JUDGMENT

YOGESHWAR DAYAL, J.:- These appeals raise a question of the scope and effect of failure of compliance with S. 7 and/ or S. 12 of the Contract Labour (Regulation and Abolition) Act, 1970 (hereinafter referred to as the Act).

2. The question involved is that if the principal employer does not get registration under S.7 of the Act and/ or the Contractor does not get a licence under S.12 of the Act whether the persons so appointed by the principal employer through the contract would be deemed to be the direct employees of the principal employer or not.

3. There is a direct conflict between the decisions of the High Courts of Punjab, Kerala on the one hand and the decisions of Madras, Bombay, Gujarat and Karnataka High Courts on the other. The view of the Punjab and Kerala High Courts is that the only consequence of non-compliance either by the principal employer of S.7 of the Act or by the contractor in complying with S.12 of the Act is that they are liable for prosecution under the Act; whereas the view of the High Courts of Madras, Bombay, Gujarat and Karnataka is that in such a situation the contract labour becomes directly the employee of the principal employer.

4. For the sake of convenience we deal with the facts of Civil Appeal No. 2355 of 1991.

5. This appeal arises from the decision of a Division Bench of the Punjab and Haryana High Court dated 27th February, 1991 passed in Writ Petn. No. 8872 of 1989. The Division Bench while deciding a batch of writ petitions followed its earlier decision in the case of Gian Singh v. F.C.I., (1991) 1 Pun LR 1. (Letters Patent Appeal No.1215 of 1990) which has since been reported in (1991) 1 Pun LR 1. The Division Bench in the aforesaid case of Gian Singh held that if the principal employer does not get registration as required under S.7 of the Act and/or the Contractor does not get the licence under S.12 of the Act, the persons who are appointed by the principal employer through the contractor, the only consequence is the penal provisions contained in Ss.23 and 24 of the Act and that the principal employer or contractor can be prosecuted under those sections, but the Act nowhere provides that such employees employed through the contractor would become the employees of the principal employer.

6. In the High Court judgment, under appeal, reliance was placed on behalf of the workmen on the views of the High Courts of Karnataka, Madras, Gujarat and Bombay in the cases reported as F.C.I. Loading and Unloading Workers Union v. Food Corporation of India (1986) 2 Serv LR 454 (Kant),Workmen of Best & Crompton Industries Ltd. v. Management of Best & Crompton Engineering Ltd., Madras (1985) 1 Lab LJ 492 (Mad), Food Corporation of India Workers Union v. Food Corporation of India (1990) 61 Fac LR 253 and United Labour Union v. Union of India (1990) 60 Fac LR 686 (Born), but the High Court took the view that it was not applicable.

7. To appreciate the correctness of one view or the other, it will be necessary to go through the object and the scheme of the Act. The objects of the Act were dealt with by the SC in the case of Gammon India Ltd. v. Union of India (1974) 1 SCC 596 in paragraph 14 at page 600 (of SCC) as follows:

"The Act was passed to prevent the exploitation of contract labour and also to introduce better conditions of work. The Act provides for regulation and abolition of contract labour. The underlying policv of the Act is to abolish contract labour, wherever possible and practicable, and where it cannot be abolished altogether, the policy of the Act is that the working conditions of the contract labour should be so regulated as to ensure payment of wages and provision of essential amenities. That is why the Act provides for regulated conditions of work and contemplates progressive abolition to the extent contemplated by S.10 of the Act, S.10 of the Act deals with abolition while the rest of the Act deals mainly with regulation. The dominant idea of S.10 of the Act is to find out whet