{"id":12948,"date":"1997-11-06T00:00:00","date_gmt":"1997-11-05T18:30:00","guid":{"rendered":"https:\/\/www.legalindia.com\/judgments\/employees-state-vs-ms-apex-engineering-pvt-ltd-on-6-november-1997"},"modified":"2016-08-21T16:12:09","modified_gmt":"2016-08-21T10:42:09","slug":"employees-state-vs-ms-apex-engineering-pvt-ltd-on-6-november-1997","status":"publish","type":"post","link":"https:\/\/www.legalindia.com\/judgments\/employees-state-vs-ms-apex-engineering-pvt-ltd-on-6-november-1997","title":{"rendered":"Employees State … vs M\/S. Apex Engineering Pvt. Ltd on 6 November, 1997"},"content":{"rendered":"
Supreme Court of India<\/div>\n
Employees State … vs M\/S. Apex Engineering Pvt. Ltd on 6 November, 1997<\/div>\n
Author: S Majmudar.<\/div>\n
Bench: S.B. Majmudar, M. Jagannadha Rao<\/div>\n
           PETITIONER:\nEMPLOYEES STATE INSURANCECORPORATION\n\n\tVs.\n\nRESPONDENT:\nM\/S. APEX ENGINEERING PVT. LTD.\n\nDATE OF JUDGMENT:\t06\/11\/1997\n\nBENCH:\nS.B. MAJMUDAR, M. JAGANNADHA RAO\n\n\n\n\nACT:\n\n\n\nHEADNOTE:\n\n\n\nJUDGMENT:\n<\/pre>\n
\t       THE 6TH DAY OF NOVEMBER, 1997
\nPresent:\n<\/p>\n
\t     Hon’ble Mr. Justice S.B. Majmudar
\n\t     Hon’ble Mr. Justice M.Jagannadha Rao
\nVijay K.Mehta, Adv. for the appellant
\nWasim A. Qadri, Adv. (A.C.) for the Respondent
\n\t\t      J U D G M E N T
\n     The following Judgment of the Court was delivered:
\nS.B. Majmudar. J.\n<\/p>\n
     Employees’ State  Insurance Corporation  has brought in
\nchallenge judgment and order rendered by a Division Bench of
\nthe High  Court of  Bombay. Nagpur  Bench in  Letters Patent
\nappeal whereunder  the Division Bench confirmed the order of
\nthe learned  Single Judge holding that the Managing Director
\nof the\trespondent-company is  not an employee as defined in
\nSection 2(9)  of the  Employees’ State Insurance Corporation
\nAct, 1948  (hereinafter\t referred  to  as  ‘the\t Act’).\t The
\npresent appeal\ton grant  of special  leave to\tappeal under
\nArticle 136  of the  Constitution  of  India  reached  final
\nhearing before\tus. We\thave heard  learned advocate for the
\nappellant-Corporation as  well as  learned advocate  Shri S.
\nWasim A.  Qadri, who was requested by us to assist the Court
\nas amicus  curiae, as respondent-company being served has to
\nthought\t if  fit  to  appear  through  any  counsel.  Before
\nconsidering the main question in the controversy between the
\nparties it  is necessary  to note the backdrop facts leading
\nto these proceedings.\n<\/p>\n
     Background Facts.\n<\/p>\n
     Respondent is  a private  limited company\tincorporated
\nunder  the  Companies  Act,  1956.  It\tis  engaged  in\t the
\nmanufacture of motor seats. Its factory at the relevant time
\nwas located in M.I.D.C. Nagpur. It also had a branch factory
\nat Nagpur.  On or  about 09th  September 1969  the Board  of
\nDirectors of the respondent-company resolved to elect one of
\nthe directors  Shri V.N.Dhanwate as Managing Director of the
\ncompany and  also conferred  on him the authority to borrow,
\ninvest and  lend the funds with certain limitation specified
\nin the\tResolution. The\t Board of Directors also resolved to
\ngrant annual  remuneration of  Rs. 12,000\/- to Shri Dhanwate
\nfor rendering  services as Managing Director. The appellant-
\nCorporation  by\t  its  communication  dated  23rd  May\t1974
\ninformed the respondent-company that Shri Dhanwate being the
\nManaging Director  who was  also paid a regular remuneration
\nwas to be included along with other 19 employees engaged for
\nwages by  the company  for the\tpurposes of  coverage of the
\ncompany as a factory under Section 2 Sub-section (12) of the
\nAct. after  considering all  the facts and circumstances the
\nappellant-Corporation by  its  order  dated  1st  July\t1974
\ndirected that  the company  be covered\tas a  factory  under
\nSection 2  sub-section (12)  of the  Act and  hence  it\t was
\ndirected to comply with the provisions of the Act.\n<\/p>\n
     Being  aggrieved\tby  the\t  appellant’s  decision\t the
\nrespondent-company moved  in application  under\t Section  75
\nread with  Section 76 of the Act before the Employees’ State
\nInsurance Court.  The Insurance\t Court by its judgment dated
\n05th  September\t  1975\tallowed\t  the  application   of\t the
\nrespondent-company and\theld that the company is not covered
\nby Section  2 sub-section  (12) of the Act as it had only 19
\nemployees and  shri Dhanwate  cannot be\t treated  to  be  an
\nemployee within\t the meaning of Section 2 sub-section (9) of
\nthe Act\t and hence  the\t Company  cannot  be  said  to\thave
\nemployed 20 employees so as to be covered as a factory under
\nSection 2  sub-section (12) of the Act. The said decision of
\nthe ESI\t Court was  challenged\tbefore\tthe  High  Court  in
\nappeal. Learned\t Single Judge  of the High Court agreed with
\nthe ESI\t Court and  dismissed  the  appeal.  The  appellant-
\nCorporation thereafter carried the matter in Letters Patient
\nAppeal under  Clause 15\t thereof. The  Division Bench of the
\nHigh court  by the  impugned  judgment\tdismissed  the\tsaid
\nappeal and  concurred with  the view  of the  learned Single
\nJudge that  the Managing Director Shri Dhanwate could not be
\nheld to\t be an employee within the meaning of Section 2 Sub-
\nsection of the Act.\n<\/p>\n
     Contentions of Learned Counsel
\n     In Support\t of the\t appeal the  learned counsel for the
\nappellant-Corporation vehemently contended that the decision
\nrendered by  the ESI  Court and\t as confirmed by the learned
\nSingle Judge  and the  Division Bench  of the High Court did
\nnot correctly  interpret the  relevant provisions of the Act
\nespecially Section  2 Sub-section  (9) and  Section  2\tsub-
\nsection (22) of the Act. That the Division Bench of the High
