Navigating Bonus Disputes: Can a Principal Employer Withhold Bonus Without Direct Employment Ties?

Manpower Contract with NPCIL

It is purely a manpower contract with NPCIL (central agency), who is a Principal Employer (PE). A specified number of workers with different skills are to be provided to the PE, and it is the PE's responsibility to allocate and get the work done. Billing is based on attendance of 8 hours or part of it.

Contract Details and Bonus Act Amendment

The NIT/Tender for the contract dates back to 2013, and the work was awarded in 2013 itself for a 2-year period but extended for another 10 months beyond 2 years. The contract was scalable based on revisions in minimum wages (central or state). The Payment of Bonus (Amendment) Act was notified on 1.1.2016 with retrospective effect from 1.4.2014. The applicability of this retrospective effect for FY 14-15 & FY-16 is challenged by various parties at different High Courts and is now pending with the Hon. Supreme Court.

Tender Value Estimation and Contractor Claims

In detail, the PE in his tender value estimation includes: present Minimum Wage, Transport, PF, PPE (like uniform, safety shoes, medical tests), minimum bonus @ Rs. 3500/pa (as per the bonus act as of 2013), i.e., Rs. 11.21 per day of 8-hour duty per worker, workmen compensation insurance, 3rd party insurance, plus 10% profit on Minimum Wage to the bidder. During the subsistence of the contract, the minimum wage was increased substantially, and the same was compensated to the contractor by the PE from time to time. Based on the tender estimate, bidders quote taking into account the above pay-outs, including the minimum bonus as above.

After the revision of the Bonus Act, the contractor is claiming the difference in the bonus amount between Rs. 3500 and 8.33% of the actual Minimum Wage paid. The PE is not willing to consider this. The PE is releasing the final bill of the contractor without paying the revised bonus effective from 1.4.14 or wants to withhold the amount equal to the revised bonus and release the balance. The contractor demands that the onus lies on the PE since it was included in the tender estimate. The matter was raised under the ID Act, and Conciliation Proceedings under the Asst. Labour Commissioner (C) were held, ending in failure.

Questions Regarding Legal Responsibilities and Actions

In this scenario:

- What is the responsibility of the PE with respect to the CLR Act and PB Act on the above issue?
- Can the PE withhold the amount of the bonus when there is no direct employer-employee relationship as per the PB Act?
- Can the contractors approach the Industrial Tribunal under the Ministry of Labour?
- Can the contractors approach the Hon. Courts for a remedy?

I would appreciate it if you could provide your expert advice on the issue.

Dear Kanthan, divergence of opinion prevails among various High Courts regarding the extended vicarious liability of the Principal Employers in respect of the statutory benefits of gratuity and bonus payable to the contract labor engaged by them. Personally, I would like to favor the liberal interpretation of sec. 21 of the CLRA Act, 1970, to ensure the statutory benefits of gratuity and bonus to the less privileged contract labor as and when they become due.

Upward revision of any monetary benefit by operation of any law should go to the actual beneficiary, like the contract labor. Since the retrospective operation of the amendment to the PB Act, 1965, is sub judice, the PE can withhold such extra benefit till the disposal of the pending case on the disputed issue.

Yes, this is a dispute between employer and employer regarding the condition of service of bonus to their contract labor.

Yes, since NPCIL is an authority under Article 12 of the Constitution, it is amenable to Writ Jurisdiction. My submission is that even though the PE is prepared to pay the dues as per the contract as well as the amended provisions of the PB Act, 1965, he has the right to agitate against the retrospective effect of a monetary benefit as it would involve certain practical difficulties like locating the contractors as well as the contract labor engaged through them in the past, apart from accounting difficulties. In case the Supreme Court, in its wisdom, strikes down the retrospective effect of the amendment, the recovery of the amount already paid would be impossible. Therefore, withholding such extra amount payable by the NPCIL as a PE till the disposal of the writ before the SC may be right.

Thank you for your valued input/opinion. There is a small confusion, or I did not express it correctly. The PE is not willing to pay the enhanced bonus as per the Amended PB Act, while he had included the pre-revised bonus amount in his tender estimate. However, he is enforcing the withholding of the difference in the bonus amount between the old and revised bonus amounts from the bill payable to the contractor for the work done value. This is the core issue. He is not willing to pay the amended bonus but is forcing the contractor to pay the same.

This situation is also applicable for FY 16-17 because many of the contracts that started in 2013 were running until the beginning of 2017 based on the tender estimation of the pre-revised bonus amount only. The matter is with the Hon'ble Supreme Court for a ruling on the application of "retrospective effect."

Kindly give your views on this.

Regards, PL Kanthan