Supreme Court bats for contract labour; backs governments’ power to refer disputes

On 27 January 2026, the Supreme Court dismissed a challenge by Premium Transmission Private Limited against the Maharashtra government’s decision to refer a dispute involving contract labour to adjudication, holding that an industrial dispute need not always be preceded by a formal demand by workers. The ruling clarifies that under the Industrial Disputes Act, 1947, the State may intervene even when a dispute is only apprehended, and that such intervention should not be derailed by technical objections.

Upholding the Bombay High Court’s refusal to interfere, the Supreme Court directed the Industrial Court to frame specific issues on whether the contractual arrangements were a sham and  who was the principal employer. The Court also urged the Industrial Court to dispose of the reference expeditiously.

The Judgement was delivered by a Bench of Justices Pankaj Mithal and S.V.N. Bhatti in a long-running dispute between a manufacturing company based in Aurangabad and workers engaged through licensed labour contractors. The workers, represented by a trade union, alleged that the contractual arrangement was a sham devised to deny them permanent status, equal wages and other statutory benefits.

In 2019, the union approached the Conciliation Officer directly, asserting that the workers faced imminent termination due to changes in contractual arrangements. Conciliation proceedings failed, following which the Deputy Labour Commissioner referred the dispute to the Industrial Court. The management challenged the reference, contending that no “industrial dispute” existed because the union had not first served a charter of demands on the company and obtained its rejection.

Rejecting this argument, the Supreme Court held that neither Section 10 nor Section 12 of the Industrial Disputes Act mandates a prior demand notice as a condition precedent for conciliation or reference, except in the case of public utility services. The Court emphasised that Section 10 expressly empowers the appropriate government to refer a dispute that either “exists or is apprehended”.

To accept the management’s contention, the Court observed, would be to read words into the statute and render the phrase “apprehended dispute” meaningless. The provision enables the State to step in before industrial tensions escalate into strikes, lockouts or mass termination of workers.

The management also argued that since the workers were engaged through licensed contractors under the Contract Labour (Regulation and Abolition) Act, 1970, there was no employer–employee relationship between the company and the workers, and therefore no industrial dispute could exist between them.

The Court rejected this as a threshold objection. It held that the denial of employment status by the management was itself part of the dispute. Where workers allege that contractual arrangements are sham or camouflage, the question of who the principal employer is becomes a disputed issue of fact that can only be decided by an Industrial or Labour Court after adjudication.

Relying on the Constitution Bench decision in Steel Authority of India Ltd. v. National Union Waterfront Workers (2001), the Supreme Court reiterated that while contract labour does not enjoy automatic absorption, workers are entitled to seek a declaration that a contract is nominal or sham. Such determinations cannot be made at the conciliation or reference stage.

The Court further clarified that the role of the government in making a reference under Section 10 is administrative, not judicial. The government is required only to form an opinion that a dispute exists or is apprehended; it cannot decide the merits of the claims or conclusively determine employment relationships.

The Bench expressed concern at the increasing tendency of employers to raise preliminary objections to stall industrial adjudication. Citing earlier precedent, the Court warned that allowing such objections to eclipse substantive resolution would undermine the purpose of labour legislation and delay justice for workers.

This decision sits at the intersection of three important strands of Supreme Court jurisprudence. First, it draws from Shambu Nath Goyal v. Bank of Baroda (1978), where the Court held that a written demand is not a sine qua non for the existence of an industrial dispute. What matters is the existence of a real and substantial difference between parties. The present verdict reaffirms that principle and extends it to disputes involving contract labour and apprehended termination.

Second, the Court carefully distinguishes earlier cases such as Sindhu Resettlement Corporation v The Industrial Tribunal of Gujarat (1967) and Prabhakar v Joint Director, Sericulture (2015), which emphasised the demand-and-rejection test. The Bench makes clear that those rulings turned on their specific facts, including admitted employment relationships or stale claims, and cannot be read as laying down an inflexible procedural rule applicable to all disputes.

Third, the Judgement is anchored in the Constitution Bench ruling in Steel Authority of India. In this case, the Court rejected automatic absorption of contract labour, but preserved the right of workers to challenge contracts as sham or camouflage. The present case reinforces that such challenges must be adjudicated by Industrial Courts and cannot be blocked at the threshold by denying the existence of a dispute.

The ruling, therefore, underscores a consistent judicial approach: labour law must facilitate early intervention, preserve access to adjudication, and prevent procedural manoeuvres from defeating substantive justice. It signals that the Industrial Disputes Act remains a living instrument, aimed not merely at resolving disputes after breakdown, but at preventing breakdowns in industrial relations.