\nCourt had  erred  in  laking  the  view\t that  the  Managing
\nDirector was principal employer as defined by Section 2 sub-
\nsection (17) of the Act and as such could not simultaneously
\nbe treated  as an employee as per Section 2, sub-section (9)
\nof the\tAct. It\t was also  submitted that the High Court had
\nerred in  relying upon decision of this Court in the case of
\nRegional  Director  Employees  State  Insurance\t Corporation
\nTrichur V.  Ramanuja Match  Industries<\/a> [(1985)\t2  SCR\t119]
\nwhich did not apply on the facts of the present case. On the
\ncontrary according  to him  the controversy  in the  present
\ncase had  to be\t decided in  the light\tof judgment  of this
\nCourt in  the case  of Shri  Ram Prasad\t v. Commissioner  of
\nIncome.tax. New\t Delhi, [AIR  1973  SC\t637].  It  was\talso
\ncontended that\tin any view of the matter even assuming that
\nthe Managing  Director could be considered to be a principal
\nemployer as defined by Section 2 sub-section (17) of the Act
\nthere was nothing illegal in he being treated simultaneously
\nas an  employee if  he satisfied  all  the  requirements  of
\nSection 2(9)  of the  Act. In  support of  these contentions
\nlearned counsel\t placed reliance on various decisions of the
\nHigh  Court  to\t which\twe  will  make\ta  reference  at  an
\nappropriate stage in this judgment.\n<\/p>\n
     Learned counsel  Shri Qadri,  amicus curiae,  was\tgood
\nenough at  our request\tto look\t into the  matter and fairly
\nplaced for  our consideration  the relevant  aspects of\t the
\nmatter\tcentering   round  correct   construction   of\t the
\nprovisions of  the Act.\t He submitted  that even if Managing
\nDirector could\tbe considered  to be a principal employer it
\ncould not  be said that the he could not have simultaneously
\na dual\tcapacity of  being an  employee on  remuneration. He
\nhowever placed before us the contrary view taken by the High
\nCourt of  Calcutta in the case of Employees’ State Insurance
\nCorporation v.\tM\/s. Ashok  Plastic (P)\t Ltd. 1988 Lab. I.C.\n<\/p>\n
793. He\t also invited our attention to other judgment of the
\nHigh Courts  and of  this Court which will be referred to by
\nus hereinafter.\n<\/p>\n
     Consideration of Point in Dispute.\n<\/p>\n
     The controversy  in the  present case rotates round the
\ninterpretation of the term `employe’ as defined by Section 2
\nSub-section (9) of the Act. It\treads as under:\n<\/p>\n
     “2(9). `employee’\tmeans by  person
\n     employed  fro   wages  in\t or   in
\n     connection\t with\tthe  work  of  a
\n     factory or\t establishment to  which
\n     this Act applies and-\n<\/p><\/blockquote>\n
     (1) Who is directly employed by the
\n     principal employer\t on any work of,
\n     or incidental  or preliminary to or
\n     connected with  the  work\tof,  the
\n     factory  or  establishment\t whether
\n     such work\tis done\t by the employee
\n     in the  factory or establishment or
\n     elsewhere; or
\n     (11) who  is employed by or through
\n     an\t immediate   employer\ton   the
\n     premises\tof    the   factory   or
\n     establishment    or    under    the
\n     supervision   of\t the   principal
\n     employer o\t his agent on work which
\n     is ordinarily  part of  the work of
\n     the  factory  or  establishment  or
\n     which is  preliminary to  the  work
\n     carried on\t in or incidental to the
\n     purposes\tof    the   factory   or
\n     establishment; or\n<\/p><\/blockquote>\n
     (iii)    whose\tservices     are
\n     temporarily lent  or let on hire to
\n     the  principal   employer\tby   the
\n     person with  whom the  person whose
\n     services are so lent or let on hire
\n     has  entered  into\t a  contract  of
\n     service; and  includes  any  person
\n     employed  for  wages  on  any  work
\n     connected with  the  administration
\n     of the  factory or establishment or
\n     any  part,\t  purchase   or\t  branch
\n     thereof or\t with  the  purchase  or
\n     branch or\twith the purchase of raw
\n     materials for,  or the distribution
\n     or sale  of the  products\tof,  the
\n     factory or\t establishment,\t or  any
\n     person engaged,  as an  apprentice,
\n     not  being\t an  apprentice\t engaged
\n     under the Apprentices Act, 1961, or
\n     under the\tstanding orders\t of  the
\n     establishment;   but    does    not
\n     include-\n<\/p><\/blockquote>\n
     (a) any  member of the India naval,
\n     military or air forces; or\n<\/p><\/blockquote>\n
     (b) any  person so\t employed  whose
\n     wages (excluding  remuneration  for
\n     overtime work) exceed such wages as
\n     may be  prescribed by  the\t Central
\n     Government.\n<\/p><\/blockquote>\n
     Provided  that  an\t employee  whose
\n     wages (excluding  remuneration  for
\n     overtime work) exceed such wages as
\n     may be  prescribed by  the\t Central
\n     Government at  any time  after (and
\n     not before)  the beginning\t of  the
\n     contribution period, shall continue
\n     to be  an employee until the end of
\n     the period;”<\/p><\/blockquote>\n
     A mere  look at  the aforesaid  provisions\t shows\tthat
\nbefore a  person can be said to be an employee the following
\ncharacteristics must exist qua his service conditions-
\n(1)  He should be employed for wages. This would pre-suppose
\n     relationship between  him as  employee on\tthe one hand
\n     and the independent employer on the other;
\n(2)  Such employment  must be in connection with the work of
\n     the factory or establishment to which the Act applies;
\n(3)  He must  be directly employed by the principal employer
\n     on any  work of,  or incidental  or preliminary  to  or
\n     connected with work of, the factory or establishment;
