PETITIONER: D. C. DEWAN MOHIDEEN SAHIB AND SONS Vs. RESPONDENT: THE INDUSTRIAL TRIBUNAL, MADRAS DATE OF JUDGMENT: 06/04/1964 BENCH: WANCHOO, K.N. BENCH: WANCHOO, K.N. GAJENDRAGADKAR, P.B. (CJ) GUPTA, K.C. DAS CITATION: 1966 AIR 370 1964 SCR (7) 646 CITATOR INFO : RF 1970 SC 66 (10) E&D 1974 SC 37 (14) RF 1974 SC1832 (36,87) RF 1978 SC 481 (3) E&D 1987 SC 447 (9) RF 1992 SC 573 (37) ACT: Industrial Dispute--Employer and Employee--Relationship Depends upon circumstances of each case. HEADNOTE: On a reference of industrial disputes between the appel- lants, the proprietors of bidi concerns, and their workmen, the appellants contended before the Industrial Tribunal that the workers in question were not their workmen, but were the workmen of independent contractors. The Tribunal found on the basis of evidence led, that the modus operandi was that contractors took leaves and tobacco from the appellant and' employed workmen for manufacturing bidis. After bidis were manufactured, the contractors took them back from the work- men and delivered them to the appellants. The workmen took the leaves home and cut them there; however the process of actual rolling by filling the leaves with tobacco took place in what was called contractors' factories. The contractors kept no attendance register for the workmen, there was no condition for their coming and going at fixed: hours, nor were they bound to come for work every day; sometimes they informed the contractors if they wanted to be absent and some times they did not. The contractors said that they could take no action if the workmen absented themselves even without leave. The payment was made to the workmen at piece rates after the bidis were delivered to the appellants. The system was that the appellant paid a certain sum for the manufactured bidis, after deduct-ing therefrom the cost of tobacco and the leaves already fixed, to the contractors who in their turn paid to the workmen, who rolled bidis, their wages. Whatever remained after paying the workmen would be contractors' commission for the work done, The Tribunal held that there was no sale either of the raw materials or of the finished products, for, according to the agreement, if the bidis were not rolled, raw materials had to, he returned to the appellants and the contractors were forbidden from selling the raw materials to anyone else. Further the manufactured bidis could only be delivered to the appellants who supplied the raw materials. Further price of raw materials and finished products fixed by the appellants always remained the same and never fluctuated according to market rate. The Tribunal concluded that the bidi workers were the employees of the appellants and not of the so- called contractors who were themselves nothing more then employees or branch managers of the appellants. Thereupon, the appellants filed writ petitions in the High Court, which held that neither the bidi roller nor the intermediary was an employee of the appellants and allowed the writ petitions. On appeal by the workmen the appeal court allowed the appeal and restored the order and conclusion of the Tribunal. On appeal by certi-ficate: Held: On the facts found the appeal court 'was right in holding that the conclusion reached by the Tribunal that the intermediaries were merely branch managers appointed' by the 647 management and the relationship of employers and employees subsisted between the appellants and the bidi rollers was correct. Dharangadhara Chemical Works Ltd., v. State of Saurashtra, [1957] S.C.R. 152, Shri Chintsman Rao v. State of Madhya Pradesh, [1958] S.C.R. 1340, Shri Birdhichand Sharma v. First Civil Judge Nagpur, [1961] 3 S.C.R. 161, Shankar Balaji Waje v. State of Maharashtra, [1962] Supp. 1 S.C.R. 249 and Bikusu Yamasa Kashtriya (P) Ltd. v. Union of India, [1964] 1 S.C.R. 860, discussed. JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 721 and 791
of 1963. Appeals by certificate and special leave from the
judgment and order dated February 16, 1962 of the Madras
High Court in Writ Appeals Nos. 16 and 15 ,of 1959
respectively.
V. P. Ran an and R. Ganapathy Iyer, for the appellant in
C.A. No. 721 of 1963).
G. B. Pai, J. B. Dadachanji, 0. C. Mathur and Ravinder
Narain, for the appellant (in C.A. No. 791/63).
T. S. Venkataraman, for the respondent No. 2 (in both the
appeals).
April 6, 1964. The Judgment of the Court was delivered by
WANCHOO, J.-These two appeals by special leave raise a
common question and will be decided together. The appel-
lants are proprietors of two bidi concerns. A reference was
made by the Government of Madras of dispute between the
appellants and their workmen with respect to three matters.
