Dear Siba,
Would my presumption that this is just an " Umbrella Contract " be correct? - just changing the contractor according to the Principal Employer's preference but keeping the same contract labour. This is certainly an unfair labour practice which if proved would be leading to the absorption of the entire contract labour as your own workmen apart from any penalty for such practice.
Or else is it a new situation created by the unscrupulous contractor on his own and you don't want to kill both the culprit and the victim with a single shot, pay all the pending dues to the contract labour and settle their accounts. Engage a new contractor and if he is willing,engage the erstwhile contractor's men also through him. Getting the type of undertaking from the previous contract labour regarding old dues payable can not absolve you of your vicarious liability under section 24 of the CLRA Act,1970.