in recruitment all over the country.

The plight of contract labour and the need for action was highlighted by all Inquiry Committees set up during the fifteen years that followed the Royal Commission Report. The strong concern generated by such recommendations forced the government into action and several measures to regulate their working conditions have been implemented in the past independence period.

The Bihar Labour Enquiry Committee (1940) also condemned the practice of engagement of labour through contractors by stating that, “the contractors ordinarily lacked a sense of moral obligation towards labourers which the employers or the managers are expected to have, and therefore, do not often hesitate to exploit the helpless position of labour in their charge”.[11] The Bombay Textile Labour Enquiry Committee (1937), agreeing generally with the findings and recommendations of the Royal Commission on Labour felt that: “If the management of the mills do not assume responsibility for such labour, there is every likelihood of its being sweated and exploited by the contractor.[12] It was therefore recommended that “contract system of engaging labour should be abolished as soon as possible and that workers for every department in a mill should be recruited and paid directly by the management”.[13]

These developments were instrumental in bringing to the fore the shortcomings of the practice of engagement of labour through contractors. However, very little tangible action legislative or executive, followed these findings and recommendations. It was the Labour Investigation Committee (1946), which in its report examined in detail the nature of workforce needs of the industry. Pointing out that the system of contract labour was very much in vogue, the Committee recommended the abolition of contract labour system, wherever possible, and regulation of the system in all other cases.[14]

In context of these above mentioned findings and the growing antipathy to the plight of contract labour, the scope of the term ‘worker’ in the Factories Act, 1948, the Mines Act, 1951 and the Plantation Labour Act, 1952 was enlarged to include contract labour. A number of categories of contract labour became entitled to the benefits of working conditions and hours of work admissible to the labour directly employed. The definition of term ‘immediate employer’ under the Employees’ State Insurance Act, 1948 was extended to bring contract labour within the ambit of the Act for availing health insurance benefits. Provisions of the Minimum Wages Act, 1948 were made applicable to contract labour in scheduled employments. Thus during 1947 to 1954, the protection and benefits to contract labour varied from industry to industry, from area to area, and even from one category to another employed in the same industry in the same city.

Subsequently, the Indian Labour Conference at its 19th and 20th Sessions (1961-62) considered the reports of the Labour Bureau and recommended legislative action for abolition of contract labour system in certain types of work as mentioned by the Supreme Court in Standard Vacuum Oil Refinery Company v. Their Workmen. [15] This was followed by the setting up of a Tripartite Committee, which was assigned with the task of drafting the outline of legislation. Based on the Tripartite Committee’s recommendations, the Ministry of Labour drafted the Contract Labour Bill, which was considered and discusses at the 23rd Session of the Indian Labour Conference, wherein no consensus could be arrived at. The Government of India, didn’t wait, and drafted its own Bill. The Bill was amended based on the recommendations of the National Commission on Labour, headed by Justice P.B. Gajendragadkar (1969). The Bill was passed by both the Houses of Parliament and subsequently received Presidential Assent on 5th September, 1970. It came into effect o 10th February, 1971.

A perusal of the statement of objects and reasons reveals that Contract Labour is sought to be abolished in such categories, which may be notified by the appropriate government, on the basis of the prescribed criteria. In respect of other categories, the service conditions of contract labour are sought to be regulated.


A contract laborer is defined in the Act as one who is hired in connection with the work of an establishment by a principal employer through a contractor. While a contractor is the supplier of contract labour for the organization, a principal employer is a person responsible for the control of the establishment.


This Act extends to the entire Indian State and applies to those establishments and contractors which employ 20 or more workmen or employed such number of 20 or more workmen on any day of the preceding 12 months as contract labour.[16] To constitute this number, not only are the workers employed by one Contractor are to be counted, but the total number of contract laborers engaged by different Contractors is to be counted. The Act further empowers the appropriate Government to relax the number from 20 to a lesser number for which the government has to give 2 months notice of its intention to do so, by notification in the Official Gazette, after which the provisions of the Act may apply to any establishment or contractor employing less than 20 workmen as may be specified in the notification.[17] Establishments in which work only of an intermittent or casual nature is performed are not covered by the Act.[18] However, if the work was performed for more than 120 days in the preceding 12 months, or if the work performed in case of seasonal nature for more than 60 days in a year, then such work will not be considered as intermittent or casual work.[19] If a question arises whether the work performed in an establishment is of an intermittent or casual nature, the appropriate Government shall decide that question after consultation with the Central Board or, as the case may be, a State Board, and its decision shall be final.[20]

