Who's Liable if a Contractor Works Without a License? Understanding the Legal Implications

Please let me know if a contractor does not obtain a license from the appropriate government of the principal employer and carries out the job with the full consent of the principal employer, who would be considered the defaulter and who would be punishable? Under which provision?

Thanks & Regards,
S. Saha

Don't be confused. If your company is working in any location in India as a contractor or employer and engages 10 or more workers with the aid of power or 20 or more laborers without the aid of power, you require a labor license for each location (regardless of whether you are working for the Central Govt. or State Govt.), and it must be displayed on your premises.

In this case, it is your responsibility to obtain a labor license from the Labor Department once you receive the work order from the principal employer. Failure to do so could result in implications under the Contract Labor Act, specifically under section 10A, and there is a possibility that your employer (proprietor) may face a case under this section and receive a non-bailable warrant.

Additionally, your monthly payment may be withheld by the principal employer if you fail to obtain a license from the labor department.

(Note: What is mentioned in the NIT is crucial because no principal employer intends to involve themselves in any legal compliance issues once they have awarded the job to a contractor, with the contractor being solely responsible for their affairs.)

Regardless of the labor license, in EPF and ESI conditions, the contractor can use the principal employer's account number.

Have a nice day.

Thanks for the reply. However, the case is such that the service-providing organization is registered as the principal employer at the state level, while the main organization is registered as the principal employer at the central level. There is an agreement between both parties to execute the job and provide the service. This practice is prevalent throughout India, and the same organization provides services all over India where the main organization exists.

ALC Central's Contractor License Requirement

The ALC of central "show caused" seeking a contractor license (Central) for the service-providing organization. The case was dismissed at the Gujarat High Court, which ordered to maintain the Principal Employer status through the "State."

Now, in another state, the ALC central intends to do the same despite the High Court Order. Is the act of ALC (Central) contravening the High Court order?

Thanks & Regards,
S. Saha

Just to clarify, are you working for the central government or the state government? You should apply for the appropriate license based on your employment. If you work for the central government in any state sector such as Railway or Mining, you need to obtain a Labor license from the central government. The same procedure applies if you work for the state government.

Dear Mr. Saha, when you are putting up a query, you have to provide maximum information relating to the issue for one to understand the exact nature of the problem. Here, you are silent on the type of industry you are operating in. In fact, that is the factor that decides the "Appropriate Authority" for you, either as "Principal Employer" or as "Contractor." The tussle between the Central Labour Office and the State Labour Office is perpetual. Both authorities, however, would never face each other even in a Court of Law.

I wish to quote an incident here when a civil construction company was entrusted with a contract for pile foundation and construction of civil works by ONGC in connection with the building of staff accommodation. As was known even to ONGC, they asked the contractor to contact the Central Labour Office and issued FORM V to them. The contractor accordingly submitted and obtained a license under the Act from Central.

The problem started when the State Labour Office peeped into the work activities at the site and issued a "Show-cause," leading to prosecution for "Not obtaining License" from the State and charged the contractor with a heavy penalty. There were protests both from the contractor and the principal employer, and the case went to adjournment for the decision of an arbitrator. After nearly 1.5 years, it was decided that though ONGC is in the Oil & Gas sector, the very nature of the contract work executed (pile foundation and construction of civil works) has no connection with Oil & Gas and hence, it has to be under State Labour jurisdiction.

So, kindly be very specific with your queries, please.