Very difficult but interesting question to deal with. More than the legality involved in this question, I always highlight the ethical issue involved. I can recall my interaction with my Managing Director of one of the well known Companies of Tata Group regarding engagement of contract workmen. When I was talking to him about the legality, he spoke with me the ethical issues and reminded me of my role in maintaining values and ethics the group is known for.Even assuming you have a strong case to employ contract workmen, if it goes to extend of exploitation, then you will see results as was seen in Maruthi.
Legally, if an employment has not been prohibited by State Govt for employment of contract workmen, then the Company can engage contract workmen and they have no right to claim permanent status with Principal Employer.However, if the employment has been prohibited, he can claim permanent status .
I would always recommend in a manufacturing set up to maintain around 20 percentage contract workmen and 10% temporary workmen paying them the minimum wages. If vacancies arise, give these employees due credit in calling them for interview. Let me also caution that this is an area where nepotism and malpractices are at the highest in factories.
I may not have answered completely your query, but I hope this would have given some insight