A person engaged for ‘job contract’ or ‘work contract’, who is required to produce a given result for the establishment is contractor for the purposes of the Act and is accordingly covered by the Act. The definition of the term ‘contractor’ within the Act also includes a sub-contractor, who merely supplies contract labour for any work of the establishment. A workman is deemed to be employed as contract labour in or in connection with the work of an establishment who is hired in or in connection with such work by or through a contractor, with or without the knowledge or the principal employer. The term ‘establishment’ for the purpose of the Act means, (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 work site may or may not belong to the Principal Employer, but that will not stand in the way of application of the Act or in holding that a place or work site where industry, trade, business, manufacture or occupation is carried out is not an establishment.[21] It is notable that the Act is not confined to private employers but also applies to the government.[22]

The constitutional validity of the Act and the Central Rules was challenged before the Supreme Court in Gammon India Ltd. v. Union of India,[23] wherein it was held that there is no unreasonableness in the measure. Instructions were issued on 21.03.1974 to all officers of Central Industrial Relations Machinery (CIRM) to strictly enforce the provisions of the Act.


The jurisdiction of the Central and State Government has been laid down by the definition of the ‘Appropriate Government’ in the Act as amended in 1986.[24] With this amendment, the appropriate government would be the same in respect of an establishment under the Contract Labour (Regulation and Abolition) Act, 1970 as also the Industrial Disputes Act, 1947. It is imperative to refer to certain judicial decisions for a better understanding of the phrase ‘Appropriate Government’. Some distinguished judgments that comprehensively dealt with the issue have been discussed in the next section of this paper.


A workman is 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.[25] Workman means any person employed in connection with the work of any establishment.[26] The essential condition of a person being a workman is that he should be employed to do the work in that industry.[27] The Act defines ‘workman’ as meaning any person employed in or in connection with the work of any establishment to do any skilled, semiskilled or unskilled manual, supervisory, or clerical work for hire or reward, whether the terms of employment are express or implied. The following individuals, however do not come under the ambit of the definition of worker:

  • One who is employed mainly in a managerial or administrative capacity; or
  • One who is employed in a supervisory capacity draws wages exceeding five hundred rupees per mensem or
  • One who is an out-worker i.e. a person to whom any articles are given out by the Principal Employer to be made up, cleaned, altered etc. 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 of the Principal Employer.


The Act defines Contractor as 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.[28] In other words, Contractor is the person supplying contract labour to an establishment undertaking to produce a given result for it.[29] It is noteworthy that sub-Contractors or ‘piece wagers’ also qualify as Contractors who need to apply for the registration of the establishment and license.[30]


Section 6 provides for the appointment of registering officers by the appropriate Government for the purposes of this Act. If a principal employer falls within the vicinity of this Act then, such principal employer and the contractor will have to apply for registration of the establishment and license respectively with the appropriate authorities.[31] The Act also provides for temporary registration in case the contract labour is hired for a period not more than 15 days. Any change occurring in the particulars specified in the Registration or Licensing Certificate needs to be informed to the concerned Registering Officer within 30 days of such change.

From a combined reading of Section 7 and Rules 17 & 18 of the Contract Labour (Regulation and Abolition) Central Rules, 1971 (hereinafter referred to as the Rules), it appears that the Principal Employer has to apply for registration in respect of each establishment. Another important point to note is that a License issued for one contract cannot be used for an entirely different contractual work even though there is no change in the Establishment. The law mandates that every establishment to which the Act applies has to register with the registering officer. The government also has the power to prohibit employment of contract labour in any process, operation or other work in any establishment.[32] The Act further stipulates that no Contractor to whom the Act applies can undertake or execute any work through contract labour without having a license issued by the licensing officer.[33] Failure to obtain a licence amounts to a criminal offence under Sections 16 to 21 of the Act read with Rules 41 to 62 of the Rules.[34]


Under Sections 3 and 4 of the Act, there is a provision for the constitution of Central and State Advisory Contract Labour Boards to advise the Central/State Government on matters arising out of the administration of the Act.

In matters relating to the abolition of contract labour system, the Board normally constitutes a 3 member Tripartite Committee from amongst members of the Central Advisory Contract Labour Board representing the employers and workers and a Government official as Member Convener to study the issue in detail. The report submitted by the Committee is placed before the Central Advisory Contract Labour Board and keeping in view the recommendations of the Board, the Central Government takes a decision on the matter. At present, 12 such Committees are functioning either to study abolition of contract labour system or to consider the requests for exemption from prohibitory notifications in various establishments.


