The Supreme Court held that a principal employer is not liable to pay gratuity to contractual workmen employed through a contractor. The Court also ruled that the Controlling Authority under the Payment of Gratuity Act, 1972 cannot adjudicate disputes about which party — principal employer or contractor — must pay gratuity. That determination falls outside the Authority's statutory jurisdiction, leaving the contractor as the sole liable party for gratuity of contract workers.

This ruling clarifies a long-contested boundary in labour law between the Payment of Gratuity Act, 1972 and the Contract Labour (Regulation and Abolition) Act, 1970. The core doctrine is privity of employment: gratuity under Section 4 of the Payment of Gratuity Act is payable by the 'employer,' defined in Section 2(f) as the person who has control over the workman's employment. In a contractor-principal employer arrangement, the contractor is the direct employer; the principal employer merely supervises the output, not the employment relationship.

The Court drew a sharp distinction between statutory liability and vicarious or derivative liability. The principal employer may bear certain obligations under the Contract Labour Act (such as ensuring payment of wages if the contractor defaults), but those provisions do not extend to gratuity, which is separately governed. The Controlling Authority's jurisdiction under Section 7 of the Payment of Gratuity Act is limited to disputes between an employee and their employer — it cannot be expanded to decide inter-party liability between a contractor and a principal employer.

For CLAT PG aspirants, the key doctrinal takeaway is the jurisdictional boundary of quasi-judicial bodies: a statutory authority can only act within the four corners of the power the statute confers. The examiner frequently tests whether aspirants can identify which forum has jurisdiction and which party bears a specific statutory obligation — a classic 'identify the correct legal proposition' question.