The dispute was about who must pay gratuity to workers supplied through contractors, and, before that, about who is empowered to decide the question at all. The Supreme Court held that the Controlling Authority under the Gratuity Act is not that forum. Its jurisdiction is a narrow, arithmetical one, to compute the gratuity payable to an employee, not to adjudicate whether a particular principal, here ONGC, is liable to pay it in the first place. Because the workers were engaged through contractors and were not ONGC’s employees, and because the Authority had in any event stepped outside its jurisdiction in fastening liability, the order making ONGC pay was set aside, though the Court directed that the sums already paid to the workers not be recovered.
New Delhi: The Supreme Court has held that the Controlling Authority under the Payment of Gratuity Act, 1972 has jurisdiction only to compute the amount of gratuity payable to an ’employee’, and not to decide the question of liability or to fasten it on a party, in appeals by the Oil and Natural Gas Corporation Ltd. (ONGC) against orders making it liable to pay gratuity to workers engaged through contractors [M/s Oil and Natural Gas Corporation Ltd. v. Suryakand D. Lad and Others].
A Bench of Justice Ahsanuddin Amanullah and Justice Manmohan allowed ONGC’s appeals against a common order of the Bombay High Court, in which the Solicitor General Tushar Mehta appeared for the corporation.
The background
The private respondents, who had worked at ONGC through contractors, claimed gratuity from the corporation. The Controlling Authority held ONGC liable to pay, despite being told that it was not liable and that the Authority had no jurisdiction to decide the liability question as against ONGC. On ONGC’s appeal, the Appellate Authority interfered in its favour; the Bombay High Court, however, by its order of August 2023, reversed the Appellate Authority and fastened the gratuity liability back on ONGC. The corporation appealed to the Supreme Court.
ONGC’s case was that gratuity, under Section 4 of the Payment of Gratuity Act, is payable only to an ’employee’, that the private respondents were not its employees, and that there was no employer-employee relationship between them; the contract between ONGC and the contractor expressly stipulated that it was a job contract at arm’s length creating no employer-employee relationship between ONGC and the contractor’s employees. It further contended that, under Section 21(4) of the Contract Labour (Regulation and Abolition) Act, 1970, the principal employer’s responsibility extends to wages, and gratuity is a separate component, not wages, under the Payment of Wages Act, 1936.
The limits of the Controlling Authority’s jurisdiction
The Court agreed that the very maintainability of the proceeding, given the relief claimed before the Controlling Authority, was impermissible. The only power conferred on the Controlling Authority under the statute, it held, is to compute the amount which may be payable to the concerned ’employee’; the adjudication of the question of liability, and the fastening of it on ONGC, was beyond its jurisdiction. The Appellate Authority, before whom ONGC had succeeded, had rightly interfered, and the High Court’s reversal of that view was not justified.
On the substantive contentions, the Court found ONGC’s arguments under the Payment of Wages Act and the Contract Labour (Regulation and Abolition) Act to be sustainable. It referred to its coordinate Bench’s recent decision in Municipal Council, Nandyal v. K. Jayaram, which held that a person sent to work at an establishment through a contractor cannot claim an employer-employee relationship with the principal employer, though the Court considered it unnecessary to dwell on that authority in view of the order it proposed to pass.
Deciding the matter on the short point that the Controlling Authority was not competent to go into the lis raised before it by the private respondents who had worked through the contractor, the Court allowed the appeals, set aside the High Court’s order, and revived the order of the Appellate Authority.
No recovery from the workers
Before parting, the Court made an important protective direction. It noted that, in the present proceedings, the amount of gratuity claimed by the so-called employees had already been paid to them by ONGC pursuant to an earlier order of the Court of December 2023. Accordingly, the Court directed that there shall be no recovery made from them. Having clarified the position in law, it disposed of the appeals on those terms.
Why it matters
The judgment draws a clear line around the function of the Controlling Authority under the Gratuity Act. That forum exists to work out the quantum of gratuity due to an employee whose entitlement is established; it is not a tribunal for deciding contested questions of who the employer is, or on whom the liability to pay should be fixed. When a worker’s very status as an ’employee’ of the party proceeded against is in dispute, that dispute is not one the Controlling Authority is empowered to resolve, and an order that purports to fasten liability in such circumstances is made without jurisdiction, and cannot stand however sympathetic the underlying claim.
The decision also reflects the settled position on contract labour and the principal employer. A worker deployed at an establishment by a contractor does not, by that fact alone, become the employee of the principal employer; and the principal employer’s statutory responsibility under the Contract Labour Act runs to wages, from which gratuity is distinct. Where the contract itself declares an arm’s-length job arrangement with no employer-employee relationship, a claim to gratuity against the principal employer faces a threshold difficulty that the gratuity machinery is not designed, or empowered, to overcome.
What tempers the outcome, and is significant for the workers, is the direction against recovery. Having received their gratuity under an earlier order of the Court, the workers are not to be made to return it despite the reversal on the jurisdictional point. The Court thus separated the legal question, which forum may decide liability, from the equities of the individual claimants, declining to visit the consequences of a jurisdictional error on workers who had already been paid. The clarification of the law stands; the money stays with those who received it.
Case Title: M/s Oil and Natural Gas Corporation Ltd. v. Suryakand D. Lad and Others, with connected appeals [arising out of SLP (C) Nos. 498/2024, 27228/2023, 27407/2023 and 499/2024]
Bench: Justice Ahsanuddin Amanullah and Justice Manmohan, Supreme Court of India
Date of Order: September 9, 2026 | Neutral Citation: 2026 INSC 1019
Appearances: Solicitor General Tushar Mehta, with others, for the appellant ONGC.
Status: Appeals allowed. Bombay High Court order fastening gratuity liability on ONGC set aside and the Appellate Authority’s order revived, on the ground that the Controlling Authority lacked jurisdiction to decide liability; no recovery of the amounts already paid to the workers.