The Principal Employer's Liability for Contract Labour Wages: An Analysis of Section 21(4) of the Contract Labour (Regulation and Abolition) Act, 1970

Introduction

The Contract Labour (Regulation and Abolition) Act, 1970 (hereinafter "CLRA Act") was enacted to regulate the employment of contract labour in certain establishments and to provide for its abolition in certain circumstances and for matters connected therewith. A pivotal provision within this legislative framework, aimed at safeguarding the pecuniary interests of vulnerable contract labourers, is Section 21, particularly sub-section (4). This sub-section establishes a crucial safety net by casting a secondary liability upon the principal employer for the payment of wages to contract labour in the event of default by the contractor. This article undertakes a comprehensive analysis of Section 21(4) of the CLRA Act, drawing upon statutory provisions and judicial pronouncements to elucidate its scope, application, and implications in Indian labour law.

The Statutory Mandate: Section 21 of the CLRA Act

Section 21 of the CLRA Act delineates the responsibility for payment of wages to contract labourers. The Supreme Court of India in Senior Regional Manager, Food Corporation Of India, Calcutta v. Tulsi Das Bauri And Others (Supreme Court Of India, 2003) reproduced the section, which reads as follows:

“21. Responsibility for payment of wages.—(1) A contractor shall be responsible for payment of wages to each worker employed by him as contract labour and such wages shall be paid before the expiry of such period as may be prescribed.

(2) Every principal employer shall nominate a representative duly authorised by him to be present at the time of disbursement of wages by the contractor and it shall be the duty of such representative to certify the amounts paid as wages in such manner as may be prescribed.

(3) It shall be the duty of the contractor to ensure the disbursement of wages in the presence of the authorised representative of the principal employer.

(4) In case the contractor fails to make payment of wages within the prescribed period or makes short payment, then the principal employer shall be liable to make payment of wages in full or the unpaid balance due, as the case may be, to the contract labour employed by the contractor and recover the amount so paid from the contractor either by deduction from any amount payable to the contractor under any contract or as a debt payable by the contractor.”

The term 'wages' for the purpose of the CLRA Act is crucial. As noted in Hindustan Steelworks Construction Ltd. v. Commissioner Of Labour And Others (Supreme Court Of India, 1996), Section 2(1)(h) of the CLRA Act defines ‘wages’ by assigning it the same meaning as in clause (vi) of Section 2 of the Payment of Wages Act, 1936. The Calcutta High Court in HINDUSTAN PETROLEUM CORPOTAION LIMITED v. APPELLATE AUTHORITY UNDER THE PAYMENT OF GRATUITY ACT, 1972 AND ORS. (Calcutta High Court, 2025) further elaborated that Section 2(h) of the CLRA Act defines 'wages' as all remuneration payable to a person employed, including sums payable upon termination under law, contract, or instrument, but excludes certain gratuity payments unless specified in sub-clause (d).

Judicial Interpretation and Application of Section 21(4)

The judiciary has played a significant role in interpreting the contours of liability under Section 21(4) of the CLRA Act.

Primary Responsibility of the Contractor

Section 21(1) unequivocally places the primary responsibility for the payment of wages to contract labour on the contractor. This principle is consistently upheld by the courts. In Hindustan Steelworks Construction Ltd. v. Commissioner Of Labour And Others (Supreme Court Of India, 1996), the Supreme Court reiterated that "under Section 21 also the responsibility for payment of wages of contract labourers is on the contractor who employs them." This primary obligation forms the bedrock upon which the secondary liability of the principal employer is constructed.

Secondary Liability of the Principal Employer

Sub-section (4) of Section 21 comes into operation when the contractor defaults. The Supreme Court in Senior Regional Manager, Food Corporation Of India, Calcutta v. Tulsi Das Bauri And Others (Supreme Court Of India, 2003) affirmed that if the contractor fails to make payment or makes short payment, "then the principal employer shall be liable to make payment of wages in full or the unpaid balance due." The principal employer, having made such payment, is entitled to recover the amount from the contractor. This mechanism of secondary liability ensures that workers are not left without recourse due to the contractor's default. The practical application of this recovery by the principal employer was noted in Thakar & Co.And Anr. v. Executive Engineer And Others (Jammu and Kashmir High Court, 1990), where the department (principal employer) was found justified in making payments to workers and recovering them from the contractor. The Telangana High Court, in BAHABUBNAGAR DISTRICT PALAMOORI MIGRANT LABOUR UNION, v. PRL.SECY., MINISTRY OF LABOUR HYD., 4 OTHERS (Telangana High Court, 2022), recorded a settlement where, pursuant to court directions related to Section 21(4), the principal employer paid the wages due to the workers.