\n(4)  In the  alternative he should be employed by or through
\n     an immediate  employer on\tthe premises  of factory  or
\n     establishment  or\t under\tsupervision   of   principal
\n     employer or his agent;\n<\/p>\n
(5)  We are  not concerned  with  clause  (3)  of  the\tsaid
\n     definition. But  the inclusive part of definition being
\n     relevant has  to be  noted as Condition No.5. He should
\n     be employed  for wages  on any  work connected with the
\n     administration of\tthe factory  or establishment or any
\n     part, department  or branch  thereof. We  are also\t not
\n     concerned with  the exempted  categories of  persons in
\n     the present  case and  hence we  need not dilate on the
\n     same.\n<\/p>\n
(6)  This is subject to the further condition that the wages
\n     of the  person so\temployed excluding  remuneration for
\n     overtime should  not exceed such wages as prescribed by
\n     the Central Government.\n<\/p>\n
     The definition of `wages’ is provided in Section 2 sub-
\nsection (22) of the Act. It reads as under :\n<\/p>\n
     “2(22).\t`wages”\t    means    all
\n     remuneration paid\tor  payable,  in
\n     cash to  an employer,  if the terms
\n     of\t the   contract\t of  employment,
\n     express or\t implied, were fulfilled
\n     and  includes  any\t payment  to  an
\n     employee in  respect of  any period
\n     of\t authorised   leave,   lock-out,
\n     strike which is not illegal or lay-\n<\/p>\n
     off    and\t    other     additional
\n     remuneration,  if\t any   paid   at
\n     intervals not exceeding two months,
\n     but does not include-\n<\/p>\n
     (a) any  contribution paid\t by  the
\n     employer to  any  pension\tfund  or
\n     provident fund, or under this Act;\n<\/p>\n
     (b) any  travelling  allowances  or
\n     the   value   of\tany   travelling
\n     concessions;\n<\/p>\n
     (c) any  sum  paid\t to  the  person
\n     employed to defray special expenses
\n     entailed on  him by  the nature  of
\n     his employment; or\n<\/p>\n
     (d)   any\t gratuity   payable   on
\n     discharge;”\n<\/p>\n
     A conjoint\t reading of  the aforesaid provisions of the
\nAct clearly  indicates that Shri Dhanwate who was one of the
\ndirectors of  the company  was entrusted  with the  work  of
\nManaging Director  on remuneration  of Rs.12,000\/- per year,
\nthat  is,   Rs.1000\/-  per   month  and\t  in  view  of\tthis
\nremuneration  he  had  to  discharge  his  extra  duties  as
\nManaging  Director  even  apart\t from  his  function  as  an
\nordinary director. Thus it could not be gainsaid that he was
\nreceiving this remuneration under the contract of employment
\npursuant to  the resolution  of the  Board of  Directors and
\nthat remuneration was paid to him because he was carrying on
\nhis extra  duties as  Managing Director. So far as the first
\ncondition is  concerned it  must, therefore, he held that he
\nwas a  person employed\tfor wages  and his  employer was the
\ncompany which  is a   legal  entity by itself. It could not,
\ntherefore, be  said that  he was  a self  employed person or
\nagent of  the employer which would be the case of a managing
\npartner in a partnership firm which by itself is not a legal
\nentity. The first condition is, therefore, clearly satisfied
\nin the\tpresent case.  So far  as the  second  condition  is
\nconcerned it  also cannot  be denied  that the\tduties as  a
\nManaging Director  were entrusted  to him in connection with
\nthe work  of the  establishment and  for such  work which he
\nwould carry  out he would be entitled to the remuneration of
\nthe Managing  Direct.  The  High  court\t has  placed  strong
\nreliance on  the Articles  of Association  which stated\t the
\nextra duties  of Managing  Director. But  those extra duties
\nwere in\t connection with  the work  of the establishment and
\nnot dehors  it and it was for these extra duties that he was
\nto be  paid the\t remuneration which otherwise would not have
\nbeen paid  to him  if he  had remained an ordinary director.
\nConsequently the  emphasis put\tby the\tHigh Court  on these
\nextra duties  to be  carried out  by the  Managing  Director
\nwould not  detract from\t the  applicability  of\t the  second
\ncondition of  the definition  of `employee’.  So far  as the
\nthird condition is concerned, by the resolution of the Board
\nof Director  he was directly employed and entrusted with the
\nwork of\t Managing Director.  The  said\tcondition  is  also,
\ntherefore, satisfied.  The alternative condition no. 4 would
\nnot obviously  apply on\t the facts of the present case as it
\nis not the case of the respondent-company that Shri Dhanwate
\nwas employed  through any  immediate employer other than the
\nprincipal employer.  So far  as condition  no.5 is concerned
\nShri Dhanwate can be said to have been employed for wages on
\nany  work   connected  with   the  administration   of\t the
\nestablishment as his functions as Managing Director entitled
\nhi, as\tnoted  by  the\tHigh  Court,  to  borrow  money\t not
\nexceeding Rs.  10,00,000\/-  at\tany  time  with\t or  without
\nsecurity as  he deemed fit. He was also authorised to invest
\na sum  not exceeding  Rs. 10,00,000\/- in aggregate in either
\nmovable or  immovable assets  as may  be necessary.  He\t was
\nfurther empowered  to lend  a sum  not exceeding  Rs.1,000\/-
\nwithout any  security. These  all were\tfunds of the company
\nwhich could  be invested  by him  even the  power to  borrow
\nmoney was  also for  the purpose  of the  company. All these
\nactivities were\t connected with\t the administration  of\t the
\nfactory. The  fifth condition was also, therefore, satisfied
\nby him. So far as the last condition is concerned it is also
\nnot in\tdispute between the parties that remuneration of Rs.