In the present appeals however we are concerned with only
one matter, namely, whether reduction of annas two in the
wages of workers employed under the agents of the appellants
was justified and to what relief the workers were entitled.
The contention of the appellants before the tribunal was
that the workers in question were not their workmen and
therefore there being no relation of employers and employees
between them and the workmen, the reference itself was in-
competent and there could be no industrial dispute between
them and the workmen concerned, their case being that the
workmen concerned were the workmen of independent con-
tractors. It was found by the tribunal on the basis of evi-
dence led before it by both parties that the modus operandi
with respect to manufacture of bidis in the appellants’ con-
cerns was that contractors took leaves and tobacco from the
appellants and employed workmen for manufacturing bidis.
After bidis were manufactured, the contractors took them
back from the workmen and delivered them to the appellants.
648
The workmen took the leaves home and cut them there; however
the process of actual rolling by filling the leaves with
tobacco took place in what were called contractors’
factories. The contractors kept no attendance register for
the workmen. There was also no condition that they should
come and go at fixed hours. Nor were the workmen bound to
come for work every day; sometimes the workmen informed the
contractors if they wanted to be absent and sometimes they
did not. The contractors however said that they could take
no action if the workmen absented them,-selves even without
leave. The payment was made to the workmen at piece rates.
After the bidis were delivered to the appellants payment was
made therefor. The system was that the appellants fixed the
price of tobacco and leaves supplied to the contractors who
took them to the places where work of rolling was done and
gave them to the workmen. Next day, the manufactured bidis
were taken by the contractors to the appellants who paid a
certain price for the manufactured bidis after deducting
therefrom the cost of the tobacco and the leaves already
fixed. The balance was paid to the contractors who in their
turn paid to the workmen, who rolled bidis, their wages.
Whatever remained after paying the workmen would be the
contractors’ commission for the work done. It may also be
mentioned that there were written agreements on the same
pattern between the appellants and the contractors in that
behalf, though no ,such agreement has been printed in the
paper books.
as if there was a sale of leaves and tobacco by the
appellants to contractors and after the bidis were rolled
there was a resale of the bidis to the appellants by the
contractors. The; tribunal however held that it was clear
that there was no sale either of the raw materials or of the
finished products, for, according to the agreement, if bidis
were not rolled, raw materials had to be returned to the
appellants and the contractors were forbidden from selling
the raw materials to any one else. Further after the bidis
were manufactured they could only be delivered to the
appellants who supplied raw materials and not to any one
else. Further price of raw materials fixed by the
appellant, as well as the price of the finished products
always remained the same and never fluctuated according to
market rates. The tribunal therefore concluded that there
was no sale of raw materials followed by resale of the
finished products and this system was evolved in order to
avoid regulations under the Factories Act. The tribunal
also found that the contractors generally got only annas two
per thousand bidis for their trouble. The tribunal
649
also referred to a clause in the agreement that the
appellants would have no concern with the workers who rolled
bidis for whom only the contractors would be responsible.
But it was of the view that these provisiors were
deliberately put into the agreement by the appellants to
escape such statutory duties and obligations, as may lie on
them under the Factories Act or under the Madras Shops and
Establishments Act. Finally on a review of the entire
evidence, the tribunal found that this system of manufacture
of bidis through the so-called contractors was a mere
camouflage devised by the appellants. The tribunal also
found that the contractors were indigent persons and served
no particular duties and discharged no special functions.
Raw materials were supplied by the appellants to be
manufactured into finished products by the workmen and the
contractors had no other function except to take the raw
materials to the workmen and gather the manufactured
material. It therefore held that the so-called contractors
were not independent contractors and were mere employees or
were functioning as branch managers of various factories,
their remuneration being dependent upon the work turned out.
It therefore came to the conclusion that the bidi workers
were the employees of the appellants and not of the so-
called contractors who were themselves nothing more than
employees or branch managers of the appellants. It finally
held that reduction in the wages by two annas per thousand
bidis was not justified and the workmen were entitled to the
old rates. It therefore ordered the reduction in wages to
be restored.
