Authors: Authors: Mr. Suyash Srivastava (Partner), Mr. Kumar Prem Anand (Associate Partner), and Ms. Shubhra Shastri (Senior Associate)
The Hon’ble Supreme Court of India (“Supreme Court”), in M/s Oil and Natural Gas Corporation Ltd. v. Suryakand D. Lad & Ors. and connected matters (“Judgment”), has provided important clarification on the jurisdiction of the Controlling Authority, under the erstwhile Payment of Gratuity Act, 1972 (“Gratuity Act”), in relation to gratuity claims raised by workmen engaged through contractors.
The Judgment was delivered on 9 September 2026.
BACKGROUND
The dispute arose from gratuity claims raised by certain workmen who had worked at establishments of Oil and Natural Gas Corporation Ltd. (“ONGC”) while being engaged through contractors. Following the cessation of their engagement, pursuant to a Goodwill Package Scheme introduced by ONGC, the workmen approached the Controlling Authority under the Gratuity Act seeking payment of gratuity.
The Controlling Authority directed ONGC, as the principal employer, to pay gratuity to the workmen, with liberty to recover the amount from the concerned contractors. ONGC challenged the order before the Appellate Authority, which set aside the Controlling Authority’s order, inter alia, on the ground that the Controlling Authority had exceeded its jurisdiction in fastening gratuity liability on ONGC.
The workmen thereafter challenged the Appellate Authority’s decision before the Bombay High Court which reversed the Appellate Authority’s order and restored the direction of the Controlling Authority requiring ONGC to pay gratuity. Aggrieved by the Bombay High Court’s decision, ONGC approached the Supreme Court.
WHAT WAS HELD BY THE SUPREME COURT
The Supreme Court allowed ONGC’s appeals and set aside the judgment of the Bombay High Court, thereby restoring the order of the Appellate Authority.
The Supreme Court’s decision principally turned on the jurisdiction of the Controlling Authority. It held that the Controlling Authority under the Gratuity Act could not adjudicate upon the question of liability and thereafter, fasten gratuity liability on ONGC, in the circumstances of the case. It held that the jurisdiction of the Controlling Authority is to determine/compute the amount of gratuity payable to the concerned ‘employee’ and does not extend to imposing liability on the entities.
The Supreme Court sustained the arguments that were advanced on behalf of ONGC under the Contract Labour (Regulation and Abolition) Act, 1970 (“CLRA Act”). In particular, the Supreme Court accepted that under Section 21(4) of the CLRA Act, ONGC would be liable to only pay wages and not ‘gratuity’, observing that the latter does not form part of ‘wages’ for the purposes of the relevant provisions. However, the appeals were ultimately disposed of on the jurisdictional issue concerning the Controlling Authority.
Accordingly, the Supreme Court restored the Appellate Authority’s order setting aside the direction requiring ONGC to pay gratuity to the concerned workmen. The Supreme Court also noted that ONGC had, during the pendency of the proceedings, already paid the gratuity amounts claimed by the workmen and directed that such amounts should not be recovered from them.
KEY TAKEAWAYS
- The jurisdiction of the Controlling Authority under the Gratuity Act is limited to computing the amount of gratuity payable to the concerned ‘employee’ and does not extend to adjudicating upon or fastening liability for payment of gratuity; and
- Gratuity is distinct from ‘wages’ for the purposes of the relevant provisions of the CLRA Act. Accordingly, the statutory responsibility of the principal employer under Section 21(4) of the CLRA Act in relation to payment of ‘wages’ does not, by itself, extend to gratuity.
DSK Comments: The Judgment provides useful clarification on the scope of the Controlling Authority’s jurisdiction in gratuity proceedings involving contract labour. The Controlling Authority cannot, in proceedings under the Gratuity Act, adjudicate upon and fasten gratuity liability on the principal employer merely by relying on its status as the principal employer under the CLRA Act. The Judgment is principally dealing with the jurisdiction of the Controlling Authority to determine/compute the amount of gratuity, rather than conclusively determining the substantive gratuity liability of a principal employer in respect of contract labour.
However, the Judgment should not be understood as creating a blanket exemption for all principal employers from gratuity-related exposure in relation to contract labour. The decision was rendered in the context of the facts and contractual arrangements before the Supreme Court. Employers should therefore continue to assess the substance of the engagement, the actual employer-employee relationship, the terms and operation of the contractor arrangement and the applicable statutory framework in each case.
Further, the Judgment may also be relevant under the Code on Social Security, 2020 (“SS Code”) which repeals the Gratuity Act, as Section 56(5) of the SS Code is pari materia with the corresponding provisions of the Gratuity Act governing the jurisdiction of the Competent Authority. Accordingly, the principles laid down by the Supreme Court on the scope of the Controlling Authority’s jurisdiction may be relevant while interpreting the corresponding provision under the SS Code, although the Judgment did not directly consider Section 56(5) of the SS Code.
Employers engaging contract labour should accordingly review their contractor agreements, gratuity-related provisions, indemnity arrangements and contractor compliance-monitoring processes to ensure that the contractual allocation of statutory responsibilities is appropriately documented and is consistent with the manner in which the arrangement operates in practice.
Disclaimer: This update is general in nature and is not intended to be a substitute for specific legal advice. Please contact the author(s) for specific legal advice in this regard.