\n12,000\/- per  year Rs.1000\/-  per month\t as paid  to him for
\ndischarging his\t duties as Managing Director remained within
\nthe permissible limits of wages as prescribed by the Central
\nGovernment at  the relevant  time for  applicability of\t the
\ndefinition of  the term\t `employee’ as\tper Section  2\tsub-
\nsection (9)  of the  Act. Thus\tall the requisite conditions
\nfor applicability  of the  term `employee’ as defined by the
\nAct stood satisfied in the case of Shri Dhanwate.\n<\/p>\n
     However the  Division Bench  of the  High Court  in the
\nimpugned judgment  has placed  emphasis\t on  the  fact\tthat
\nbecause Shri-Dhanwate  was appointed  as a Managing Director
\nwith wide  powers as  aforesaid\t he  could  be\tsaid  to  be
\nprincipal  employer.  `Principal  employer’  is\t defined  by
\nSection 2 sub-section (17) of the Act as under :\n<\/p>\n
     “2(17). `Principal employer’ means-\n<\/p><\/blockquote>\n
     (i) in  a\tfactory,  the  owner  or
\n     occupier  of   the\t  factory,   and
\n     includes the managing agent of such
\n     owner  or\t occupier,   the   legal
\n     representative of\ta deceased owner
\n     or occupier, and where a person has
\n     been named\t as the\t manager of  the
\n     factory under  the\t Factories  Act,
\n     1948, the person so named;\n<\/p><\/blockquote>\n
     (ii) in any establishment under the
\n     control of\t any department\t of  any
\n     Government in  India, the authority
\n     appointed\tby  such  Government  in
\n     this behalf  or where  no authority
\n     is so  appointed the  head\t of  the
\n     department ;\n<\/p><\/blockquote>\n
     (iii) in  any other  establishment,
\n     any  person   responsible\tfor  the
\n     supervision  and\tcontrol\t of  the
\n     establishment ;<\/p><\/blockquote>\n
     The above\tprovision would\t apply in  a case  where the
\nManaging Director  is found  to be  the owner or occupier of
\nthe factory.  Now it  is obvious  that Managing\t Director by
\nhimself cannot\tbe said to be the owner of the factory which
\nbelongs\t to   the  private   limited  company,\tnamely,\t the
\nrespondent  herein   and  the  working\tof  the\t factory  is
\ncontrolled by the entire body of Board of Directors. But the
\nManaging Director  though being\t one of the directors cannot
\nbe said to be the sole owner of the factory, Nor can he said
\nto be  an occupier of the factory as the does not occupy the
\nfactory only  by himself.  It is  also not  the case  of the
\nrespondent that\t Shri Dhanwate had been named an occupier of
\nthe factory  under the\tFactories Act,\t1948. So  far as the
\nterm `occupier’ of the factory is concerned it is defined by
\nSection 2  sub-section (15)  of the  Act to have the meaning
\nassigned to  it in the Factories Act. 1948. Dealing with the
\ndefinition of  the said term as found in Section 7(1) of the
\nFactories Act  Dr. A.S.\t Anand, J.,  speaking on behalf of a
\nBench of  two learned  Judges of  this court  in the case of
\nJ.K. Industries\t Ltd. & Ors. v. Chief Inspector of Factories
\nand Boilers & Ors.<\/a> [(1996) 6 SCC 665] held that to be termed
\nas an  occupier of the factory within the meaning of Section
\n2(n) of\t the Factories\tAct the\t person concerned  must have
\nultimate control  over the  affairs of\tthe factory. Dealing
\nwith the  question as  to who  can  be\tsaid  to  be  having
\nultimate control  over the affairs of the factory owned by a
\ncompany the  following pertinent  observation were  made  in
\npara 21 of the Report as under :\n<\/p>\n
     “There is a vast difference between
\n     as\t person\t  having  the\tultimate
\n     control of the affairs of a factory
\n     and the  one who  has immediate  or
\n     day-to-day control over the affairs
\n     of the  factory. In  the case  of a
\n     company, the  ultimate  control  of
\n     the factory,  where the  company is
\n     the owner\tof  the\t factor,  always
\n     vests in  the company,  through its
\n     Board of  Directors. The Manager or
\n     any  other\t employee,  of\twhatever
\n     status, can  be  nominated\t by  the
\n     Board of  Directors  of  the  owner
\n     company to\t have immediate\t or day-
\n     to-day or\teven supervisory control
\n     over the  affairs\tof  the\t factor.
