Gratuity Act| Controlling Authority Can Only Calculate Amount, Cannot Force Principal Employer To Pay : Supreme Court

The Bench of Justices Ahsanuddin Amanullah and Manmohan allowed appeals filed by Oil and Natural Gas Corporation Ltd. (ONGC) and set aside a Bombay High Court order that had fastened gratuity liability on the public sector undertaking. The Court restored the order of the Appellate Authority, which had interfered with the Controlling Authority's decision holding ONGC liable.

The appeals arose from the Bombay High Court's common order dated August 23, 2023, in which gratuity liability in respect of workers engaged through contractors had been fastened on ONGC.

Supreme Court: No employer employee relationship between ONGC and contract workers

Solicitor General Tushar Mehta, appearing for ONGC, argued that Section 4 of the Payment of Gratuity Act contemplated payment of gratuity to an “employee”, whereas the workers concerned were not employees of ONGC.

He submitted that there was no employer-employee relationship between ONGC and the workers and, therefore, the provisions of the Gratuity Act could not be applied against the corporation in the circumstances of the case.

The Court also noted ONGC's reliance on Section 21(4) of the Contract Labour (Regulation and Abolition) Act, 1970, under which the principal employer's statutory responsibility concerning contract labour related to payment of wages and did not extend to gratuity.

Mehta further relied on the terms of the contract between ONGC and the contractor. Clause 12.4.1 expressly stated that the arrangement was a job contract and did not create an employer-employee relationship between ONGC and the contractor's employees.

Controlling Authority could not determine liability

The Court also addressed the jurisdiction of the Controlling Authority under the gratuity law.

The Bench held that the authority's power was confined to computing the amount of gratuity payable to the concerned “employee” and that determining liability and fastening it on ONGC was beyond its jurisdiction. “The adjudication by the Controlling Authority with regard to the liability was beyond its jurisdiction,” the Court held.

The Court accordingly held that the proceedings before the Controlling Authority, insofar as they sought to determine and fasten liability on ONGC, were not maintainable. It further 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 the Appellate Authority's decision.

Supreme Court relied on contractual arrangement

The Court noted that the contract between ONGC and the contractor specifically provided that the arrangement was at arm's length and did not create an employer-employee relationship between ONGC and the contractor's workers.

The Solicitor General had also relied on the Supreme Court's December 2025 decision in Municipal Council, Nandyal Municipality, Kurnool District, A.P. v. K. Jayaram & Ors., which held that a person working in an establishment after being sent there through a contractor could not claim an employer-employee relationship with the principal employer merely on that basis.

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. The Court noted that there was no effective counter to ONGC's submissions on the issue before it.

No recovery from workers as gratuity had already been paid

The Supreme Court noted that the gratuity claimed by the workers had already been paid by ONGC pursuant to an earlier order of the Court dated December 15, 2023.

The Bench therefore directed that no recovery be made from the workers. “Accordingly, there shall be no recovery made from them,” the Court said, while disposing of the appeals.