Introduction:
The Punjab and Haryana High Court has set aside a Single Judge’s order directing the regularisation of drivers, conductors and other employees deployed with the Pepsu Road Transport Corporation (PRTC) through a private outsourcing agency, holding that long and continuous service under the supervisory control of an organisation cannot, by itself, establish a direct employer-employee or master-servant relationship.
The Division Bench comprising Justice Harsimran Singh Sethi and Justice Minderjeet Yadav delivered the ruling in Pepsu Road Transport Corporation v. Daljeet Singh and Others and three connected appeals. The Court allowed the appeals filed by PRTC, set aside the Single Judge’s order dated April 22, 2026, and dismissed the writ petitions through which the respondent-employees had sought regularisation of their services.
The central issue before the Court was whether employees who had been recruited by a private manpower outsourcing agency and subsequently deployed to perform duties with PRTC could claim that they had, by virtue of their long service and the Corporation’s supervisory control over their work, become employees of PRTC and were therefore entitled to regularisation.
The respondent-employees had been working as drivers, conductors and in other similar capacities. However, it was undisputed that they had not been directly recruited by PRTC. Their appointment orders had been issued by a private outsourcing agency, M/s S.S. Service Providers, which had entered into a manpower-supply arrangement with PRTC. Under this arrangement, the agency supplied personnel who were deployed to perform work connected with the Corporation’s operations.
Over time, the employees approached the High Court seeking regularisation. Their claim was not primarily founded upon a specific State regularisation policy. Instead, they relied upon their continuous and prolonged service and upon recent decisions of the Supreme Court, including Jaggo v. Union of India, to contend that employees who had continuously worked for a substantial period could not indefinitely be denied regular status.
The Single Judge accepted the employees’ case. The Court treated PRTC as their employer “for all intents and purposes” and directed regularisation of their services. The Single Judge also extended the benefit of the Old Pension Scheme to those employees who had entered service before January 1, 2004.
PRTC challenged this decision before the Division Bench. Its principal contention was straightforward: the employees had never been appointed by PRTC, whether on a regular, temporary, ad hoc, contractual or officiating basis. Their entire legal relationship was with the outsourcing agency that had recruited them and issued their appointment orders.
The case therefore raised an important question in public employment and service jurisprudence. Can an outsourced worker acquire the status of an employee of the principal organisation merely because that organisation supervises the work performed, assigns duties and continues to utilise the worker’s services for several years?
The Division Bench answered this question in the negative. Relying substantially upon the Supreme Court’s decision in The Joint Secretary, Central Board of Secondary Education & Anr. v. Raj Kumar Mishra & Anr., Civil Appeal No. 4014 of 2025, the Court held that a direct master-servant relationship must be established through documentary evidence. It cannot be presumed merely from the nature of the duties performed or the supervisory control exercised over the worker.
The judgment is significant because it carefully distinguishes between direct employment and an outsourced manpower arrangement. It also explains why judicial precedents dealing with employees initially appointed directly by an organisation cannot automatically be extended to persons who, from the very beginning, were recruited through an independent outsourcing agency.
Arguments of the Parties:
PRTC, represented through its counsel, strongly challenged the finding of the Single Judge that the respondent-employees could be regarded as employees of the Corporation.
The Corporation argued that there was no documentary material whatsoever to establish a direct appointment by PRTC. At no stage had the Corporation issued appointment orders in favour of the respondents. They had never been appointed as regular employees, temporary employees, ad hoc employees or officiating employees of PRTC.
According to PRTC, this fact was decisive. The employees had been recruited and appointed by M/s S.S. Service Providers. Their deployment with PRTC arose only because the private agency had entered into an outsourcing or manpower-supply contract with the Corporation.
The appellant further submitted that the respondents were attempting to convert a contractual arrangement between PRTC and the outsourcing agency into a direct relationship of employment between PRTC and the outsourced workers. The fact that the workers performed their duties at PRTC establishments or operated PRTC vehicles did not, by itself, alter the legal source of their appointment.
PRTC also pointed out that the salary and provident fund-related arrangements of the respondents were handled by the outsourcing agency. The agency was reflected as the employer for provident fund purposes. This material, according to the Corporation, remained unrebutted and clearly demonstrated that the respondents’ direct employment relationship was with the agency and not with PRTC.
The Corporation relied upon the earlier Division Bench judgment in Nishan Singh v. State of Punjab, decided in 2013. According to PRTC, that judgment directly addressed the issue of outsourced employees seeking regularisation and held that, in the absence of a master-servant relationship, there was no basis to grant regularisation merely because a person had been working with a government department or public body.
PRTC also relied upon the broader principles flowing from Secretary, State of Karnataka v. Uma Devi. The Corporation argued that public employment cannot be acquired merely through the passage of time. Regularisation cannot become a mechanism through which persons who were never appointed by the public employer enter its regular service without a legally recognised employer-employee relationship.