Regarding the facilities to be provided to contract labourers, the Act stipulates that every Contractor employing contract labour to whom the Act applies has to provide canteen, restrooms, latrines, urinals, first aid facilities etc.[35] Section 35 of the Act empowers the appropriate Government to make rules in respect of the abovementioned facilities. If any such amenity for the benefit of the contract labour employed in an establishment is not provided by the Contractor, such amenity has to be provided by the Principal Employer and the expenses incurred by the Principal Employer for doing so can be recovered from the Contractor.[36] Also, the Courts have ruled that the Government will be responsible for enforcement of those amenities where Contractors engaged by it for executing its project fail to provide the amenities to its workers. The Government’s failure to perform its obligation amounts to a violation of Article 21 of the Indian Constitution and labourers can enforce this right by way of writ petition under Article 32 of the Constitution.[37]


Every contractor has been made responsible for payment of wages to each worker employed by him as contract labour. For ensuring the regular payment of the minimum wages to the contract labour, the Act provides that the wages to the contract labour are to be paid in the presence of the authorized representative of the principal employer, who has to certify that the wages as per the stipulation have really been paid to the contract labour.[38] If 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 but he can recover the amount so paid from the Contractor.[39] A Principal Employer is liable to compensate underpaid contract labour.[40] The contract labour that performs same or similar kind of work as regular workmen will be entitled to the same wages and service conditions as regular workmen as per the Contract Labour (Regulation and Abolition) Central Rules, 1971. This issue has been dealt with extensively in the next section of the paper.


If the Principal Employer, to whom this Act is applicable, fails to get registered under the Act, such Employer cannot employ contract labour.[41] Violation of Sections 7 and 12 of the Act by the Principal Employer or by the Contractor would attract penal provisions of Sections 23 and 25 but does not have the effect of rendering the contract labour, employees of the Principal Employer.[42] For contravention of the provisions of the Act or any rules made thereunder, the punishment is imprisonment for a maximum term up to three months and a fine up to a maximum of Rs. 1000.[43] It is noteworthy that a Central Government company is not immune from being prosecuted under Section 24 of the Act.[44]


Contract labour, in law, is classified in two categories – bona fide contract labour and mala fide contract labour. The former indicates that there is no bogus, sham or camouflage contract between the Contractor and the Principal Employer. The latter, on the other hand, implies a contract where there is bogus or sham. When the contract is bona fide, the Government can abolish the contract labour under Section 10 of the Act. When the contract is mala fide, Industrial Tribunals are empowered to declare the contract workmen as the workmen of the Principal Employer. Such a declaration is given after lifting the veil and considering the factors such as control, supervision and direction by the Principal Employer and ascertaining as to how absolute and pervasive they are in nature. This depends upon the facts of each case. Ram Singh v. Union Territory of Chandigarh[45] was one such case that dealt with determining whether the contract was bonafide or malafide. In this case, the contract employees, who were trained electricians, were employed on the substation to maintain supply of electricity. They claimed regularization of services under the Engineering Department of Administration. Here, the Court ruled that whether a particular contract is genuine, sham or camouflage can only be determined by the industrial forum since it involves a finding as to the inter se relationship between the administration, the Contractor and the contract employees.


In the Central sphere, the Central Industrial Relations Machinery (hereinafter referred to as the CIRM) has been entrusted with the responsibility of enforcing the provisions of the Act and the rules made thereunder, through Inspectors, Licensing Officers, Registering Officers and Appellate Authorities appointed under the Act. Regular inspections are being conducted by the Field Officers of the CIRM and prosecutions are launched against the establishments, whenever violations of the Act, Rules or notifications prohibiting employment of contract labour are detected. From time to time, instructions have been issued to the field officers of CIRM and the State Government for proper implementation of the Act.


Judiciary plays an extremely important role in developing the law and in shaping and influencing its course by way of its interpretations of the various provisions of the law. Before the enactment of this Act, there was no specific legislation which comprehensively dealt with the predicament of contract labour in India. Although there were laws such as the Industrial Disputes Act, 1947 and Payment of Wages Act, 1936, inter alia, none of them was exclusively designed to regulate contract labour. This restricted the Courts from formulating the basic guidelines in order to abolish or restrict contract labour. Therefore in order to ease the process of adjudication of industrial disputes that were related primarily to contract labour, the Courts required an Act which completely dealt with the regulations of contract labour.

