Gratuity authority cannot decide principal employer’s liability for contract workers, Supreme Court rules

The respondents had worked through contractors engaged by the appellant, Oil and Natural Gas Corporation Ltd. (“ONGC”), and claimed gratuity from ONGC.

The Controlling Authority under the Payment of Gratuity Act fastened liability on ONGC, notwithstanding ONGC’s objection that the respondents were employees of the contractors and that no employer–employee relationship existed between the respondents and ONGC.

The Appellate Authority allowed ONGC’s challenge, but the High Court of Bombay reversed that decision and restored the liability against ONGC by a common order dated 23 August 2023.

ONGC challenged the High Court’s order in the connected appeals.

During the proceedings, gratuity had already been paid to the respondents pursuant to this Court’s order dated 15 December 2023.

Whether the Controlling Authority under the Payment of Gratuity Act could adjudicate and fasten liability for payment of gratuity on ONGC when the respondents had worked through contractors and ONGC disputed the existence of an employer–employee relationship?

Whether the respondents, not being employees of ONGC, could claim gratuity from ONGC under Section 4 of the Payment of Gratuity Act, 1972?

Whether the High Court was justified in reversing the Appellate Authority’s order that had rejected the claim against ONGC?

Whether recovery could be directed from the respondents after gratuity had already been paid to them pursuant to this Court’s interim order?

Section 4 of the Payment of Gratuity Act, 1972 applies to gratuity payable to an “employee”; therefore, the existence of an employer–employee relationship is foundational to a claim against the alleged employer.

The Controlling Authority’s statutory function is limited to determining or computing the amount of gratuity payable to a qualifying employee and does not extend to deciding, in the circumstances of these cases, the underlying liability of a principal employer whose status as employer is disputed.

Section 21(4) of the Contract Labour (Regulation and Abolition) Act, 1970 concerns responsibility for payment of wages by the principal employer and does not, by itself, impose liability for gratuity, which is treated separately under the Payment of Wages Act, 1936.

The contractual arrangement between ONGC and the contractors expressly described the engagement as a job contract, created no employer–employee relationship between ONGC and the contractors’ employees, and operated at arm’s length.

The Court also noted the principle stated in Municipal Council, represented by its Commissioner, Nandyal Municipality, Kurnool District, A.P. v. K. Jayaram, although it found it unnecessary to rely on that decision for disposal of the appeals.

The respondents’ claims arose from work performed through contractors, while ONGC expressly disputed that they were its employees and relied on the job-contract terms excluding any employer–employee relationship.

Since the foundational issue of ONGC’s liability and status as employer was disputed, the Controlling Authority could not validly assume jurisdiction to determine and fasten that liability under proceedings concerned with computation of gratuity payable to an employee.

The respondents’ assertion that they had worked for a long period did not answer ONGC’s legal objection that they had been engaged through contractors, and no effective counter was made to that objection.

The Appellate Authority had therefore correctly interfered with the Controlling Authority’s order, and the High Court erred in reversing it.

Although the gratuity amounts had already been paid pursuant to this Court’s order, the Court considered it inequitable to direct recovery from the respondents.

The appeals were allowed; the Bombay High Court’s common order dated 23 August 2023 was set aside, and the Appellate Authority’s orders were restored.

However, because the gratuity amounts had already been paid to the respondents pursuant to this Court’s order dated 15 December 2023, no recovery was to be made from them.

All pending applications were disposed of.