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by adopting an operational flexibility in the construction of provision. This is what

has been done in the matter of filing complaint under the provisions of the
Negotiable Instruments Act vis-a-vis the competence of the complainant.



- By Mr. D. Samuel Abraham, M.A. B.L., Sr. Law Officer, Chris»•.

Medical College, Ida Scudder Road, Vellore 632 004.
The word 'Contract' is derived from the word 'Consensus'. In short, to na
valid contract between two or more parties, there must be consensus of mind anlUU5
them. In other words, the subject of contract must be understood by the second party
as,the same way first party has understood it. As applicable for goods physically for
supply and service, can 'service of labour hired? If so, on what basis and regulations?
In this century of 'knowledge' and 'rights' especially in a democratic country like
India, what are the reasonable restrictions placed on the Service of Labour. To answer
this, the Indian parliament enacted The Contract Labour (Regulation and Abolition)
Act, 1970 (hereinafter called Act), which was notified in 1971.
The subject Contract Labour is not new to the Indian Society. It has been in
.existence from time immemorial. It is being followed in our day-to-day activities. For
xample, you engage a mason to construct an extra bathroom in your house in direct
employment. He may come at lOam, slowly takes his instrument, asks his assistant to
mix the cement, sand and water. It will take a considerable time; puts the wooden
platform slowly and finally starts the work around 11 am. After an hour, he goes for
coffee break followed by smoking time; resumes work at 12 noon. Works till 2 pm
and then goes for lunch followed by small chit-chatting with his fellow men followed
by a nap. He resumes working at 3 pm. The same drama is repeated till 5 or 5.30 pm.
!he output is so poor; but given the same work for a labour contract, you Supply the
'Diaterial. The same mason comes at your door at 7 am works till 6.30 pm actively
engaging his fellow workmen! The magic is that he may finish it with the shortest
duiation by persuading others down-to-earth. In the same way, in Industry, the
employers engage contractors to supply labours for the following reasons:
1.No direct supervision is required by the Principal employer.
2. Job is completed within the shortest duration.
3. Liability to pay the benefits to the workmen is lesser than direct employees.
4. Employees can concentrate on other core issue or very important assignment rather
." concentrating in the subsidiary or non-core issues.
However, as there were many cases of exploitations by the employers and in many
instances, there were no real contracts with the contractors of labour but it existed only
in paper, the parliament decided to regulate the engagement of contract labours and in
some cases abolish the same. As the labour legislations are always enacted to the
benefit of workmen, liberal interpretations were given by the judiciary.
A careful reading of the Act may reveal that if there is non-compliance of the
provisions of the Act, penal provisions are provided in Section 22. In short, the law
has provided the penalties for non-compliance. But, many High Courts and in few

Labour Law Notes/February-2011 63

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cases by the Supreme Court, the judiciary discussed at length, "the Consequential
effect" and ordered regularisation of service with the Principal employer with effect
from the date, the contract between the Principal employer and labour contractor
was declared camouflage or sham contract. This had happened both in public and
private sectors. The following are few case laws for the benefit of our readers.
1. Standard-Vacuum Refining Company of India v. Its workmen and others,
1960 (3) SCR 466
The Supreme Court declared that if the job is of perennial nature done by the
contract labours and if less salary is being given to the contract labours when
compared to regular workmen, then court can order regularization of service of the
contract workmen with the principal employer.
2. Gammon India Limited and others Vs. Union of India and others, 1974
(1) SCC 596
The Supreme Court declared that intention of parliament was to regulate the
working conditions of contract labour to ensure payment of wages and other
3. Hussain Bhai v. Alath Factory, Tezbilali Union, 1978 (2) LLJ 397
A workmen under CLRA Act is also a workman under Industrial Disputes Act.
The contractor would be the employer of such person. The principal employer
under the Act would be employer under I.D. act in certain circumstances.
4. Deenanath v. National fertilizers Ltd., 1992 AIR S2 457
Held: Neither the act nor the rules framed by the Central Government provide
that upon abolition of contract labour, the said labour would be directly absorbed by
the principal employer. Hence, automatic absorption is not possible.
5. R.K. Panda v. Steel Authority of India, 1994 LLR 634 (SC)
Held: The primary object of the Act is to prevent the exploitation of the Contract
labour by the contractor or the establishment. Supreme Court ordered absorption of
all the workmen, subject to few conditions.
6. Gujarat Electricity Board, Thermal Power Station, Ukai, Gujarat v. Hind
Mazdoor sabha, 1995 LLR 552
Held: Thermal power in Gujarat - 1500 workers under Contract - Hail from Adivasi.
- Contractors exploited the workers - Worked more than 20 years and more - Supreme
Court ordered absorption of most of the contract labourers by appointing a Committee.
7. Air India Statutory Corporation v.. United Labour Union, 1997 LLR 288
Held: The Writ Petitions filed by the workmen of the contractor to abolish
contract labour in sweeping, dusting, cleaning etc, was allowed by Single Judge of
the High court Bombay, which was upheld by the Supreme Court, by the Three
Judges Bench.
8. Food Corporation of India, Bombay and others v.. Transport and Dock
workers union and others, 1997 (7) SCC 59
Held: If contract labour is abolished by Courts, automatic absorption of contract
labour by the Principal employer.
9. International Airport Authority of India v. International Air Cargo
Workers' Unions, 2009 LLR 923 SC
Held: No automatic absorption.

