Licensing of Contractors

Section 47(1): the prohibition and the licence

No contractor to whom this Part applies shall:

• (a) supply or engage contract labour in any establishment; or
• (b) undertake or execute the work through contract labour,

except under and in accordance with a licence issued to him by the authority referred to in section 119(1), in accordance with that section, after satisfying that the contractor fulfils such requisite qualifications or criteria as may be prescribed by the Central Government.

And the licence shall specify, in addition to the particulars and conditions in sub-section (3):

• the number of contract labour who can be supplied or engaged; and
• the amount of security to be deposited by the contractor.

Three points to hold.

"Under and in accordance with". Holding a licence is not enough; the contractor must also work within it. Supplying eighty workers on a licence for fifty is a contravention as much as supplying without any licence.

The qualifications are Central. The Central Government prescribes the qualifications or criteria, so the standard for becoming a contractor is uniform across India even where the appropriate Government is a State.

The number and the deposit are on the face of the licence. They are the two figures a student should look for in a problem.

Section 47(2): the work specific licence

Where the contractor does not fulfil the requisite qualifications or criteria, the authority may issue him a work specific licence, electronically renewable within such period as the Central Government prescribes, to supply or engage contract labour or execute work through contract labour only for the concerned work order specified in the licence, and subject to such conditions as may be specified in it.

This is a new device and it should be described accurately. It is not a lesser class of contractor created by the Code; it is a licence tied to a single job. When that work order is done, the licence is spent. A contractor who wants to work generally must meet the prescribed criteria and take a licence under sub-section (1).

Section 47(3): conditions, and which authority grants it

Clause (a), the conditions. A licence under sub-section (1) may contain such conditions as the appropriate Government prescribes, including in particular conditions as to hours of work, fixation of wages and other essential amenities in respect of contract labour.

Those three named heads matter. The Code makes wages and hours matters that can be written into the contractor's licence, so a breach of them is not only an offence but a ground to suspend the permission to trade at all.

Clause (b), the granting authority. The licence under sub-section (1) or (2) is obtained from the authority under section 119(1) designated by the Central Government where the Central Government is the appropriate Government for the establishment, and from the authority designated by the State Government where the State Government is.

The first proviso, the multi-State licence. Where the contractor wishes to take a licence for more than one State or for the whole of India, he may obtain it from the authority designated by the Central Government for that purpose, and section 119 applies.

The second proviso, and it is a real safeguard. Before issuing such a licence, that authority shall consult the concerned State authorities designated under section 119(1), electronically, for establishments whose appropriate Government is the State Government.

The two provisos together are a small piece of federal machinery. A national contractor deals with one office instead of twenty eight, and the States whose workers he will employ are consulted before the licence issues.

Section 48: procedure, and the five year licence

Section 48(1), the application. Every application for a licence for the purposes of section 47(1) or (2) shall be made electronically, in the prescribed form and manner, and shall contain particulars regarding:

• the number of contract labour;
• the nature of work for which contract labour is to be employed; and
• such other particulars including the information relating to the employment of inter-State migrant workers as the appropriate Government prescribes.

The third item is worth noticing. The licensing file is where the State learns that inter-State migrant workers are being employed, which is how Part II of this Chapter is meant to be enforced in practice.

Section 48(2), the procedure, is as the appropriate Government prescribes, subject to section 119.

Section 48(3), validity and amendment. This is the examinable sub-section. A licence for the purposes of section 47(1) is valid for five years in respect of the number of contract labour specified in it. If the contractor wants to increase the number, he must apply in the prescribed manner for amendment of the licence, and if it is amended the number is increased on depositing such security as the amended licence specifies, for the balance period.

Two consequences follow and both are commonly missed. The five year term attaches to a stated number, so the licence is a permission to supply up to that many and no more. And an increase is bought with more security, calculated for the balance of the term, not for a fresh five years.

Section 48(4). The licence shall contain the responsibility of the contractor as the appropriate Government prescribes.

Section 49: no fee or commission from the worker

The contractor shall not charge directly or indirectly, in whole or in part, any fee or commission from the contract labour.

One sentence, and it should be quoted rather than paraphrased in an answer. Its force lies in the words directly or indirectly and in whole or in part, which between them close the usual routes: a placement fee, a deduction from the first month's wages, a payment taken by a sub-agent in the village, a charge for the tools or the identity card.

The provision matters most for the worker who is recruited far from where he will work, which is why it sits in the same Chapter as the inter-State migrant worker provisions and should be read with the journey allowance in section 61.

Section 50: intimation of the work order

Section 50(1). When a contractor receives a work order from an establishment, either to supply contract labour in the establishment or to execute the contract through contract labour, he shall within such time and in such manner as may be prescribed intimate the authority referred to in section 119.

