THE MUNICIPAL COUNCIL, REP. BY ITS COMMISSIONER NANDYAL MUNICIPALITY, KURNOOL DISTRICT, A.P. V. K. JAYARAM AND OTHERS [SLP NO. 17711-17713 OF 2019]:

DATE: 16/12/2025

COURT: Supreme Court of India

BENCH: Justice Ahsanuddin Amanullah and Justice Vipul M. Pancholi

FACTS:

The respondents were engaged by the appellant (a municipality) through third-party contractors starting from 1994, and they continued performing duties for the appellant even as contractors changed over time. They sought regularization of their services and payment of the minimum pay scale equivalent to that of regular employees in the Andhra Pradesh Administrative Tribunal, which ruled against them. The respondents then approached the High Court of Judicature at Hyderabad, which reversed the Tribunal's order on August 23, 2018, directing the appellant to grant them the minimum time scale of pay along with annual grade increments as and when due.

The appellant contended that there was no direct employer-employee relationship with the respondents, as they were hired and paid by the contractors, with the appellant only contracting for manpower supply. The contracts included safeguards ensuring minimum wages and statutory deductions, but the respondents remained "faceless" to the appellant, with any claims lying against the contractors. The respondents argued that this denial was arbitrary, discriminatory, and violated constitutional rights, especially since they performed similar duties to regular employees and similar benefits had been extended in other municipalities.

ISSUES:

The primary issue was whether contract workers engaged through third-party contractors, without a direct employer-employee relationship with the principal employer (the appellant municipality), were entitled to the minimum time scale of pay and annual increments akin to regular employees, or if such claims could only be made against the contractors. This involved examining the nature of the employment relationship, potential discrimination under Article 12 of the Constitution, and the validity of distinctions between direct contractual hires and those through intermediaries.

JUDGEMENT WITH REASONING:

The Supreme Court allowed the appeals, setting aside the High Court's order dated August 23, 2018, and restoring the Tribunal's orders that denied regularization and minimum pay scale benefits to the respondents. However, in a compassionate direction limited to this case, the Court urged the appellant to consider regularizing the respondents' services, given their long, uninterrupted tenure performing perpetual jobs, though this was not to serve as a precedent.

The Court's reasoning hinged on the absence of a direct employer-employee relationship between the appellant and the respondents, as the latter were hired by third-party contractors who changed periodically, with the appellant's obligations limited to paying the contractors for manpower supply. This indirect connection meant the respondents' claims for minimum pay scale and increments lay solely against the contractors, not the principal employer. The Court noted that the mode of employment through contractors was not challenged as illegal or unconstitutional, and the contracts included protections like minimum wages and statutory deductions. Equating such workers to regular employees would blur essential distinctions in employment modes, undermining the purpose of contractual hiring. The Court distinguished this from cases where workers were directly employed on contract by the principal, emphasizing that the respondents' continuity under different contractors did not inherently prove a sham arrangement but could stem from practical needs for workflow continuity, leaving the relationship fundamentally mediated and not direct.

Furthermore, the Court stressed the legal safeguards in regular public employment under State entities, which ensure transparency, merit-based selection, and equal opportunity for all citizens, contrasting this with contractor-led hiring, where selection is at the contractor's discretion without prescribed procedures beyond basic qualifications. Granting equivalent benefits to contractor-hired workers would sanction arbitrary processes and erode the sanctity of varied employment capacities, potentially allowing backdoor entries without competitive scrutiny. While acknowledging the respondents' long service and family needs, the Court viewed these as humanitarian concerns not overriding legal distinctions, leading to the allowance of the appeals but with a mercy-based suggestion for regularization in this specific instance to balance justice with equity.

ANALYSIS:

This Supreme Court judgment represents a significant reaffirmation of the legal distinction between direct employment and engagement through third-party contractors in public sector entities. By allowing the municipality's appeals and restoring the Administrative Tribunal's order, the Court prioritized the formal structure of the employment relationship over the practical realities of long-term service continuity. The decision underscores that workers supplied via intermediaries lack a direct employer-employee nexus with the principal employer, rendering claims for minimum pay scale parity and increments legally untenable against the municipality. This ruling draws heavily from precedents like Bharat Heavy Electricals Limited v. Mahendra Prasad Jakhmola (2019), which emphasized the principal employer's limited liability in genuine contractor arrangements, and explicitly distinguishes State of Punjab v. Jagjit Singh (2017), where pay parity was granted to directly contracted workers. The Court's strict interpretation protects the integrity of contractual outsourcing models, ensuring that public employment safeguards, such as transparent, merit-based recruitment under Articles 14 and 16 remain intact and are not circumvented through backdoor mechanisms.

At the same time, the judgment introduces a nuanced humanitarian dimension by directing the municipality to compassionately consider regularization for the respondents, given their decades-long uninterrupted service in perennial municipal roles without performance issues. This exceptional, non-precedential direction reflects judicial sensitivity to the socio-economic hardships faced by long-serving workers who perform essential duties akin to regular employees, while stopping short of mandating benefits that could erode established legal distinctions. Overall, the ruling balances strict adherence to contractual principles with equity, cautioning against blanket parity in outsourced labour to preserve recruitment transparency and prevent arbitrary favouritism. It may encourage public bodies to review outsourcing practices for perennial needs, potentially leading to more direct hires or policy reforms, while reinforcing that extended service alone does not confer automatic rights to regular employee entitlements in indirect engagements.