Click the Play button to listen to article

The Supreme Court has held that a principal employer cannot be held liable to pay gratuity to workers engaged through a contractor when there is no employer-employee relationship between the principal employer and such contractual workmen.

The Court set aside a Bombay High Court order holding Oil and Natural Gas Corporation Ltd. (ONGC) liable to pay gratuity to workers engaged through a contractor, holding that the Controlling Authority cannot decide who is liable to pay gratuity.

A bench of Justice Ahsanuddin Amanullah and Justice Manmohan held so while hearing ONGC's appeals “on the short point of the Controlling Authority not being competent to go into the lis.” The bench, thus, set aside the Bombay High Court order and revived the order of the Appellate Authority, which had ruled in ONGC's favour.

Despite ONGC's objection that it was not liable to pay gratuity and that the Controlling Authority had no jurisdiction to decide the question, the Authority held ONGC liable. The order was subsequently reversed on appeal, favouring the ONGC, but the High Court reversed that order, pursuant to which an appeal was filed before the Supreme Court.

Before the Supreme Court, Solicitor General Tushar Mehta argued for ONGC that under Section 4 of the Gratuity Act, gratuity is payable only to an employee. The respondents were not ONGC's employees and thus, there was no employer-employee relationship between the parties. It was also argued that under Section 21(4) of the Contract Labour (Regulation and Abolition) Act, 1970 (CLRA Act), principal employer's responsibility extends only to wages, not gratuity, which is a separate component under Section 2(vi) of the Payment of Wages Act, 1936. Clause 12.4.1 of the contract between ONGC and the contractor was also pointed out, which stated that the agreement is a job contract and does not create an employer-employee relationship between ONGC and the contractor's employees, which Mehta called a contract at arm's length. It was also submitted that the Controlling Authority's jurisdiction is limited to disputes about the amount of gratuity payable under the Gratuity Act, and that deciding liability or fastening it on ONGC was beyond its jurisdiction.

Relying on the Supreme Court's decision in Municipal Council, Nandyal Municipality, Kurnool District, AP v K Jayaram & Ors(2025), it was further submitted that a person sent to an establishment through a contractor cannot claim an employer-employee relationship with the principal employer.

Per contra, the respondent (contractor) submitted that the liability did not rest on the contractor, and that whatever amount was payable “ultimately has to come from the principal employer.”

No appearance was made for other respondents (private respondents who claimed payment of gratuity). The bench, however, noted that they had filed a counter affidavit which was “basically harping on the fact that they had worked for the appellant for a long period. However, on the issue which has been discussed above, there is nothing to counter the submissions of the learned Solicitor General.”

Considering the above, the bench agreed with the Solicitor General's submission that the proceeding before the Controlling Authority was not maintainable. It thus observed that “the adjudication by the Controlling Authority with regard to the liability was beyond its jurisdiction, as the only power conferred on the Controlling Authority under the statute was to compute the amount which may be payable to the concerned “employee”.

The Court held that the Appellate Authority had rightly interfered and the High Court's reversal was not justified. It also found the Solicitor General's contentions regarding the Payment of Wages Act, 1936 and the CLRA Act to be sustainable.

Noting that the ONGC had already paid the claimed gratuity to the workers, the bench directed that there shall be no recovery made from them.

Case: M/s Oil and Natural Gas Corporation Ltd v Suryakand D Lad & Ors (with connected appeals)

Citation : 2026 LiveLaw (SC) 961

Click here to read the judgment 

Appearance:

For Appellants: Mr. Tushar Mehta, Solicitor General of India; Mr. Gunnam Venkateswara Rao, AOR; Mr. Abhishek Gupta, Adv.; Ms. Ikshita Singh, Adv.; Mr. Dhruv Tiwari, Adv.; Ms. Rajeshwari S., Adv.; V. Krishna, Adv.

For Respondents: Ms. Amiy Shukla, AOR; Mr. Shashibhushan P. Adgaonkar, AOR; Mr. Anand Dilip Landge, AOR; Mr. Ranjeet Singh, AOR; Mr. Riwaj Rai, Adv.; Mr. Anoop Raj, Adv.; Mr. Chirag Zanwar, Adv.; Mr. Shakti Vardhan, Adv.; Mr. Kailash Pandey, Adv.; Mr. Krishna Yadav, Adv.; Mr. Sanjay Kumar, Adv.; Mr. Bibhu Dutta Das, Adv.; Mr. Avineesh Jha, Adv.

Tags: