Industrial Adjudicator can Grant Relief if it Finds that Contract Between Principal Employer and Contractor is Sham, Nominal: Supreme Court


The Supreme Court ruled that the Industrial adjudicator can grant the relief if it finds that the contract between the principal employer and the contractor is sham, nominal.


Respondents were contractual labourers of the respondent No. 7, who was a contractor engaged by the appellant in terms of contract, which was renewed from time to time. Upon entering into the contract, necessary compliances under Contract Labour (Regulation and Abolition) Act, 1970 were completed by the appellant and the respondent – contractor. The labour contract came to an end in 1996. Therefore, the services of the respondents were dispensed with by the contractor. Accordingly, the appellant filed a return under CLRA Act, which shows that the contract with the respondent No. 7 had come to an end.


Senior Advocate Anupam Lal Das, appearing for the appellant, submitted that as such the contesting respondents were the employees employed by the respondent – contractor. It is submitted that therefore and in the absence of a notification under Section 10 of CLRA Act and there being no allegations or findings with regard to the contract being a sham, the contesting respondents could not have been held to be employees of the appellant and not of the contractor. 

He contended that that neither Section 10 of the CLRA Act, nor any other provision in the Act, whether expressly or by necessary implication, provides for absorption of contract labour in the absence of a notification by an appropriate Government, namely, in the present case, the State Government, under sub-section (1) of Section 10, prohibiting employment of contract labour, in any process, operation or other work in any establishment.


The division bench of Justice M.R. Shah and Justice Hima Kohli noted that no documentary evidence was produced, by which it can be said that the contesting respondents were the employees of the appellant.  

The court said that 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. 

The bench noted that even the direct control and supervision of the contesting respondents was always with the contractor. There is no evidence on record that any of the respondents were given any benefits, uniform or punching cards by the appellant. 

It was observed by the court that merely because sometimes the payment of salary was made and/or PF contribution was paid by the appellant, which was due to non-payment of the same by the contractor, the contesting respondents shall not automatically become the employees of the principal employer – appellant.

The court quashed and set aside the judgment and order passed by the High Court as well as the judgment and order passed by the Industrial Tribunal.

Case title: Kirloskar Brothers Limited v/s Ramcharan and Ors.

Citation: Civil appeal nos. 8446-8447 of 2022

Date: 05.12.2022 

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