New Delhi. The Supreme Court has held that a principal employer cannot be made liable to pay gratuity to workers engaged through a contractor when no employer-employee relationship exists between them. The court set aside a Bombay High Court order that had held Oil and Natural Gas Corporation Limited responsible for gratuity claimed by workers hired through a contractor.
A bench of Justice Ahsanuddin Amanullah and Justice Manmohan passed the ruling while hearing appeals filed by ONGC. The court held that the Controlling Authority under the gratuity law had exceeded its jurisdiction by deciding who was responsible for making the payment.
The Supreme Court restored the order of the Appellate Authority, which had earlier ruled in favour of ONGC. The matter arose from proceedings initiated by contractual workers seeking payment of gratuity.
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ONGC Challenged Liability for Contract Workers
ONGC had argued before the authorities that it was not responsible for paying gratuity because the workers concerned were not its employees. Despite the objection, the Controlling Authority held the company liable for the payment.
That decision was subsequently overturned by the Appellate Authority. The Bombay High Court, however, reversed the appellate order, prompting ONGC to approach the Supreme Court.
Solicitor General Tushar Mehta, appearing for ONGC, argued that Section 4 of the Payment of Gratuity Act provides for payment of gratuity to an employee and that the workers concerned could not be treated as employees of ONGC.
He submitted that no employer-employee relationship existed between ONGC and the contractual workers. It was also argued that the principal employer’s responsibility under Section 21(4) of the Contract Labour (Regulation and Abolition) Act, 1970 was confined to wages and did not extend to gratuity.
The court was also referred to Clause 12.4.1 of the agreement between ONGC and the contractor. According to the submission, the agreement was a job contract and did not create an employer-employee relationship between ONGC and the contractor’s workers. The arrangement was described as an arm’s-length contract.
Controlling Authority Could Not Fix Liability, Court Says
ONGC further argued that the jurisdiction of the Controlling Authority was limited to disputes concerning the amount of gratuity payable under the Gratuity Act. It contended that the authority could not determine whether ONGC itself was liable to make the payment.
The Supreme Court accepted this argument and held that the proceedings before the Controlling Authority were not maintainable on that question.
The bench observed that the authority had been empowered to calculate the amount payable to the concerned employee, but its decision fixing liability on ONGC went beyond that jurisdiction.
The court also referred to the Supreme Court judgment in Municipal Council, Nandyal Municipality, Kurnool District, AP vs K Jayaram and Others (2025). The earlier ruling had held that a person deployed at an establishment through a contractor does not automatically acquire an employer-employee relationship with the principal employer.
The contractor, on the other hand, argued that the obligation did not rest with it and that the amount ultimately had to come from the principal employer.
No one appeared for the other private respondents who had claimed gratuity. The bench noted that a counter-affidavit had been filed emphasising that one of the respondents had worked for ONGC for a long period. The court, however, found nothing in the material placed before it that displaced the arguments advanced on the absence of an employer-employee relationship and the limits of the Controlling Authority’s jurisdiction.
Amount Already Paid to Workers Will Not Be Recovered
The Supreme Court concluded that the Appellate Authority had correctly interfered with the order fixing liability on ONGC and that the Bombay High Court should not have reversed that decision.
The bench also accepted the submissions made on the Payment of Wages Act, 1936 and the Contract Labour (Regulation and Abolition) Act concerning the scope of the principal employer’s liability.
While allowing ONGC’s appeals, the court set aside the Bombay High Court order and restored the decision of the Appellate Authority.
The bench, however, noted that ONGC had already paid the gratuity claimed by the workers. It directed that the amounts already paid should not be recovered from them.
The ruling came in M/s Oil and Natural Gas Corporation Ltd v Suryakand D Lad & Ors, along with connected appeals.
About the author — Suvedita Nath is a science student with a growing interest in cybercrime and digital safety. She writes on online activity, cyber threats, and technology-driven risks. Her work focuses on clarity, accuracy, and public awareness.
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