After the enactment of the Act in 1970, the Courts did not have to face impediments in granting relief to the wronged party in disputes regarding the facilities which should be provided to contract labourers for, those guidelines had unambiguously been enumerated in Sections 16, 17, 18 and 19 of the Act. The definitions of employer, contractor and workmen had also been provided by the Act in Section 2 which helped the court interpret the meaning of these words which under normal circumstances seem too broad and vague. The Courts can now also construe as to when certain labourers are to be considered as contract labourers and to what rights they are lawfully entitled. Some landmark judgments which have thrown light upon the provisions of the Act and have acted as precedents in determining similar questions of law that were placed before the Courts have been discussed in this section of the paper. Some renowned decisions among the plethora of cases that came up before the Courts have been grouped under the issues or the questions of law that governed them. The judgments may be discussed as follows:


The Courts have had to construe the significance of ‘appropriate government’ time and again. The criteria for deciding the issue of appropriate government under the Act is that the industry must be carried on by or under the authority of the Central Government and not that the company/undertaking is an instrumentality or an agency of the Central Government for purposes of Article 12 of the Constitution. Such an authority may be conferred either by a statute or by virtue of relationship of principal employer and agent or delegation of power and this fact has to be ascertained on the facts and circumstances of each case.

Heavy Engineering Mazdoor Union v. State of Bihar[46] was one of the first cases wherein the expression ‘appropriate government’ was elucidated upon by the Court. It was asserted in this case that the phrase ‘under the Authority of’ must be interpreted in detail and that ‘Authority’ must be construed according to its ordinary meaning which means legal power given by one person to another to perform an act. A person is said to be ‘authorized’ or to have ‘authority’ when he is in such a position as to produce the same effect as if the person granting the ‘authority’ had for himself done by the act. The Court critically examined the phrase ‘under the Authority of’ and maintained that it implies pursuant to an authority such as where an agent or servant acts under or pursuant to the authority of his principal or master. It established in light of the situation that albeit the entire share capital was vested in the name of President of India, and its nominees and extensive control were vested in the Central Government, it did not make the organization in question an industry carried on under the authority of Central Government.

The above ratio was upheld in the decisions of Hindustan Aeronautics Ltd. v. Their Workmen[47] and Rashtriya Mill Mazdoor Sangh v. Model Mill,[48] Nagpur and this position of law continued to be valid till December 6, 1996. The Supreme Court expressed its contrary view in Air India Statutory Corporation v. United Labour Union and Ors.,[49] wherein it was held that ‘appropriate government’ in respect of all PSUs will be the Central Government and not the State Government which is under the control and regulation of the Central Government. After this verdict, the Central Government delegated its power as Appropriate Government under section 39 of Industrial Disputes Act, 1947 to the concerned State Governments in which the Central PSUs were situated.

The above decision was reversed and the position in Heavy Engineering case was restored by the Apex Court in Steel Authority of India Limited and Ors. v. National Union Water Front Workers and Ors,[50] asserting that ‘appropriate government’ in relation to an establishment would be the Central Government if (i) the concerned Central Government company or undertaking is included by name in clause (a) of Section 2 of the Industrial Disputes Act, or (ii) any industry carried on by or under the authority of Central Government or by a railway company, or (iii) any such controlled industry as may be specified in this behalf by the Central Government, otherwise in relation to any other establishment, the Government of the State in which that other establishment is situated, will be the appropriate Government.


The question whether the Act itself provides the workers of an industry the right to get absorbed by the same after the contract labour is abolished has been an extremely debatable issue and has been raised in various cases. Some of the significant judgments on the issue have been discussed below.

In R.K. Panda & Ors. v. Steel Authority of India Ltd.,[51] the Supreme Court held that the Act regulates contract labour but has never proposed to abolish it entirely. The primary object of the Act can be taken as to save the contract labourers from exploitation. However, the right to be absorbed by the employer directly is neither proposed nor mentioned in the Act. The Court also said that insertion of certain clauses in the contract with the contract labourers by the industry does not give them a right to escape from the duty of providing the contract labourers rights. The Court directed the Company to comply with the following:

  1. The labourers who were continuing in the employment for the last 10 years, in spite of the change of Contractors and have not crossed the age of superannuation and were medically fit should be absorbed as regular employees in the order of seniority.
  2. Regular wages will be payable only for the period subsequent to absorption and not prior to that.

It would not be erroneous to say that the Court interpreted the Act in an accurate manner i.e. the Act strives for regulation of Contract Labour and not for its abolishment in entirety and accepted that the Act does not expressly provide the right to get absorbed to the labourers. In addition to that, the Courts imparted certain relief suo moto. One may contend that the Supreme Court rightly performed the function of the judiciary to impart justice. It realized that Courts should achieve that which the legislation are not able to achieve. The judges formulated the principle that a contract labourer who is working for a company in a work of perennial nature has to be absorbed by the industry. This principle was clearly in the interests of those who worked in the same way as the regular employees but were exploited by the unfair practices of the industrialists.

