Bombay HC orders IIT Bombay to pay Gratuity to long-service Contract Workers

The issue of gratuity payment for contract labourers has become increasingly relevant as organisations frequently hire workers through contractors. A recent judgment by the Bombay High Court in the case of Indian Institute Of Technology, Bombay... vs Tanaji Babaji Lad And Ors highlights the significant responsibility of the Principal Employer in such cases. The case involved the Indian Institute of Technology, Bombay (IIT Bombay), and three former contract labourers who sought gratuity payments. IIT Bombay challenged orders from lower authorities directing it to pay gratuity, arguing that the workers were employed by contractors. However, the High Court rejected IIT's petitions and held the institute liable for the gratuity payments.

Key reasons for holding IIT Bombay liable

1. Continuous and Prolonged Service 

   
   

   The court emphasised the long duration of the respondents' service at IIT Bombay. One worker was employed for 39 years, while the others worked for 26 and 20 years, respectively. Despite changes in contractors, the workers remained stationed at IIT Bombay, highlighting their continuous service to the institute rather than to specific contractors.

   
   

2. Nature of Employment and Supervision 

   
   

   The judgment noted that the services were performed at IIT Bombay under its supervision. Engineers and officials of IIT Bombay directly oversaw the workers' activities. Two of the respondents were initially engaged by IIT Bombay before being transferred under a contractor, with salaries routed through the contractor. The workers were never deployed elsewhere, reinforcing IIT Bombay’s role as the Principal Employer.

   
   

3. Definition of 'Employer' Under the Payment of Gratuity Act 

   
   

   The court applied Section 2(f) of the Payment of Gratuity Act, 1972, which defines an employer as the entity having ultimate control over an establishment. The court agreed with the lower authorities that IIT Bombay had ultimate control over the workers' employment, making it liable for gratuity payments.

   
   

4. Distinction from the Cummins Case 

   
   

   The High Court distinguished this case from its earlier ruling in Cummins (I) Ltd. v. Industrial Cleaning Services and Others, where the contractor was held responsible for gratuity. In contrast, IIT Bombay exercised greater control over the respondents, and the contractors lacked the authority to deploy them elsewhere. The facts demonstrated that IIT Bombay was the de facto employer.

   
   

5. Jurisdiction of the Controlling Authority 

   
   

   The court reiterated that the Payment of Gratuity Act, 1972 is a self-contained legal framework, empowering the Controlling Authority to determine employer-employee relationships to resolve gratuity claims. This position was supported by the Supreme Court’s ruling in State of Punjab v. Labour Court, Jullundur and Ors.

   
   

6. Avoiding Multiplicity of Proceedings 

   
   

   The court noted that the respondents had worked under various contractors since 1999. If they were required to claim gratuity solely from their immediate contractors, they would have to file claims against multiple past employers for different periods of service. This would lead to unnecessary litigation, undermining the objective of the Payment of Gratuity Act, 1972, which aims to ensure prompt gratuity payments.

   
   

7. Work Order Specifications 

   
   

   While the contract with M/s. Moosa Services Company required the contractor to deposit Employees' State Insurance (ESI) and Provident Fund (PF) contributions, it did not explicitly place the responsibility for gratuity payments on the contractor. This omission further reinforced IIT Bombay’s liability as the Principal Employer. It was suggested that IIT Bombay was aware of employment-related obligations but did not explicitly transfer the burden of gratuity for the entire service period to each successive contractor.

   
   

Conclusion

The Bombay High Court's ruling underscores the importance of recognising the Principal Employer’s obligations in cases involving long-term contract workers. Organisations engaging contract labour should carefully evaluate their role and responsibilities under the Payment of Gratuity Act, 1972 to avoid legal disputes. The judgment reaffirms that if a worker remains in continuous service under an entity’s supervision, that entity may bear ultimate responsibility for gratuity payments, regardless of intermediary contractual arrangements.

For further insights into distinguishing employees from independent contractors in India, refer to our article: Distinguishing Employees and Independent Contractors: Factors Considered by Courts in India.