If the contractor fails to make payment to his contract employee then the liability will be on Principal Employer or not.

Many time my clients ask this question -  if the contractor fails to make payment to his contract employee then the liability will be on Principal Employer or not.

In this regard please find my comment  below

As per Section 21(4) of the contract labour (Regulation & Abolition) Act 1970 in case the contractor fails to make payment of wages within the prescribed period or makes short payment, then the principal employer shall be liable to make payment of wages in full or the unpaid balance due, as the case may be, to the contract labour employed by the contractor and recover the amount so paid from the contractor either by deduction from any amount payable to the contractor under any contract or as a debt payable by the contractor.

In this regard I am supported by the judgment of Bombay High Court where Management was made responsible for paying the arrears of wages and the amount deposited with the Registry of that Court was be disbursed after the said amount is determined by any of the modes/forums as stated in the case - General Employees Association A ... vs Rashtriya Chemicals And ... on 16 February, 2005

Regarding the interpretation of Section 21 of the Contract Labour Act and the liability of the Principal employer and the contractor for payment of wages, the following two decisions are required to be referred to;

(1) Hindustan Steelworks Construction Ltd. v. Commissioner of Labour and others reported in (1996) II CLR 610 and

(2) Senior Regional Manager Food Corporation of India Culcutta v. Tulsidas and Bauri and others Judgement Today 1997 (5) S.C. 175.

In the first case, the scope of Section 21 of the Contract Labour Act was clarified in the following words:

"Section 21(1), however, provides that the contractor shall be responsible for the payment of wages to each worker employed by him.

Section 21(4) provides that if the contractor fails to make this payment or any part thereof, the principal employer is liable to make this payment and may recover the same from the contractor as set out in sub-section. Looking to the definition of 'wages' under the said Act, read with the definition of 'wages' in the Payment of Wages Act, it is clear that Section 21 only deals with payment of contractual wages of the contract to each of his worker.

The definition of wages would govern within its scope, inter alia also these amounts which the contractor is liable to pay to his workers under any Award, Settlement or Order of Court as well as the other amounts falling within the definition of wages under the Payment of Wages Act. Sub-Section (2) provides for a representative of the principal employer supervising this payment. Clearly, therefore, the wages which are subject matter of Section 21 are specified sums which are payable in present by the contractor under his contract employment with each worker as well as under any existing Award, Settlement or order of the Court."

In the subsequent judgment in the case of Food Corporation of India (Supra), the Supreme Court held thus:

Section 21 postulates responsibility for payment of wages. Under Sub-section (1) a contractor shall be responsible for payment of wages to each worker employed by him as contract labours and such wages paid before the expiry of such period as may be prescribed. Under Sub-section (4), in case a contractor fails to make the payment of wages within the prescribed period or makes short payment, then the principal employer shall be liable to make payment of wages in full or unpaid balance due as the case may be, to the contract labour employer of the contractor and recover the amounts so paid from the contractor either by deducting from any amount payable to the contractor under any contract or as a debt payable by the contractor. That liability has been prescribed under Sub-section (2) thereof which says that every principal employer shall nominate representative and the representative duly authorised by him to be present at the time of disbursement of wages by the contractor and it shall be duty of such representative to certify the amounts paid as wages in such manner as may be prescribed.

Thus, it could be seen that the principal employer is statutorily responsible to ensure payment of the wages as per law. In case the contractor commits default in the payment of the wages, the principal employer is made responsible for due payment and in case such payment is made, he is entitled to have it recovered by deducting from any amount payable to the contractor under the contract or as a debt payable by the contractor.

Also your query regarding (as per the telephonic discussion today )  absence of valid contract labour license

As per Section 12 - Licensing of contractors: No Contractor shall undertake or execute any work through contract labour except license issued by licensing officer.

So I would like inform you that in the absence of a valid license, a contract workman would be deemed to be the workman engaged directly by the principal employer.

In this regard I am supported by the judgment on case of  P&H HC: Chet Ram Vs. PO Labour Court Faridabad 2011