Supreme Court: Principal Employer Not Liable for Gratuity of Contract Workers; Controlling Authority Cannot Decide Who Must Pay
The Supreme Court has held that a principal employer cannot be saddled with liability to pay gratuity to contractual workmen when there is no employer-employee relationship between the principal employer and those workers. The Court also clarified that the Controlling Authority under the Payment of Gratuity Act, 1972 cannot assume jurisdiction to determine and fasten liability on a person who is not the statutory employer.
The judgment was delivered on September 20, 2026, by a Bench comprising Justice Ahsanuddin Amanullah and Justice Manmohan in M/s Oil and Natural Gas Corporation Ltd. v. Suryakand D. Lad & Ors., along with connected appeals. The Supreme Court set aside the Bombay High Court’s decision that had upheld gratuity liability against ONGC, and restored the order of the Appellate Authority which had ruled in ONGC’s favour.
The dispute arose from claims made by workers who had rendered services at ONGC through contractors. The workers sought gratuity, while ONGC maintained that they were not its employees and that their employment relationship was with the contractors who had engaged them.
The Controlling Authority under the Payment of Gratuity Act had nevertheless held ONGC liable to pay the gratuity. The matter went before the Appellate Authority, which interfered with that determination and ruled in ONGC’s favour. The Bombay High Court subsequently reversed the Appellate Authority’s decision, prompting ONGC to approach the Supreme Court.
Before the Supreme Court, Solicitor General Tushar Mehta, appearing for ONGC, argued that Section 4 of the Payment of Gratuity Act makes gratuity payable to an “employee” and that the respondents were never employees of ONGC. Therefore, according to the submission, the basic employer-employee relationship necessary for fastening liability under the Gratuity Act was absent.
A central argument concerned Section 21(4) of the Contract Labour (Regulation and Abolition) Act, 1970. ONGC submitted that the provision makes the principal employer responsible in specified circumstances for payment of wages when the contractor defaults, but does not automatically make the principal employer liable for gratuity payable under a separate statutory regime.
The Court also considered the contractual arrangement between ONGC and the contractor. Clause 12.4.1 reportedly described the arrangement as a job contract and expressly stated that it did not create an employer-employee relationship between ONGC and the contractor’s employees.
The Supreme Court accepted the core jurisdictional submission advanced on behalf of ONGC. It held that the Controlling Authority’s statutory power is to determine and compute the amount of gratuity payable to the concerned employee; it cannot travel beyond that statutory jurisdiction and adjudicate upon or impose liability on a person who is not the employer under the Gratuity Act.
The Bench specifically observed that “the adjudication by the Controlling Authority with regard to the liability was beyond its jurisdiction.” The Court therefore concluded that the proceedings, insofar as they sought to fasten liability on ONGC, were not maintainable before the Controlling Authority.
The Supreme Court also relied upon its earlier decision in Municipal Council, Nandyal Municipality, Kurnool District, AP v. K. Jayaram & Ors. (2025), which was cited for the proposition that a person sent to an establishment through a contractor does not, merely for that reason, acquire an employer-employee relationship with the principal employer.
An important aspect of the judgment is the distinction between the statutory concept of a “principal employer” under the Contract Labour Act and the “employer” contemplated by the Payment of Gratuity Act. The existence of a principal-employer relationship under one legislation does not, by itself, establish an employer-employee relationship under another enactment.
The Supreme Court also found substance in ONGC’s submissions concerning the Payment of Wages Act and the scope of Section 21(4) of the Contract Labour Act. The Court’s reasoning therefore prevents the wage-default mechanism under the Contract Labour Act from being used automatically to impose gratuity liability upon the principal employer.
The litigation has a significant procedural dimension as well. The Bombay High Court had intervened after the Appellate Authority had already ruled in favour of ONGC. The Supreme Court held that the Appellate Authority had correctly interfered with the Controlling Authority’s order and that the High Court was not justified in reversing that decision.
The Court, however, took care not to disturb the workers’ receipt of the gratuity amount in the present case. Since ONGC had already paid the claimed gratuity to the workers, the Supreme Court directed that there would be no recovery from them.
The ruling also needs to be viewed against the earlier litigation involving the same parties. In 2023, the Bombay High Court had dealt with several petitions involving ONGC contract workers who claimed gratuity after long periods of service through contractors. That litigation itself recorded competing arguments concerning the effect of the Contract Labour Act and the jurisdiction of the Gratuity Act authorities.
The latest Supreme Court judgment therefore provides an important clarification on the limits of the Controlling Authority’s jurisdiction. A contractual worker’s entitlement to gratuity and the separate question of which entity is legally responsible for paying that gratuity cannot be resolved simply by treating the principal employer under the Contract Labour Act as the employer under the Payment of Gratuity Act.
For principal employers, contractors and contract labour, the decision underscores the importance of identifying the actual statutory employer and the precise source of the alleged payment obligation. The Supreme Court’s ruling makes clear that the Controlling Authority cannot enlarge its jurisdiction merely because a worker has performed services at the premises of, or for the benefit of, a principal employer.