Section 50(2), the sanction. Where the contractor fails to give the intimation, the designated authority may, after giving the holder of the licence an opportunity of showing cause, suspend or cancel the licence in the prescribed manner.

This is how the licensing office learns where the licensed workers actually are. Note that the penalty for not telling is aimed at the licence, not at the pocket: failure to intimate can cost the contractor his trade.

Section 51: revocation, suspension and amendment

Section 51(1). If the authority under section 119(1) is satisfied, either on a reference made to him or otherwise, that:

• (a) a licence has been obtained by misrepresentation or suppression of any material fact; or
• (b) the holder has failed to comply with the conditions subject to which the licence was granted, or has contravened any provision of this Part or the rules,

then, without prejudice to any other penalty to which the contractor may be liable under the Code, the authority may, after giving the contractor an opportunity of showing cause, revoke or suspend the licence in accordance with the procedure prescribed by the Central Government.

Four things to hold. The authority may act on its own motion, not only on a complaint. The two grounds are how the licence was got and how it has been used. The order may be made only after a show cause opportunity. And revocation is in addition to, not instead of, prosecution.

Section 51(2). Subject to the rules, the authority may amend a licence granted for the purposes of this Part.

Section 52: the appeal

Section 52(1). Any person aggrieved by an order made under section 47, section 48 or section 51 may, within thirty days from the date on which the order is communicated to him, appeal to the appellate authority prescribed by the appropriate Government under section 119(6).

The proviso. The appellate authority may entertain the appeal after the thirty days if satisfied that the appellant was prevented by sufficient cause from filing in time.

Section 52(2). On receipt of the appeal, the appellate authority shall, after giving the appellant an opportunity of being heard, dispose of the appeal within thirty days from the date on which it was preferred.

The two thirty day periods are different and are frequently confused. The first is the limitation for filing, running from communication of the order and extendable for sufficient cause. The second is a time limit on the authority, running from the date the appeal is preferred.

Note also which orders are appealable: those under sections 47, 48 and 51, that is refusal or grant of a licence, orders in the licensing procedure, and revocation, suspension or amendment. An order under section 50(2) suspending or cancelling for failure to intimate is not in the list by its own number, although in substance it operates on the licence.

A worked example

Farid runs a labour supply firm. He holds a licence under section 47(1) for one hundred and twenty contract labour, granted two years ago, and he has deposited the security it specified.

A client wants one hundred and sixty workers. He cannot simply supply them. The licence is valid in respect of the number specified in it, so he must apply under section 48(3) for an amendment increasing the number, and if it is amended he must deposit further security as the amended licence specifies, for the balance period of the five years.

He takes a work order from a new client. He must intimate the authority under section 119 within the prescribed time and manner: section 50(1). If he does not, the designated authority may, after a show cause opportunity, suspend or cancel his licence: section 50(2).

He deducts one thousand rupees from each worker's first month's wages as a placement charge. That contravenes section 49, which forbids the contractor to charge directly or indirectly, in whole or in part, any fee or commission from the contract labour. Routing the charge through a village agent does not save it; that is what indirectly covers.

It emerges that he obtained the licence by understating a previous cancellation. That is misrepresentation or suppression of a material fact under section 51(1)(a). The authority may act of its own motion, and after giving him an opportunity of showing cause may revoke or suspend the licence, without prejudice to any other penalty under the Code.

He wants to challenge the revocation. He may appeal under section 52(1) to the appellate authority prescribed under section 119(6), within thirty days of communication of the order. If he is late, the proviso permits the appeal to be entertained on proof that he was prevented by sufficient cause. The appellate authority must hear him and dispose of the appeal within thirty days of its being preferred.

A different contractor, Ganesh, does not meet the prescribed criteria at all. He may still be issued a work specific licence under section 47(2), electronically renewable within the prescribed period, valid only for the concerned work order and subject to the conditions specified in it.

Farid now wants to operate in four States. Under the first proviso to section 47(3) he may obtain a single licence from the authority designated by the Central Government for that purpose, and under the second proviso that authority must first consult the concerned State authorities electronically for the establishments whose appropriate Government is the State Government.

What this does NOT mean

Holding a licence is not enough. Section 47(1) requires the contractor to act under and in accordance with it, so exceeding the number stated is a contravention.

The work specific licence is not a general permission. It authorises only the concerned work order specified in it.

The five year validity is not open ended as to numbers. It is valid in respect of the number of contract labour specified, and an increase requires amendment plus further security for the balance period.

Section 49 is not confined to an open fee. It forbids charging directly or indirectly, in whole or in part.

