ce Act 1948 covers all factories or establishment with 20 or more employees and the benefit is intended to be given to institutions with more than that number
Because the legislation is beneficial it should also apply to factories or establishments with less than 20 employees is not the contention on behalf of the appellant
If that be not so in finding out whether a partner would be an employee a liberal construction is not warranted
127H 128A  CIVIL APPELLATE JURISDICTION Civil Appeal No 3500 of 1984
Appeal by Special leave from the Judgment and order dated the 3rd August 1981 of the Kerala High Court in MFA No 442 of 1979
MK Banerjee Addl
General Girish Chandra and RN Poddar for the Appellant
The Judgment of the Court was delivered by RANGANATH MISRA J
The short point which arises for determination in this appeal by special leave is as to whether a partner of a firm is an employee  within the meaning of Section 29 of the hereinafter called the Act 
Respondent Ramanuja Match Industries which is a firm is engaged in manufacturing of matches within the Trichur area of Kerala State and the question as to whether it is covered under the provisions of the Act fell for consideration
The Inspector found that there were 18 regular employees and three of the partners who worked regularly for wages were to be put together
Thus the number of 20 employees as required by the Act was satisfied and the respondent did incur liability for contribution The respondent challenged its liability before the Employees Insurance Court at Calicut by contending that partners were not employees and when the three partners were excluded the total number of employees did not exceed the statutory minimum
The 122 Insurance Court found in favour of the respondent and an appeal under the Act was carried to the High Court by the appellant and a Division Bench of that Court following its earlier decision in Regional Director of ESI Corporation vs Ms Oosmanja Tile Works Alwayel held that partners were not employees
It is against this decision that the present appeal has been carried
There is no dispute that under the Act liability to pay contribution arises only when 20 or more persons are employed for wages
It is also not disputed that in the case of the respondent unless the three partners are included the basic number of 20 is not reached and no liability under the Act accrues
The term employee  has been defined in section 29 of the Act to mean any person employed for wages in or in connection with the work of a factory or establishment to which the Act applies and one of the alternative in clauses i ii or iii
Wages  has been defined in sub section
22 of that section to mean all remuneration paid or payable in cash to an employee if the terms of the contract of employment express or implied were fulfilled  It is thus clear that in order that some one may be an employee within the meaning of the Act he has to be employed for wages
The concept of wages would bring in the contract of employment
The Shorter oxford English Dictionary gives the meaning of employ  to be to use the services of for some special business to have or maintain in one s service
In common parlance the concept of employee would take with it the correlation of the employer
The term employer  had not been defined in the Act but in the absence of an employer who would provide the employment there would indeed be no employee
In fact that concept is clear in the scheme of the Industrial Disputes Act of 1947 and the definition of the term employer  in section 2g of that Act makes the position clear
It is appropriate that at this stage we refer to the position of a partner qua the firm
Section 4 of the Partnership Act 1932 defines partnership  and one of the essential requisites of a partner ship is that there must be mutual agency between the partners
1 ILR 1975 2 Kerala 207
123 Full Bench of the Patna High Court in Seth Hira Lal  Anr
vs A Sheikh Jamaluddin and Anr1 rightly emphasised upon the position that an important element in the definition of partnership is that it must be carried on by all or any one of the partners acting for all
Section 18 of the Partnership Act statutorily declares every partner to be an agent of the firm for the purposes of the business of the firm and Section 19 states that an act of a partner which is done to carry on in the usual way business of the kind carried on by the firm binds the firm
A partnership firm is not a legal entity
This Court in Champaran Cane Concern vs State of Bihar and Anr
2 pointed out that in a partnership each partner acts an agent of the other
The position of a partner qua the firm is thus not that of a master and a servant or employee which concept involves an element of subordination but that of equality
The partnership business belongs to the partners and each one of them is an owner thereof
In common parlance the status of a partner qua the firm is thus different from employees working under the firm it may be that a partner is being paid some remuneration for any special attention which he devotes but that would not involve any change of status and bring him within the definition of employee
Learned counsel for the appellant strongly relied on a case of the Rajasthan High Court in Regional Director of ESI Corporation Jaipur vs PC Kasliwal and Anr
3 The learned Single Judge has taken the view that a partner can be employed by the firm and if he draws emoluments within the prescribed limits for the work of the factory he would be an employee under section 29 of the Act
In the same decision it has also been held that a sleeping partner drawing a monthly allowance merely because he is a partner would not come within the ambit of the Act as an employee and contribution in respect of such partner would not be payable
As against this view there is a Division Bench decision of the Kerala High Court in Regional Director of ESI Corporation vs Ms Oosmanja Tile Works alwaye supra where it has been held that a managing partner of a firm is not an employee if merely he receives salary or other remuneration
Strong reliance has been placed by 1 1946 224 Indian Cases 106
1  2 1981 Labour  Industrial Cases 671 124 the Kerala High Court on the position that such managing partner is not an employee who is working under a contract of service
In fact in the present case support has been drawn from this decision of the High Court as a precedent and following the ratio of that decision the High Court has decided against the appellant
