Shivamogga City Corporation Vs Labour Inspector (Karnataka High Court)
Can a Principal Employer Escape Minimum Wage Liability by Making the Contractor Responsible?
The controversy
Can an establishment deny liability for unpaid minimum wages merely because the workers were engaged through a contractor and the outsourcing agreement required the contractor to pay them?
The Karnataka High Court answered in the negative. Applying section 21(4) of the Contract Labour (Regulation and Abolition) Act, 1970, it held that where the contractor fails to pay wages or makes a short payment, the principal employer must pay the wages or unpaid balance. The principal employer may thereafter recover the amount from the contractor.
A contractual allocation of responsibility cannot override a statutory obligation.
Outsourced workers received less than minimum wages
Shivamogga City Corporation invited tenders for supplying manpower to maintain rest rooms, verandas and dormitories at a private bus stand in Shivamogga. The successful contractors were awarded the work under outsourcing arrangements.
During inspections on 22 November 2019 and 25 October 2021, the Labour Inspector enquired with persons working as cleaners. They stated that the contractors had paid them less than the prescribed minimum wages.
The Labour Inspector initiated proceedings before the authority under section 20 of the Minimum Wages Act, 1948.
Notices of enquiry were issued and served on the Corporation and its Assistant Executive Engineer. However, they did not appear in the proceedings.
The authority passed orders dated 21 November 2022 and 7 July 2022, directing payment of ₹1,26,128 and ₹3,50,220 respectively, within thirty days. The Corporation challenged these directions before the High Court.
The Corporation’s defence
The Corporation raised two principal objections.
First, it contended that it had not been given an opportunity of hearing.
Secondly, it maintained that there was no employer–employee relationship between itself and the workers. The workers had been supplied by independent contractors, and the agreements required those contractors to pay minimum wages.
According to the Corporation, the contractual responsibility rested entirely with the contractors, leaving no liability upon the Corporation.
The Court rejected this approach. It noted that the Corporation did not dispute either the manpower-supply contracts or the fact that the workers named in the orders had rendered services at its premises.
Section 21(4): the statutory answer
The Court explained that the Contract Labour Act addresses both abolition and regulation of contract labour. The present dispute concerned its regulatory function, particularly responsibility for payment of wages.
Under section 21(4), if a contractor fails to pay wages within the prescribed period or makes a short payment, the principal employer becomes liable to pay the full wages or unpaid balance, as applicable.
The provision also supplies the principal employer’s remedy: recovery from the contractor through deduction from amounts payable under a contract, or recovery as a debt payable by the contractor.
The Court therefore held that the agreement clauses relied upon by the Corporation could not absolve it of the obligation imposed by statute.
Its argument that payment was exclusively the contractor’s responsibility could not be accepted in the face of the express provision.
Natural justice requires more than a bare allegation
The Court also rejected the allegation that the Corporation had been denied an opportunity of hearing.
The record showed that the authorities had inspected the premises, initiated an enquiry and served notices on the petitioners. Nothing was produced to establish non-service, beyond a bare assertion.
Accordingly, the plea of denial of opportunity did not provide a basis to interfere with the orders.
The Court’s opening observations were pointed. A State instrumentality expected to ensure compliance with minimum wage legislation had approached the Court disputing responsibility after having availed the workers’ services.
The ruling
The High Court dismissed both writ petitions, leaving the wage-payment directions undisturbed.
It expressly granted the Corporation liberty to recover the amounts from the contractors, as contemplated by section 21(4). Thus, the statutory protection of the workers operated alongside the principal employer’s right of recovery.
Author’s comments
Outsourcing manpower does not outsource statutory responsibility. The judgment gives a clear answer to establishments that assume a clause making the contractor responsible for wages completely protects them from a worker’s claim.
The contractor’s obligation remains relevant, particularly for recovery between the contracting parties. However, where the statutory conditions apply and the contractor defaults, the principal employer cannot require workers to bear the consequences of that default.
The decision should also be understood precisely. The Court enforced the principal employer’s wage liability under section 21(4). It did not determine that all outsourced workers automatically become regular employees of the establishment or acquire a right to absorption.
For establishments engaging contract labour, the practical implication is that wage compliance requires verification. Merely placing an obligation in the agreement does not establish that workers actually received the prescribed wages.
The natural justice finding carries a separate lesson: a party served with an enquiry notice cannot establish denial of opportunity simply by failing to participate and subsequently alleging non-service without supporting material.
The agreement may tell the contractor to pay; the statute tells the principal employer what to do when the contractor does not.
FULL TEXT OF THE ORDER OF KARNATAKA HIGH COURT
These petitions give rise to common questions of facts and law involving order passed by the respondent No.2 under the provisions of the Minimum Wages Act, 1948 directing petitioners herein to pay certain amounts as directed in the orders impugned in these two petitions. Accordingly same are taken for analogous hearing and disposal.
