The Supreme Court has held that a principal employer cannot be made liable to pay gratuity to workers engaged through a contractor where there is no employer-employee relationship between the principal employer and the contractual workers.

A bench of Justices Ahsanuddin Amanullah and Manmohan set aside a Bombay High Court order that had held Oil and Natural Gas Corporation (ONGC) liable to pay gratuity to workers engaged through a contractor. The court also restored the order of the Appellate Authority, which had ruled in favour of ONGC, LiveLaw reported on Sunday. 

The case concerned appeals filed by ONGC against the Bombay High Court's order. The Controlling Authority under the Payment of Gratuity Act had initially held ONGC liable for the gratuity. The Appellate Authority reversed that decision, but the Bombay High Court subsequently restored the Controlling Authority's order, prompting ONGC to approach the Supreme Court.

 Controlling Authority's powers

The Supreme Court held that the Controlling Authority did not have jurisdiction to determine who was liable to pay gratuity. 

"The adjudication by the Controlling Authority with regard to the liability was beyond its jurisdiction," the court said, according to LiveLaw. It noted that the authority's statutory power was limited to computing the amount that may be payable to the concerned "employee".

The court therefore held that the proceedings before the Controlling Authority were not maintainable insofar as they sought to determine liability and fasten it on ONGC.

No employer-employee relationship

During the proceedings, Solicitor General Tushar Mehta, appearing for ONGC, argued that Section 4 of the Payment of Gratuity Act provides for gratuity payable to an employee and that the workers concerned were not employees of ONGC.

He also relied on Section 21(4) of the Contract Labour (Regulation and Abolition) Act, 1970, arguing that the principal employer's statutory responsibility in relation to contract labour extends to wages and does not make it liable for gratuity.

ONGC also relied on the terms of its contract with the contractor, which stated that the arrangement was a job contract and did not create an employer-employee relationship between ONGC and the contractor's workers.

The Supreme Court accepted these submissions. It also noted an earlier ruling in Municipal Council, Nandyal Municipality, Kurnool District, AP v K Jayaram & Ors (2025), which was cited before it for the proposition that a person engaged through a contractor cannot claim an employer-employee relationship with the principal employer.

The contractor, on the other hand, argued that the gratuity liability did not rest with it and that the amount payable would ultimately have to come from the principal employer, LiveLaw reported.

The court held that the Appellate Authority had rightly interfered with the Controlling Authority's order and that the Bombay High Court was not justified in reversing that decision.

The case was M/s Oil and Natural Gas Corporation Ltd v Suryakand D Lad & Ors, with connected appeals. LiveLaw cited the judgment as 2026 LiveLaw (SC) 961.

The Supreme Court also noted that ONGC had already paid the gratuity claimed by the workers and directed that no recovery be made from them.