Suresh, I have only put a different angle of contract employee that some times employees appointed on for a fixed term, say for example one year from 1st Jan 2010, will be referred to as contract employee. In such cases, the employee is in fact directly appointed by the employer but the termination will take place automatically on the expiry of the fixed period for which he is appointed. In that case also, if the employer wants to terminate service before the time fixed, say today, he has to give notice. At the same time, the termination takes place automatically on 31st December 2010.
Supriya, Sham contract means a contract to engage employees through another person, called contractor, made just to avoid legal rights of permanent employees. There are cases wherein employees will be engaged through some outside agency and these employees work on regular basis, but being not on rolls they will be deprived of all statutory rights being enjoyed by the permanent workers. If the intention of such a contract is proved that it will be treated as sham or fraud contract.
The Contract Labour (Regulation and Abolition) Act is enforced to regulate such kind of contract and abolish engagement of workers on jobs of regular or perennial nature. Therefore, an employer is not suppose to engage employees through contractor on core activities of the establishment.
Inorder to close down a unit, you have to follow the provisions of the Industrial Disputes Act. For details please post it as a separate thread.
Regards,
Madhu.T.K