By Hiring private security in India is not just an operational decision; it is a high-stakes legal transaction. A poorly structured agreement creates a “Sham Contract,” turning outsourced guards into your direct employees and attracting heavy financial penalties.
This guide breaks down the tripartite liability framework, separating the Principal Employer from the Agency. We analyze the 2025 Wage Code implications, proper invoice structuring for “Reliever Charges,” and the specific “Tools of Trade” clauses required to survive judicial scrutiny.
Access the included penalty matrices and legal templates to secure your premises without compromising your corporate veil.
The Strategic Framework for Security Service Agreements in India
Outsourcing security functions involves navigating a complex web of labour laws. A poorly drafted agreement can piece the corporate veil. Here is how to protect your entity.
The engagement of private security services in India is a transaction that sits at the intersection of employment law and regulatory compliance. For the Principal Employer, the goal is to secure assets. The legal reality is much harder. The relationship involves a tripartite framework: the Principal Employer, the Security Agency, and the Security Guard. This structure is regulated by the Private Security Agencies (Regulation) Act, 2005 (PSARA) and the Contract Labour (Regulation and Abolition) Act, 1970 (CLRA).
The primary risk is the “Sham Contract.” If a court finds that the Principal Employer exercises direct control over the guards, the contract is deemed a sham. The guards become direct employees. This attracts massive financial liabilities.
Visualizing the Legal Liability Flow
Figure 1: The solid lines represent the correct flow of money and contracts. The dotted red line represents the prohibited direct control that creates legal risk.
The “Sham Contract” Doctrine
Judiciary in India identifies arrangements where contract labour is used to deny workers rights. The Supreme Court clarified in Steel Authority of India Ltd. v. National Union Waterfront Workers that a contract is a sham if the labour works under the direct supervision of the Principal Employer.
To survive scrutiny, the agreement must be drafted as a Contract for Service (independent) rather than a Contract of Service (employment).
| Feature | Contract of Service (Risky) | Contract for Service (Safe) |
|---|---|---|
| Authority | Master controls what to do and how to do it. | Principal controls what to do; Contractor decides how. |
| Discipline | Client punishes or suspends the worker directly. | Only the Contractor can punish the worker. |
| Equipment | Client provides uniforms and batons. | Agency provides all tools and equipment. |
| Payment | Wages paid directly to the individual. | Fees paid to the Agency against an invoice. |
The “Tools of Trade” Ownership Test
Who owns the torch, the baton, and the raincoat? This minor detail is often a decisive factor in court. If the Principal Employer buys the uniforms or equipment, it signals an employer-employee relationship.
Critical Drafting Protocol
The agreement must explicitly state that the Agency is responsible for providing all “Tools of Trade.”
- Uniforms: Must bear the Agency’s logo, not the Principal Employer’s brand.
- Safety Gear: Torches, reflective jackets, and raincoats must be Agency property.
- Communication: Walkie-talkies should ideally be leased or owned by the Agency.
Financial Anatomy & Wage Code 2025
A robust agreement must define the “Cost to Company” (CTC) explicitly. Ambiguity here leads to PF litigations. Under the new labour codes, allowances are capped at 50%. This impacts how you structure the payment to the security agency.
Ideal Invoice Structure (Per Guard)
The “Reliever” Trap: 26 vs. 30 Days
A standard month has 30 or 31 days. A security guard can legally work only 26 days (with 4 mandatory weekly offs). If you need security 24/7 for the whole month, a single guard cannot cover the post without violating labour laws.
If your invoice does not show a “Relieving Charge” (typically 1/6th of the basic wage), it implies guards are working double shifts or without off-days. This creates immediate liability for the Principal Employer for overtime violations.
Reliever Cost = 1/6th of (Basic + VDA) × 3 Guards
# Without this, you are funding illegal overtime.
Price Escalation Mechanics
Minimum wages in India are revised twice a year (typically April and October) via the Variable Dearness Allowance (VDA). A static contract price is a trap. The agreement must include a “Statutory Pass-Through” clause.
The Pass-Through Formula
New Monthly Rate = (Old Basic + New VDA) + (Employer PF Contribution on new total) + (Employer ESI on new total) + (Fixed Service Charge)
Note: The “Service Charge” (Agency Profit) should generally not increase pro-rata with minimum wages unless explicitly negotiated. It should remain a fixed integer or percentage of the wage bill, as agreed.
Service Level Agreement (SLA) Matrix
General clauses like “satisfactory service” are unenforceable. You need specific metrics. The agreement should link the “Service Charge” component to performance. Below is a standard penalty matrix to include as an Annexure.
| Infraction | Recommended Penalty |
|---|---|
| Sleeping on duty | 2x Daily Wage Deduction + Immediate Replacement |
| Guard found without uniform/badge | Rs. 500 per instance |
| Short Deployment (Absenteeism) | Pro-rata deduction + 10% Surcharge on shortfall |
| Failure to maintain Visitor Log | Rs. 1,000 per missing day |
| Intoxication on duty | Immediate Termination of Guard + Rs. 5,000 Penalty |
Vicarious Liability & Third-Party Torts
If a security guard assaults a visitor or damages a vehicle, who pays? The doctrine of Respondeat Superior usually holds the employer liable. In a principal-contractor model, the Principal Employer is generally shielded, unless negligence is proven in the selection of the agency.