In Gujarat State Electricity Board Thermal Power Station at Ukai v. Hind Mazdoor Sabha,[52] the Supreme Court recommended that the Central Government should amend the Act by incorporating a suitable provision to refer to the industrial adjudicator, the question of the direct employment of the workers of the ex-contractor in the principal employer’s establishment, when the appropriate government abolishes the contract labour.

In Air India Statutory Corporation v. United Labour Union and Ors.,[53] the apex court held that if the appropriate government abolished contract labour in a particular work or occupation in any establishment, business or industry, then the workers who had been employed to do that particular work in the establishment or industry, would automatically become the workers of the principal employer from the date of the notification of such abolition. It amended the position laid down in the Gujarat State Electricity Board case, where it had been held that after abolition, the workers will have to raise a fresh demand and then approach the Industrial Tribunal for a further round of adjudication on the question of absorption as to how many workers were to be absorbed and from when.

In this case, the judges did not give the decision merely on the basis of the words of the statute but understood the objectives of the Act an tried to implement the same in order to provide better working conditions to these contract labourers and to protect them from exploitation. This decision is in the direction of advancement of the conditions of the workers. Secretary v. Suresh[54] upheld the Air India case. It held that the Act is a beneficial piece of legislation ought to be given the widest possible interpretation with regard to the words used therein.

Steel Authority of India Ltd. and Ors. v. National Union Water Front Workers and Ors.[55] overruled the Air India case, thereby curtailing the rights of contract workers. It held that upon the abolition of contract labour by the government in exercise of the powers under Section 10 of the Act, there cannot be automatic absorption of such contract labour into the direct employment of the Principal Employer. The Court further held that the Act has said nowhere that the contract labourers are or should be treated as the employees of the principal employer; instead they are the employees of the Contractor. Therefore, the principal employer is not under any obligation to absorb them. it stated that contract labourers have absolutely no right to automatic absorption upon abolition. The 5 Judge Constitutional Bench held that this judgment will not have any retrospective effect. In this case, the Court has adopted a very strict approach towards contract labour.

The SAIL judgment was upheld in K. Butchi Reddy v. CAT, Hyderabad,[56] and National Federation of Railway Porters, Vendors and Bearers v. Union of India,[57] wherein it was held that although the statute may be construed in favour of the beneficiary, it should be done only to the extent that such benefit is intended to be conferred and not beyond the same. In Municipal Corporation of Greater Bombay v. K.V. Shramik Sangh,[58] the apex court applied the same reasoning as the SAIL case, in order to answer the question it was posed with, thus, reiterating the view of the 5 judge bench.

In Cipla Ltd. v. Maharashtra General Kamgar Union,[59] it was laid down that the Industrial and Labour Courts under the Maharashtra Recognition of Trade Unions and Prevention of Unfair Labour Practices Act, 1971 (hereinafter referred to as the MRTU & PULP Act) had no jurisdiction to decide claims of contract workers, alleging that the Contractor was a sham contractor and that the alleged contract was a mere paper arrangement. This implied that if the contract workers filed a complaint of any unfair labour practices against any Principal Employer alleging that he was, in fact, their employer and that the contractor was a mere name-lender interposed in the relationship merely to shield the Principal Employer, this complaint would become non-maintainable. In fact, even if they alleged that a certain person was their employer, the complaint would become non-maintainable if the respondent merely stated in his reply that he was not their employer. This has led to the farcical position where the jurisdiction of the court depends predominantly upon the reply filed by the respondents. The cases pending before the Industrial Courts filed by thousands of contract workers, who preferred to file under the MRTU & PULP Act, since the Court under this Act had the power to grant interim reliefs, have been severely affected.

The years 2001-02 therefore, witnessed some of the most important judgments in the field of contract labour, thereby demolishing the little protection that the law had so far conferred upon contract workers.

In Rourkela Shramik Sangh v. Steel Authority of India Ltd.,[60] the Supreme Court held that contract labourers who were less than 58 years of age and medically fit should be absorbed by the principal employer upon the abolition of contract labour by the appropriate government. This case reverted to the initial position regarding absorption.

In light of the cases discussed above, one may conclude that the Courts have not developed a firm outlook with regard to the issue of absorption of contract labourers after the abolishment of contract labour. Perhaps the reason for this perplexity is the Act itself because it lacks provisions regarding the same. The Act, in totality, is directed towards the welfare of contract labourers but it fails to effectively address and suggest a remedy for the anxiety of contract labourers pertaining to the aforementioned issue. The Courts, therefore, faced a problem and in some cases, gave their decision solely based on the basis of the provisions given in the Act while others gave decisions based on the object of the Act i.e. to protect these labourers from exploitation. The principle of interpretation of statutes, ex visceribus actus states that for correct interpretation of a certain statute, the statute must be read as a whole and not on the basis of provisions which are severed from it. However, if a certain object is to be achieved by legislation, the statute should be express and unequivocal about its intention which would guide the executive and the judiciary. Therefore, the Act in question should have been more expressive because on issues like this there has to be certain guidelines provided by the legislation in order to alleviate the suffering of the labourers.


