Page 97 - DMGT516_LABOUR_LEGISLATIONS

Labour Legislations

Notes Payment of Gratuity Act, 1972

Neither the Contract Labour (Regulation and Abolition) Act, nor the Payment of Gratuity Act
provides that the employees engaged through the contractor will be entitled to gratuity from the
principal employer and as such the principal employer will not be liable to pay gratuity to the
employees engaged through the contractor. This clarification has been made by the Kerala High

Court also – Cominco Binani Zinc Ltd. vs. Pappachan, 1989 LLR 123 (Ker HC).
The Workmen’s Compensation Act, 1923

Section 12 of the Act deals with the liability for payment of compensation as per the provisions of
the Act to a contact labour for personal injury caused by accident arising out of and in course of
employment. Section 12 of the Workmen’s Compensation Act reads as under:

1. Where any person (hereafter in this section referred to as the principal), in the course of
or for the purposes of his trade or business, contract with any other person (hereafter in
this section referred to as the contractor) for the execution by or under the contractor of
the whole or any part of any work which is ordinarily part of the trade or business of the
principal, the principal shall be liable to pay to any workman employed in the execution of
the work, any compensation which he would have been liable to pay, if that workman had
been immediately employed by him; and where compensation is claimed from the principal,
this Act shall apply, as if references to the principal were substituted for references to the
employer except that the amount of compensation shall be calculated with reference to the
wages of the workman under the employer by whom he is immediately employed.

2. Where the principal is liable to pay compensation under this section, he shall be entitled

to be indemnified by the contractor, or any other person from whom the workman could
have recovered compensation and where a contractor, who is himself a principal, is liable
to pay compensation or to indemnify principal under this section; he shall be entitled to
be indemnifi ed by any person standing to him in the relation of a contractor from whom
the workman could have recovered compensation, and all questions as to the right to
and the amount of any such indemnity shall, in default of agreement, be settled by the
Commissioner.
3. Nothing in this section shall be construed as preventing a workman from recovering
compensation from the contractor instead of the principal.
4. This section shall not apply in any case where the accident occurred elsewhere that on, in or
about the premises on which the principal has undertaken or usually undertakes, as the case
may be, to execute the work or which are otherwise under his control or management.

It is thus clear that the principal employer cannot escape from his liability to pay compensation
to the employees of the contractor and in turn, the principal employer can recover the amount
paid from the contractor as held by the Bombay High Court – Surjeras Unkar Jadhaw vs. Gurinder
Singh (1991) 62 FLR 31 (Bom). In another case also, it has been held that the principal employer
will be liable for payment of compensation when an employee engaged by contractor dies out of
her employment – State of Maharashtra vs. Mahandeo Krushna Waghmode, 1994 LLR 950: 1994 (69)
FLR 571: 1994-II CLR 238: 1994-II LLN 829 (Bom HC). The Madras High Court has also held that
the principal employer would be liable to pay compensation to workmen through contractor for
execution of principal employer’s work – Century Chemicals Oils (P) Ltd. vs. Esther Maragatham,
1998 II LLJ 473 (Mad HC).

Task Discuss the advantages and disadvantages of contract labour.

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