Contract workmen under sham labour arrangements must be treated as direct employees entitled to principal-employer parity.

The Appellants worked as Chowkidars with the Public Works Department (“PWD”) through contractors, having joined between 1992 and 1998.

After their services were terminated on 27 October 2000, the High Court directed their continuation pending consideration of their claim for permanent appointment; they rejoined on 3 October 2002.

In ID No. 31/2003, the Industrial Tribunal awarded them full back wages for the period from 27 October 2000 to 2 October 2002 and held M/s Jai Jawan Security Agency to be their employer.

In ID No. 81/2004, however, the Tribunal rejected their claim for increased wages on the ground that they had not produced documentary evidence establishing an employer–employee relationship with PWD.

In separate proceedings, a Division Bench held that PWD was the principal employer under the Contract Labour (Regulation and Abolition) Act, 1970 (“CLRA Act”), directed processing of the Appellants’ wage claims, and ultimately PWD paid ₹2,97,472 towards wages for the period from 27 October 2000 to 2 October 2002.

The learned Single Judge nevertheless upheld the 2007 Award insofar as it declined the Appellants’ claim for benefits available to regular PWD employees.

Whether the earlier Division Bench decision holding PWD liable as the principal employer, and the consequential payment of wages, precluded PWD from disputing the nature of its relationship with the Appellants in the subsequent proceedings?

Whether the Appellants were entitled to be treated as employees of PWD, and to parity in wages and conditions of service with regularly employed Chowkidars under the CLRA Act and the Contract Labour (Regulation and Abolition) Central Rules, 1971 (“CLRA Rules”)?

Whether the Appellants’ claims were liable to be rejected on the ground of delay or laches?

The Court applied Section 21 of the CLRA Act, under which the principal employer may be required to pay wages where the contractor fails to do so, subject to recovery from the contractor.

Rule 25 of the CLRA Rules was applied to recognise parity in wages, holidays, working hours and other service conditions for contract workmen performing the same or similar work as directly employed workmen.

The Court further relied on Sections 7 and 12 of the CLRA Act concerning registration of the principal employer and licensing of contractors, and on the principle stated in Steel Authority of India Ltd. v. National Union Waterfront Workers, 2001 (7) SCC 1, and Food Corporation of India v. Pala Ram, (2009) 1 SCC (L&S) 690, that a sham or camouflage contract may result in the workmen being treated as direct employees of the principal employer.

The Court also invoked the principle underlying res judicata under Section 11 of the Code of Civil Procedure, 1908, as discussed in Chairman and Managing Director, Fertilizers and Chemicals Travancore Ltd. v. General Secretary, FACT Employees Association, 2019 INSC 514, even where the subsequent cause of action is not technically identical.

It additionally held that industrial adjudication is not governed by the strict rules of evidence applicable to civil proceedings.

The Court held that the earlier Division Bench decision proceeded on the undisputed premise that the Appellants had been engaged with PWD and that PWD was the principal employer liable to make payment when the contractor failed in its obligations.

PWD had not challenged that finding at the relevant stage and, having paid the awarded wages pursuant to that decision, could not subsequently reopen the relationship between the parties.

The Appellants had also worked under the direct supervision and control of PWD, while PWD failed to produce evidence of its own registration under Section 7 or of the contractor’s valid licence under Section 12 of the CLRA Act.

In those circumstances, and applying the sham-contract principles recognised by the Supreme Court, the Court treated the Appellants as employees of PWD for the relevant purpose.

The Tribunal’s rejection of the claim merely for want of documentary evidence was therefore considered overly technical, particularly since industrial tribunals are required to assess the substance of the employment relationship.

The plea of delay or laches was also rejected because the Appellants had continuously pursued proceedings since 2000 and a substantial part of the delay resulted from non-compliance with earlier court directions.

The Appellants were held entitled, with effect from 3 October 2002, to the wages, allowances and conditions of service applicable to regularly and directly employed PWD Chowkidars performing the same or similar work.

PWD was directed to compute and disburse the consequential differential arrears within three months and to comply with its obligations regarding Provident Fund contributions for the relevant period under the applicable statutory scheme.

All pending applications were disposed of, with no order as to costs.