2. Petitioner an instrumentality of the State which is expected to ensure compliance with the statutory provisions of Minimum Wages Act is before this Court, crying deprivation of principles of natural justice. Irony is that, after having availed the services of employees, the petitioners are disputing their statutory responsibility of paying the minimum wages on the premise of there being no relationship of employer and employee.
3. Petitioner No.1 the local body constituted under the Karnataka Municipal corporations Act and is administered by duly elected Mayor, Deputy Mayor and Councillors. Petitioner No.2 is the Assistant Executive Engineer working under petitioner No.1. The Commissioner and Assistant Executive Engineer of the Corporation are only officers deputed and appointed by the Government of Karnataka to discharge duties under the above stated Act. Petitioner No.1 had issued tender notification inviting tenders for contractors for outsourcing to supply manpower for maintenance of rest rooms, upkeep of verandas, dormitories in a private bus stand in Shivamogga City. The tender submitted by respondent No.3 was accepted and contract was awarded. It appears that contract was executed between the petitioner and respondent No.3.
4. Respondent No.1 seems to have filed a complaint before the respondent No.2 under Section 20 of the Minimum Wages Act complaining that during the course of inspection of the private Bus Stand on 22.11.2019 and 25.10.2021, he enquired with persons working as cleaners in the private Bus Stand, who stated to have informed that they have not been paid minimum wages by the respondent No.3 and whatever that was paid was less. It is stated in the petition, that the wages paid are less than prescribed and notified by the Government under the Act. Respondent No.2 having registered the cases No.UuKaaAaHaa/KaVeKa/S/CR-8/2021-22 (W.P.No.894/2024) and No.UuKaaAaHaa/KaVeKa/S/CR- 13/2020-21 (W.P.No.1153/2024) had issued the notice of enquiry to the petitioners. Notices of the proceedings were issued and served on the petitioners. As there was no appearance on behalf of the petitioners by order dated 21.11.2022 in W.P.No.894/2024 and order dated 07.07.2022 in W.P.No.1153/2024 has held that petitioners and respondent No.3 herein had not paid minimum wages to the workers as notified by the Government under the Minimum Wages Act and had directed them for payment of the amount in a sum of Rs.1,26,128/- and Rs.3,50,220/- respectively within 30 days from the date of the order. Aggrieved by the same, the petitioners are before this Court.
5. Heard and perused the records.
6. Petitioners are before this Court contending that they have not been given an opportunity of being heard. That there is no employer-employee relationship between the petitioners and the employees. That there was an agreement between the petitioners and respondent No.3- Labour Contractor, in terms of which the respondent No.3 was contractually bound to pay the minimum wages to the employees, as such the petitioners are not liable to pay the wages to the employees.
7. The Contract Labour (Regulation and Abolition) Act, 1970, has twin objectives to achieve, one to abolish the contract labour and second to regulate the contract labour. Issue at hand falls with the latter object of the Act, which is regulating the contract labour.
8. Respondent No.1, having visited the premises belonging to the petitioners, found some of the workers, who have rendered the services, were not paid even the minimum wages. Thereupon respondent No.1 filed a complaint before respondent No.2, who upon examination of the matter, directed the petitioners herein to pay minimum wages to the workers/employees who rendered their services.
9. The contention raised by the petitioners of there being no relationship of employer and employee is not only contrary to the facts of the case but also amounts to upfront flouting of the provisions of the Contract Labour (Regulation and Abolition) Act. It is not in dispute that the petitioners had indeed entered into contract with respondent No.3 for supply of manpower for the purposes referred to above. It is also not in dispute that the respondent authorities had inspected the premises, initiated the enquiry, a notice of enquiry was also served on the petitioners. Nothing is brought on record to show that notice of enquiry was not served on them except a bald statement of notice having not been served on the petitioners.
10. Though petitioners has referred to certain clauses of the agreement that had been entered into between the petitioners and respondent No.3 to buttress its argument of contractor being liable to pay dues of the employees absolving the petitioners from any liability, the said terms of the contract cannot run contrary to statutory provisions of Contract Labour (Regulation and Abolition) Act, 1970. Section 21(4) of the said Act dealing with responsibilities of payment of wages reads as under:
“21. Responsibility for payment of wages:
(1) xxx
(2) xxx
(3) xxx
(4) In case the contractor fails to make payment of wages within the prescribed period or makes short payment, then the principal employer shall be liable to make payment of wages in full or the unpaid balance due, as the case may be, to the contract labour employed by the contractor and recover the amount so paid from the contractor either by deduction from any amount payable to the contractor under any contract or as a debt payable by the contractor.”
11. Learned counsel for the petitioners does not dispute that the employees named in the impugned order are indeed working at their premises rendering the services to which they were posted. He also does not dispute that respondent No.3 had entered into contract with the petitioners. However, it is his vehement submission that it is the responsibility of respondent No.3- contractor to pay the employees and the petitioners have no role in that. This submission, in the light of the provisions extracted herein above, cannot be countenanced.
12. As the provision of law extracted hereinabove provides for recovery of the amount paid by the Principal employer from the contractor, the petitioner is at liberty to recover the same from the contractor.
With the above observations, petitions are dismissed.