Scenario A: The Principal is Liable
If the Principal Employer hired an unlicensed agency or failed to verify if the agency conducts police verification of guards. This is “Negligent Hiring.”
Scenario B: The Agency is Liable
If the agency is licensed and the guard commits a tort outside the scope of instructions (e.g., personal vendetta), the Agency bears liability under the “Indemnity” clause.
The Invisible Risk: POSH Compliance
Under the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013, the definition of “Employee” includes contract workers.
If a female security guard is harassed by your permanent employee, or if a male guard harasses your female employee, your Internal Committee (IC) often has jurisdiction because the incident occurred at your workplace.
The Agreement must state that the Agency has constituted its own Internal Committee (IC) and will cooperate fully with the Principal Employer’s IC during any joint inquiry.
Data Privacy & The “Gate” Protocol
DPDP Act 2023 Warning
Security guards are often the first point of data collection (Visitor Logs collecting Names, Phone Numbers, IDs). Under the Digital Personal Data Protection Act, 2023, the Principal Employer is the “Data Fiduciary” and the Security Agency is the “Data Processor”.
The Agreement must mandate that the Agency:
- Does not use visitor phone numbers for marketing/selling data.
- Securely disposes of physical logbooks every 6 months (shredding).
- Maintains confidentiality of the Principal Employer’s intellectual property visible during patrols.
Statutory Compliance Checklist
The Private Security Agencies (Regulation) Act, 2005 (PSARA) regulates operational standards. Section 4 states that no person shall carry on the business of a private security agency without a license. An agreement with an unlicensed agency is void.
Compliance Risk Auditor
Critical Risk: Immediate Action Required
Module: The Monthly Documentary Audit
To avoid being classified as a “Principal Employer” in default, HR managers must process the Agency invoice only after verifying the following specific documents.
Muster Roll (Form XVI)
Verify that the attendance marked matches the invoice days. Cross-check with your gate biometrics.
Register of Wages (Form XVII)
Ensure signature/thumb impression of every guard acknowledges receipt of wages.
ECR Challan (PF/ESI)
Do not just look at the receipt. Download the roster and check if specific guard names appear.
Labour Welfare Fund
Verify semi-annual contribution receipts (June/December) depending on state rules.
Drafting the Master Service Agreement
The Master Service Agreement (MSA) governs the relationship. Based on best practices and recent 2025 updates, the clauses below are essential. The “Scope” must define the contract by its objective (security) rather than its input (men).
1. SCOPE OF SERVICES 1.1 The Agency shall provide comprehensive security services to ensure the safety of the Principal Employer’s assets, personnel, and premises at [Location]. 1.2 The Agency acts as an independent contractor. The Agency shall determine the optimal deployment, rotation, and supervision of its personnel required to achieve the Service Levels defined in Annexure A. 1.3 The Agency shall provide, at its own cost, all necessary equipment including uniforms, batons, torches, and rain gear. The Principal Employer shall not be liable for procuring or maintaining such equipment. 1.4 The Principal Employer shall have no right to issue direct instructions to the deployed personnel regarding the manner of execution of duties. All operational directives must be routed exclusively through the Agency's designated Field Officer.
Standard Legal Template
A complete, downloadable format for a Security Service Agreement incorporating the key clauses discussed.
