Labour Laws in India
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In this article, Pradipta Nath discusses, whether workmen can be deemed as an Employee of the Principal Employer where there is no Registration or License under the CLRA Act in India or not.


In India, the outsourced employees are regulated under the Contract Labour Act, 1970.

There are four stakeholders under the CLRA Act, the Principal employer, the Contractor, the Contract Labours and the Government.

Under section 7[1] of the Act, the Principal Employer who is engaging the contract labours needs to obtain the Registration certificate. On the other hand, under section 12[2] the Contractor who is supplying labours to the Principal Employer need to obtain CLRA License.

Under section 9[3] of the CLRA Act, it proposes the consequences for not taking registration that the principal employer cannot employ or engage the contract labours. In other terms, the principal employer cannot engage the outsourced employees.

Consequences for not obtaining registration/license under the Contract Labour (Regulation and Abolition) Act, 1970

The Contractor depends upon the Principal employer for obtaining its license as it is the Principal employers who give Form-V to the Contract Labour for obtaining CLRA License.

There may be reasons that the Contractor had not obtained CLRA License wilfully, but there are also some other reasons where the Contractor actually is unable obtain a license. But where the Principal employer is not issuing CLRA License and it is done deliberately, then, in that case, the Act is silent and hence we need to refer the Courts Interpretations.

The consequences of not obtaining registration/license can be summarised below

  1. Under section 9 of the CLRA Act, the Principal employer cannot employ contract labour at any time or until the time specified by the Government Authority, if the registration is revoked.
  2. Under section 23[4], despite not obtaining registration under the CLRA Act the Principal employer engages the Contract labours, then the Principal employer will be punishable with imprisonment of three months or a fine of Rs 1000/- or with both.
  3. The Workmen cannot be deemed as an employee of the Principal Employer irrespective the registration under CLRA Act is obtained or not: – The workmen cannot claim permanent placement in their respective employment irrespective of the case that the Principal employer or the concerned Contractor do not have or obtained Registration or License respectively. The same was the view of the Hon’ble Kerala High Court in P. Karunakaran vs Chief Commercial[5], that the contract labourers cannot claim for permanent absorption in the employment to which they temporarily have been employed. If the contract labours are allowed to do so irrespective in Private or Government sector then a mass injustice will be done to the youths of India and as against the principle of equal opportunity in the matter of employment.
  4. In Dena Nath And Ors vs National Fertilizers Ltd. And Ors.[6], the Hon’ble Supreme Court of India uphold the view of the Kerala High Court that the principle of equal opportunity of work at all sector and also state that in case the Principal employer or the Contractor violates Section 7 or 12, the only consequences are the penal provisions envisaged under section 23 and section 25[7] of the Act.

Interpretation of the provision by the Hon’ble Supreme Court of India

“The Act does not provide for total abolition of contract labour but it provides for abolition by the appropriate Government in appropriate cases under Section 10 of the Act. In the present case and the other connected Special Leave Petitions, no notification has been issued by the appropriate Government under Section 10 of the Act vis-a-vis the type of establishment with which we are concerned.

It is not for the High Court to inquire into the question and decide whether the employment of contract labour in any process, operation or in any other work in any establishment should be abolished or not. It is a matter for the decision of the Government after considering the matter, as required to be considered under Section 10 of the Act.

The only consequences provided under the Act where either the principal employer or the labour contractor violates the provision of Sections 9 and 12 respectively, is the penal provision, as envisaged under the Act for which reference may be made to Sections 23 and 25 of the Act.

We are thus of the firm view that in proceedings under Article 226 of the Constitution merely because the contractor or the employer had violated any provision of the Act or the rules, the Court could not issue any mandamus for deeming the contract labour as having become the employees of the principal employer. We would not like to express any view on the decision of the Karnataka High Court or of the Gujarat High Court since these decisions are under challenge in this court, but we would place on record that we do not agree with the afore quoted observations of the Madras High Court about the effect of non-registration of the principal employer or the non-licensing of the labour contractor nor with the view of Bombay High Court in the aforesaid case. We are of the view that the decisions of the Kerala High Court and Delhi High Court are correct and we approve the same” source of this statement is visited on 07-02-18 at 05:29 PM IST.

Liability of the Principal Employer

Whether the Principal employer has taken registration under the Act or not, the Principal employer cannot run away from the liabilities as enacted under section 20[8] read with section 21[9] of the CLRA Act. Therefore, still the Principal employer has to ensure that the welfare provisions like canteen, rest-rooms, drinking water, first aids facilities are complied by the Contractor. In case the Contractor has not complied, it is the obligation of the Principal employer to extend those facilities to the Contract Labours.

Duties of the Contractors

Whether the Contractor has obtained Form–V or license thereafter or not, by virtue of section 21 of the CLRA Act, it cannot escape from its duties of disbursing wages to the Contract Labours as per the date prescribed under the Payment of wages Act.

Implied duties of the Principal employer and the Contractors

Though not held directly under the Act, it is the duty of the Principal employer to obtain registration under the CLRA Act and issue Form-V to the Contractor. Subsequently, it is the responsibility of the Contractor to obtain the License thereafter with no delay and inform the Principal Employer.

Simply Put

The CLRA Act is a welfare legislation to ensure that the contract labourers who are engaged are not exploited and are extended with the benefits as provided under the Act. The reason for obtaining the License or registration under the Act may be for any reason but an obvious reason is to maintain a record or an MIS for the Government so that it can monitor and inspect the discrepancies. Any non-adherence of section 7 or 12 on either of the parties will not enrich them to escape from their liabilities as whether obtaining registration or license or not, it will not detract from each other’s status from being a Principal employer or Contractor, as the case may be.

On either term, a contract labour cannot be deemed to be an employee of the Principal employer, if the P.E or the Contractor has failed to obtain registration/license under the CLRA Act.

[1] (visited on 07-02-18 at 11:46 AM IST)

[2] (V visited on 07-02-18 at 11:46 AM IST)

[3] (visited on 07-02-18 at 11:52 AM IST)

[4] (visited on 07-02-18 at 03:24 PM IST)

[5] (Visited on 07-02-18 at 04:57 PM IST)

[6] (Visited on 07-02-18 at 04:60 PM IST)

[7] (Visited on 07-02-18 at 05:20 PM IST)

[8] (Visited on 07-02-18 at 05:51 PM IST)

[9] (Visited on 07-02-18 at 05:51 PM IST)




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