\n     Even where\t the resolution\t of  the
\n     Board of  Directors  says\tthat  on
\n     officer or employee, other than one
\n     of the  directors, shall  have  the
\n     `ultimate’ control over the affairs
\n     of the  factor, it\t would only be a
\n     camouflage\t    or\t   an\t  artful
\n     circumvention because  the ultimate
\n     control cannot  be transferred from
\n     that of  the  company,  to\t of  its
\n     employees or  offices, except where
\n     there is a compete transfer, of the
\n     control  of   the\taffairs\t of  the
\n     factory.”<\/p><\/blockquote>\n
     It cannot,\t therefore, be\tsaid as\t assumed by the High
\nCourt in  the impugned\tjudgment that  Shri  Dhanwate  being
\nappointed as  a\t Managing  Director  could  be\tsaid  to  be
\nprincipal employer  within the\tmeaning of  Section  2\tsub-
\nsection (17)  of the  Act as he could be said to be occupier
\nwithin the  meaning of\tSection 2  (15) of the Act read with
\nSection 2  (n) of  the Factories Act. As per the Articles of
\nAssociation the\t ultimate control  over his working was with
\nthe Board  of Directors\t as a  whole as\t the High  court has
\nnoted that  Shri Dhanwate  was allowed\tto exercise  all the
\npowers exercisable  by\ta director under the supervision and
\ncontrol of the Board of Directors.\n<\/p>\n
     But even  assuming that  the High\tCourt was right that
\nShri Dhanwate  could be\t said to be principal employer there
\nis nothing  in that Act to indicate that a Managing Director
\nbeing the  principal employer cannot also be an employee. It
\nother words he can have dual capacity. So far as this aspect
\nof the\tmatter is  concerned we\t can profitably\t refer to  a
\ndecision of a Bench of three learned Judges of this Court in
\nthe case of Shri Ram Prasad (supra). In that case this Court
\nwas  concerned\t with  the  question  whether  the  Managing
\nDirector of  a company\tcan be\tsaid to\t be a servant of the
\ncompany whose  remuneration could  be treated  to be  salary
\nassessable to  income tax. The relevant observations of this
\ncourt speaking\tthrough Jaganmohan  Reddy, J.,\tas found  in
\nparagraph 6 and 7 of the Report read as under:\n<\/p>\n
     “Generally it  may be  possible  to
\n     say that  the greater the amount of
\n     direct  control   over  the  person
\n     employed,\t  the\t stronger    the
\n     conclusion in favour of his being a
\n     servant. Similarly\t the greater the
\n     degree of\tindependence the greater
\n     the  possibility  of  the\tservices
\n     rendered being  in\t the  nature  of
\n     principal\tand  agent.  It\t is  not
\n     possible to  lay down  any\t precise
\n     rule of law to distinguish one kind
\n     of employment  from the  other. The
\n     nature of\tthe particular\tbusiness
\n     and the nature of the duties of the
\n     employee\twill   require\t to   be
\n     considered in each case in order to
\n     arrive  at\t  a  conclusion\t  as  to
\n     whether the  person employed  is  a
\n     servant  or  an  agent.  Though  an
\n     agent as  such is\tnot a servant, a
\n     servant  is   generally  for   some
\n     purposes\this   master’s\t implied
\n     agent, the\t extent\t of  the  agency
\n     depending\tupon   the   duties   or
\n     position  of  the\tservant.  It  is
\n     again true\t that a\t director  of  a
\n     company is\t not   a servant  but an
\n     agent  inasmuch   as  the\t company
\n     cannot act\t in its\t own person  but
\n     has only  to act  through directors
\n     who  qua\tthe  company   have  the
\n     relationship of  an  agent\t to  its
\n     principal. A  Managing Director may
\n     have a  dual capacity.  He may both
\n     be a  Director as well as employee,
\n     depending upon  the nature\t of  his
\n     work   and\t  the\tterms\tof   his
\n     employment.  Whether   or\t not   a
\n     Managing Director\tis a  servant of
\n     the company  apart from his being a
\n     Director can  only be determined by
\n     the articles of association and the
\n     terms of his employment.”<\/p><\/blockquote>\n
     In paragraph 13 of the Report relying on the Article of
\nAssociation  and  terms\t and  conditions  of  the  agreement
\nappointing the\tassessee as  Managing Director the following
\npertinent observations were made :\n<\/p>\n
     “Where the\t articles of association
\n     and terms\tand  conditions\t of  the
\n     agreement definitely  indicate that
\n     the  assessee   was  appointed   to
\n     manage the\t business of the company
\n     in\t terms\t of  the   articles   of
\n     association and  within the  powers
\n     prescribed therein\t and  under  the
\n     terms of  the agreement  he can  be
\n     removed  for  not\tdischarging  the
\n     work diligently  or if is found not
\n     be acting\tin the\tinterests of the
\n     Company as\t Managing Director, then
\n     it can hardly be said that he is an
\n     agent of  the  company  and  not  a
\n     servant.\n<\/p><\/blockquote>\n
     The  Control   which  the\t company
\n     exercise over the assessee need not
\n     necessarily be  one which tells him
\n     what to  do from  day to  day.  Nor
\n     does  supervision\t imply\tthat  it
\n     should be\ta continuous exercise of
\n     the power to oversee or superintend
\n     the work  to be  done. The\t control
\n     and supervision is exercised and is
\n     exercisable   in\tterms\tof   the
\n     articles  of   association\t by  the
\n     Board of  Directors and the company
\n     in its  general meeting.  The  fact
\n     that power\t which is  given to  the
\n     Managing Director emanates from the
\n     articles,\tof   association   which
\n     prescribes\t the   limits\tof   the
\n     exercise of that power and that the
\n     powers of\tthe assessee  have to be
\n     exercised\twithin\t the  terms  and
\n     limitations  prescribed  thereunder
\n     of the  Directors in  indicative of
\n     his being\temployed as a servant of
\n     the  company.   Hence  remuneration
\n     payable to\t the assessee  would  be
\n     salary.”<\/p><\/blockquote>\n
     We have  already seen the powers and duties of Managing
\nDirector as  entrusted to  Shri Dhanwate as per the Articles
\nAssociation. They clearly indicate that he had to work under
\nthe control and supervision of the Board of Directors and to
\ndischarge his function to earn his remuneration of Rs.1000\/-
\nper month by working as Managing Director and by discharging
\nextra duties as entrusted to him.\n<\/p>\n
     The aforesaid decision of this Court clearly rules that
\nthe Managing  Director while  acting as\t such can  have dual
\ncapacity both  as Managing  Director on\t the one hand and as
\nservant or  employees of  the  company\ton  the\t other.\t The
\nDivision Bench\tis the impugned judgment with respect was in
\nerror in  bypassing the\t ratio\tof the aforesaid decision of
\nthis   Court by\t observing that\t it was\t a judgment rendered
\nunder the  Income Tax  Act and, therefore, it had no bearing
\non the\tscheme of  the present\tAct. We\t also find  that the
\nDivision Bench\twas equally in error when it placed reliance
\nfor its\t decision on  the judgment of this court in the case
\nof Regional  Director Employees\t State Insurance Corporation
\nTrichur v.  Ramanuja Match  Industries<\/a> (supra).\t In the said
\ndecision a  Bench of  two learned  Judges of this Court held
\nthat a partner of a firm receiving salary is not an employee
\nwithin the  meaning of Section 2 sub-section (9) of the Act.