The Ambit of "Wages" for Section 21(4) Liability

General Definition

The liability of the principal employer under Section 21(4) is specifically for "wages." The definition, derived from the Payment of Wages Act, 1936, and Section 2(h) of the CLRA Act, encompasses remuneration payable under terms of employment, awards, or settlements (Hindustan Steelworks Construction Ltd. v. Commissioner Of Labour And Others, Supreme Court Of India, 1996).

Inclusion of Gratuity

An important dimension to the scope of "wages" under Section 21(4) concerns statutory dues like gratuity. The Calcutta High Court in HINDUSTAN PETROLEUM CORPOTAION LIMITED v. APPELLATE AUTHORITY UNDER THE PAYMENT OF GRATUITY ACT, 1972 AND ORS. (Calcutta High Court, 2025) held that gratuity payable under the Payment of Gratuity Act, 1972, can fall within the definition of 'wages' under Section 2(h)(d) of the CLRA Act. Consequently, the principal employer could be liable for gratuity payment if the contractor fails to pay, with a subsequent right of recovery. The Bombay High Court in SUBRAMANIAM S. ARJUN AND 15 ORS. Vs OIL AND NATURAL GAS CORPORATION LTD. AND ANR (Bombay High Court, 2023) also considered arguments regarding the principal employer's liability for gratuity under Section 21(4) of the CLRA Act, noting a critique of a previous decision (Cummins (supra), not provided) which had suggested that the remedy might lie under other statutes rather than the Payment of Gratuity Act, 1972, against the principal employer.

Distinction from other Contractor Obligations (e.g., Rule 25)

A critical distinction drawn by courts is between the principal employer's liability for "wages" under Section 21(4) and other obligations of the contractor, such as those arising from conditions of license (e.g., Rule 25 of various State Contract Labour Rules, which often mandates payment of same wages as paid to direct employees for similar work). In Malabar Cement Ltd. v. Kerala State Security Staff Association (Kerala High Court, 2016), the Kerala High Court, referencing an Apex Court decision (1997 (I) LLJ 46), held that Section 21(4) does not apply where a contractor has paid wages but failed to comply with a condition like Rule 25(2)(v)(a) regarding wage rates. The liability for such additional amounts, if not part of the disbursed "wages" as defined, rests with the contractor. Similarly, the Calcutta High Court in BUDDHADEV MAITY v. UNION OF INDIA & ORS (Calcutta High Court, 2023) reiterated that Section 21(4) pertains to "wages" as defined and does not extend to other obligations of the contractor under rules (like the Andhra Pradesh Rule 25(v)(a)) that do not fall within this definition for disbursement purposes. The right of workers to recover such additional wages would be against the contractor.

However, in Food Corporation Of India, Regional Office, Haryana, Chandigarh And Another Petitioners v. The Ex-Servicemen Security Services (Registered), Kurukshetra And Others (Punjab & Haryana High Court, 2012), the High Court upheld a finding that contract workmen performing the same work as regular watchmen were entitled to the same wages and benefits. The court considered the argument that the principal employer (FCI) could not be held liable for the contractor's non-compliance with Rule 25, but ultimately did not find illegality in the order holding FCI liable. This suggests that the determination can be fact-dependent, possibly turning on whether the "same wages" were considered part of the wages for which liability under Section 21(4) could be invoked or if there were other grounds for the principal employer's liability in that specific instance.