Revocation is not an alternative to prosecution. Section 51(1) operates without prejudice to any other penalty under the Code.

The authority does not need a complaint. It may act on a reference made to him in this behalf or otherwise.

The thirty days in section 52(1) and in section 52(2) are not the same period. The first is the time to file, from communication; the second is the time for the appellate authority to decide, from the filing.

Limits and criticism

Almost every operative detail is prescribed rather than stated. The qualifications for a licence, the form of application, the procedure, the period for renewing a work specific licence, the time for intimating a work order, and the responsibilities written into the licence are all left to rules, so the Part cannot be applied until two Governments have made them.

The security deposit has no floor. Section 47(1) requires the licence to specify the amount, but the Code fixes no minimum and no relation to the wage bill, so the fund that section 55(4) draws on to pay unpaid wages may be far smaller than the wages at risk.

Section 49 states a prohibition and no consequence of its own. There is no specific penalty attached to charging a fee, so it falls to the general penalty in section 94 and to the licence conditions, and the worker who paid the fee has no express right of recovery under this Part.

Section 50(2) is outside the appeal in section 52. An order suspending or cancelling a licence for failure to intimate a work order is made under section 50(2), and section 52(1) lists only orders under sections 47, 48 and 51.

Everything is electronic. Electronic application, electronic renewal, electronic consultation between Governments. That is efficient for a firm with an office and a connection, and it is one more barrier for the small contractor the work specific licence was meant to accommodate.

Quick revision

• Section 47(1): no covered contractor may supply or engage contract labour or execute work through contract labour except under and in accordance with a licence from the section 119(1) authority, granted after satisfying qualifications or criteria prescribed by the Central Government; the licence states the number of contract labour and the security deposit.
• Section 47(2): a contractor who does not meet those criteria may get a work specific licence, electronically renewable, for the concerned work order only.
• Section 47(3)(a): conditions may include hours of work, fixation of wages and other essential amenities. (b) Central or State authority as the appropriate Government requires; first proviso, a multi-State or all-India licence from the Central Government's authority; second proviso, that authority must consult the State authorities electronically first.
• Section 48: application electronic, stating the number, the nature of work and information on inter-State migrant workers; licence valid five years for the number specified; increase by amendment plus further security for the balance period; the licence states the contractor's responsibility.
• Section 49: the contractor shall not charge directly or indirectly, in whole or in part, any fee or commission from the contract labour.
• Section 50: intimate every work order to the section 119 authority; failure allows suspension or cancellation after show cause.
• Section 51: revoke or suspend for misrepresentation or suppression of a material fact, or breach of conditions or of the Part, on the authority's own motion or on a reference, after show cause, without prejudice to any other penalty; the authority may also amend a licence.
• Section 52: appeal against an order under sections 47, 48 or 51 within thirty days of communication, extendable for sufficient cause; the appellate authority, prescribed under section 119(6), must hear the appellant and decide within thirty days.

Test yourself

1. What two figures must a licence under section 47(1) specify? The number of contract labour who can be supplied or engaged, and the amount of security to be deposited by the contractor.

2. What is a work specific licence, and who gets one? A licence under section 47(2), issued to a contractor who does not fulfil the qualifications or criteria prescribed by the Central Government, electronically renewable within the prescribed period, authorising him to supply or engage contract labour only for the concerned work order specified in it and subject to the conditions specified in it.

3. How long is an ordinary licence valid, and what must a contractor do to supply more workers than it allows? Five years, in respect of the number of contract labour specified in it. To increase the number he must apply in the prescribed manner for an amendment of the licence, and on amendment must deposit the further security specified, for the balance period: section 48(3).

4. State section 49 in the Code's own words. The contractor shall not charge directly or indirectly, in whole or in part, any fee or commission from the contract labour.

5. On what two grounds may a licence be revoked or suspended under section 51(1), and what procedural protection does the contractor have? That the licence was obtained by misrepresentation or suppression of any material fact, or that the holder has failed to comply with the conditions of the licence or has contravened any provision of the Part or the rules. The authority must give the contractor an opportunity of showing cause before revoking or suspending, and the order is without prejudice to any other penalty under the Code.

6. Distinguish the two periods of thirty days in section 52. The first is the limitation for filing the appeal, running from the date the order is communicated to the person aggrieved, and the proviso allows a later appeal if he was prevented by sufficient cause. The second is the time within which the appellate authority must dispose of the appeal, running from the date the appeal is preferred, and it applies after giving the appellant an opportunity of being heard.

7. Which orders are appealable under section 52(1), and name one order operating on a licence that is not listed. Orders made under sections 47, 48 and 51. An order under section 50(2) suspending or cancelling a licence for failure to intimate a work order is not among those listed, although it operates on the licence.