The Rajasthan High Court has obviously not been alive to the definition of the term employee  in section 29 of the Act though the definition has been extracted in extenso
The status of a partner qua the firm with reference to the provisions of the Partnership Act the concept of employer and employee and the importance of the definition of wages have also been lost sight of in adjudicating whether a partner is an employee
We are therefore not inclined to accept the view of the Rajasthan High Court
On the other hand the view taken by the Kerala High Court seems to be the correct one and fits in with the position of a partner qua his firm and the jurisprudential approach to the matter
The respondent did not choose to appear in this Court to support the order of the High Court
We have however come across several judicial opinions of American and English Courts taking the view that a person cannot be the employee of the firm of which he is a partner
In Words and Phrases Permanent Edition Vols
14 and 14A 1974 reprint several such decisions of the American State Courts have been referred to in support of the view that a partner cannot be an employee of his firm and we propose to refer to some of the more apt ones
In Dube vs Robinson1 it has been held that in a partnership each partner is an agent of the others as well as a principal but he is not in hire as an employee and that he may perform labour even with the employees of the partnership and of the same kind as they perform does not make him an employee of the other partners or of the partnership and hence such partner cannot be counted to constitute one of the workmen  necessary for application of the Employers  Liability and Workman s Compensation Act to the partnership business
In United States Fidelity  Guarantee Company vs Neal2 it has been held that a partner not an employee of the partnership within the Compensation Act though at the time of the injury he was performing special services under contract with his partner 1 2 125 separate and independent from the articles of partnership and is A being paid compensation therefore in addition to his shale in profits
Again in Le Clear vs Smith1 it was held that a partner though he received a salary in addition to his share of the profits was an employer and an not employee entitled to compensation under the Workman s Compensation Law where the insurer did not insure the employers
In Berger Fidelity Union Casualty Co vs Texas2 it has been held that a member of an employer firm cannot be an employee thereof
In Wearer vs Weinberger3 it was held that employee is a person who renders service to another usually for wages salary or other financial consideration and who in performance of such service is entirely subject to the direction and control of the other such other being the employer
Crooks vs Glena Falls Indemnity Co
4 is an authority for the view that an employee is one who is subject to the absolute control and direction of the employer in regard to any act labour or work to be done in course and scope of his employment
In Morici Corporation vs USDC California
5 the Court held that the test to determine whether one person is another s employee is whether or not he is subject to control of the other person
In Burker vs Friedman6 it was held that partners cannot be regarded as employees rather than as employers who own and manage operation of business and hence cannot be included as employees
Wright vs Deareter7 took the view that partners were not employees for purposes of requirement that compensation law be complied with when there are three or more employees
Though we have not come across any decision of the US Supreme Court on the point these authorities under various legislations are clearly indicative of the principle that a partner who belongs to the class of employer cannot rank as employee because he also works for wages for the partnership
Undoubtedly the term employee is the co relative of employer
1 2 293 SW 235
3 392 F Suppl
4 203
5 500 F Suppl
6 7 126 We may usefully refer here to an English decision
The Court of Appeal in Ellis vs Joseph Ellis  Co1 was called upon to decide whether a partner of a firm could be its employee
The short facts relevant for our purpose available in the judgment of Collins MR are The deceased appears to have been a skilled workman and by agreement with his partners he worked at the mine sometimes on the surface and sometimes under ground for wages and while working underground he met with an accident which occasioned his death
His representative thereupon claimed compensation under the Workman s Compensation Act 1897 on behalf of her self and his children
The question is whether having regard to his position as one of the partners he can be regarded as a workman in the employ of the partnership and the partners as his employers within the meaning of the Act
When one looks at the provisions of the Act they do not appear to be applicable to a case like the present
The supposition that the deceased man was employed within the meaning of that term as used in the Act not very different from the definition here would appear to involve that he as one of the partners must be looked upon as occupying the position of being one of his own employers
It seems to me that when one comes to analyse an arrangement of this kind namely one by which a partner himself works and receives sums which are called wages it really does not create the relation of employers adjusting the amount that must be taken to have been contributed to the partnership assets by a partner who has made what is really a contribution in kind and does not affect his relation to the other partners which is that of co adventurer and not employee
Lord Justice Mathew pithily but with emphasis added The argument on behalf of the applicant in this appeal appears to involve a legal impossibility namely that the same person can occupy the position of being both master and servant employer and employed 1 127 Lord Justice Cozens Hardy also spoke in the same strain All that our decision in this case amounts to I think is that the Act only applies where there is on one side an employer and on the other side a workman who are different persons
 This is in complete accord with our view
