Authors: Tejas Chhura – NLSIU

Kavya Shukla – JGU

Samriddhi Jha – JLU

Editor: Tejas Chhura - NLSIU


Contract labour is one of the most popular forms in which companies decide to outsource their works. It offers several advantages such as flexibility and are regarded as more productive since they can work for longer hours and can even be deployed to work in hazardous situations with very little to no liability being fixed on the Company. Unfortunately, contract labourers are not treated as employees of the Company, and hence lose out on several of the benefits such as leave wages, pensions, and bonuses. Hence, when the Government announced the Contract Labour Regulation and Abolishment Act, several people were overjoyed as they felt this would finally bring some statutory protection to these labourers. However, this excitement was short-lived as the Act that was supposed to protect theses labourers, may have made life harder for the contract labourers and no judgment depicts this better than the Steel Authority of India Ltd. v. National Union Waterfront Workers. In this article, the researchers aim to analyse this judgment and see if it helped the objectives of the CLRA or may have unintentionally burdened the already burdened labourers.

Facts of the Case/ Background

The Steel Authority of India engages in the manufacturing and sale of steel and iron across the country. For handling goods in the different stockyards of the Company, contractors were hired after calling for tender. The Government of West Bengal issued a Notification dated July 13, 1989, under Section 10(1) of the Contract Labour (Regulation and Abolition) Act, 1970 prohibiting the employment of contract labour in four specified stockyards of the Company at Calcutta.[1]

On the representation made by the Company, the Government of West Bengal kept in abeyance the said Notification initially for a period of six months by Notification dated August 28, 1989, and thereafter, extended that period from time to time. However, the period was not extended beyond August 31, 1994. The Trade Union representing the cause of 353 Contract Labourers filed a Writ Petition in the Calcutta High Court for the absorption of the contract labour in their regular establishment in view of the Prohibition Notification dated July 15, 1989, of the State of West Bengal. The Union further prayed that the Notification dated August 28, 1989, keeping the prohibition notification in abeyance, be quashed.

The single Judge of the High Court set aside the Notification keeping the prohibition of contract labour in abeyance and all subsequent notifications extending the period and directed that the contract labour be absorbed and regularised from the date of Prohibition Notification dated July 15, 1989.[2] Aggrieved by order of the learned single Judge, writ appeals were filed, and writ petition was also filed challenging the Prohibition Notification dated July 15, 1989. During the pendency of the writ petition, the Hon’ble Supreme Court of India delivered the judgment in Air India Statutory Corporation & Ors. v. United Labour Union & Ors., holding that in cases of Central Government Companies, the appropriate Government is the Central Government and upheld the validity of the Notification which prohibited the employment of contract labour in all establishments of the Central Government Companies.[3] On July 3, 1998, the Division Bench of the Calcutta High Court dismissed the writ appeals as well as writ petition filed by the Steel Authority of India taking the view that on the relevant date “the appropriate Government” was the Central Government. Subsequently, the case went to Hon'ble Supreme Court of India.

Previous Position of Law

Prior to this decision of the Supreme Court, owing to the ambiguity and discontinuity in the judgements given by Courts, there was a lack of a solid and clear law regarding Contract Labour as a variance. Prior to this, one had to rely on cases like Dina Nath & others Vs. National Fertilizers Ltd & Others 1992[4] for the position of law. In this case, the Supreme Court emphasised that contract labour act does not provide for automatic absorption by Principal Employer upon the abolition of Contract Labour. A similar view was adopted in cases like R.K. Panda and Others Vs Steel Authority of India and Others,[5] and the Association of Chemical Workers, Bombay Vs A.L. Alaspurkar and Others.[6] However, this position of law was changed in the case of Air India Statutory Corporation Vs United Labour Union and Others where the Court ruled that by "necessary implication" a Principal Employer cannot escape liability and will hence be statutorily obligated to absorb the Contract Labour on the abolition of the Contract Labour system.[7]

Hence, there was a lot of confusion regarding the position of the law prior to this judgment, and in light of this, the main issues that were placed before the Supreme Court to decide were whether the issuance of a valid notification under Section 10 (1) of the CLRA Act, will result in the automatic absorption of Contract Labour.


In order to answer this question, the Supreme Court looked at Section 10 of the CLRA Act and noted the absence of the requirement of automatic absorption of Contract Labour by the Principal Employer. However, the Court was well aware of the potential exploitation of this and hence decided to alter their opinion by including an exception. IN order to oblige by the spirit of the Act and prevent potential exploitation of such a position of law, they created the exception that should the contract existing between the contract Labour and the Principal Employer be discovered to be aa mere camouflage rather than a legitimate contract, the Contract labourer will be treated as an employee of the Principal Employer and hence would attain access to the rights that were not previously available to them.

Issues With This Judgment

While this judgement might be regarded correct on paper, it has been criticised on several grounds, particularly for it not looking at the practical effect it would have on workers. As mentioned above, one of the major problems that contract workers faced was the fact that after the contract was concluded, they would be in a position that is worse off than what they were originally, and this judgment did little to remedy this. In fact, it seemed to strengthen the hand of the employers more as it reaffirmed that employers could now abolish the contract of Contract Labourers with a simple notification without any form of payment of retrenchment compensation or following the provisions of the Industrial Dispute Act. Should such a situation occur, a Contract labourer would have prove either they were engaged to discharge statutory duties or that the initial contract was a sham, both of which is highly unlikely and rare to occur. As a result, a notification for abolishment will leave the labourers unemployed and no way to attain legal remedies.

In the researcher’s opinion, the Court should have focused more on the legislative intent of the CLRA Act as was done in the Air India case.[8] The phrase “matters connected therewith” in the preamble of the Act,[9] is a clear indication that the Act was also meant to look after the consequences of the abolishing of contract labour. The fact that the Courts failed to look at the jurisprudence behind the Act has resulted in a judgment that has converted an Act that was mean to protect contract labour, to an Act that is leading to its very fall.


While the SAIL judgment may appear to be fair on paper, it falls short when one analyses it in the backdrop of what is going on in society. It has overlooked how it leaves contract labourers in a worse off position despite being a legislation that aimed to protect Contract Labourers. Hence, despite the good intentions of the judges in the case, it has not provided any form of relief for contract labourers but has rather posed a larger challenge for them. hence, the researchers propose that there is a dire need to revisit this position of law and to reassess the position law while keeping the reasons why the CLRA Act was implemented in the first place

[1] Steel Authority of India Ltd. v. National union Waterfront Workers, 2007 7 SCC 1

[2] ibid, 1.

[3] Air India Statutory Corporation V. United Labour Union, AIR 1997. SC 645

[4] Dina Nath & others Vs. National Fertilizers Ltd & Others 1992 AIR 457,

[5] R.K. Panda and Others Vs Steel Authority of India and Others 1994 SCC (5) 304.

[6] Association of Chemical Workers, Bombay Vs A.L. Alaspurkar and Others AIR 1993 SC 359.

[7] ibid, 3.

[8] ibid, 3.

[9] Contract Labour (Regulation and Abolition) Act, 1970.

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