Labour Law Notes/February-2011


to. Steel Authority of India Ltd, v. National Union Water Front Workers, 2001
LLN 135 : 2009 LLR 923 sc
(a) State can abolish any class of employment under contract labour
(b) State can do it only on the recommendation of the committee specially
constituted for their purpose.
(c) Air India judgment overruled
(d) No automatic absorption of contract labour on its prohibition or abolition.
(e) When the adjudicator has held that contract as camouflage, the contract
workers will be automatically absorbed with the Principal employer.
(f) The contract workers already absorbed will not be affected
(g) Neither SC nor HC can declare a contract sham or valid contract; only
Industrial Tribunal can declare as it is the adjudicator before whom both the
parties can prove their respective claim.
Reliefto the employer:
Beinga judgement of a Five Judge Bench (Constitutional), the employers
be very happy that
1. It puts a full-stop for automatic absorption, in case the State prohibits or
abolishes Contract Labour.
2. The Supreme Court or High Court cannot prohibit the employment of Contract
3. The Supreme Court or High Court shall not go into the genuineness or
otherwise of a contract.
4. This judgment may hold good unless it is overruled by a Seven-Judge Bench,
which is a remote chance.
'Limitation of the right of the employer:
l'he judgment brought few limitations to the rights of the employer; now he is
-bound to conduct the case properly by submitting proper records to prove that
contract is genuine and valid. Now he stands before an Industrial Adjudicator,
o is at par with a District Judge to declare the validity of his contract; If he fails to
ve, the Adjudicator may order absorption of all the contract labour who were
. g immediately before the award; Appeal against the orders of Tribunal about
decisions before the Single Judge of the High Court, Division Bench of the High
and Supreme Court to get more and more time.is no more in practice. The
e Court has limited the writ jurisdiction both for High Court and Supreme
. Therefore, the employers can escape from the imminent danger if and only if
follow the provisions of the Act properly; the power to adjudicate and declare
contract has been entrusted with fairly a lower level judiciary which an employer
uld take conscious note of the procedure in CLRA Act, 1970.
How to make a Valid Contract:
The following are very simple procedures which, if followed, can save an
loyer from the Industrial tribunal.
ll Principal employer register his Company name with Inspector of Factories

Labour Law Notes/February-2011 65


2. Ensure that License is granted to the contractor by the Inspector of Factories

(Form VI).
3. Ensure periodical renewal (Form VII)
4. Intimation notice about commencement / Completion of work (Form VI B).
5. Maintain Registers of Contractors (Form XII).
6. Ensure employment card is issued to all the contract employees by the
7. The principal employer should send Annual Return about the Contractors for
the year ending December 31 (Form XXV)
The principal employer should ensure that the Contractor is maintaining the
register like Muster Roll, Register of Wages, Register of Deductions, Register of
overtime, Register of Fines and Register of Advances.
These are only paper works but if papers are maintained, employer can easily
prove that the contract is genuine and valid. Another fact to be underlined is that
many of the employers think that if they have an agreement with a contractor of
labour. in a valid stamp paper, it is enough and valid: He is not at all correct;'
because unless he sends all the relevant documents to the Inspector of factories and
maintain few other records, mere copy of an agreement will be considered as a
camouflage or sham contract.
Characteristics of Sham Contract:
(i) Presence of direct supervtsion of contract employees
officers/employees of principal employer
(ii) Absence of documents to show that there is valid contract.
(iii) Absence of Registration by the Principal Employer or
In Short, it depends upon who pays the wages, for whose benefits the contra
workmen works whether to his employer (Contractor) or to its principal employ
Under whose supervision; the moment a contract worker is entrusted to work und
an officer of the principal employer, the contract becomes camouflage. Th
Principal employer, if he notices any irregularity or any allegation of contra,
worker, he should address the issue again with contract labour to the contract
directly and should not take any disciplinary action.
It may not be justified if a mention is not made about the latest case law
Madras Rubber Factory United Workers Union v. The Chief Inspector
Factories, Chennai & Ors., 2010 (3) LLN 359, wherein the Hon'ble High Co
Madras dismissed nearly four Writ Petitions filed by the Trade Union only beca
the management of Madras Rubber Factory scrupulously followed the proced
and produced documents to the utmost satisfaction of the Inspector of Factori
The Inspector of Factories in his Affidavit filed before the Court, said that he ca
refuse to issue license in the absence of any law prohibiting it.
From the foregoing discussions, the employers may easily understand the vari
advantages and benefits to employ contract labour but at the same time, they sho
do their paper work scrupulously to avoid unnecessary litigation.

66 . Labour Law Notes/February-2011