Thereupon the appellants filed two writ petitions in the
High Court, their contention being that the tribunal was
wrong in holding that the contractors and the workmen em-
ployed by the contractors were the workmen of the appel-
lants. It seems that a sample agreement was produced before
the High Court, which provided inter alia for the following
terms: –
(1) That the proprietor should supply the
tobacco and the bidi leaves;
(2) that the intermediary should engage
premises of his own and obtain the requisite
license to carry on the work of having the
bidis rolled there;
(3) that at no time should more than nine
bidi rollers work in the premises of that
intermediary;
(4) that the intermediary should meet all
the incidental charges for rolling the bidis
including the cost of thread and the
remuneration paid to the bidi rollers;
650
(5) that for every unit of 1,000 bidis
rolled and delivered by the intermediary to
the proprietor, the latter should pay the
stipulated amount, after deducting the cost of
the tobacco and the bidi leaves supplied by
the proprietor;
(6) that the intermediary should not enter
into similar engagement with any other
industrial concern;,
(7) that the price of the raw materials and
price to be paid for every unit of 1,000 bidis
rolled and delivered were to be fixed at the
discretion of the proprietor.
Besides these conditions, the contract also provided that it
was liable to termination on breach of any of the
conditions, and that the proprietors had no connection with
and that they assumed no responsibility for the bidi workers
who had to look to the intermediary for what was payable to
them for rolling the bidis.
The learned Single Judge on a review of the terms of the
contract and the evidence on record held that neither the
bidi roller nor the intermediary was an employee of the
appellants. In consequence there could be no industrial
dispute within the meaning of s. 2 (k) of the Industrial
Disputes Act between the appellants and the bidi rollers.
The petitions were therefore allowed and the award of the
tribunal was set aside.
Thereupon there were two appeals by the workmen. The appeal
court on a consideration of the terms of the contract and
the findings of the tribunal came to the conclusion that the
so-called contractors were really the agents of the appel-
lants and that there was no utter lack of control by the
appellants on the bidi workers who actually rolled the bidi.
The appeal court also found that the intermediaries were im-
pecunious and according to the evidence could hardly afford
to have factories of their own. It also found that the evi-
dence revealed that the appellants took the real hand in
settling all matters relating to the workers, and the
intermediary was a mere cipher and the real control over the
workers was that of the appellants. The appeal court
therefore held that the appellants were the real employers
of the workmen and the so-called intermediaries or so-called
independent contractors who were in some cases ex-employees,
were no more than agents of the appellants. In this view of
the matter the appeal court held that the conclusion reached
by the tribunal that the intermediaries were merely branch
managers
651
appointed by the management and the relationship of employer
and employees subsisted between the appellants and bidi
rollers was correct. The appeals were therefore allowed,
and the order of the tribunal was restored. The appellants
have come before us on certificates granted by the High
Court.
The question whether relationship of master and servant
subsists between an employer and employee has been the
subject of consideration by this Court in a number of cases.
In Dharangadhara Chemical Works Limited v. State of
Saurashtra(1) it was held that the question whether a person
was a workman depended on whether he had been employed by
the employer and the relationship of employer and employee
or master and servant subsisted between them. It was well
settled that a prima facie test of such relationship was the
existence of the right in the employer not merely to direct
what work was to be done but also to control the manner in
which it was to be done, the nature or extent of such con-
trol varying in different industries and being by its very
nature incapable of being precisely defined. The correct
approach therefore was to consider whether, having regard to
the nature of the work there was due control and supervision
by the employer. It was further held that the question
whether the relation between the parties was one as between
an employer and employee or master and servant was a pure
question of fact, depending upon the circumstances of each
case. In that case, the dispute was whether certain agarias
who were a class of professional labourers, were workmen or
independent contractors. The facts found in that case were
that the agarias worked themselves with members of their
families and were free to engage extra labour on their own
account. No hours of work were prescribed. No muster rolls
were maintained; nor were working hours controlled by the
master. There were no rules as regards leave or holidays
and the agarias were free to go out of the factory after
making arrangements for the manufacture of salt. Even so,
though certain features which were usually to be found in a
contract of service were absent, the tribunal held that on
the whole the status of agarias was that of workmen and not
that of independent contractors, particularly as supervision
and control was exercised by the master extending to all
stages ,of manufacture from beginning to end. This Court
upheld the view of the tribunal on a review of the facts
found in that case.