The appellant further relied upon the Supreme Court’s decision in Municipal Council, Nandyal v. K. Jayaram, reported as 2026 LiveLaw (SC) 38. According to PRTC, that decision made it clear that outsourced workers engaged through a contractor could not claim regular pay scales or regularisation merely because they had served for long periods.
The Corporation submitted that the relationship in such cases is mediated through the contractor. The principal organisation is required to make payment in accordance with its contractual obligations to the contractor, while the contractor bears responsibility for payment of wages and other obligations towards the workers engaged by it. Thus, supervisory control over the work performed cannot automatically replace the requirement of a direct contractual relationship of employment.
The respondents, however, defended the Single Judge’s order. They argued that their relationship with PRTC could not be understood merely by looking at the name appearing on their appointment orders. According to them, the real nature of the employment arrangement had to be examined.
The employees contended that they had worked continuously with PRTC for substantial periods. They performed the duties required by the Corporation and were subject to its operational and supervisory control. Their day-to-day work was not, according to them, controlled in any meaningful sense by the outsourcing agency.
They therefore argued that the Court was justified in “lifting the veil” and identifying the real employer. In their submission, the outsourcing agency merely acted as an intermediary supplying manpower, while PRTC was the entity that actually utilised, supervised and benefited from their services.
The respondents also relied upon the Punjab Ad hoc, Contractual, Daily Wage, Temporary, Work Charged and Outsourced Employees’ Welfare Act, 2016. They argued that the legislation recognised the existence of outsourced employees within the public employment framework and provided statutory protection for persons who had continued in such service.
Reliance was also placed upon Regulation 8 of the PEPSU Road Transport Corporation Employees (Conditions of Appointment and Service) Regulations, 1981, which permitted the engagement of manpower through an outsourcing agency. According to the respondents, the very fact that the Regulations contemplated such an arrangement demonstrated that outsourced personnel were performing an integral part of the Corporation’s functioning.
The employees also relied heavily upon Jaggo v. Union of India. They contended that the Supreme Court had recognised the injustice that may arise when persons who have continuously served an organisation for years are denied the benefits available to regular employees. According to the respondents, their lengthy service could not be ignored simply because the formal arrangement of appointment involved an outsourcing agency.
They also referred to Pawan Kumar v. Union of India, decided in 2026, to support their submission that the substance of the employment relationship should prevail over a formal or artificial outsourcing arrangement.
Another argument advanced by the respondents was based upon parity. They referred to the fact that PRTC had regularised 110 other employees whom they claimed were similarly situated. The respondents contended that once the Corporation had recognised the claims of comparable workers, it could not deny the same treatment to them.
The employees therefore supported the Single Judge’s conclusion that PRTC was their employer for all practical purposes. They maintained that their long and continuous deployment, the supervisory control exercised by PRTC and the nature of the work performed established a sufficient connection to justify regularisation.
The Division Bench was thus required to decide whether these factual circumstances could override the absence of any direct appointment order or other documentary evidence establishing a master-servant relationship between PRTC and the respondent-employees.
Court’s Judgment:
The Punjab and Haryana High Court accepted PRTC’s appeals and held that the Single Judge had erred in directing the regularisation of employees who had never been directly appointed by the Corporation.
The foundation of the Division Bench’s reasoning was the requirement of a legally established master-servant relationship. The Court held that such a relationship cannot be presumed merely because a worker has been performing duties for an organisation or because the organisation exercises supervisory or operational control over the work.
The Bench relied upon the Supreme Court’s decision in The Joint Secretary, Central Board of Secondary Education & Anr. v. Raj Kumar Mishra & Anr., Civil Appeal No. 4014 of 2025. Referring to the principles emerging from that decision, the Court emphasised that a direct master-servant relationship must be established “on paper”.
In other words, documentary evidence demonstrating a direct appointment or engagement by the organisation against whom regularisation is claimed is essential. The nature of the work or the existence of supervision may be relevant circumstances, but they do not by themselves create an employer-employee relationship.
Applying this principle, the Court found that the facts of the present case were undisputed. PRTC had never issued an appointment order to any of the respondent-employees. There was no document showing that they had been appointed by PRTC in any capacity.
The Court observed that the respondents had not even been granted temporary, ad hoc or officiating status by the Corporation. From the beginning of their service, their appointment had been made by the private outsourcing agency.
The fact that M/s S.S. Service Providers had supplied the employees to PRTC under a contractual arrangement did not convert their appointment into an appointment by PRTC. The Division Bench held that the outsourcing agency’s act of appointing workers could not be treated as an appointment made by the Corporation so as to create a liability upon PRTC to regularise them.
The Court’s reasoning therefore drew a clear line between deployment and appointment. A person may be deployed at an organisation, perform its work and even be subject to operational supervision, but unless there is a legally recognised direct employment relationship, the worker does not automatically become an employee of that organisation.
The Division Bench also found support for this conclusion in Municipal Council, Nandyal v. K. Jayaram. The Supreme Court had dealt with claims arising from outsourced employment and held that long years of service through a contractor do not, by themselves, entitle workers to regularisation or regular pay scales.