\nRanganath Misra,  J. (as  the then  was), speaking  for this
\ncourt held that the partners cannot be held employees of the
\npartnership firm.  A partnership  firm is not a legal entity
\nand in\ta partnership  firm each partner acts as an agent of
\nthe other.  The position  of a\tpartner qua the firm is thus
\nnot that  of a master and a servant or employer and employee
\nwhich concept  involved an  element of subordination and not
\nthat of\t equality. The\tpartnership business  belongs to the
\npartners and each one of them is an owner thereof. In common
\nparlance the  status of\t a partner  qua\t the  firm  is\tthus
\ndifferent from\temployees working  under the firm. It may be
\nthat a\tpartner is  being paid\tsome  remuneration  for\t any
\nspecial attention  which  he  devoted  but  that  would\t not
\ninvolve any  change of\tstatus\tand  bring  him\t within\t the
\ndefinition of employee.\n<\/p>\n
     We fail  to appreciate  how these observations can ever
\nbe pressed  in service\ton the\tfacts of  the present  case.
\nRespondent-company is  not  a  partnership  firm.  it  is  a
\nseparate legal\tentity. It has chose one of its directors to
\nact as\tManaging Director on payment of remuneration for the
\nextra work  to be  done by  him as such. He has to discharge
\nhis function  as Managing  Director under the supervision of
\nthe entire  Board of  Directors.  Thus\tthere  is  employer-
\nemployee relationship  between two separate entities. On the
\none hand  is the  Managing Director  employed as such and on
\nthe other  the respondent-company  being  a  separate  legal
\nentity which  employs him.  In this  connection we  may also
\nusefully refer\tto a  decision of  this Court in the case of
\nBacha  f.  Guzdar  v.  Commissioner  of\t Income-Tax,  Bombay<\/a>
\n[(1955) 1  SCR 876].  A Constitution  Bench  of\t this  Court
\nspeaking through  Ghulam Hasan,\t J., brought  out the  clear
\nlegal distinction  between a firm and a company by observing
\nthat  the   position  of  a  shareholder  of  a\t company  is
\naltogether different  from that\t of a  partner of  a firm. A
\ncompany is  a juristic entity distinct from the shareholders
\nbut a  firm is\ta collective  name or  an alias\t for all the
\npartners. Of  course the  decision was rendered in the light
\nof  Income-tax\t Act  wherein\tthe  question\twas  whether
\nagriculture income  would include  the\tdivided\t paid  to  a
\nshareholder of a company.\n<\/p>\n
     It must,  therefore, be held that the Managing Director
\nof respondent-company  could not  be  treated  on  par\twith
\npartner of  a partnership firm being given some remuneration
\nfor his\t extra work.  The decision of this Court in Ramanuja
\nMatch\tIndustries    (Supra)\twas,\ttherefore,   clearly
\ninapplicable to\t the facts  of\tthe  present  case  and\t was
\nerroneously pressed  in service by the Division Bench of the
\nHigh Court  in the  impugned judgment in deciding the appeal
\nof the appellant-Corporation.\n<\/p>\n
     Now is  the time  for us to refer to decisions of other
\nHigh Courts  and this  Court  to  which\t our  attention\t was
\ninvited by  the learned\t counsel for  the parties  appearing
\nbefore us.\n<\/p>\n
     A Division\t Bench of  the Karnataka  High Court  in the
\ncase of Regional Director, Employees’ State Insurance Corpn.
\nv. M\/s.\t Margarine &  Refined Oils  Co. (P)  Ltd., Bangalore
\n1984 Lab.  I.C. 844  took the view which has commanded to us
\nin the\tpresent proceedings.  It was  held by the High Court
\nthat the  Managing Director of a private limited company was
\nan employee  as defined\t by Section 2 sub-section (9) of the
\nAct. In\t this connection  it was  observed by the High Court
\nthat a\tcompany is a legal person and a corporate entity and
\nas such\t it can\t employ one  of its  directors\tas  Managing
\nDirector. the  Managing Director  of the  Company covered by
\nthe Act\t becomes an  employee  of  the\tcompany\t within\t the
\nmeaning of  Section 2(9) of the Act and remuneration paid to
\nhim for\t the functions\the discharges  as Managing  Director
\nwould amount to wages as defined under Section 2 (22) of the
\nAct for\t the purpose of calculating employees’ contribution.
\nThe  aforesaid\t decision  of\tthe  High   Court  correctly
\ninterprets the relevant provisions of the Act.\n<\/p>\n
     In the  case of  Non-Ferrous Rolling  Mills (P) ltd. v.
