The Hon’ble High Court of Telangana, in the case of Air India v. Appellate Authority & Others, Writ Petition No. 6479 of 2019 decided on 07.07.2025, held that a principal employer cannot escape liability for gratuity payments merely by labeling the arrangement as a works contract.
FACTS
Air India (hereinafter referred to as “the Petitioner”) had entered into a works contract with M/s M.K.R. Air Conditioning & Refrigeration Works (hereinafter referred to as “the Contractor”) for providing air-conditioning and refrigeration services at its Central Training Establishment located at Ferozguda, Secunderabad.
Thirteen contract workers, who were engaged through the said Contractor, filed separate claims under the Payment of Gratuity Act, 1972, seeking gratuity for the period during which they were continuously employed at the Petitioner’s premises. They contended that, despite being engaged through a contractor, the period of their engagement had been extended, and they were therefore entitled to gratuity under the Payment of Gratuity Act, 1972. They also sought to rely on Section 21 of the Contract Labour (Regulation and Abolition) Act, 1970 (hereinafter referred to as “the Act”), asserting that the responsibility for such statutory payments also extended to the principal employer.
The Petitioner, in response, argued that the contract in question was a pure works contract and not one for manpower supply. It was submitted that the workers were never directly employed by Air India and that the responsibility for payment of gratuity, if any, rested solely with the Contractor. The Petitioner also highlighted that its role was confined to ensuring payment of wages as required under the Act and that there was no employer-employee relationship between it and the contract workers.
Despite the submissions made by the Petitioner, the Appellate Authority, i.e., the Deputy Chief Labour Commissioner (Central), Hyderabad (hereinafter referred to as “Respondent No. 1”), upheld the findings of the Controlling Authority, i.e., the Assistant Labour Commissioner for the State of Telangana, Hyderabad (hereinafter referred to as “Respondent No. 2”). Respondent No. 1 concluded that the workers were entitled to gratuity and dismissed the appeals preferred by the Petitioner. It emphasized that the Petitioner, being a public sector undertaking, ought to conduct itself as a model employer, and therefore, the claim for gratuity was justified.
Aggrieved by the concurrent findings of both Respondent No. 1 and Respondent No. 2 (hereinafter collectively referred to as “the Respondent Authorities”), the Petitioner preferred the present writ petition before the High Court of Telangana.
ISSUES
- Whether the contract workers were employees of the contractor or the Petitioner?
CONTENTIONS OF THE PARTIES
The Petitioner submitted that the nature of the arrangement between itself and the Contractor was that of a works contract and not a manpower supply contract. Accordingly, it was argued that there was no employer-employee relationship between the Petitioner and the contract workers who had raised the gratuity claims.
The Petitioner further contended that the Contractor had full discretion and autonomy to engage workers for the purpose of executing the assigned work, and that the Petitioner had no role in determining the number of workers or their manner of engagement. The Petitioner also submitted that its role was limited to ensuring payment of wages in accordance with the Act.
The Petitioner relied upon the definition of “employer” under Section 2(f) of the Payment of Gratuity Act, 1972, and submitted that the Contractor, was the actual employer of the contract workers.
It was further contended that bonus payments made to the contract labor were not indicative of an employer-employee relationship with the Petitioner. Instead, the Petitioner clarified that the bonus and an additional 35 rupees per extra minimum wage were paid solely in pursuance of the terms of the contract with the contractor. These payments were made in compliance with the Payment of Bonus Act, 1965, which statutorily entitles employees who have worked for at least 30 days in a year to receive a bonus. The Petitioner emphasized that these were statutory obligations and cannot be compared or equated with gratuity, which was not contractually or statutorily required in this case.
The Respondent Authorities, on the contrary, took the view that the Petitioner, being a public sector undertaking and a Government of India entity, ought to act as a model employer. It was held that the contract workers were entitled to gratuity under the Payment of Gratuity Act, 1972, for the services rendered at the establishment of the Petitioner.
The Respondent authorities observed that, although the contract in question may not have explicitly provided for gratuity, the payment of minimum wages, bonus, and other service benefits by the Petitioner justified the grant of gratuity. Accordingly, the claims of the contract workers were allowed by both the Respondent Authorities.
DECISION AND FINDINGS
The Hon’ble High Court of Telangana dismissed the batch of writ petitions filed by the Petitioner and upheld the concurrent findings of the Respondent Authorities.
The High Court of Telangana observed that the duty of a principal employer, particularly a public sector undertaking such as the Petitioner, extends beyond mere supervision of wages and includes ensuring compliance with labor welfare legislation. It held that the argument advanced by the Petitioner, that the contract in question was purely a works contract, was not sufficient to absolve it of its obligations under the Payment of Gratuity Act, 1972.
The High Court of Telangana further emphasized that as a Government of India undertaking, the Petitioner was expected to act as a model employer and uphold the values of equity and dignity of labor. Accordingly, it found no merit in interfering with the orders passed by the Respondent Authorities and held that the workers were entitled to gratuity for the services rendered during the period of their engagement.
AMLEGALS REMARKS
This judgment reinforces the growing judicial emphasis on substantive justice over technical contractual labels, especially in the context of labor welfare. By rejecting the Petitioner’s defense that a “works contract” absolves it from gratuity liability, the High Court of Telangana underscored that the reality of the working relationship and the duration of service cannot be ignored.
The ruling affirms that a principal employer cannot avoid statutory obligations like gratuity simply by placing an intermediary contractor in front. The Court also acknowledged the contribution of contract workers who had rendered long years of continuous service and refused to deny them a rightful statutory benefit on the basis of technical classifications.
Going forward, this decision sends a clear message to employers, particularly in the public sector, that responsibilities under social welfare legislation cannot be bypassed through form-over-substance contractual arrangements. It marks a progressive step in reinforcing the legal and ethical obligations of principal employers towards contract labor.
– Team AMLEGALS assisted by Ms. Tanisha Khandelwal (Intern)
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