The Punjab and Haryana High Court noted that the obligation of the principal establishment in such an arrangement is generally towards the contractor under the governing contract. The contractor, in turn, bears the responsibility for its workers, including payment of wages. The relationship between the establishment and the individual worker is therefore indirect and mediated through the contractor.
The Court also relied upon its earlier Division Bench decision in Nishan Singh v. State of Punjab. That judgment had held that an outsourced employee could not seek regularisation in the absence of a direct master-servant relationship with the government or public authority concerned.
The Division Bench held that Nishan Singh squarely applied to the present dispute. The respondents’ claim could not be sustained merely by referring to the number of years for which they had worked with PRTC.
The Court then considered the reliance placed by the employees upon Jaggo v. Union of India. It held that the decision could not be read in isolation from the facts that gave rise to it.
According to the Court, Jaggo concerned a materially different situation. In that case, the employees had initially been recruited directly, and the controversy involved the denial of benefits after their employment was shifted or connected to an outsourcing arrangement.
The present case stood on an entirely different footing. The respondents had never been directly recruited by PRTC. They had been appointed by the outsourcing agency from the very first day of their service.
The Division Bench therefore held that the observations in Jaggo could not be mechanically applied to all outsourced workers. Judicial precedents must be understood in the factual and legal context in which they are delivered. A principle laid down to prevent an employer from depriving directly recruited employees of their rights by subsequently introducing an outsourcing arrangement cannot necessarily assist persons who were never directly recruited by the organisation in the first place.
For the same reason, the Court found Pawan Kumar v. Union of India distinguishable. The factual circumstances underlying that decision did not establish a general proposition that every outsourced employee who completes a substantial number of years in service automatically acquires a right to regularisation.
The Court next considered the respondents’ reliance upon the Punjab Ad hoc, Contractual, Daily Wage, Temporary, Work Charged and Outsourced Employees’ Welfare Act, 2016.
The Division Bench examined Section 6 of the Act and held that it did not create an automatic right to regularisation. The provision contemplated the possibility of taking certain outsourced employees on contract where they had completed the prescribed period of continuous service before the commencement of the legislation.
However, this was subject to statutory conditions. One of the important considerations was whether the concerned entity possessed the financial capacity to bear the burden without transferring the liability to the State exchequer.
The Court found that there was no material establishing that PRTC had ever taken the respondents on contract pursuant to the 2016 Act. There was also no finding demonstrating that the Corporation possessed the financial capacity required for such absorption.
The Division Bench further noted that the Single Judge had extended benefits even to employees appointed in 2017. Such appointments, the Court observed, could not be supported by the statutory framework of the 2016 Act in the manner suggested by the respondents.
The Court also rejected the parity argument based on the regularisation of 110 employees. PRTC had explained that those employees were not similarly situated because they had been directly engaged as contractual employees on the rolls of the Corporation.
The respondents in the present case, by contrast, had been recruited through a private outsourcing agency. The distinction was therefore legally significant. Equality cannot be claimed by comparing two groups of workers whose mode and source of appointment are fundamentally different.
Another factor that weighed against the respondents was the unrebutted evidence relating to provident fund and salary payments. The outsourcing agency was responsible for managing these aspects and was reflected as the employer for provident fund purposes.
For the Division Bench, this was additional documentary material supporting the conclusion that the direct employment relationship existed between the workers and the private agency rather than between the workers and PRTC.
The Court thus rejected the argument that supervisory control alone was sufficient to establish the status of employer. In large organisations, outsourced personnel may necessarily work under the directions of officers of the principal establishment for operational purposes. Such supervision ensures that work is performed properly, but it does not automatically establish that the establishment has appointed the worker.
The judgment is particularly important because it clarifies the limits of the “lifting the veil” argument in outsourced employment disputes. A court may examine the real nature of an employment arrangement where there is evidence that an outsourcing structure is a sham or has been created to disguise an existing employment relationship. However, in the present case, the Court found no documentary basis to conclude that PRTC had directly appointed the respondents or that the outsourcing arrangement could simply be ignored.
The Division Bench also implicitly reaffirmed the constitutional and statutory principles governing public employment. Regularisation cannot become an alternative method of recruitment into public service where the foundational relationship of employment itself has not been established.
Long service may create equitable considerations in some circumstances, but equity cannot substitute for the basic legal requirement of proving that the organisation against whom regularisation is sought is actually the employer.
The Court therefore concluded that the respondents could not claim the status of PRTC employees merely because they had been continuously deployed with the Corporation for several years. Their services originated with and continued to be governed by the outsourcing agency that had appointed them.
In the absence of an appointment order or any other documentary evidence establishing that PRTC had ever directly employed them, there was no legal basis to burden the Corporation with an obligation to regularise their services.
Allowing the bunch o appeals, the Punjab and Haryana High Court set aside the Single