Enabling World Insight Series
Supreme Court: Principal Employer Not Liable to Pay Gratuity to Contractual Workmen
An important clarification from the Supreme Court that many principal employers and contractors should note. The Supreme Court of India recently held that a principal employer cannot be made liable to pay gratuity to workmen engaged through contractors.
In the recent judgment delivered on 9 September 2026 (M/S Oil And Natural Gas Corporation Ltd vs Suryakand D. Lad & Ors. (and connected matters)), the Supreme Court set aside the Bombay High Court’s order holding ONGC liable to pay gratuity to workmen engaged through contractors.
A Bench comprising Justices Ahsanuddin Amanullah and Manmohan ruled that the Controlling Authority under the Payment of Gratuity Act has a limited role of computing the amount of gratuity payable to an “employee”. It cannot determine whether a principal employer is the employer of contract workmen or fasten liability on it.
“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 Appellate Authority, before whom the appellant succeeded, had rightly interfered in the matters and we find that the reversal of the order of the Appellate Authority by the High Court vide the impugned order was not justified.”
The Court noted that no employer-employee relationship existed between ONGC and the workmen, as the contracts expressly stipulate that the agreement is a job contract and does not create any employer-employee relationship between ONGC and the contractor’s employees; further, this is a contract at arm’s length.
Supreme Court accepted the submission that under the Payment of Wages Act, 1936, as well as the CLRA Act, gratuity is not part of wages; hence, it is outside the jurisdiction of the Controlling Authority.
Interestingly, the court also directed that since the appellant had already paid the gratuity amount to them under the earlier order, no recovery shall be made from the employees.
A few practical nuances that stood out:
- There was no employer-employee relationship between ONGC and the workmen. The contracts expressly stated this was a job contract at arm’s length.
- Section 21(4) of the CLRA Act deals with wages, not gratuity. Gratuity sits outside the definition of “wages” in the relevant sense under the Payment of Wages Act.
- While the court did not consider the recent decision for this judgment, it is important to note the decision in the case of the Municipal Council, represented by its Commissioner, Nandyal Municipality, Kurnool District, A.P. versus K. Jayaram and Ors. dated 16.12.2025, reinforcing that workers deployed through a contractor cannot claim an employer-employee relationship with the principal merely by working on its premises.
Importantly, the Court protected the workmen who had already received gratuity amounts under an interim order. No recovery was directed. The Court clarified the legal position without upsetting settled payments.
For principal employers, this is a useful reminder that clear contractual language and proper engagement through licensed contractors matter.
What are your thoughts – does this change how you structure contractor agreements going forward?
Let me know your views.
Sushil Tayal – Enabling World
Judgment can be accessed at: https://indiankanoon.org/doc/122508653/
#LabourLaw #Gratuity #ContractLabour #SupremeCourt #HRCompliance #EmploymentLaw
Also read: Sec 60(4) of Social Security Code 2020 violative of Articles 14 & 21
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