Principal Employer Not Liable for Contractor Workers' Gratuity Without Employment Relationship: Supreme Court

The Supreme Court has held that a principal employer cannot be fastened with gratuity liability for workers engaged through an independent contractor where the workers are not employees of the principal employer.

Background

The ruling came in appeals filed by ONGC against a Bombay High Court decision that had made it liable for gratuity claimed by contract workers. ONGC maintained that the employment relationship existed with the contractor and that the Controlling Authority had exceeded its statutory jurisdiction.

Legal issue and Court's reasoning

The Bench accepted the distinction. It noted that Section 4 of the Payment of Gratuity Act makes gratuity payable to an employee, while the contractual arrangement in the case did not create an employer-employee relationship between ONGC and the contractor's workforce.

The Court also addressed jurisdiction. It held that the Controlling Authority's statutory function is to determine and compute gratuity payable to the concerned employee; it could not use that proceeding to adjudicate a separate dispute over which entity should ultimately bear the liability.

Result and practical consequence

The Supreme Court therefore restored the Appellate Authority's decision in ONGC's favour and set aside the High Court ruling.

Because ONGC had already paid the gratuity amounts during the litigation, the Bench protected the workers from recovery and directed that the sums already received should not be taken back.