AGREEMENT BETWEEN A COMPANY AND SECURITY SERVICE COMPANY FOR PROVIDING SECURITY SERVICES TO THE COMPANY'S PROPERTY THIS AGREEMENT made at………………on this………………day of 20 .... . between A B Co. Ltd., a company incorporated under the Companies Act, 1956 and having its registered office at ................ (hereinafter referred to as "the Employer", which expression shall unless repugnant to the context or meaning thereof be deemed to mean and include its successors and assigns) of the ONE PART and A B Security Guards (P) Ltd., a company incorporated under the Companies Act, 1956 and having its registered office at .......... (hereinafter referred to as "the Company" which expression shall unless it be repugnant to the context or meaning thereof be deemed to mean and include its successors and assigns) of the OTHER PART. WHEREAS (1) The employer is having its factory at………………hereinafter referred to as "the said factory" and it wants to employ security guards to provide security services to the said factory. (2) The company, who is experienced in providing security services to the industrial units and other organisations has offered to provide security services to the Employer at the said factory and the employer has agreed to avail the said services being provided by the company. NOW THIS AGREEMENT WITNESSETH AS FOLLOWS: (1) The company shall provide………………security guards to keep ward and watch and protection of the said factory as per the employer's requirement. The security guards provided by the company will be for twentyfour hours in the shift of 8 hours and shall provide complete security arrangement and protection of the said factory round the clock. (2) The employer shall give the watchmen's hut constructed on the gate of the said factory to the security guards and the said guards shall check all the vehicles and personnel entering into and going out of the said factory as per the instructions issued by the employer's representative from time to time and shall maintain proper record of the vehicles and personnel coming and going out of the factory. (3) The company at its own expenses shall provide its security guards with necessary uniform, arms, outfit. etc. required for the effective discharge of security services to the employer. (4) The company shall ensure that the security guards provided by it maintain perfect discipline and behaviour and they shall riot in any manner cause any interference, annoyance, nuisance to the management of the employer or its business or work or its officers/ employees/other contractors. (5) The company agrees and undertakes that the security services provided by the security guards shall be to the entire satisfaction of the employer and the company will make it clear to the security guards that the latter are employees of the company and they shall have no claims against the employer and the employer shall not be liable to wages, salary, compensation and any statutory benefits due to the security guards under the labour law and other legislation and the company shall be responsible for providing such amenities to its employees admissible under the law/rules/service conditions. (6) The company will indemnify the employer against any claim, loss, damage occurred, or caused to the employer due to willful acts or omissions or carelessness or negligence of the security guards employed by the company, while on duty. (7) The employer shall pay a sum of Rs ………………(Rupees .................. only) per security guard per month and a sum of Rs. .........per security guard for three national holidays for the services security provided by the company on submission of the bill by the company by services 10th day of the following month. The employer shall not make any payment to the security guards and payment will be made to the company only. (8) The company will obtain license, if any, required under the local or central laws for providing security services to the employer. (9) The employer shall be entitled to supervise the services provided by the company and if it finds that the conduct, behavior and performance of work of any of its security guard is unsatisfactory, it may issue directions to the company to immediately recall the particular person and substitute him by another and the company shall comply with such directions issued by the employer forthwith. (10) This agreement will be for a period of one year from the date of execution of these presents. The employer shall, in the event of the company committing any breach of any of the terms and conditions of this agreement or if the services provided by the company is considered to be unsatisfactory by the employer or for any other reason considered by the employer as sufficient, be entitled to terminate this agreement by giving one month's notice in writing and the company shall not be entitled to any compensation in case of such termination. The company may also terminate this Agreement by giving one month's notice in writing to the employer. (11) On expiry or earlier determination of this agreement, the company and the security guards shall vacate the factory premises, without in any way causing any damage to the said premises and the factory's property therein. (12) In case of any dispute or difference arising between the parties of disputes under this agreement, the decision of will be final and binding and the company will not be entitled to lodge any claim against the decision of the said Shri .......... (13) The stamp duty on this agreement and duplicate thereof shall be………………borne by the company. The original shall be retained by the employer and the company shall retain the duplicate. (14) Unless otherwise agreed upon, the respective addresses for communication in respect of any matter relating to this agreement shall be as under: For the Employer ........................................................... For the Company ............................................................ IN WITNESS WHEREOF, the parties have caused their common seal to be affixed to these presents and the duplicate, the day and year first hereinabove written. WITNESSES 1. The common seal of A B Co. Ltd., the within named employer, is hereunto affixed pursuant to the Resolution of its Board of Directors passed at the meeting held on ......... 2. The common seal of A B Security Guards (P) Ltd., the within named company is hereunto affixed pursuant to the resolution of its Board of Directors passed at the meeting held on ........
Operational Compliance & Stamp Duty
Drafting is only the first step. Strict monthly audits prevent liabilities. Do not release payment to the Agency until the “Muster Roll” (Form XVI) and “ECR Challans” are verified. Ensure the names in the Challan match the names in the Muster Roll.
New Labour Codes (2025 Context)
The Code on Social Security, 2020 explicitly brings security services under contract labour. It mandates that if the Contractor fails to pay contributions, the Principal Employer is liable. The new codes streamline recovery, allowing authorities to attach assets faster.
Stamp Duty Requirements
Security Agreements attract Stamp Duty under the respective State Stamp Act (e.g., Article 5(h) in Maharashtra). In many jurisdictions, if the original is retained by the Employer, the Employer often bears the cost, though this is negotiable. An unstamped agreement is inadmissible in court as evidence.
Frequently Asked Questions
No. Direct instructions regarding working hours or overtime establish “control” and can classify the guard as your employee. You must request the Agency’s Supervisor to arrange for extended coverage.
The contract becomes voidable. You must immediately suspend services or require the Agency to produce a renewal application acknowledgment. Operating with an unlicensed agency voids your theft insurance policies.
Generally, no, if the contract is Principal-to-Principal. However, you must ensure the Agency carries Fidelity Guarantee Insurance. Without this, recovering the loss from the Agency is practically difficult.
