Case: Management of D.C. Dewan Mohideen Sahib &amp; Sons &amp; Another Vs. Secretary, United Beedi Workers' Union Salem &amp; Another

1. These two appeals by special leave raise a common question and will be decided together. The appellants 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.2. 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 incompetent 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 contractors. It was found by the tribunal on the basis of evidence led before it by both parties that the modus operandi with respect to manufacture of bidis in the appellants concerns 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. 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 sometime they did not. The contractors however 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 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 place 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 agreement on the same pattern between the appellants and the contractors in that behalf, though no such agreement has been printed in the paper books.3. On these facts the appellants wanted to make out a case 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 anyone else. Further after the bidis were manufactured they could only be delivered to the appellants who supplied raw materials and not to anyone else. Further price of raw materials fixed by the appellants 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 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 provisions 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 product 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.4. 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 employed by the contractors were the workmen of the appellants. It seems that a sample agreement was produced before the High Court, which provided inter alia for the followingthat the proprietor should supply the tobacco and the bidi leaves;(2) that the intermediary should engage premises of his own and obtain the requisite licence 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;(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 thethese 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.5. 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 appellant and the bidi rollers. The petition were, therefore, allowed and the award of the tribunal was set aside.6. 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 appellants and that there was no utter lack of control by the appellants on the bidi workers who actually rolled the bidis. The appeal Court also found that the intermediaries were impecunious and according to the evidence could hardly afford to have factories of their own. It also found that the evidence revealed that the appellants took the real hand in setting 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 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.

Court's reasoning:
12. 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 workmen of the appellants. It has been found by the tribunal and this view has been confirmed by the appeal Court that the 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 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 involved to avoid regulations under the Factories Act. Further there is also no doubt from whatever terms of agreement as available on the record that the so-called independent contractors have really been independent 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 contractors having no right to insist upon the supply or 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 so-called 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 amounts 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 of 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 independentthe 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 will 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 whatever there was a dispute in connection with the manufacture of bidis the workers looked to the appellants 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. 1-14-0 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.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 theindependent 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 involved to avoid regulations under the Factories Act. Further there is also no doubt from whatever terms of agreement as available on the record that theindependent contractors have really been independent 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 evenof 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, thecontractors having no right to insist upon the supply or raw materials to him. Theindependent contractor is even bound not to employ more than nine persons in hisfactory. The sale of raw materials to theindependent contractor and resale by him of the manufactured bidis is also a mere camouflage, the nature of which is apparent from the fact that thecontractor never paid for the materials. All that happens is that when the manufactured bidis are delivered by him to the appellants, amounts due for thesale of raw materials is deducted from theprice fixed for the bidis. In effect all that happened is that theindependent contractor is supplied with tobacco and leaves and is paid certain amounts for the wages of the workers employed and for his own trouble. We can, therefore, see no difficulty in holding that thecontractor is merely an employee of 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 ofindependent 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 thecontractors are really the workmen of the appellants who are employed through their agents or servants whom they choose to call independent