Sham Contract Labour Dispute: Supreme Court Clarifies Conciliation, Reference and Interim Relief

Case Summary

• Case name: M/s Premium Transmission Private Limited v. The State of Maharashtra and Others; M/s Premium Transmission Private Limited v. Kishan Subhash Rathod and Others

• Citation: 2026 INSC 87; Civil Appeal arising out of SLP (C) No. 9970 of 2023 and SLP (C) No. 12192 of 2023

• Date of judgment: 27 January 2026

• Bench: Honourable Justice Pankaj Mithal; Honourable Justice S.V.N. Bhatti

• Advocates (appearing): Mr C.U. Singh, Learned Senior Advocate; Mr Sandeep Sudhakar Deshmukh, Advocate; Shri B.H. Marlapalle, Learned Senior Advocate

• Statutes and provisions considered: Industrial Disputes Act, 1947 (Sections 2(k), 2(s), 10(1), 12, 33, 33-A, 25-F); Contract Labour (Abolition & Regulation) Act, 1970 (Section 10; Sections 2(1)(b), 2(1)(i)); Maharashtra Recognition of Trade Unions & Prevention of Unfair Labour Practices Act (referred); related rules and Conciliation Manual

• Principal precedents cited: DP Maheshwari v. Delhi Administration, (1983) 4 SCC 293; Shambu Nath Goyal v. Bank of Baroda, (1978) 2 SCC 353; Steel Authority of India Ltd. v. National Union Waterfront Workers, (2001) 7 SCC 1 (SAIL); Sindhu Resettlement Corporation Ltd. v. Industrial Tribunal; Prabhakar v. Joint Director, Sericulture Department, (2015) 15 SCC 1; Vividh Kamgarh Sabha v. Kalyani, (2001) 2 SCC 381; Cipla Ltd. v. Maharashtra General Kamgar Union, (2001) 3 SCC 101; Air India Statutory Corporation v. United Labour Union (1997) 9 SCC 377; Beetham v. Trinidad Cement Ltd.

Introduction: Issues in Industrial Adjudication

The two closely related appeals concern recurrent and important issues in industrial jurisprudence: (i) the threshold for commencement of conciliation and the maintainability of a reference where a union approaches the Conciliation Officer without first serving a written demand on the employer; (ii) the consequences where workmen engaged through registered contractors assert that the contract is a sham and that they are de facto employees of the principal employer; and (iii) the scope and effect of Section 33 protections during pendency of conciliation or adjudicatory proceedings. The Judgement, authored by Honourable Justice S.V.N. Bhatti (with Honourable Justice Pankaj Mithal concurring), re-affirms established constitutional and statutory principles while giving practical guidance to tribunals and counsel about procedural propriety and the proper forum for resolution of contested factual questions.

Commencement of Conciliation and Validity of Reference

The Court rejected the management’s attempt to stifle adjudication at a preliminary stage by invoking the demand–rejection “test” in Sindhu and Prabhakar as an absolute bar to the Conciliation Officer accepting a representation. In short, a formal written demand is not invariably a precondition to the initiation of conciliation. The Court reiterated the rule in Shambu Nath Goyal that an “apprehended dispute” can authorise conciliation, and that the appropriate Government’s decision to refer an industrial dispute under Section 10 is an administrative act amenable to judicial review only on limited grounds.

Two competing strands of authority were reconciled. On one hand, Sindhu and Prabhakar warn against belated or stale complaints and insist that a proper demand and rejection form the kernel of many disputes; on the other hand Shambu Nath and SAIL recognise the broad definition of "industrial dispute" in Section 2(k) and permit preventive intervention where industrial unrest is apprehended or where the relationship itself is in dispute (for example, genuine versus sham contract). The Court correctly treats these lines as complementary rather than antithetical: where the relationship is disputed (principal employer v. contractor), the remedy is adjudicatory and is most appropriately pursued before an Industrial Court or Labour Court, not by truncating conciliation at the outset.

Sham Contracts and the Proper Forum for Adjudication

On the issue of sham contracts the judgment is emphatic: factual issues such as control, payment of wages, supervision and the economic reality of the relationship are matters for the Industrial Court. The Court quoted the SAIL principle that a sham contract, once proved, leads to de-facto recognition of the principal employer–employee relationship and appropriate reliefs, including regularisation. But the Court was equally clear that a writ court should not decide disputed factual issues on a prima facie test when the Industrial Court is the designated forum for such disputes.

Interim Protection and Section 33 of the Industrial Disputes Act

Limits on Interim Relief During Pendency of Proceedings

The companion appeals demonstrate the fine balance between interim relief and the primary jurisdiction of the Industrial Court. The first appeal upheld the reference and directed the Industrial Court to frame issues on sham contract and principal employer status, and to decide expeditiously (four months). The second appeal, however, resulted in a different outcome on interim measures: the Supreme Court set aside interim orders granted by the Industrial Court and High Court that directed immediate reinstatement and wages during pendency. The Court held that the reliefs ordered as a matter of interim protection in that instance were unsustainable because they effectively pre-judged the central dispute about status and privity of contract; the correct route for an interim order was to seek appropriate relief before the Industrial Court consistent with the SAIL principles.

