DAMODARAM SANJIVAYYA NATIONAL LAW UNIVERSITY VISAKHAPATNAM, A.P., INDIA

PROJECT TITLE- Is Contract Labour a Problem or Solution ?

SUBJECT-Labour Law ii

NAME OF THE FACULTY-Ms Madhu Rana

NAME- SONAM

ROLLNO:-2013114

SEMESTER-V

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 Acknowledgement

I am greatly thankful to Ms Madhu Rana, Faculties labour law), DSNLU for her guidance

and constant supervision as well as for providing necessary information regarding the project.

I would like to express my gratitude towards my friends & member DSNLU for their kind co-

operation and encouragement which helped me in completion of this project. 

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Table of Cases

Air India Statutory Corporation Vs United Labour Union & Others

Bhilwara Dugdh Utpadak Sahakaris Ltd. Vs Vinod Kumar Sharma Dead by LRS &

Ors

Gujarat State Electricity Board Vs Union of India

Sports Authority of India vs. Labour Commissioner, Delhi Admn. & Ors

Steel Authority of India Ltd. (SAIL) & Others Vs National Union of Waterfront

Workers and Others

Abbreviations

A.I.R. - All India Reporter

Bom. – Bombay

BOMLR – Bombay Law Review

L.L.J – Labour Law Journal

P. –Page

S.C.C. – Supreme Court Cases

Vs. – Versus

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Table of Contents

Contents Page No.

Table of Cases 1

Abbreviations 1

Introduction 3

Research Methodology 3

Historical Background 4

Salient Features of CLRA 5

Landmark Judicial Pronouncements 6

Central Government’s Efforts 10

State Government’s Initiatives 11

Contract Labour: Emphasis on Steel Plant 12

Contract Labour a Problem or Solution? 12

Contract Labour: New Perspectives & Recommendations 14

Conclusion 15

Bibliography 16

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Introduction

‘Globalization’ introduced change of business environment, and increased competition

among industries for existence. Prospective market capacity and availability of workforce

attracted many MNC’s, representing the best brands of the world, to set up their offices in

India, giving a tough competition to their equals. To compete in this market, industries

requires flexibility in managing manpower to address occasional increase or slowdown in

demand. But the out-dated and rigid Indian labour laws, which were enacted decades back,

limiting right-sizing of manpower, are creating hurdles in smooth functioning of industries.

These factors are inclining industries to hire more and more numbers of contract labours to

have greater flexibility to adjust the number of workforce based on economic efficacy,

optimization of profit and bringing cost effectiveness.

Who is a ‘Contract labour’? ‘Contract Labour’ can be distinguished from ‘direct labour’ in

terms of employment relationship with the principal creation and the method of payment. A

workman is deemed to be a contract labour when he/she is hired in connection with the work

or “contract for service” of an establishment by or through a contractor. They are indirect

employees; persons who are hired, supervised and waged by a contractor who, in turn is

remunerated by the establishment. In either form, contract labour is neither borne on pay roll

or muster roll or wages paid directly to the labour.1

Research Methodology

Object

The main object of the project is to deal with The Contract Labour Act, 1970 and analysis of

the concept whether it is a boon or bane to the emerging Industries.

Sources

The following sources have been used in the project

Books

Articles

1 Report of the ‘National Commission on Labour’, 1969

5

Journals

Websites

Method of Study

In this project both Doctrinal study and Empirical Study has been followed.

Historical Background

Before we move on, a quick look at the historical feature of the contract labours in India

would certainly give a picture of how the system of employing contract labour came into

being. Contract Labour has its root from time immemorial but the size of contract labour in

India has considerably extended in the post-independence period with the growth of

construction activities. During the early period of industrialization, the industrial

establishments were always faced with the glitches of labour employment. Poor status of

factory workers, lack of labour flexibility, caste and religious reasons, language, etc., were

some of the problems with which most of the employers in general and British Employers, in

particular were not aware. Therefore, they had to depend on middlemen who helped them in

recruitment and control of labour. These middlemen were known by different names in

various parts of the country.

Contract Labourers were considered as oppressed section of the working class mainly due to

lack of administration on their part. Due to this, the Whitley Commission (1860)

recommended the abolition of contract labour by implication. Before 1860, in addition to the

many drawbacks suffered by the contract labour, the Workman's Breach of Contract Act

1859 operated in holding them criminally responsible in the event of a breach of contract

service.

