Confused About Principal Employer Roles? Let's Clarify Contractual Relationships!

I need clarification on a simple doubt. A company, ABC, enters into a contract with another company, XYZ, to provide services to it. In this case, XYZ becomes the contractor, and ABC is the Principal Employer, right?

Principal Employer Clarification

Further to this, when XYZ engages persons directly and also through other contractors, say PQRS, who is the Principal Employer for the PQRS contractors?

Form 5 Requirement

Why I am asking this is, I need clarity on from whom we need to take Form 5 if we are XYZ and if we are PQRS, respectively.

Please help!!!

As per the Contract Labour Act 1971 Rule 21(2): Every application for the grant of a license shall be accompanied by a certificate by the principal employer in Form V to the effect that the applicant has been employed by him as a contractor in relation to his establishment and that he undertakes to be bound by all the provisions of the Act and the rules made thereunder insofar as the provisions are applicable to him as the principal employer in respect of the employment of contract labor by the applicant.

If you have any other information, please share it with me at [Email Removed For Privacy Reasons].

Regards,
Narayana

Will you please go through the definitions of the terms 'contractor' [2(c)], 'establishment' [2(e)], and 'principal employer' [2(g)] provided in the C.L Act, 1970? A deep analysis of the above definitions would prove that:

1. Since XYZ, in its unchangeable character of being a contractor in relation to ABC, who is the principal employer, its further engagement of PQRS as a subcontractor to perform the work it has already undertaken through contract labor and by definition a subcontractor is also a contractor, ABC is the principal employer to PQRS as well.

2. Whether you are XYZ or PQRS, Form V should be given only by ABC for whose establishment the contract labor is supplied.

Regards.

Thank you very much, Umakanthan Sir. If an establishment registered under the Shops and Establishments Act receives contracts from five different associations, do we need to apply for five separate labor licenses under the Contracts Act? How crucial is this?

Every establishment should be registered under the Shops and Establishments Act. A sub-contractor will come under the Contract Labour Act, 1971. The Shops and Establishments Act and Contract Labour Act are completely different.

Regards,
Narayan

Dear Garima ji,

If you undertake any work in an establishment through a contract involving 20 or more individuals, you are required to obtain a license under the Contract Labour Regulation and Abolition Act (CLRA Act). If such work is carried out in various establishments, a separate license must be obtained for each of them.

Dear Umakanthan Sir, I need your help regarding the subcontractors mentioned above. If ABC is the principal employer for XYZ Contractor and XYZ has appointed subcontractors, in that scenario, should ABC issue Form V to the subcontractors of XYZ? Kindly provide your valuable guidelines in response.

Thank you,
Azim Charania

I can understand your predicament; it is only because of the engagement of the subcontractors by XYZ, the original contractor appointed for the work in its entirety by ABC, the principal employer. As I've already said in some other thread relating to the C.L.R.A Act on the basis of a case law, one cannot be both a principal employer and a contractor. If the subcontractors each employ 20 or more contract workmen on the part of the work assigned to them, it becomes the responsibility of ABC, the one and only principal employer of the 'establishment,' to ensure their licensing by issuing Form V.

Based on your reply to my query on the related thread, here in MAHARASHTRA, more particularly in Mumbai, the Assistant Labour Commissioner is insisting on a Work Order or Agreement Copy signed by and between the Principal Employer and Subcontractors of XYZ. Since ABC, as the Principal Employer, has entered into an agreement with XYZ and not with the subcontractors of XYZ, how can ABC, as the Principal Employer, issue a Work Order or Agreement copy to the Subcontractors of XYZ?

Kindly revert.

Regards,
Azim Charania

I don't have the Maharashtra C.L Rules on hand. As per Rule 21(2) of the Central Rules, the Form V has to be issued only by the principal employer. I don't think that the Maharashtra Rules will have any contrary provision on this aspect. So if you are ABC, what prevents you from issuing Form V? Is there any specific clause in the agreement between ABC and XYZ either prohibiting or authorizing subcontracting? If so, ABC will have only two options: either strictly prohibiting subcontracting or extending the agreement between ABC and XYZ to subcontractors also by making suitable amendments to the original agreement. I think if Form V and the work order or an endorsed copy of the agreement are given by ABC, the Licensing Authority will accept.

Dear Umakanthan Sir, with due respect to you and your chair, may I request you to refer to Section 13 of the CLRA Act, 1970, which is reproduced herein below:

Grant of Licenses

13. (1) Every application for the grant of a license under subsection (1) of Section 12 shall be made in the prescribed form and shall contain particulars regarding the location of the establishment, the nature of the process, operation, or work for which contract labor is to be employed, and such other particulars as may be prescribed. The licensing officer may conduct an investigation in respect of the application received under subsection (1), and in making any such investigation, the licensing officer shall follow the procedure as may be prescribed.

(3) A license granted under this Chapter shall be valid for the period specified therein and may be renewed from time to time for such period and on payment of such fees and on such conditions as may be prescribed.

Furthermore, ABC, being the Principal Employer, has awarded the Turnkey project to XYZ contractor, who has, in turn, appointed PQR as their subcontractors. In such a situation, it is imperative to issue Form V to PQR, who happens to be the subcontractor of XYZ. Kindly revert.

Regards,
Azim Charania.

Dear Azim,

Please refer to my reply dated 2-5-13 regarding discussion no. 459074. To be considered a principal employer, one must exercise both supervision and control over the establishment. It is clear that the establishment owned by ABC is only under his control and supervision. Since the work of the establishment is outsourced to XYZ to be carried out by their contracted workforce, ABC becomes the principal employer in relation to this contract, with XYZ as the contractor and their workforce as the contract labor.

ABC has registered himself as the "principal employer" under Section 7 of the C.L.R.A Act. Upon submitting Form V, XYZ has obtained a license as a "contractor" under Section 12 of the Act by paying the required license fee and deposit amount based on the maximum number of contract laborers to be employed on the project in ABC's establishment. Therefore, the essential elements of principal employer, contractor, and contract labor are present in the contractual arrangement for the work at ABC's establishment.

Sub-Contractor Engagement

In a scenario where XYZ engages PQR as a "sub-contractor" for the same project, the question arises about who should issue Form V to PQR, the sub-contractor. I would like to refer to the observations made by the honorable High Court of Bombay in the judgment of "Gammon India Ltd. v. Asst. Commr of Labor - [1976 Lab I.C 745]":

"On a careful consideration of the scheme and various provisions of the Act, it appears that only one principal employer is contemplated under the Act. There are two distinct ways in which the Act regulates contract labor. Section 7 pertains to the 'principal employer,' while Section 12 deals with the 'contractor.' These provisions and the methods of regulation indicate that a person cannot be both a licensee under Section 12 and a principal employer under Section 7 of the Act."

Therefore, I stand by my initial viewpoint on this matter.

Best regards