The basic provisions regarding the payment of wages have been discussed in the previous chapter. This section deals with certain landmark cases pertaining to this issue.

In Senior Regional Manager, Food Corporation of India, Calcutta v. Tulsi Das Bauri,[61] the employer contended that arrears of wages are not wages within the meaning of Section 21 of the Act, therefore, the employer is not liable to make the payment to the respondent of the same. The Supreme Court held that the principal employer is statutorily responsible to ensure payment of wages in case of default by the contractor, and the term ‘wages’ includes the arrears of wages.

In B.H.E.L. Workers’ Association Haridwar and Ors. v. Union of India,[62] there was arbitrariness in classifying 1000 workers out of the 16,000 odd workers as contract labourers and thereby receiving salary lesser than that of the directly employed workmen. Although they all did the same work as the regular workers directly employed by the undertaking, under the same conditions of service, their wages bore no comparison to those paid to the regular workers. They were paid their salary after deducting a large commission out of it. The Court held that no particular distinction should be made 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 the directly employed workmen by the principal employer. They are entitled to recover their wages and their conditions of service in a manner akin to the workers employed by the principal employer under the appropriate industrial and labour laws.


In spite of the steps taken by the Parliament to promote the well being of contract labourers, there exist certain problems in the industrial sector, which haven’t been overcome yet. These problems have been enumerated in this section.

Derisory Wages- According to the Act, the companies are supposed to adhere to the minimum wage norms. However, it has been found that there are workers earning less than Rs 1000 per month, which evidently does not satisfy the minimum wage criterion. A category of firms that largely comprises small private firms prefer employing uneducated workers who can be paid even less than minimum wages. Much of the migrant labourers from rural areas, especially the eastern and north-eastern regions of India and also from Nepal, fall in this category, who migrate to urban establishments in search of jobs and a better standard of living but are eventually exploited due to lack of awareness.

Incongruity of having Provident Fund Benefit- Though contract labourers enjoy provident fund (hereinafter referred to as PF) benefits, the concept of PF often turns out to be a liability rather than an asset. This is because every month a fixed sum is deducted from their meagre salary for the PF contribution. However, every time these workers work for a new Contractor, a new provident fund account gets opened. Regrettably, once a worker leaves a Contractor, he never gets any cooperation from the Contractor in retrieving the money paid. Many contract agencies also close down and then retrieving the PF due becomes very difficult for the employee. It is also the duty of the principal employer to verify the PF details, which is, however not done in reality. In order to recover the PF amount, a contract worker has to have a bank account in which the sum due should be deposited by cheque. Contract workers often cannot maintain accounts because of the minimum deposit requirements by banks. This makes recovering their PF dues even more difficult. Studies reveal that 64 % of the workers reported that they have not been able to retrieve their PF due.[63] In addition, there are a number of unregistered contract agencies that deduct PF contributions from the workers but never deposit the same in the PF office and after a few years change the location and start the same business under a different name. There are obvious advantages of being unregistered as it enables an agency to evade taxes, in addition, to avoid paying PF benefits to a worker and to thereby increase one’s profit margin. Therefore, when a registered company tries to compete with an unregistered one, the only possibility appears to be to exploit the labour as they are in excess supply.[64]

Intense Competition Leading To Collusive Agreements And Fraudulent Practices – Due to an extremely high level of competition among producers in the market, profit margin measured through commissions has gone down drastically. If volume of business goes down, small and medium contract agencies cannot operate at a very low margin. This often leads them to collude with the Principal Employer and sometimes even with the labour inspector and compete effectively in the market by reducing cost through cutting down the wages and benefits of contract labour and thereby violating the various provisions guaranteed by the Act. Surveys reveal the existence of high level of corruption in over 90 % of the agencies in this sector.[65]

Growing Unrest Among Labourers – The aforementioned problems still prevail in industrial establishments and this can be understood from the fact that contract labourers often go on strikes in the form of protests against what they believe to be either an erroneous policy or exploitation. The judiciary cannot restrict the freedom of the labourers to call for a general protest and any restriction placed thereon would be violative of the fundamental rights of those individuals – their freedom of expression, speech and to assemble peaceably.[66] However, these strikes which should ideally be in the form of general protests often crystallize into violent upheavals which are dealt with a heavy hand. One may recall the notorious strike at the Manesar factory of Honda Motorcycle and Scooter India Ltd. (HMSI) in 2005. The brutality of the police in bringing the matter under control was outrageous. This visibly shows the amount of instability that persists among contract labourers as they do not have any job security and are exploited in terms of wages and working conditions.


