Supreme Court rules principal employer not responsible for gratuity of contract workers

Justices Ahsanuddin Amanullah and Manmohan reversed a Bombay High Court judgment that had held Oil and Natural Gas Corporation (ONGC) liable for gratuity payments to workers engaged through a contractor. The Supreme Court clarified that a principal employer cannot be deemed the employee’s employer where no direct employment relationship exists, and that the Controlling Authority under the Payment of Gratuity Act exceeds its jurisdiction when it attempts to assign liability.

Solicitor General Tushar Mehta argued that gratuity is payable only to employees and cited Section 21(4) of the Contract Labour (Regulation and Abolition) Act, which the court accepted. The court also referenced a prior ruling confirming that workers hired via contractors cannot claim a principal-employer relationship. As a result, the Appellate Authority’s order favoring ONGC was reinstated, and the court directed that no recovery be sought from the company, noting that ONGC had already paid the claimed gratuity.