RAJIV GANDHI NATIONAL UNIVERSITY OF LAW

PATIALA, PUNJAB

Topic :-Abolition of Contract Labour – A Critical Analysis

SUBMITTED BY:- SUBMITTED TO ;-

AMARENDRA KUMAR MS LOVEPREET
ROLL NO – 18133 Patiala , Punjab

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 ACKNOWLEDGEMENT

I wish to express my sincere gratitude to Professor MS Lovepreet who provided

me the opportunity of making this project which provided me with a lot of
knowledge and information. Through this project I was able to express my
thoughts on paper and also learned to research on different topics. I would also like
to thank the library staff, my batch mates and the seniors who guided me in this
project. I would also like to give credit to my parents and my sister who
encouraged, motivated and steered my way to completing the project. Again, I
would like to thank who all those who assisted me in making this project without
them I could not have completed the project

Amarendra kumar

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 CERTIFICATE

This is to certify that the project titled “Abolition of contract labour – An

critical analysis" has been successfully completed and researched on by the
bona fide student AMARENDRA KUMAR, 2nd Year Ba.LLB. (Hons.), Roll
No. 18133, of Rajiv Gandhi National University of Law under the
supervision of MS Lovepreet.

………………………………………

MS Lovepreet

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CONTENT Page No
1 INTRODUCTION……………………………………………………….… ….5

2 THE CONTRACT LABOUR ACT 1970………………………………………7

3 OBJECTIVES OF THE ACT………………..…………………………………7

4 RESULTANT PROBLEMS FACED BY CONTRACT LABOUR……………9

5 ISSUE SURROUNDING THE EFFECTIVE IMPLEMENTATION OF THE

ACT……………………………………………………………………………….10

6 DEVELOPMENT OF THE PRESENT JUDICIAL POSITION……………….12

7 CONCLUSIONS………………………………………………………………..15

8 BIBLIOGRAPHY………………………………………………………………16

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INTRODUCTION

A Contract labour is a workman employed in or in connection with the work of an establishment

when he is hired in or in connection with such work by or through a contractor, with or without
the knowledge of the principle employer. This system of employment is not new to India even
though globalisation has strengthened its roots in recent times. However, it is interesting to note
that from very early times the critiques of contract labour system were in plenty. 

Employers prefer contract labour as it promotes labour market flexibility and increases
competitiveness of the enterprises. Contract labour is more productive as they work for longer
hours, are cheaper, can be more easily deployed in work situations that are more hazardous and
the cost to the company and the liability in cases of accidents is lower. Such a system provides
flexibility in the working of the establishments as terminating a contract with the contractor
offers a much simpler course than retrenching their own workers who may take recourse to the
Industrial disputes Act. Also, employers save money by engaging labour without having to
extend social welfare benefits such as leave wages, Employees’ State Insurance or Provident
Fund contributions, and bonus. However, in all this the welfare of contract labour is ignored and
they become an exploited and deprived lot. Even with the enactment of the CLRA Act, 1970 the
contract labour force has not received much respite. 1

The 1970 Act provides for abolition of contract labour wherever possible and practicable and
where it cannot, policy of the Act is that working conditions of contract labour should be
regulated so as to ensure payment of wages and essential benefits. It gave the prerogative of the
Court to decide on the abolition of contract labour to the appropriate Government after
consultation with the advisory Board. 

However, there were certain glaring omissions in the Act. One of them dealing with the fate of
the erstwhile contract workmen after the contract labour is abolished. These lacunae led to the
catena of conflicts between the management and the labour. On the abolition of the contract
labour, the labour seemed to be in a worse position than before as they can neither be employed
by the contractor nor is there any obligation cast on the principle employer to engage them in his

1
 "The Industrial Employment (Standing Orders) Act, 1946". 11 September 2015. Retrieved 21 January 2019.

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establishment. Even the courts left the decision of absorption on the industrial adjudicator who
also could take a decision only if an industrial dispute in this regard was raised by the regular
employees!

This research paper shall attempt to answer the following research questions while analyzing
judicial position on absorption of contract labour which is abolished under section 10 of the 1970
enactment.

Contract workers form a large part of the total workforce in India. Most of these workers are
engaged in seasonal or occasional employment as and when they are called for. The primary
sectors that mainly function through contract labour are loading and unloading of goods and
materials; catering including canteen services; security services; civil and construction works;
electrical/ air conditioning/ painting/ whitewashing; house-keeping services; computer
maintenance, etc.2

Contract labourers are usually recruited through contractors who work as a link between the
actual employers and the workers. However, over time such contractors are indulging in large
scale misuse and abuse of power. Workers are especially abused by being paid lesser wages than
agreed upon, being forced into employment that is harmful to physical or mental health etc.

