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Unit 4: Contract Labour (Regulation and Abolition) Act, 1986

workmen in the establishment or an establishment similar thereto; (iv) whether it is suffi cient to Notes
employ considerable number of full time workmen. The explanation to Section 10(2), which relates
to clause (b), provides that if a question arises as to whether any process or operation or other
work is of perennial nature, the decision of the appropriate Government shall be fi nal.
From the above, it is evident that on abolition of such contract labour altogether by the appropriate
Government, it is not obligatory on the part of principal employer to absorb the contract labour.

Note In Air India Statutory Corporation vs. United Labour Union, 1997 Lab.I.C.365 (S.C), the
Supreme Court played a creative role by holding that “the moment the contract labour
system stands prohibited under Section 10 (I), the embargo to continue as a contract labour
is put to an end and a direct relationship has been provided between the workmen and
the principal employer. Thereby, the principal employer directly becomes responsible for
taking the service of the workmen, hitherto regulated through the contractor.”

The Haryana Electricity Board vs. Suresh has put further check on the arbitrariness of the
employment of Contract Labour. The HEB, at that relevant time, was not registered as Principal
Employer, nor did the Contractor have a licence under Contractor Labour (R&A) Act, 1970. Hence,
neither the Board was Principal Employer nor the Contractor, a contractor, under the Act. The
inevitable conclusion is that the so called Contract System was a mere camouflage, smoke screen

and disguised in almost a transparent veil, which can be pierced and direct relation between
workers and Board relation can be seen. The Contractor is merely a broker or an agent of the
Board. Majumdar, Justice observed: “It has to be kept in view that contract labour system in an
establishment is a tripartite system. In between contract workers and the principal employer is
the intermediary contractor and because of this intermediary, the employer is treated as principal

employer with various statutory obligations flowing from the Act in connection with regulation of
the working conditions of the contract labourers who are brought by the intermediary contractor

on the principal’s establishment for the benefit and for the purpose of the principal employer
and who do this work in his establishment through the agency of the contractor. When these
contract workers carry out the work of the principal employer which is of a perennial nature and
if provisions of Section 10 get attracted and such contract labour system in the establishment
get abolished on fulfillment of the conditions requisite for that purpose, it is obvious that the

intermediary contractor vanished and along with him vanishes the term ‘principal employer’.
Unless there is a contractor agent, there is no principal. Once the contractor intermediary goes,
the term ‘principal’ also goes with it. Then remains out of this tripartite contractual scenario

only two parties - the beneficiaries of the abolition of the erstwhile contract labour system i.e.
the workmen on the one hand and the employer on the other, who is no longer their principal
employer, but necessarily becomes a direct employer for these erstwhile contract labourers. It
was urged that Section 10 nowhere provides for such contingency in express terms. It is obvious
that no such express provision was required to be made as the very concept of abolition of a
contract labour system wherein the work of the contract labour is of perennial nature for the
establishment and which otherwise would have been done by regular workmen, would provide
improvement of the lot of such workmen and not its worsening.
Implicit, in the provision of Section 10 is the legislative intent that on abolition of contract labour
system, the erstwhile contract-workmen would become direct employees of the employer on
whose establishment they were earlier working and were enjoying all the regulatory facilities on
that very establishment under Chapter V prior to the abolition of such contract labour system.
Though the legislature has expressly not mentioned the consequences of such abolition, but the
very scheme and ambit of Section 10 of the Act clearly indicates the inherent legislative intent
of making the erstwhile contract labourers direct employees of the employer on abolition of the

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