Following this, the Government constituted various committees to study the socio-economic

conditions of contract labours.

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Committees and Recommendations:

• The Bombay Textile Labour Enquiry Committee 2 (1938) stated that “if the

management of the mills” did not “assume responsibility for such labour”, there was

“every likelihood of its being sweated and exploited by the contractor”; it also

recommended the abolition of the “contract system of engaging labour” as soon as

possible and “that workers for every department in a mill should be recruited and paid

directly by the management”.

• The Bihar Labour Enquiry Committee (1941) 3 condemned the practice of recruiting

labour through contractors because they said: “the contractors ordinarily lack a sense

of moral obligation towards labour which the employers or the managers are expected

to have, and, therefore, do not often hesitate to exploit the helpless position of labour

in their charge”.

• The Rega Committee (1946) found that the system of contract labour are very much in

vogue.

Salient Features of the “Contract Labour (Regulation & Abolition) Act, 1970”

“The Contract Labour (Regulation and Abolition) Act, 1970” provides regulation of

the employment of contract labour and its abolition under certain circumstances.

It covers every institution in which 20 or more workmen are employed on any day of

the preceding 12 months as ‘contract labour’ and every contractor who employs or

who employed on any day of the preceding 12 months, 20 or more contract employee.

It does not apply to establishments where the work is of irregular and casual nature

unless work performed is more than 120 days and 60 days in a year respectively

(Section1).

The Act provides for setting up of Central and State Advisory Contract Labour

Boards by the Central and State Governments to advise the respective Governments

on matters arising out of the administration of the Act (Section 3 & 4).

2 Bombay (Presidency). Textile labour inquiry committee, Bombay (India : State), Report of the Textile Labour Inquiry Committee, Government Central Press, 1938.3 Sinha, Industrial Relations, Trade Unions, and Labour Legislation, Pearson Education India.

7

The establishments covered under the Act are required to be registered as principal

employers with the appropriate authorities. Every contractor is required to obtain a

licence and not to undertake or execute any work through contract labour, except

under and in accordance with the licence issued in that behalf by the licensing officer.

The licence granted is subject to conditions relating to hours of work, fixation of

wages and other essential amenities in respect of contract as prescribed in the rules

(Section 7 & 12).

The Act has laid down certain amenities to be provided by the contractor to the

contract labour for establishment of Canteens and rest rooms; arrangements for

sufficient supply of wholesome drinking water, latrines and urinals, washing facilities

and first aid facilities have been made obligatory. In case of failure on the part of the

contractor to provide these facilities, the Principal Employer is liable to provide the

same (Section 16, 17, 18, 19 and 20).

The contractor is required to pay wages and a duty is cast on him to ensure

disbursement of wages in the existence of the authorised representative of the

Principal Employer. In case of failure on the part of the contractor to pay wages either

in part or in full, the Principal Employer is liable to pay the same. The contract labour

who performs same or similar kind of work as regular workmen, will be entitled to the

same wages and service conditions as regular workmen as per the Contract Labour

(Regulation and Abolition) Central Rules, 1971 (Section 21).

Landmark Judicial Pronouncements

The Hon’ble Supreme Court of India had delivered three landmark judgements on the

Contract. Labour (Regulation and Abolition) Act, 1970 in the cases of Gujarat State

Electricity Board, Air India Statutory Corporation and Steel Authority of India Ltd. (SAIL)

and recently had given a judgement on Bhilwara Dugdh Utpadak Sahakaris Ltd.

1995

Gujarat State Electricity Board Vs Union of India4

41995 AIR 1893, 1995 SCC (5)27.

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Facts: The appellant board runs a Thermal power station at Ukai in Gujarat where it generates

and distributes electricity to the consumers. At these time board deployed through various

contractors 1500 skilled and unskilled labourers to work. It appeared that these workman

hailed from the Adivasi area and many of them had lost their land on account of their

construction of thermal station. They claimed for regularisation of employments. But

contractors abruptly terminated all the labourers. They filed a writ petition for relief.

Issues: whether the workers whose services are engaged by the contractors, but who are

working in the station can legally claim them?

Reasoning: In the Gujarat State Electricity Board, Thermal Power Station, Ukai, Gujarat case

the Supreme Court of India recommended that the Central Government should amend the Act

by incorporating a suitable provision to refer to industrial adjudicator the question of the

direct employment of the workers of the ex-contractor in the principal establishments, when

the appropriate Government abolishes the contract labour.

1996

Air India Statutory Corporation Vs United Labour Union & Others5

Facts: The appellants engaged, as contract labour the respondent union’s members, for

sweeping, cleaning dusting and watching of the building owned and copied by the appellant.

The Contract Labour (Regulation & Abolition) Act, 1970 regulates registration of the

establishment of the principle employer. The contractor engaging and supplying labour to

every establishment in which 20 or more workmen are employed. The appellant had obtained

on September 20, 1971 a certificate of registration from regional labour commissioner under

act. (Under sec 10). The abolition of contact labour has been done in sweeping, cleaning and

dusting. The appellants did not enforced and abolished the contract labour. The respondents

filed a writ petition for relief.

Issues: The abolition of contract labour in the Industry and absorption of workers.

Reasoning: In Air India Statutory Corporation case, the Supreme Court held that though there

exists no express provision in the Act for absorption of employees in establishments where

contract labour system is abolished by publication of the notification under Section 10(1) of

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(1992) 94 BOMLR 238

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the Contract Labour (Regulation & Abolition) Act, 1970, the principal Employer is under

statutory obligation to absorb the contract labour. The linkage between the contractor and

employee stood snapped and direct relationship stood restored between principal employer

and contract labour as its employees.

2001

Steel Authority of India Ltd. (SAIL) & Others Vs National Union of Waterfront Workers and

Others6

Facts: The appellants, a Central Government Company and its branch manager, are engaged

in the manufacture and sale of various types of iron and steel materials in its plants located in

various States of India.The business of the appellants includes import and export of several

products and bye-products through Central Marketing Organisation, a marketing unit of the

appellant, having network of branches in different parts of India. The work of handling the

goods in the stockyards of the appellants, was being entrusted to contractors after calling for

tenders in that behalf. The Government of West Bengal issued notification dated July 15,

1989 under Section 10(1) of the CLRA Act (referred to in this judgment as the prohibition

notification) prohibiting the employment of contract labour in four specified stockyards of the

appellants at Calcutta. On the representation of the appellants, the Government of West

Bengal kept in abeyance the said notification initially for a period of six months by

notification dated August 28, 1989 and thereafter extended that period from time to time. It

appears that the State Government did not, however, extend the period beyond August 31,

1994. The respondent-Union representing the cause of 353 contract labourers filed Writ

Petition.

Issues: (i) what is the true and correct import of the expression appropriate government as

defined in clause (a) of sub-section (1) of Section 2 of the CLRA Act;

(ii) Whether the notification dated December 9, 1976 issued by the Central Government

under Section 10(1) of the CLRA Act is valid and applies to all Central Government

companies

Reasoning: In the case of Steel Authority of India Ltd. (SAIL) the Supreme Court, over-ruled

the judgement on Air India Statutory Corporation and held that neither Section 10 of the Act

nor any other provision in the Act expressly or by necessary implication provides for

6 2006 AIR 3229.

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automatic absorption of contract labour on issuing a Notification by the appropriate

Government under sub-section (1) of Section 10 prohibiting employment of contract labour

in any process or operation or other work in any establishment. The Principal employer

cannot be required to order absorption of the contract labour working in the concerned

establishment.

2011

Bhilwara Dugdh Utpadak Sahakaris Ltd. Vs Vinod Kumar Sharma Dead by LRS & Ors7

Excerpt:

Labour statutes were meant to protect the employees/workmen because it was realised that

the employers and the employees are not on an equal bargaining position. The Labour Court

has held that the workmen were the employees of the appellant and not employees of the

contractor. Here the finding of fact of the Labour Court is that the respondents were not the

contractor's employees but were the employees of the appellant

Reasoning:

In a recent judgment on Bhilwara Dugdh Utpadak Sahakaris Ltd. the Supreme Court of India

dismissing the appeal of the appellate hold that, the workmen employed through a contractor

are the employees of the Principal Employer and not of the: Contractor and added that the

judgment on SAIL Vs. National Union Waterfront Workers (2001) has no application in the

present case.

2014

Sports Authority of India vs. Labour Commissioner, Delhi Admn. & Ors8

Facts: It is the case of the petitioner that it is a society registered under the Societies

Registration Act, 1860 and is under the administrative control of the Department of Sports,

Government of India. The main objective for the formation of the petitioner is as a Care

Taker/Manager of the various stadiums built for Asian Games in Delhi. For the purpose of

maintaining the day to day checking of these stadiums, the petitioner has on its rolls,

7 legalcrystal.com/9208818 Judgement on 12th March, 2014. Supreme Court of India.

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regularly employed watch and ward staff who had come on the strength of the petitioner as a

result of amalgamation of SNIPES Board with the erstwhile Sports Authority of India.

Central Government had issued a notification dated December 09, 1976 under Section 10 of

the Contract Labour (Regulation and Abolition) Act, 1970 whereby they had prohibited

employment of contract labour for sweeping, cleaning, dusting and watching the buildings

owned or occupied by the establishment in respect of which the appropriate Government

under the said Act, is the Central Government. On July 06, 1990, the Sports Authority of

India Kamgar Union, the respondent No. 3 herein sent a charter of 17 demands which

included the regularization of the services of the claimants. Aggrieved by this alleged

disengagement by the respondent No. 4, the Sports Authority of India Kamgar

Union/respondent No. 3 herein invoked the conciliation machinery as provided therefor under

the provisions of the Industrial Disputes Act, 1947.

Issues: Whether the Contract Labours will get the wages as per the work they engaged.

Reasoning: In this case harmonious interpretation of the law has been taken by the judges, the

benefit of the labour was taken to get his wages as per the work he engaged. The contract

worker was employed as ward who maintains the Stadium, later he was terminated from the

work without giving the wages. The worker moved to the court for relief. Though there is a

clause which says prohibition of contract labour in sweeping and cleaning according to

section 10 of the contract Labour (Regulation and Abolition) Act, 1970.

Central Government’s Efforts

The Government of India on various occasions has tried to bring about effective compliance

mechanisms in the Contract Labour (Regulation and Abolition) Act, 1970 and rules 1971 for

safeguarding the interest of the contract workers. But the fact is, Government itself employs

more contract labour than the private sector.9 It was also in air that the Government might

soon ask companies to reveal information on the number and percentage of workers hired on

contract, the minimum monthly wages paid to the contractual workers and the unbiased

employment policies followed by them. The proposed recommendation would be voluntary

but for not complying with the request, the companies would have to explain the reasons. In

9‘Contract Labour: Govt Gains More’; The Economic Times, August 10, 2015.

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addition to it, firms would be expected to include this information in their annual financial

statements. With these provisions the proposed guideline has been made mandatory.10

The Ministry of Labour and Employment in 2011 had proposed to provide contract workers

same salary and other benefits as regular workers but the proposal was kept on hold by the

Cabinet Secretariat, looking at its implications. The proposed amendment would have entitled

contract labour to the same wage rate, holidays, hours of work and social security provisions

as that given to regular employees doing similar jobs. The only difference between contract

and regular workers would have been security of tenure.11

The issue of contract labour was widely discussed in the 42nd and 43rd session of the India

Labour Conference. In the 42nd Session of the Indian Labour Conference a Tripartite Task

Force was constituted to examine the provisions in the Contract Labour (Regulation and

Abolition Act, 1970 and to suggest amendment to the Act. But due to wide divergence of

views, the Task Force could not arrive to a consensus.12 However, in the State Labour

Ministers’ Conference held on 22nd January, 2011, it was proposed to amend the Act and

introduce the follow in provisions as part of the Act.

Apart from the above, it also needs to be mandated that whenever a contract is given to a

contractor, the contract agreement between the principal employer and the contractor should

clearly indicate the wages contribution towards social security schemes and other benefits

that are to be paid by the contractor to the contracted workman. But until now, the

Government has not come to compromise.13

State Governments’ Initiatives

State Governments are trying to amend and had also amended the Contract Labour

(Regulation and Abolition) Act, 1970 for providing greater flexibility of employment to

entice higher investment and improve competiveness in the market. The Government of

Maharashtra has taken a decision to order payments to all labourers, including contract

workers through cheque so that the full amount as stated on their pay record actually reaches

them and the government is able to monitor the same. Madhya Pradesh has proposed for a

10 The Economic Times on 17 October, 2015.11‘Tussle Sends Contract Labour Pay Parity Plan to Cabinet Secy’; The Economic Times; December 14, 2011.12 Summary records of the 42nd & 43rd session of the Indian Labour Conference.13‘State Labour Ministers’ Conference’; Government of India, New Delhi, 2010.