Enforcement of Liability

The liability of the principal employer under Section 21(4) can be enforced through appropriate legal channels. The Calcutta High Court in Central Warehousing Corporation & Anr. v. Central Government Labour Court At Kolkata & Ors. (Calcutta High Court, 2011) observed that money due and payable by the contractor, which becomes the liability of the principal employer under Section 21(4) of the CLRA Act, could be recovered through an application under Section 33C(2) of the Industrial Disputes Act, 1947. Furthermore, in MAAN SINGH v. AUTHORITY UNDER THE MINIMUM WAGES ACT AND ASSISTANT LABOUR COMMISSIONER PATIALA AND ORS (Punjab & Haryana High Court, 2024), the court considered the principal employer's duty under Section 2(e) of the Minimum Wages Act, 1948, read with Section 21(4) of the CLRA Act, to ensure payment of minimum wages, highlighting the interconnectedness of these protective legislations. The Supreme Court in People'S Union For Democratic Rights And Others v. Union Of India And Others (Supreme Court Of India, 1982) had earlier emphasized the need for authorities to ensure compliance with various provisions of labour laws, including Section 21 of the CLRA Act.

Broader Legal Canvas: Contextualizing Section 21(4) within Labour Jurisprudence

The CLRA Act is a comprehensive code that, beyond wage payment, deals with the registration of establishments, licensing of contractors (Contract Laghu Udhog Kamgar Union v. V.G Mohite & Others, Bombay High Court, 2001, referencing Section 1(4) applicability), welfare and health of contract labour, and significantly, the prohibition of contract labour in certain processes or operations under Section 10 (Bhartiya Kamgar Sena v. Udhe India Ltd. And Another, Bombay High Court, 2007). The applicability of the Act itself, based on the number of workmen employed, is a threshold issue (Gian Singh And Others v. Senior Regional Manager, F.C.I, Chandigarh, Punjab & Haryana High Court, 1990; Food Corporation Of India Workers' Union v. Food Corporation Of India And Others, Supreme Court Of India, 1985, both discussing Section 1(4)).

The landmark decision in Steel Authority Of India Ltd. And Others v. National Union Waterfront Workers And Others (Supreme Court Of India, 2001) clarified several aspects of the CLRA Act, including the interpretation of "appropriate Government" and, crucially, overruled the principle of automatic absorption of contract labour upon issuance of a prohibition notification, which was earlier held in Air India Statutory Corporation And Others v. United Labour Union And Others (Supreme Court Of India, 1996). This overruling implies that contract labour may continue even after a prohibition notification, pending specific absorption schemes or if the prohibition is not absolute. In such scenarios, Section 21(4) remains vital for ensuring wage payments to the existing contract labour. The CLRA Act, as per SAIL, does not inherently mandate absorption.

The determination of who constitutes the "principal employer" is fundamental to fastening liability under Section 21(4). In Bharat Heavy Electricals Ltd. v. State Of U.P And Others (Supreme Court Of India, 2003), the Supreme Court affirmed that BHEL was the principal employer despite intermediary contractors, looking at factors like control and supervision, and the sham nature of contracts, thereby piercing the veil to identify the true employer.

While cases like Secretary, State Of Karnataka And Others v. Umadevi (3) And Others (Supreme Court Of India, 2006) address the regularization of temporary and daily wage employees in public service, emphasizing adherence to constitutional recruitment procedures, the principles governing wage payment to duly engaged contract labour under Section 21(4) operate within their own statutory sphere, ensuring that as long as such labour is employed, their wages are protected. Similarly, Indian Petrochemicals Corpn. Ltd. And Another v. Shramik Sena (Supreme Court Of India, 2001) dealt with regularization conditions and interim wage payments in a specific context, distinct from the general operation of Section 21(4).

Conclusion

Section 21(4) of the Contract Labour (Regulation and Abolition) Act, 1970, serves as a cornerstone for the protection of wages of contract labourers in India. It establishes a clear hierarchy of liability, with the contractor being primarily responsible, and the principal employer stepping in as a guarantor in case of the contractor's default. Judicial interpretations have meticulously carved out the scope of "wages" for this purpose, including certain statutory dues like gratuity, while also drawing a line against extending this secondary liability to all contractual or license-related breaches by the contractor, particularly concerning wage parity claims under specific rules unless they form part of the defined "wages" for which the principal employer is liable. The provision, supported by enforcement mechanisms and judicial oversight, underscores the legislative intent to prevent exploitation and ensure that contract labourers receive their rightful earnings, thereby contributing to social justice within the industrial landscape of India.