Ensuring the welfare of the labour sector in the nation is the prime responsibility of the Central
Government. For this reason, the Central Government has enacted several legislations aimed at
securing the welfare of the labour class. However, the rights conferred to contract workers by
way of the Constitution and various other labour laws are generally poorly enforced. Although
there are trade unions to secure the rights and welfare of the workers, they primarily cater to the
vested interests of the trade union leaders. In SMEs, the situation is even worse; there is total
anarchy and the workers are left all to themselves.

2
Aditya Gupta. "How wrong has the Indian Left been about economic reforms?"(PDF). Archived from the
original (PDF) on 26 February 2009. Retrieved 20 February2009.

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THE CONTRACT LABOUR (REGULATION AND ABOLITION)
ACT 1970.
 The Contract Labour (Regulation and Abolition) Act 1970 was enacted as a Central law aimed
at regulating the conditions under which contract labourers work and also provide for the gradual
abolition of the contract labour system as and when possible.3

The Act was made applicable to all establishments operating all over the country and both the
Central and state governments were authorised to enforce it in their respective jurisdictions.

The Act envisages the minimization of the exploitation of the labour class and improving the
working conditions enjoyed by labourers employed on a contract basis.

OBJECTIVES OF THE ACT :-

 The prime objective of the Contract Labour (Regulation and Abolition) Act is to prevent the
exploitation of contract workers and to abolish the system of contract labour in cases where:

 The work is perennial in nature.

 The work is incidental or is necessary for the functioning of the establishment.
 The work is of such a nature that it can employ a considerable number of workmen
full time.
 The work need not be done by contract workers and can be done by regular workmen.

3
 "Archived copy". Archived from the original on 9 April 2010. Retrieved 2 December2013.

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APPLICABILITY OF THE ACT :-

 The Act is applicable to every establishment wherein twenty or more workmen are employed or
were employed on any day of the preceding twelve months as contract labor. The Act is also
applicable to all those contractors who employ twenty or more contract laborers in any
establishment belonging to a primary employer.

Accordingly, any organization that comes under the ambit of the Act should register itself as the
principal employer by making an application to the registration officer who is appointed by the
appropriate government. Further, it should be known that any establishment that does not register
itself under the Act is barred from employing contract labor. Also, all contractors who are
engaged in recruiting and providing contract labor are supposed to obtain a license for the same.
Such license has certain conditions such as hours of work, fixation of wages and provision of
certain essential amenities etc. subject to which the contractor can recruit contract laborers.

The principal employer is obliged under the CLA to ensure that wages have been paid to the
contract labour in the presence of its (principal employer’s) authorized representative. If the
contractor fails to pay wages to any worker, the principal employer has been made duty bound to
pay the same.

It should be noted that the Act is not applicable to establishments that work on a seasonal basis
i.e. if work is performed for less than 120 days a year, it would amount to seasonal employment
and such establishment need not be registered under the Act.

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RESULTANT PROBLEMS FACED BY CONTRACT LABOUR
The SAIL judgment is very harsh on contract labour in the establishment where it is abolished.
On abolition, the contract of the principle employer with contractor in regard to contract labour
comes to an end. Though the contract labour is still employed under the contractor, he can as
well be terminated as a consequence of the notification, without payment of retrenchment
compensation or following provisions of Industrial dispute act. 4

In this situation the contract labour have limited options:

They may try to prove the initial contract between the contractor and principle employer was a
sham or a camouflage essentially rendering them direct employees.

If Contract workers were engaged to discharge statutory duties, they may be absorbed.

They may raise an industrial dispute espoused by direct workmen to ask for their absorption.

Here 1 and 2 are very special situations and cannot be used in every case. The third option is also
impractical. Though sub-contracting operations reduce the work of the permanent employees and
contribute to high profits which contribute towards high bonus, the regular employees are hardly
sympathetic to the interests of contract labour as they argue that sub-contracting hampers
creation of job opportunities. So, essentially a notification for abolition leaves a labour
unemployed and helpless for the lack of any judicial remedy. 5

Another major resulting trend of SAIL case was that progressively more and more employers
requested for registration for employing contract labour and an unprecedented increase in
Contract labour. Prior to this judgment there was always a threat and chance that courts may rule
such contract as sham or illegitimate and direct for its abolition thus paving the way for the
absorption of such contract workers. But as this judgment removed all hopes of regularization of
the contract workers after the abolition of the contract labour it became futile for the workers to
seek any such abolition. Thus, The CLRA in effect started to protect the employers and not the
employees in terms of avoiding any long term employment relationship and consequent

4
critical-analysis-contract-labour-regulation-abolishment-act-1970/
5
C. Krishnamurthi. Dies Non (No Work No Pay) in Banking Industry ISBN 978-81-8387-226-3

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liabilities including the benefits of working condition, collective bargaining and rightful
compensation package.

THE ISSUE AROUND ARTICLE 19 (1) (G) OF THE

CONSTITUTION :-
The Act imposes certain duties on the owners of the establishments in the form of providing for
basic amenities and needs of the contract workers. This was challenged on several grounds
stating that since the workers are only temporary, expenditure of such an extent on them is
redundant and therefore should not be mandated. It was contended that such compulsion
amounted to violation of Article 19 (1) (g).6

However, in the case of Gammon India Ltd and Ors v. Union of India it was held that it was the
duty of the employer to provide the workers with the basic amenities in order to ensure the health
and welfare of the workers. Expenditures incurred in the course of this are tax free and are in no
way a form of wastage of money.

ISSUE SURROUNDING THE EFFECTIVE IMPLEMENTATION

OF THE ACT :-
 The Act delegates the power of administration to the appropriate governments concerned. In the
case of the Central Government, it is the Central Industrial Relations Machinery (CIRM)
enforces the provisions of this Act as well as the rules framed there under. On the hand, in the
state sphere, the labour department of the state government concerned does this work.7

In order to ensure effective implementation of the Act, various authorities have been delegated
with different enforcement powers. Further, the Central Government has issued almost 76
notifications under the Act prohibiting the employment of contract labour. However, despite
these umpteen steps taken, there continues to be a blatant violation of the provisions of the Act.

6
Constitution of India
7
 "Fair Labor Association Secures Commitment to Limit Workers' Hours, Protect Pay at Apple's Largest
Supplier - Fair Labor Association". www.fairlabor.org. Retrieved 21 January 2019.

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First, the general labour law enforcement system is the country needs an overhaul. Presently, the
system is so weak and ineffective that the implementation of existing and further policies is
nearly impossible.

Second, there still continue to be a large number of establishments who employ contract labour
but are yet not registered under the Act. The failure to implement the very first step towards the
efficacious implementation of the Act naturally poses questions as to the effectiveness of the
policy as a whole.

Third, as stated earlier, although there have been varying opinions on the same, there is no
express mention of the status of workers upon the abolishment of contract labour. The current
stand maintained by courts is that the decision to terminate or absorb is that of the employer.
However, there is no statutory decision on the same yet.

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DEVELOPMENT OF THE PRESENT JUDICIAL POSITION
Initially, the judiciary seemed reluctant to interfere in giving an appropriate relief to contract
labour through their absorption whenever they approached the court through a writ petition. For
instance in B.H.E.L Workers Association, Hardwar v. UOI the court observed that to abolish and
absorb labour was a legislative activity with which the court was not entrusted under the
constitution. In Catering cleaners of southern railway v. UOI  , the court held that writ of
mandamus directing central government to abolish the contract labour system cannot be issued
because section 10 had vested the power in the appropriate government. In the circumstances, the
appropriate order to make according to Court, was to direct the Central government to take
suitable action under sec. 10 of the Act within six months from the date of order. It was also
observed that without waiting for the decision of the Central government, the Southern Railway
was free on its own motion to abolish the system and regularise the services of the employees.

However, in Sankaran Mukherjee v. UOI  the Supreme Court which had earlier refused to
interfere in cases to abolish and absorb contract labour directed the abolition and subsequent
absorption of employees stressing on the fact that the CLRA Act,1970 should be construed
liberally so as to effectuate its objects. Similarly, in R.K.Panda v. SAIL  , the court held that
normally it would not exercise its jurisdiction under Article 32 or 136 to adjudicate over matters
of absorption but in this case it directed that the contract labour as were continuing in
respondents’s employment for the last 10 years in spite of change of contractors should be
absorbed as regular employees. Also, in National Federation of Railway Porters, Vendors &
Bearers v. UOI , the court gave directions to regularise employees based on a report by Central
Assistant Labour Commissioner.8

The next major case was the Gujarat Electricity Board v. Hind Mazdoor Sabha  where it was
held that only the appropriate government can abolish contract labour in accordance with section
10 and no court or industrial adjudicator has jurisdiction. On the matter of absorption, the
Supreme Court observed that on the abolition of the contract labour, the labour seem to be in a
worse position than before as they can neither be employed by the contractor nor is there any
obligation cast on the principle employer to engage them in his establishment by the CLRA Act,
8
 International Labour Organization, "National Legislation and Policies Against Child Labour in India"
(2011 Archived 9 August 2012 at the Wayback Machine)

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1970. They tried to gauge the legislative intent in this regard and concluded that no provision for
automatic absorption must be out of the fear that such a provision would amount to forcing the
contract labour of the principle employer. The court concluded that in this regard the industrial
adjudicator could be of help. He has the jurisdiction to change the contractual relationship and
also make new contracts between the employer and employees under the Industrial disputes Act
1947.

But, who could raise such an industrial dispute? Section 10 applies only where there exists a
genuine contract. If contract is not genuine then the workers of the so called contractor can raise
an industrial dispute for declaring that they were always employees of the principle employer
and can ask for subsequent absorption. However, in case the adjudicator decides that the contract
was genuine he may refer the workmen to appropriate government for abolition under section 10
but only if the dispute is espoused by the direct workmen of the principle employer. (as
otherwise the dispute will not be an industrial dispute under sec 2(k))

The above judgment neglects practical realities and has three fold limitations. Firstly, the court
does not define in practical sense what a genuine or a sham contract is. Secondly, inestimable
thrust has been imposed on regular employees of the principle employer to espouse the cause of
the contract labour, which is highly unimaginable in the real sense. Lastly, there is a long
experience of existence of inordinate delays in the reference of industrial disputes by the
appropriate government for adjudication. In this regard once industrial adjudicator refuses or
rejects the reference on the ground that the dispute is not an industrial dispute, the contract
labour cannot dream of resolving their grievances.

Subsequently, Air India Statutory Corporations v. United Labour Union  ruled that on the
abolition of the system of contract labour the workmen were entitled for absorption, and the
court had powers under the Art.226 to direct the employers to absorb such workers. There is no
need to make a reference under Sec.10 of ID Act for adjudication of dispute for absorption on
abolition of contract labour in the industry. The raising of industrial dispute by the contract
labour which is to be espoused by the regular workmen once the system is abolished was done
away with.

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However, soon post-globalisation and liberalisation period showed the judiciary wavering from
its earlier stand. The judiciary was lead on this path by a series of government initiatives to
simplify labour laws and to provide more flexibility to employers to ‘hire and fire’. In order to
encourage investment and expansion by employers they felt justified in their actions.

Unfortunately, Air India decision was overruled by Steel Authority of India Ltd v. National
Union Waterfront Workers & Others  a five judge bench, wherein the court held that even in the
cases where the system of contract labour is abolished, the erstwhile contract labour who might
have put up years of service as contract labour under the same principal employer cannot be
absorbed as a matter of right as there was no such provision in the Act. However, if it was a
sham contract the contract labour could raise an industrial dispute and deserve absorption. Thus
prospectively it became fruitless for the contract workers to approach either court or the
appropriate Government to abolish the system of contract under the sec.10 of the Act.

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CONCLUSIONS :-
The SAIL judgment reflects the sentiments of the new political-economy prevailing at that time
and coincided with liberalization and globalization in India. The abolition and automatic
absorption of contract labour would discourage investments and expansion of labour intensive
areas in this highly competitive market. This could be why the legislature was hesitant in
including absorption into the Act. Here judiciary could have used some creativity and continued
with the Air India position but it is rather unfortunate that such a landmark decision which could
have had far-reaching consequences for the labour market was overruled. Now it is upto the
legislature to amend the Act suitably to incorporate automatic absorption in the scheme but what
shall really benefit the labour class will be removing the intermediary from the equation. Also,
contract labour should be sufficiently empowered to raise industrial disputes without taking the
help of direct employees.

In this regard, the Second National Commission has recommended that the decision to abolish
contract labour should not be an executive one based on the recommendations of Contract
Labour Advisory Board concerned but must be a judicial one. It is unable to agree with the
recommendation of the Study Group that the judicial body vested with the responsibility for
making recommendation on abolition should also be empowered to order absorption by the
principal employer of such numbers of contract labour as considered just and reasonable. 

The employment of contract labour has been condemned and been referred to as archaic by the
Supreme Court.  The courts have called it an improved version of bonded labour and sought to
abolish it.  One of the greatest achievements of civilization in the 20th Century was the
accomplishment of human rights as an integral part of Governance of the State. Even then rights
such as the Right to Freedom of Association including the Right to form and join trade unions
for the protection of interests, and collective bargaining, equality at work, protection against
forced labour etc., all remain unattainable for the contract labour.

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BIBLIOGRAPHY :-

 https://www.lawteacher.net/free-law-essays/employment-law/abolition-and-
absorption-of-contract-labour-employment-law-essay.php
 An Article by J Kanakiah on Contract Labour
 http://www.legalserviceindia.com/articles/labour_contract.htm
 Contract Labour – A handbook by A R Naidu
 http://labour.bih.nic.in/Acts/
contract_labour_regulation_and_abolition_act_1970.pdf
 https://blog.ipleaders.in/critical-analysis-contract-labour-regulation-
abolishment-act-1970/

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