\nthe   Regional\t  Director,   Employees’   State   Insurance
\nCorporation, Madras  1977 Lab.I.C.  1706  a  learned  Single
\nJudge of  the High Court of Madras held that a director of a
\nprivate limited\t company appointed on remuneration to be the
\nManaging Director  of the  factor, could still be said to be
\nan employee  of the  company as\t he was getting wages within
\nthe meaning of Section 2 sub-section (22) of the Act. It was
\nalso held  that even  if the  director of  the\tcompany\t was
\nentrusted with\tthe work  of managing  the factory  and thus
\ncould be  treated to  be principal  employer as\t defined  by
\nSection 2  sub-section (17)  of the  Act, he  could still be
\ntreated as  an employee of the company within the meaning of
\nsection 2(9)  of the  Act as  he satisfied  all the relevant
\nconditions of  the  said  definition.  For  coming  to\tthat
\nconclusion reliance  was placed\t on a  decision of the Privy
\nCouncil in  the case  of Lee v. Lee’s Air Farming Ltd. [1961
\nA.C. 12]  and also  on a  majority decision  of the Court of
\nAppeal in  England in  the case of Boulting v. Cinematograph
\nAssociation etc. [(1963) 1 A11 ER 716].\n<\/p>\n
     In the Privy Counsel case one Lee who was the governing
\ndirector of  a private\tlimited company which was formed for
\nthe purpose  of carrying  on the  business  of\tserial\ttop-
\ndressing, was  also a  qualified pilot manning the company’s
\naircraft. While\t piloting one  of the  company’s aeroplanes,
\nLee killed.  His widow\tclaimed compensation  for his  death
\nunder the New Zealand Workers compensation Act, 1922 against
\nthe company.  The Privy\t Council had to examine the question
\nwhether Lee  even though  being a  governing director of the
\ncompany could  still be\t treated as  a worker of the company
\nwhen he\t was flying  the  company’s  aircraft  as  pilot  on
\nremuneration. The  judicial committee  of the  Privy Council
\nobserved  that\t company  was  different  entity  from\tLee.
\nAlthough Lee  was the  governing director of the company, he
\nwas nonetheless\t a worker under the company while flying its
\naircraft for  wages. On\t the moot  question posed  for their
\nconsideration the Privy Council laid down the legal position
\nin the following terms :\n<\/p>\n
     “EX facie\tthere was  a contract of
\n     service. Their  Lordships conclude,
\n     therefore, that  the real\tissue in
\n     the case is whether the position of
\n     the  deceased   as\t sole  governing
\n     director made it impossible for him
\n     to be the servant of the respondent
\n     company in\t the capacity  of  chief
\n     pilot of  that  company.  In  their
\n     Lordships’ view,  for  the\t reasons
\n     which have\t been indicated, there w
\n     as\t no   such  impossibility.   The
\n     respondent company and the deceased
\n     were separate legal entities. Their
\n     Lordships consider, therefore, that
\n     the deceased was a worker.<\/p><\/blockquote>\n
     In this  connection we  may also  usefully refer to the
\ndecision of  the Court\tof Appeal in the case of Boulting v.
\nCinematograph Association  Etc. (Supra).  In that  case\t the
\ncourt of  Appeal had  to decide\t the  question\twhether\t two
\nbrothers who  bore the\tname of\t Boulting and  who were\t the
\nmanaging directors of a film company called the Charter Film
\nProduction Co.\tLtd. could  be regarded\t as employees of the
\ncompany, because  they also did work for the same company on
\nthe technical  side of\tfilm production\t as film  directors,
\nfilm producers,\t film editors  and film\t script writers. The
\nquestion arose\tout of\ta controversy  with a trade union of
\nworkers of  the film  industry in  Britain. Eligibility\t for
\nmembership of  this trade  union was  governed by R.7 of the
\nArticles  of   Association.  This  rule\t provided  that\t the
\nassociation shall  consist of  all employees  engaged on the
\ntechnical   side of film production. The Court of appeal, by
\na majority,  held  that\t the  two  managing  directors\twere
\nemployees within  the  meaning\tof  the\t rule  above  quoted
\nnonetheless they  being managing  directors of\tthe employer
\ncompany. In  this connection  the  observations\t of  Upjohn,
\nL.J., constituting  the majority  of the  Court\t  of  Appeal
\ndeserve to be noted as under :\n<\/p>\n
     “I cannot\tmyself escape  from  the
\n     conclusion that the position of the
\n     Boulting\t  Brothers,\talthough
\n     anomalous\tperhaps,   it\tstrictly
\n     within the wording of R.7, for they
\n     are in  fact employees  of\t Charter
\n     engaged on\t the technical\tside  of
\n     film production. True it is that as
\n     directors, they  are not employees,
\n     but it  cannot, I\tthink be doubted
\n     that a  managing director\tmay  for
\n     many purposes  properly be regarded
\n     as an employee.”<\/p><\/blockquote>\n
     The decision  of the  Madras High\tCourt following\t the
\naforesaid decision  lays down  the correct  legal  position.
\nThus even  assuming  that  Shri\t Dhanwate  was\ta  principal
\nemployer even  the in  the light of the aforesaid discussion
\nit has\tto be held that he could have a dual capacity both a
\nManaging Director  on the one hand and as an employee of the
\ncompany on the other.\n<\/p>\n
     We may  at this  stage refer  to two decisions to which
\nour attention  was invited by learned amicus curiae counsel.
\nA Division  Bench of the High Court of Kerala in the case of
\nEmployees’ State Insurance Corporation, Ernakulam v. Victory
\nTile Works [44 Indian Factories Journal 304] had to consider
\nwhether a  person who satisfies the definition of `principal
\nemployer’  under   Section  2\t(17)  of   the\t Act   could
\nsimultaneously satisfy the requirements of the definition of
\nthe  term   `employee’\tunder\tSection\t 2(9)  of  the\tAct.
\nSubramonian Poti,  J. (as  the then  was), speaking  for the
\ncourt observed\tthat Employees’ State Insurance Act, 1946 is
\nintended to cover all wage-earners whether they are manager,
\nsupervisors, clerks, workmen or any other class of employees
\nprovided they fall within the definition of `employee’ under
\nSection 2(9)  of the Act. It is order from the scheme of the
\nAct that  there is  no apparent conflict of interest between
\nthe principal  employer and  the employee  and there  is  no
\nreason why  if a  person  falls\t within\t the  definition  of
\n`principal employer’  he cannot\t in certain cases be also an
\n`employee’ he cannot in certain cases be also an `employee’.
