Navigating Compliance: How Should Company X Handle Subcontracting Under Factory and Labour Acts?

Query on Compliance with Factory and Contract Labour Acts

I need expert advice on the following query: "X" Company, registered under the Factory Act, gives major job work to "A" Company (registered as a principal employer under the Contract Labour Act) at the factory premises of "X." "A" Company distributes work to 10 different contractors for job completion, and all contractors have obtained a Labour license based on Form 5 issued by "A" Company, maintaining all records as per the Contract Labour Act.

During a visit from the Factory Inspector, he demanded the contractor's license directly in the name of the parent company "X" instead of company "A." Under the Contract Labour Act, there is no provision for subcontracting. Kindly guide on the correct provision for such a business situation and what stand company "X" should take to avoid any non-compliance.

Regards

When 20 or more workmen are employed or were employed on any day of the preceding 12 months as CONTRACT LABOUR in the factory 'X', then The Contract Labour (Regulation & Abolition) Act, 1970 & Rules become applicable to that factory. Now, coming to the definition of CONTRACTOR, he should undertake to produce a given result for the factory 'X' through CONTRACT LABOUR or who supplies CONTRACT LABOUR to that factory; this definition includes Sub-Contractor also. As regards the applicability of The Contract Labour (Regulation & Abolition) Act, 1970 & Rules to the Contractor/Sub-Contractor, he should employ 20 or more workmen or had employed 20 or more workmen on any day of the preceding 12 months.

Coming to your query, I'd like to correct you that the PRINCIPAL EMPLOYER is 'X' and not 'A'. As a Principal Employer, 'X' should have obtained the Registration Certificate up-to-date under the Contract Labour Act.

The Contractors each should have obtained the Contract Labour Licence by submitting the Application in Form IV along with the Certificate issued by the Principal Employer ('X') in Form V. Hence, the contention of the Factories Inspector is correct.

There were two wrongs committed: 1. The Registration Certificate should have been obtained by the factory 'X' and not the Contractor 'A'. 2. The Licence should have been obtained by the individual Contractors based on the Certificate issued in Form V by the factory 'X' (Principal Employer). The Contractor 'A' has no 'locus standi' to issue Certificates to the ten Contractors in Form V in this case as he is not the Principal Employer.

Regards, K.A.Thariq Muhamed Salim

Dear Mr. SS Arora,

I fully agree with the submissions of KA Thariq Muhamed Salim. When the X company is registered under the Factory Act, then they are considered the principal employer. Permission should be obtained in the name of X company.

P.K. Sharma

Thank you, K.A. Thariq, sir, for your guidance. I feel that I need to provide you with additional information for a more detailed understanding and clarity.

Background of the Situation

'X' company already has a registration certificate under the CL Act, and more than 50 contractors are directly associated with the company and hold licenses. This is a unique case where 'X' assigned work to 'A,' who then initiated and issued Form V to his contractors before commencing work without informing 'X.' When 'X' requested information from 'A,' he assured that under the Contract Labour Act, 'X' would not face any legal issues and that he would handle all compliance aspects under the CL Act. However, 'X' is concerned about compliance under the Factory Act.

Clarification Needed

Could you shed more light on this situation? In this scenario, will 'X' as the principal employer be responsible for obtaining a license for company 'A' or the 10 contractors? 'X' is prepared to issue Form V, but all contractors have already submitted license applications to the Labor office.

Best regards