Practice-Oriented Guidance

Key Takeaways for Counsel and Adjudicators

• Challenge to referrals: If advising management, distinguish cases where the appropriate Government’s reference is vitiated by absence of any existing or apprehended dispute. Judicial review is narrow: the Court will intervene where the referral is palpably arbitrary or the Government failed to apply its mind to jurisdictional facts. Conversely, unions should not be forestalled by rigid formalism; an apprehended dispute or credible claim of sham contracting brings conciliation within scope.

• Pleadings and evidence: Where a client advances that a contract is genuine, assemble contemporaneous documentary evidence (contracts, payment records, licences under CLRA, GST/EPF/ESIC records), supervisory records and witness statements to counter allegations of sham contracting; if advising unions, plead the indicia of control and remuneration by the principal employer.

• Use of Section 33: Parties must appreciate the protective object of Section 33 but also its limits. Interim remedies that operate as de facto final adjudications on contested employment status are vulnerable to reversal.

• Timelines and forum discipline: Given the Court’s direction of expedition, counsel should press for early framing of issues and quick hearings in the Industrial Court; delays risk procedural erosion of clients’ rights.

Judicial Observations of Note

Selected Passages Emphasised by the Court

• On delay and interlocutory tactics: "We think it is better that tribunals... should decide all issues in dispute at the same time without trying some of them as preliminary issues." (DP Maheshwari cited)

• On the appropriate Government's role: "The administrative decision merely looks at an Industrial Dispute or an apprehended Industrial Dispute. The merit or otherwise of the dispute is for the adjudicatory body to decide."

• On available remedies: "Ubi jus ibi remedium — where there is a right, there is a remedy."

• On sham contracts: "If the contract is found to be sham, nominal, or a camouflage... then the workers are de facto employees of the principal employer."

Conclusion: Balancing Procedure and Substantive Justice

The judgment is practitioner-friendly and balanced. It protects the statutory architecture: conciliation remains a flexible preventive tool while adjudication on contested facts is preserved for specialist forums. For counsel and industrial adjudicators in India the message is plain — do not allow procedural technicalities to substitute for reasoned fact-finding, but equally, avoid interim measures that amount to final decisions on contested privity issues.

Precedents on Sham Contracts, Apprehended Disputes and Scope of Reference

""At the outset, we would like to refer to the constitution bench judgment of this Court in Steel Authority of India Limited and others v. National Union Waterfront Workers and Others. Stated in fine, the factual background in SAIL (supra) is: The appellants therein, a Central Government Company, entrusts the work of handling the goods in the stockyards to contractors after calling for tenders in that regard. The Government of West Bengal issued a notification dated 15.07.1989 under Section 10(1) of the CLRA prohibiting the employment of contract labour in four specified stockyards of the appellants at Kolkata. On behalf of the appellants, the Government of West Bengal initially kept the said notification in abeyance for a period of six months.

It thereafter extended that period from time to time, but not beyond 31.08.1994. The Union representing the cause of 353 contract labourers moved the High Court of Judicature at Calcutta seeking a direction to the appellants to absorb the contract labour in their regular establishment in view of the prohibition notification of the State Government dated 15.07.1989, and further prayed that the notification dated 28.08.1989, keeping the prohibition notification in abeyance, be quashed. The High Court allowed the writ petition, set aside the notification dated 28.08.1989, and all subsequent notifications extending the period and directed that the contract labour be absorbed and regularised from the date of the prohibition notification.

Assailing the said judgment, the appellant therein filed a writ appeal and challenged the prohibition notification of 15.07.1989. They filed a writ petition in the Calcutta High Court. While these cases were pending before the High Court, this Court delivered a judgment in Air India Statutory Corporation v. United Labour Union holding, inter alia, that in the case of Central Government Companies, the appropriate Government is the Central Government.

It thus upheld the validity of the notification dated 09.12.1976 issued by the Central Government under Section 10(1) of the CLRA prohibiting employment of contract labour in all establishments of the Central Government Companies. On 03.07.1998, a Division Bench of the High Court dismissed the writ appeal as well as the writ petition filed by the appellants, taking the view that on the relevant date, the appropriate Government was the State Government. The legality of this judgment and order was challenged in the appeal to this Court.

For the present adjudication, we refer to the ratio decidendi in SAIL (supra) on automatic absorption and between genuine and sham contracts, which can be, in a nutshell, stated thus: On Automatic absorption: This Court examined the scheme of CLRA and held that Section 10 is merely a regulatory and prohibitory provision. It creates a bar on employing contract labour, but it does not create a positive right of absorption for the workmen. This Court settled that the prohibition of contract labour under Section 10(1) does not imply an automatic absorption of contract labour as direct employees of the principal employer.

Genuine vs. Sham contracts: The Court, while drawing a distinction between a prohibited valid contract and a sham contract, held that, on the one hand, if the contract is genuine but Section 10 of the CLRA notification subsequently prohibits contract labour, the principal employer must stop employing contract labour. The workers do not become employees. The contractor releases them. On the other hand, if the contract is found to be sham, nominal, or a camouflage, in which the principal employer controls the workers and pays their salaries, but uses a contractor merely to bypass labour laws, then the workers are de facto employees of the principal employer.

Further, this Court opined that the dispute regarding whether a contract is sham or genuine is a disputed question of fact, and a writ Court should not direct absorption without adjudicating it; an Industrial Court or Labour Court must adjudicate this issue in a dispute raised by the workmen.""