\nIn our\tview, the  aforesaid decision squarely falls in line
\nwith the  scheme of  the Act and the decisions of other High
\nCourts on  the point  to which\twe  have  made\ta  reference
\nearlier.\n<\/p>\n
     Now is the time for us to consider the dissenting voice
\nof Calcutta  High Court\t emanating from\t its decision in the
\ncase of\t M\/s Ashok Plastic (P) Ltd. (Supra). In that case of
\ndirector of  the company  who was paid for some remuneration
\nwas held  not to satisfy the requirements of Section 2(9) of
\nthe Act,  Now it  must be noted that the Calcutta High Court
\nin that\t case was  considering an  entirely  different\tfact
\nsituation. Being a director of the company some remuneration
\nwas  paid   to\thim   in  connection  with  his\t specialised
\nactivities. It\twas found as a fact that he was not employed
\non  remuneration   on  a  regular  basis.  This\t distinctive
\nfeatures itself would rule out the applicability of the said
\ndecision to  the facts\tof the present case. However certain
\nobservation were  made by  Sukumar Chakravarty, J., speaking
\nfor the\t Division Bench\t of the\t Calcutta High Court in that
\ncase in paragraph 27 of the Report to the following effect :\n<\/p>\n
     “It is true that “wages” as defined
\n     in S.2  (22) of  the Act means “all
\n     remuneration  paid\t or  payable  in
\n     cash to  an employee,  if the terms
\n     of\t the   contract\t of   employment
\n     express or\t implied were  fulfilled
\n     and includes………”.  For Laking
\n     the character of “wages” as defined
\n     in\t    the\t     above\tSection,
\n     “remuneration”  must   be\tpaid  or
\n     payable in cash to an employee. All
\n     remuneration  will\t  not  take  the
\n     character\tof  “wages”  within  the
\n     meaning of\t S.2(22) of the Act. The
\n     special allowance\tof  Rs.300\/-  or
\n     Rs.500\/- as  the case may be, which
\n     is being paid to the Director, Shri
\n     Gupta  under   the\t description  of
\n     remuneration in the instant case is
\n     therefore not  the\t “wages”  within
\n     the meaning of S.2(22) of the Act.”<\/p><\/blockquote>\n
     The aforesaid  observation, in  our view, are not borne
\nout from  the express language of Section 2 sub-section (22)
\nof the\tAct which  defines “wages”  to include\tany types of
\nremuneration paid  or payable  to an  employee. If  a person
\nsatisfies the  definition of the term “employee” as found in
\nSection\t 2   sub-section  (9)\tof  the\t  Act  and  is\tpaid
\nremuneration for  discharging the extra work assigned to him
\nfor earning  such remuneration\tit cannot  be said  that  it
\nwould not be “wages” as wrongly assumed by the High Court in
\nthe aforesaid decision in paragraph 24 of the Report.\n<\/p>\n
     As a result of the aforesaid discussion it must be held
\nthat the  Division Bench  of the  High Court in the impugned
\njudgment had  erred in\ttaking the view, on the facts of the
\npresent case, that Shri Dhanwate as Managing Director of the
\ncompany was  not an employee within the meaning of Section 2
\nsub-section (9)\t of the\t Act. On  the other  hand it must be
\nheld that  he was  an employee\tof the\tcompany and  as such
\ncould be  added to  the list of remaining 19 employees so as
\nto make\t a total  of 20 for covering the establishment under
\nSection\t 2   sub-section  (12)\tof  the\t Act  which  defines
\n“factory) to  mean, “any  premises including  the  precincts
\nthereof (a)  ……..; or (b) whereon twenty or more persons
\nare employed  or were  employed for  wages on any day of the
\nproceeding twelve  months,  and\t in  any  part\tof  which  a
\nmanufacturing process in being carried on without the aid of
\npower or is ordinarily so carried carried on”.\n<\/p>\n
     Before parting with this case we must put on record out
\nhigh sense  of appreciation  for the  assistance rendered by
\nthe amicus curiae advocate Shri Qadri at our request.\n<\/p>\n
     In the  result this appeal is allowed. The judgment and
\norder of  the Division\tBench of  the High  Court in Letters
\nPatent Appeal  No. 14  of 1985\tare set aside. Similarly the
\njudgment of  the learned  Single Judge\tof the High Court as
\nwell as that of ESI Court in the Case No. 2 of 1974 are also
\nset aside  and the  ESI Case  No. 2  of 1974  filed  by\t the
\nrespondent-company  is\tordered\t to  be\t dismissed.  Ordered
\naccordingly. No costs.<\/p>\n","protected":false},"excerpt":{"rendered":"
Supreme Court of India Employees State … vs M\/S. Apex Engineering Pvt. Ltd on 6 November, 1997 Author: S Majmudar. Bench: S.B. Majmudar, M. Jagannadha Rao PETITIONER: EMPLOYEES STATE INSURANCECORPORATION Vs. RESPONDENT: M\/S. APEX ENGINEERING PVT. LTD. DATE OF JUDGMENT: 06\/11\/1997 BENCH: S.B. MAJMUDAR, M. JAGANNADHA RAO ACT: HEADNOTE: JUDGMENT: THE 6TH DAY OF NOVEMBER, […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"","_lmt_disable":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[30],"tags":[],"class_list":["post-12948","post","type-post","status-publish","format-standard","hentry","category-supreme-court-of-india"],"yoast_head":"\nEmployees State ... vs M\/S. Apex Engineering Pvt. Ltd on 6 November, 1997 - Free Judgements of Supreme Court & High Court | Legal India<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.legalindia.com\/judgments\/employees-state-vs-ms-apex-engineering-pvt-ltd-on-6-november-1997\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Employees State ... vs M\/S. Apex Engineering Pvt. 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