Principal Employer With 'Ultimate Control' Liable For Contract Workers' Gratuity Despite Multiple Contractors: Bombay High Court Rules in IIT Bombay Case (PG Act, S.2(f)) - 2024-10-04

IIT Bombay Held Liable for Gratuity to Long-Serving Contract Workers, Bombay High Court Upholds Labour Authorities' Orders

Mumbai: The Bombay High Court has dismissed writ petitions filed by the Indian Institute of Technology, Bombay (IIT Bombay ), upholding decisions by labour authorities that held the premier institution liable for paying gratuity to contract labourers who had served for extended periods, often decades, through multiple contractors. The Court emphasized that for the limited purpose of the Payment of Gratuity Act, 1972 (PG Act), IIT Bombay was rightly considered the "employer" due to its "ultimate control" over the workers and the continuous nature of their service at its establishment.

Case Background: Decades of Service, Denial of Dues

The case involved three contract labourers – Tanaji Babaji Lad , Dadarao Tanaji Ingale , and Raman Sukar Garase – who had worked at IIT Bombay for 20, 26, and an extensive 39 years, respectively. Though their employment was routed through various contractors over the years, their services were continuously rendered at the IIT Bombay campus. The last contractor was M/s. Moosa Services Company.

When these employees retired in December 2019 and were not paid gratuity by IIT Bombay , they approached the Assistant Labour Commissioner (Central), Mumbai, acting as the Controlling Authority under the PG Act. The Controlling Authority, by an order dated January 31, 2022, directed IIT Bombay to pay gratuity amounts of ₹1,89,945 to Mr. Lad , ₹2,35,170 to Mr. Ingale , and ₹4,28,805 to Mr. Garase , along with 10% simple interest per annum. These orders were subsequently upheld by the Appellate Authority (Deputy Chief Labour Commissioner) on April 3, 2024. IIT Bombay challenged these concurrent findings in the High Court.

Tragically, one of the respondents, Raman Garase , passed away due to suicide, reportedly linked to financial distress from medical expenses for paralysis, while awaiting his dues.

Arguments Before the Court

IIT Bombay 's Contentions (Argued by Mr. Arsh Misra ): * There was no direct employer-employee relationship between IIT Bombay and the respondents, who were employees of the respective contractors. * The work orders placed the onus of complying with labour laws on the contractors. * The institution relied heavily on the Bombay High Court's judgment in Cummins (I) Ltd. V/s. Industrial Cleaning Services and Others (2017), arguing that the contractor, not the principal employer, is responsible for gratuity. * IIT Bombay did not exercise control or supervision over the workers. * The applications were flawed for not impleading the concerned contractors.

Respondents-Employees' Contentions (Argued by Senior Advocate Ms. Gayatri Singh): * The workers had served IIT Bombay continuously for many years, with contractors changing but the workers remaining at IIT. * The Cummins (I) Ltd. case was distinguishable as it did not involve multiple contractors and such long, uninterrupted service with the principal employer. * IIT Bombay exercised "ultimate control" over the workers, fitting the definition of "employer" under Section 2(f) of the PG Act, which is broad. * The Controlling Authority has the power to determine the employer-employee relationship for PG Act purposes, citing State of Punjab Vs. Labour Court, Jullundur . * The work order with the last contractor, M/s. Moosa Services Company, did not explicitly mandate the contractor to pay gratuity, unlike provisions for PF and ESIC contributions. * Forcing workers to pursue claims against numerous past contractors would be impractical and unjust, defeating the purpose of the PG Act. * IIT officials directly supervised the work.

High Court's Reasoning and Decision

The High Court, after considering the "peculiar facts and circumstances" of the case, found no reason to interfere with the labour authorities' orders.

Distinguishing Cummins (I) Ltd. : The Court noted that the Cummins case had "entirely different" facts. In Cummins , there was a specific agreement, and the company was impleaded at the contractor's behest. Crucially, the Court in Cummins found that the contractor had ultimate control and could deploy workers elsewhere. The High Court observed:

"Whether this could have been done by the contractor in the present case? The answer to my mind appears to be in negative. As observed above, the Respondents have continued to work at IIT, Bombay for several years despite change of multiple contractors... It is therefore, difficult to hold that Respondents were working on the establishment of the contractors and not on the establishment of the IIT, Bombay ." (Para 26)

'Ultimate Control' and 'Establishment': The Court found that despite the contractual arrangements, the workers effectively served IIT Bombay 's establishment continuously. The judgment stated:

"Their services are thus rendered on the establishment of IIT, Bombay and not on the establishment of the new contractors. In my view, therefore, the Controlling and Appellate Authorities have rightly held Petitioner-IIT, Bombay to be the employer liable to pay gratuity to the Respondents." (Para 26) "...This clearly appears to be an arrangement of merely routing of salaries through the contractor." (Para 28)

PG Act as a Complete Code: Relying on the Supreme Court's decision in State of Punjab Vs. Labour Court, Jullundur , the High Court reiterated that the PG Act is a complete code, allowing the Controlling Authority to conduct a preliminary inquiry into the employer-employee relationship.

Work Order Interpretation: The Court observed that while the work order with M/s. Moosa Services Company specifically detailed the contractor's responsibility for PF and ESIC contributions, it lacked a similar specific clause for gratuity payment. General clauses (9 and 33) requiring adherence to all labour laws were deemed insufficient to absolve IIT Bombay of its liability in these unique circumstances. The Court noted:

"When IIT, Bombay is specific in directing deposit of ESIC and PF contribution, it is incomprehensible as to why liability for payment of gratuity was not specifically incorporated in the Work Order." (Para 31)

Preventing Frustration of PG Act's Purpose: The Court highlighted the impracticality and injustice of forcing the workers to chase multiple contractors:

"As observed above, if Respondents are made to run behind multiple contractors for securing gratuity from each of them, the same would not only result in multiplicity of proceedings but would also frustrate the very purpose of creating swift and speedy remedy before the Controlling Authority for payment of gratuity." (Para 28)

The Court concluded:

"The present case involves peculiar facts and circumstances, under which some workmen have continued with IIT- Bombay through multiple contractors. I am therefore, convinced that for the limited purpose of payment of gratuity, Respondents are required to be treated as employee of IIT- Bombay ." (Para 31)

Final Order and Implications

The High Court dismissed IIT Bombay 's writ petitions, affirming the decisions of the Controlling and Appellate Authorities. It noted that two of the three respondents had already withdrawn the principal gratuity amount deposited with the Appellate Authority. The legal heirs of the deceased employee, Raman Garase , were permitted to withdraw the entire deposited gratuity amount. IIT Bombay was directed to pay the awarded interest to the respondents/their heirs within two months.

This judgment underscores that principal employers cannot always evade gratuity liability for long-serving contract workers merely by routing employment through multiple contractors, especially when "ultimate control" and continuous service at the principal's establishment are evident. It reinforces the PG Act's objective as a beneficial legislation aimed at providing a swift remedy for workers.