This paper partly reveals the futility of enacting a piece of legislation and not following it up with proper implementation of its provisions. As has been already stated, collusive agreements between various agents often result in the exploitation of contract labour. Several provisions of the Act are not entirely complied with by the Contractor and/or the Principal Employer which results in the gross violation of the beneficiary’s rights. Contract labour constitutes a substantial segment of the labour force in our country, and its proportion is constantly increasing. Protecting the interests of the large segment of contract labour is a challenging task.

The first step to ensure the proper administration of justice is to make the contract labourers aware of their rights and responsibilities so that they are able to detect violation of the law and take necessary steps to remedy the same. Further, it is necessary to facilitate the workers to complain to an independent authority in a confidential manner; and giving punishment or reward to a supervisor on the basis of such complaints is a more effective way of combating corrupt practices.

With the purpose of ensuring payment of minimum wages to contract labour and in order to bring parity in the wage rates, holidays, hours of work and other conditions of work, Rules 25(2) of the Central Rules specifically lays down that the contract workers of the principal employer shall be entitled to wages as prescribed under the Minimum Wages Act, 1948, and for same treatment in respect of all the above-mentioned aspects. This rule is followed more in the breach than compliance and is a constant source of friction, dispute and litigation as it is the condition of license and not a regular provision in law. It should, therefore, be included in the Act itself to apply universally to all contract labour. A similar kind of recommendation has also been made by one of the recent studies conducted by V.V. Giri National Labour Institute.[67]

The Act is silent with regard to the absorption of contract labour by the principal employer after the issuance of the prohibition notification issued under Section 10 of the Act. The Act needs to be amended so long as to contain specific provision in this regard. As for the Act in its present form, the same is applicable only to establishments and contractors employing 20 or more than 20 contract labourers. Since a contractor is not required to take a licence for engaging less than 20 workers, there is a tendency to split the contract into small ones by the principal employer and/or main contractor to avoid being covered under the Act. The limit should be reduced to 10 workmen instead of 20 workmen. This will bring a large number of workmen under the beneficial provisions of this Act.

The Act needs to be amended to provide for a minimum penalty of INR 10,000/- by way of fine and/or minimum imprisonment of 1 year for violation of the provisions of the Act. The Act does not stipulate any time limit for granting licenses to contractors, thereby leading to avoidable delays. It is suggested that a time frame of maximum 15 days may be fixed for grant of license or its rejection.

We have come to an era of industrialization when multinational companies, their Indian cohorts, various global financial agencies and the Indian Government have all been baying for the blood of the workers. The industrial scenario is one where the prevailing management theories lay emphasis on ‘just-in-time’ production. This postulates, in the current management parlance, ‘flexibility’ of labour. This only means more contract labour, more casual labour, fewer rights for unionisation etc. The official policy appears to be that the workers will have to sacrifice if the country’s economy is to survive. The practice of employing contract labour might be efficient and economical from the employer’s perspective. However, earning profit by exploiting labour cannot be permitted in a democratic country and welfare state that ideally functions for the people. Cost-cutting should be done by increasing productivity by way of modernization, and using advanced technology, and not by oppressing and exploiting manpower. 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 to them the workers.

The policy-makers of the country must remember that welfare of the workers is a real concern as a large number of people in the country still continue to live below the poverty line. Taking into account not merely heavy industrialization and profit-making but also the welfare of those individuals whose perseverance results in such profit but never partake of such profit, is the correct way of achieving absolute economic development. If one proceeds with such ideas in mind, perhaps the day when the Indian economy is equated with those of the developed nations does not remain merely a recurring dream.

[1] Working Class, CITU, Vol. 38, No. 4, December 2007, p. 14

[2] Sanjay Upadhyaya, Policy and Law on Contract Labor in India, Thomson Reuters: New Delhi, First Edn., 2013, p. 2

[3] Section 2(1)(b), Contract Labour (Regulation and Abolition) Act, 1970

[4] The term ‘workman’ has been defined under Section 2(1)(i) of the Contract Labour (R and A) Act, 1970

[5] ‘Establishment’ has been defined by Section 2(1)(e) of the Contract Labour (R and A) Act, 1970

[6] ‘Contractor’ has been defined under Section 2(1)(c) of the Contract Labour (R and A) Act, 1970

[7] The term ‘principal employer’ has been defined by Section 2(1)(g) of the Contract Labour (R and A) Act, 1970

[8] Phillipe Egger, Contract Labour and Employment: Some Proposals for further consideration in Contract Labour: Looking at Issues- Nine Country cases, ILO, 1997.