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bill to amend the Act to incorporate the Special Economic Zones (SEZs) under the purview

of the Contract Labour (Regulation and Abolition) Act, 1970.14

The Government of Andhra Pradesh has moved a step ahead by amending the Contract

Labour (Regulation and Abolition) Act, 1970 in 2003. The legislation provides for

employment of contract labour not only in the peripheral, but also in the ‘Core’ areas under

certain circumstance. The legislation has defined 12 employments as non-core activities.

Contract Labour: Emphasis on Steel Plant

Empirical Research in Visakhapatnam Steel Plant

Visakhapatnam Steel plant which was founded in the year 1971 was serving the nation in

refining steel and iron ore for the country. The employment figures of Visakhapatnam Steel

plant show that in the last 15 years the number of directly employed labour has increased. But

however the contract Labour employment was considerably less compared to the regular

workers. The main nexus between it is due to the low payment of wages to the contract

labourers. When it was in its inception the plant contracted huge number of workers for

engaging them in work, later it went on making them permanent in their posts.

The most obvious Characteristics of contract labour jobs is the low earning potential. Since it

allows only for low standards of living the historically better-off sections of the society are

automatically screened out. But the scenario changed now the surrounded villages, the jobless

youth is not much interested in joining the contract labour which are less paid compared to

the regular workers and even other aspect from the trade unions in the steel plant, there is

inferior look from the trade unions to the temporary group of contract labour. The flaw found

was the due to low payment it is making many of the youth unemployed. One must

appreciate that the ability to use contract labour enables a very large part of the labour force,

who would have otherwise gone without any employment or livelihood options, to be

employed.

14Summary Record of the 43rd Session of Indian Labour Conference.

14

Is Contract Labour Problem or Solution?

Following the murder at Maruti's Manesar plant. The debate over the plight of India's contract

labourers has come to the fore. Most argue that India's labour laws need a re look, while

others say the violence has nothing to do with the nature of employment.15

There is an increased incidence of deployment of contractual labour by company

managements because resorting to this reduces labour costs, In India, contractual workers get

only a quarter of what regular workers are paid, Hence, contractual labour' is undoubtedly a

major reason for the increasing labour unrest-even in Manesar where the riots and killing

happened, This incident is not particular to Maruti because not only the private sector but

even government departments and

public sector undertakings have resorted to contractual labour, However, the reasons behind

the incident at Manesar were many, including the fact that workers were not allowed to form

a union of their choice.

In India, contract workers are employed for six months, after which a new batch replaces

them and this cycle goes on, so, they don’t get work all year round, now even the government

has frozen fresh appointments and has started recruiting workers contract employment with

low consolidated pay scale. If the Contract Labour Act is amended, it will ensure minimum

wages of the industry to these workers even if it does not assure them job security. Another

important factor is that MNCs do not tolerate the formation of trade unions and even if they

do, the unions remain under their control and most of them become puppet unions. If these

recommendations are accepted the incidence of labour unrest might reduce to an extent in

future.

“One must appreciate that the ability to use contract labour enables a very large part of the

labour force, who would have otherwise gone without any employment or livelihood options,

to be employed”16 while the number of contract workers has gone up in recent years, the

numbers of strikes and lockouts is on the decrease. Hence, it is quite unlikely that industrial

unrest is related to increased contractualisation, however, the violent stand-off at the Maruti

Suzuki ltd factory at Manesar was unprecedented, assault and brutality under any

circumstances cannot be condoned and the loss of life is inexcusable. It is important to

understand that contract workers; are protected under several provisions of, labour laws,

15 ‘Is Contract Labour Problem or Solution?’, Mukesh Malhotra, The Hindu, 2013.16 Is contract labour the problem or the solution? Chandrajit Banerjee, LLR,2009.