The next case to which reference has been made is Shri
Chintaman Rao v. The State of Madhya Pradesh(2).
(1) [1957] S.C.R. 152.
(2) [1958] S.C.R. 1340.
652
That was a case of bidi manufacture, and the question that
arose for determination was whether certain persons known as
sattedars and those who worked under the sattedars were
workmen or not. It was found that the sattedars undertook
to supply bidis by manufacturing them in their own factories
or by entrusting the work to third parties at a price to be
paid by the management after delivery and approval. Refer-
ence was made to the principles laid down in Dharangadhara
Chemical Works Limited’s case(1) to determine whether the
persons employed were workmen or not, and it was found that
the sattedars were not under the control of the factory
management and could manufacture the bidis wherever they
pleased. It was therefore held that the coolies were
neither employed by the management directly nor by the
management through the sattedars. A special feature of that
case was that none of the workmen under the sattedars worked
in factories. The bidis could be manufactured anywhere and
there was no obligation on the sattedars to work in the fac-
tory of the management. The sattedars were even entitled to
distribute tobacco to the workers for making bidis in the
workers’ respective homes. It was in these circumstances
that this Court held that the sattedars were independent
contractors and the workers employed by them were not the
workers of the management.
Then we come to the case of Shri Birdhichand Sharma v. First
Civil Judge Nagpur(2). That was also a case of bidi
manufacture. The facts found were that the workmen who
rolled the bidis had to work at the factory and were not at
liberty to work at their houses; their attendance was noted
in the factory and they had to work within the factory
hours, though they were not bound to work for the entire
period and could come and go away when they liked; but if
they came after midday they were not supplied with tobacco
and thus not allowed to work even though the factory closed
at 7 p.m. Further they could be removed from service if
absent for eight days. Payment- was made on piece rates
according to the amount of work done, and the bidis which
did not come upto the proper standard could be rejected. On
these facts it was held that the workers were workmen under
the Factories Act and were not independent contractors.
This Court pointed out that the nature and extent of control
varied in different industries and could not by its very
nature be precisely defined. When the operation was of a
simple nature and did not require supervision all the time,
control could be exercised at the end of day by the method
of rejecting bidis which did not come upto proper standard,
(1)[1957] S.C.R. 152.
(2)[1961] 3 S.C.R. 161.
653
such supervision by the employer was sufficient to make the
workers, employees of the employer and not independent
contractors. The nature of the control required to make a
person a servant of the master would depend upon the facts
of each case.
The next case is Shankar Balaji Waje v. State of Maha-
rashtra(1). That was also a bidi manufacturing case. On
the facts of that case the majority held that decision in
Shri Birdhichand Shama’s case(2) was distinguishable and the
appellant was not a worker within the meaning of the Fac-
tories Act. It may be noted however that that case also
followed the line of decisions of this Court since the
decision in the case Dharangadhara Chemical Works Limited(3)
as to the criteria for coming to the conclusion whether a
person was an employee or an independent contractor.
The last case to which reference has been made is again a
bidi manufacturing case, namely, Bhikusa Yamasa Kashtriya
(P) Limited v. Union of India(4). In that case the main
question raised was about the constitutionality of s. 85 of
the Factories Act and the notification issued by the State
of Maharashtra thereunder. The Constitutionality of s. 85
and the notification made thereunder was upheld. The
question there involved was about the application of s. 79
of the, Factories Act with reference to leave and the
difficulty felt in Shankar Balaji Waje’s case(1) as to how
leave could be calculated in the circumstances was explained
with reference% to the decision in Shri Birdhichand Sharma’s
case(2).
It is in the light of these decisions that we have to decide
whether the workmen who work under the so-called independent
contractors in these cases are the workmen of the appel-
lants. It has been found by the tribunal and this view has
been confirmed by the appeal court that so-called
independent contractors were mere agents or branch managers
of the appellants. We see no reason to disagree with this
view taken by the tribunal and confirmed by the appeal court
on the facts of these cases. We are not unmindful in this
connection of the view taken by the learned Single Judge
when he held that on the agreements and the facts found the
so-called intermediaries were independent contractors. We
are however of opinion that the view taken by the appeal
court in this connection is the right one. As the appeal
court has rightly pointed out the
(1)[1957] S.C.R. 152.
(2) [1961] 3 S.C.R. 161.
(3) (1962) Supp 1. I S.C.R. 249.