[9] Ibid. n. 2, p. 16

[10] Mathur, D.C., “Contract Labour in India”, Mittal Publications, Delhi, (1989)

[11] Bihar Labour Enquiry Committee Report (1940).

[12] Bombay Textile Labour Enquiry Committee Report (1937), p. 37.

[13] Ibid.

[14] Labour Investigation Committee (Main Report), p. 80.

[15] (1960) LLJ II, p. 233.

[16] Section 1(4) of the Contract Labour (R and A) Act, 1970

[17] Proviso to Section 1(4) of the Contract Labour (R and A) Act, 1970

[18] Section 1(5)(a) of the Contract Labour (R and A) Act, 1970

[19] Explanation to Section 1(5) of the Contract Labour (R and A) Act, 1970

[20] Section 1(5)(b) of the Contract Labour (R and A) Act, 1970

[21] Lionel Edwards Ltd. v. Labour Enforcement Officer, [1977] 51 FJR 199 (Cal)

[22] BHEL Workers’ Association v. Union of India, (1985) 1 SCC 630

[23] (1974) I LLJ 480

[24] Section 2(1)(a) of the Contract Labour (R and A) Act, 1970

[25] Section 2(1)(i) of the Contract Labour (R and A) Act, 1970

[26] Barat Fitz Werner Ltd. v. State of Karnataka, (2001) 4 SCC 498

[27] Workmen v. Food Corporation of India, (1985) 2 SCC 136

[28] Section 2(1)© of the Contract Labour (R and A) Act, 1970

[29] State of Gujarat v. Vogue Garments, (1983) 1 LLJ 255

[30] Labourers Working on Salal Hydro Project v. State of J. & K., (1983) 2 SCC 181

[31] Section 7 of the Contract Labour (R and A) Act, 1970

[32] Section 10(1) of the Contract Labour (R and A) Act, 1970

[33] Section 12 of the Contract Labour (R and A) Act, 1970

[34] Ibid., n. 30

[35] Sections 16, 17, 18 and 19 of the Contract Labour (R and A) Act, 1970

[36] Section 20 of the Contract Labour (R and A) Act, 1970

[37] People’s Union for Democratic Rights v. Union of India, (1982) 3 SCC 235

[38] Section 21 of the Contract Labour (R and A) Act, 1970

[39] Indian Airlines v. Central Government Labour Court, (1987) 2 LLN 111 (Del), Section 21 (4), Contract Labour (R and A) Act, 1970

[40] Hindustan Steel Works Construction Ltd. v. Commissioner of Labour, (1996) 10 SCC 599

[41] Section 9, Contract Labour (Regulation and Abolition) Act, 1970

[42] Dena Nath v. National Fertilizers Ltd., (1992) 1 SCC 695 overruling Workmen v. Best & Crompton Engineering Ltd., (1985) 2 LLN 169 and United Labour Union v. Union of India, (1990) 1 LLN 565

[43] Section 23 and 24, Contract Labour (Regulation and Abolition) Act, 1970

[44] National Projects Construction Corporation Ltd. v. Labour Enforcement Officer, (1991) 62 FLR 497 (Cal)

[45] (2004) 1 SCC 126

[46] 1969, (19) FLR, 27

[47] 1975 (31) FLR 266

[48] 1984 (2) LLJ 507 SC

[49] 1997 (9) SCC 377

[50] [2001] 7 SCC 1

[51] 1994 5 SCC 304

[52] 1995 SCC (5) 27

[53] 1997 (9) SCC 377

[54] (1999) 3 SCC 601

[55] [2001] 7 SCC 1

[56] (2001) 1 LLJ 1443

[57] JT (1995) 4 SC 568

[58] AIR 2002 SC 1815

[59] 2001 LLR 305 (SC)

[60] 2003 4 SCC 317

[61] (1997) 5 SCC 51

[62] 1985 (50) FLR 205 (SC)

[63] Meenakshi Rajeev, Contract Labour Act in India: A Pragmatic View, IGIDR Proceedings/Project Reports Series. 7

[64] Meenakshi Rajeev, Contract Labour Act in India: A Pragmatic View, IGIDR Proceedings/Project Reports Series.

[65] Ibid n. 64

[66] Article 19 (1) (a) and (b), The Constitution of India, 1950

[67] Report of the Study on ‘Assessment of Economic Impact and Financial Implication of Amendment Proposal to the Contract Labour (Regulation and Abolition) Act, 1970, submitted to Govt. of India in 2010.

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