15

swhile there may be company and region specific variations in implementation across the

country, it will be presumptive to as contract labour is the cause of labour unrest. CII strongly

feels that a convergence needs to be built on the perception gaps that exist around contract

labour. It is necessary to revisit the labour laws in India. Currently we have over 50 central

laws and many more state laws.17

Contract Labour: New Perspectives & Recommendations

To guard and check against double fraud by the contractor at the cost of the poor contract

workers, the principal employer would also ensure that the prescribed social security and

other benefits are extended to the contract worker and should be held responsible for the

benefits payable to contract labour because there are many cases where contractors make the

deductions from the wages of contract workers as their contribution towards social security,

and then absconding without depositing either the contribution realized from the workers.

Creating Central and State Contract Labour Boards

A Central Contract Labour Board (CCLB) be constituted in the centre to implement,

administer, monitor and manage the Contract Labourers. In addition to it, every State shall

constitute a State Contract Labour Board, which would be the sole authority to register, refer

and manage the contract labours in the respective state under the supervision of the Central

Contract Labour Board. The State Contract Labour Board (SCLB) would be entrusted with

the task of registering contractors and contract workers, issuance of licenses and smart cards,

address disputes or grievances (not in the case of regularisation), administer wages and social

security.

The Central and State Boards shall be governed by the three social partners i.e. Government,

Employers (Principal Employers) and Workers representatives (Trade Unions).

Contractors be treated as a separate establishment

Most of the problems in the existing contract labour legislation arise because of workers

being exploited in the hand of unscrupulous Contractors’, despite of the welfare initiatives

17 Supra 14.

16

taken by the Principal Employers. A provision be laid down in the Act underlying certain

eligibility criteria to be fulfilled by the contractors before obtaining a license from the

licensing officer.

The contractor who has met all the criteria and obtained license under the Act be treated as a

separate establishment and shall be fully accountable as Principal Employer for any type of

compliance/liability. Any failure to make statutory dues like EPF & ESI or in the case of any

accident in the workplace where the Occupier has provided and met with all safety &

protective measures, the Contractor should be equally held responsible with the Principal

Employers. This move would make the contractors more responsible for his/her deeds and

also would create an employer employee relation where the interest of the contract workers

can be safeguarded. So, Chapter III and Chapter IV of the Act be suitably amended to

abrogate the tyranny of contractors.

Skills level be measured during wage fixation.

The minimum wages comprising the bonuses and benefits of the contract labour be fixed as

per the criteria laid down by the Government determining unskilled, semi-skilled and skilled

labour. This would bring uniformity throughout the industry and advantage the workers at

large. A systematic mechanism be developed to assess the skills of the contract labour by

involving the employment relations of the particular regions.

Conclusion

Even though, employment of contract labour in India has involved considerations and raised

conflict of interest among the social associates, it has become a important and growing form

of employment, engaged in different occupations including skilled, semi-skilled and unskilled

jobs.

The system of employing contract labour is widespread in almost all sectors; in agriculture,

manufacturing and high GDP yielding service sector. Liberalisation of market economy in

early nineties has demanded greater flexibility of employment for the industries to compete in

the comprehensive perception and old labour laws have forced industries to hire contract

17

labour to address the cyclical demands and creating business friendly submission mechanism

to survive and compete in the globalised economy. Connected changes in the Industrial

Disputes Act, 1947 would be necessary to reduce dependence on contract labour system.

Therefore, addressing the issues of contract labour through a justifiable method avoiding

future industrial unrest is the need of the time.

Bibliography

List of Statutes

Contract Labour (Regulation & Abolition) Act, 1970

Books

Dr. V.G. Goswami, Labour and Industrial laws, Vol 1, 9th Ed., 2011, Allahabad:

Central Law Agency.

H.L Kumar, Labour and Industrial Law, Vol 1, 6th Ed., 2012, New Delhi, Universal

Law Publishing Co.

Dr. S.K Puri, Labour and Industrial Laws, Ed., 9th, 2010, Faridabad, Allahabad Law

Agency.

Dr. H.K .Saharay, Labour and Industrial Law, Ed., 5th, 2011, New Delhi, Universal

Law Publishing Co.

S.N. Mishra, Labour and Industrial Laws, Ed., 25th, 2009, New Delhi, Central Law

Publications.

Journals

Labour Law Journal.

Economic and Political weekly.

18

Web Sources

www.westlaw.in

www.manupatra.com

www.jstor.org

www.timesofindia.com

www.haineonline.com