(4) [1964] 1 S.C.R. 860.
654
so-called independent contractors were indigent persons who
were in all respects under the control of the appellants.
There is in our opinion little doubt that this system has
been evolved to avoid regulations under the Factories Act.
Further there is also no doubt from whatever terms of
agreement are available on the record that the so-called
independent contractors have really no independence at all.
As the appeal court has pointed out they are impecunious
persons who could hardly afford to have factories of their
own. Some of them are even ex-employees of the appellants.
The contract is practically one sided in that the proprietor
can at his choice supply the raw materials or refuse to do
so, the so-called contractor having no right to insist upon
the supply of raw materials to him. The so-called
independent contractor is even bound not to employ more than
nine persons in his so-called factory. The sale of raw
materials to the so-called independent contractor and resale
by him of the manufactured bidis is also a mere camouflage,
the nature of which is apparent from the fact that the so-
called contractor never paid for the materials. All that
happens is that when the manufactured bidis are delivered by
him to the appellants, amounts due for the socalled sale of
raw materials is deducted from the so-called price fixed for
the bidis. In effect all that happened is that the so-
called independent contractor is supplied with tobacco and
leaves and is paid certain amount-, for the wages of the
workers employed and for his own trouble. We can therefore
see no difficulty in holding that the so-called contractor
is merely an employee or an agent of the appellants as held
by the appeal court and as such employee or agent he employs
workers to roll bidis on behalf of the appellants. The work
is distributed between a number of :-so-called independent
contractors who are told not to employ more than nine
persons at one place to avoid regulations under the
Factories Act. We are not however concerned with that
aspect of the matter in the present appeals. But there can
be no doubt that the workers employed by the so-called
contractors are really the workmen of the appellants who are
employed through their agents or servants whom they choose
to call independent contractors.
It is however urged that there is no control by even the
agent over the bidi workers. Now the evidence shows that
the bidi workers are permitted to take the leaves homes in
order to cut them so that they might be in proper shape and
size for next day’s work; but the real work of filling the
leaves with tobacco (i.e. rolling the bidis) can only be
done in the so-called factory of the so-called independent
contractor. No tobacco is ever given to the workers to be
taken home to be rolled into bidis as and when they liked.
They have to
655
attend the so-called factory of the so-called independent
contractor to do the real work of rolling bidis. As was
pointed out by this Court in Shri Birdhichand Sharma’s
case(1) the work is of such a simple nature that supervision
all the time is not required. In Birdhichand Sharma’s
case(1) supervision was made through a system of rejecting
the defective bidis, at the end of day. In the present
cases we have not got the full terms of the agreement and it
is therefore not possible to say that there was no kind of
supervision or control over the workers and that the so-
called independent contractors had to accept all kinds of
bidis whether made upto standard ‘or not. It is hardly
likely that the so-called independent contractor will accept
bidis which are not upto the standard; for that is usually
the system which prevails; in this trade as wilt be apparent
from the facts of the many bidi manufacturing cases to which
we have referred. We are therefore not prepared to hold in
the absence of any evidence one way or the other that there
is no supervision whatsoever of the work done by the
workers. In the circumstances we are of opinion that the
relationship of master and servant between the appellants
and the workmen employed by the ;so-called independent
contractors is established. As the appeal court has’
pointed out whenever there was a dispute in connection with
the manufacture of bidis the workers looked to the appel-
lants for redress. In one of the cases the manager of one
of the appellants sent a letter to the labour officer that
the factory was agreeable to increase the wages of the
workers from, Rs. 1/14/ – to Rs. 2/- per thousand bidis. In
the other case also a similar letter was addressed showing
that whenever there was increase or decrease in wages of the
workers who, work under the so-called independent
contractors the real decision was taken by the appellants.
This conduct on the part of the appellants is clearly
inconsistent with their plea that the workers are not their
employees and there is no privity between them and the said
workers. We are therefore of opinion that on the facts
found in these cases the appeal court was right in holding
that the conclusion reached by the tribunal that the
intermediaries were merely branch managers appointed by the
management and the relationship of employers and employees
subsisted between the appellants and the bidi rollers is
correct. In this view the appeals fail and are hereby
dismissed with costs-one set of hearing costs.
Appeal dismissed
(1)[1961] 3 S.C.R. 161.
656