FC Bock and FF Manix in their book the Australian Income Tax Law and Practice 1960 Edn Vol 3 page 3092 have said The decision of the High Court in Rose vs Federal Commissioner of Taxationl established that there is nothing in the relevant income tax legislation to warrant treating a partnership as a distinct legal entity
A partner cannot therefore also be an employee of the partnership for a man cannot be his own employer    It is thus clear that in the United States Great Britain and Australia a partner is not treated as an employee of his firm merely because he receives a wage or remuneration for work done for the firm
This view is in complete accord with the jurisprudential approach
In the absence of any statutory mandate we do not think there is any scope for accepting the view of the Rajasthan High Court
Counsel for the appellant emphasised on the feature that the statute is a beneficial one and the Court should not interpret a provision occurring therein in such a way that the benefit would be withheld from employees
We do not doubt that beneficial legislations should have liberal construction with a view to implementing the legislative intent but where such beneficial legislation has a scheme of its own there is no warrant for the Court to travel beyond the scheme and extend the scope of the statute on the pretext of extending the statutory benefit to those who are not covered by the scheme
The Act covers all factories or establishment with 20 or more employees and the benefit is intended to be given to institutions with more than that number
It is not the 1  128 contention of counsel that because the legislation is beneficial it should also apply to factories or establishments with less than 20 employees
If that be not so in finding out whether a partner would be an employee a liberal construction is not warranted
A person who would not answer the definition cannot be taken into account for the purpose of fixing the statutory minimum
We are therefore not inclined to accept the contention of counsel that on the basis of the statute being beneficial a partner should also count as an employee
Once we hold that the three partners were not employees on the admitted fact the total number of employees would be less than 20 the Act would not be applicable to the establishment in question
There is no merit in the appeal and the same is therefore to be dismissed
At the hearing the respondent was not represented we therefore make no direction for costs
N V K Appeal dismissed


Summary:
The Respondent firm was engaged in the manufacturing of matches
The Inspector of the Employees State Insurance Corporation who inspected the firm found that there were 18 regular employees and three of the partners worked regularly for wages
As the number of employees were over 20 he held that the Respondent firm incurred liability for contribution under the 
The Respondent challenged its liability before the Employees Insurance Court by contending that partners were not employees and that when the three partners were excluded the total number of employees did not exceed the statutory minimum
The Insurance Court found in favour of the respondent
The Employees State Insurance Corporation appealed to
The High Court which held following its earlier decision in Regional Director of ESI Corporation vs Mls
Oosmalua Tiite Works Alwayes ILR 19752 Kerala 201 that partners were not employees
In the appeal to this Court on the question whether a partner of a firm is an employee l within the meaning of section 29 of the  H 120 Dismissinhe Appeal  HELD 1
The three partners were not employees
On this admitted fact the total number of employees would be less than 20
The would not therefore be applicable to the respondent establishment
128C 2
The term employee  has been defined in section 29 of the to mean any person employed for wages in or in connection with the work of a factory or establishment to which the Act applies 
Wages has been defined in sub section 22 of that section to mean all remuneration paid or payable in cash to an employee if the terms of the contract of employment express or implied were fulfilled 
In order that some one may be an employee within the meaning of the Act he has to be employed for wages
The concept of wages would bring in the contract of employment and the concept of employee would take with it the correlation of the employer
The term employer  has not been defined in the Act
In the absence of an employer who would provide the employment there would be no employee
122D F 3
A partnership firm is not a legal entity
In a partnership each partner acts as an agent of the other
The position of a partner qua the firm is thus not that a master and a servant or employer and employee which concept involves an element of subordination but that of equality
The partnership business belongs to the partners and each one of them is an owner thereof
In common parlance the status of a partner qua the firm is thus different from employees working under the firm it may be that a partner is being paid some remuneration for any special attention which he devotes but that would not involve any change of status and bring him within the definition of employee
Seth Hira Lal  Anr vs
Sheikh Jammaluddin and anr
1946 224 Indian Cases 1O6  Regional Director of ES 1
Corporation vs Ms Osmanja Tile Works Alwaye ILR 1975 2 Kerala 207 approved
Regional Director of ESI Corporation Jaipur vs PC Kasliwal and Anr
1931 Labour  Industrial Cases 671 reversed 4
In the United States Great Britain and Australia a partner is not treated as an employee of his firm merely because he receives a wage or remuneration for work done for the firm which is in complete accord with the jurisprudential approach
127D E Dube vs Robinson 92 N 312
United States Fidelity Smith  Berger vs Fldility Union Casualty Co Tayes 293 SW 235  Weaver vs Wcinberger 392 F Suppl
721 Crooks vs Glena Falls Indemnity Co 203  Morfci Corporation vs USDC California 500 F Suppl
714  Burker vs Friedman   Wright vs Deareter Ellies vs Joseph  Co  Rose vs Federal Commissioner of Taxation  A referred to
Beneficial legislation should have liberal construction with a view to implementing the legislative intent but where such beneficial legislation has a scheme of its own there is no warrant for the Court to travel beyond the scheme and extend the scope of the statute on the pretext of extending the statutory benefit to those who are not covered by the scheme
127F G