.April 6

646 SUPREME COu"'RT REPORTS [19641

D. C. DEWAN MOHIDEEN SAHIB AND SONS

v .

THE INDUSTRIAL TRIBUNAL, MADRAS

[P. B. GAJENDRAGADKAR, C. J., K. N. W ANCHOO AND K. C.

DAS GUPTA, JJ.]

Industrial Dispute-Employer and Emp!oyee-Relaticnship -Depends upon circumstances of each case.

On a reference of industrial disputes between the appellants, 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 bdis 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 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 woere• 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. Whatf)ver 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 te 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 Siu.pplied the ra~N materials. Further price of ra\\" materials and finished products fixed by the appellants always remained the same and never :fluct11ated according to market rate. The Tribunal concluded that the bidi workers ""re the employees of the appellants and not of the so-called contrac- • tors who were themselves nothing more then employees o-· 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 tho 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 certificate: Held: On the .facts found the appeal court w•is right in holding that the conclusion reached by the Tribunal that the intermediaries were merely branch managers appointed by the

7 S.C.R.

SUPREl\IE COUHT REPOHTS 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 Birdhiclwnd Sharma v. First Civil Judge Nagpur, [1961] 3 S.C.R. 161, Shankar Ba!a.ji Waje


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 l 959 respectively.

V. P. Raman and R. Gmwpathy Iyer, for the appellant lin C.A. No. 721 of 1953).

G. B. Pai, J. B. Dadachanji, 0. C. Mathur and Ravinder Narain, for the appellant lin 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

196l

D.O. Dewa" lll ohidcen Sahib

and Sons

The Ind11 . .strial Tribitnal, Madrm

WANCHoo; J.-These two appeals by special leave raise Wam:hoo, J. a common question and will be decided together. The appel !ants are proprietor:> 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 worker;; 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 be.tween 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

appellant~ and employed workmen for manufacturing bidis.

After bid, is were manufactured, the contractors took them back fro:n the workmen and delivered them to the appellants.

D.C. lJltoan M oltidetn Sa/1£b

and 8cnt8

The lnd1tstrial Tribunal, Madras

Wanclwo, J,

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; sometime.-; 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 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 places where work 9f rolling was done and gave them to the workmen. Next day, the manufactured bidis were taken by the contractors to the appellant:; who paid a certain price for the manufactured bidis after deduct- . ing 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.

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 wa.s 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 lo 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 Factorirn 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 provisiorn were deliberately put into the agreement by the appellants to escape such statutory duties and obligatiom 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 1; ystem 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 tin"hed 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 man"gers 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 employed by the contractors were Jhe workmen of the appellants. It seems that a sample agreement was produced before the High Court. which provided inter alia for the following terms : -

(\) That the proprietor should supply the tobacco and the bidi leaves;

12) th.at 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 sh.ould more than nine bidi rollers work m the premises of that intermediary;

14) that the intermedia.ry should meet all the incidental charges for rolling the bidis including the cost of thread and the remuneration paid t~ the b'd' rollers

1 I •

D.G. Dewan

... ~I ohideen Sahib

and Sona

Thelnduatrial Tribunal, Mad,...

Wanchoo, J.

D.C. Dewan M ohideen Sahib

and Sons

The Industrial Tribunal, Madras

lfanclwo, J.

(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 i>hould 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 a;; sumed 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 con;; ideration 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 bidi.

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 settling all matters relating to the workem. 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 appellantfi. In this view of the matter the appeal ; ourt held that the conclusion reached by the tribunal that the intermediaries were merely branch managers

~ I ,.

.. i

- ' :7 .S.C.R. \ '. SUPRElIE COURT REPORTS . 651 -- \ ' \.

'.,, '.apoin; ed by the :manageent and ·.the relation~i;-of em- 1964 . ployer and employees subsisted. between the appellants and D.(,. D, wan JJidi rollers was. correct. \ The appeals were -therefore allow- .Moltidun Sahib .ed, and the order of the tribunal was restored. The appellants andv~""' .have come _before ur; ori certificates -granted by the High The 1.a., trial .Court.

Tribunal, Madraa

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.

Jn Dharangadhara Chemical, Works- Limited v. State of Saurashtra(') it WaJil 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 Wat> _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 preCinely defined. , The correct approach therefore was to consider whether, having regard to the nature of the work there was due control and superviision 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 houn; 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 Sh;; Chintaman Rao v. The State of Madhya_ Pradesh(').

(') [1957] S.C.R 152.

(')_[1958] S.C.R 1340.

Wanchoo, J.

D.O. Liewan Mvhideen Sahib

The Industrial Tribunal, JJ<I adra&

Jfanchoo, J.

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 bidifl 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. Reference was made to tlje principles laid down in D/zarangadhara Chemical Works Limited's case(') 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 factory of the management. The sattedars were even entitled to distribute tobacco to the workers for making bidis in the workers' respective homes. It wa6 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 S/zri Bird/zichand Sharma

v. First Civil Judge Nagpur('). 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 house6; 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 accordin• to the amount of work done, and the bidis which did not

co~1e 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 contractom. This Court pointed out that the nature and xtent of control varied in different industries and could not by its very nature be precisely defined.

When the oprtion was 'of simple nature and did not require superv1s10n all the time. control could be exercised ai the end of day by the method of rejecting bidis which did not come upto proper standard,

(') [957] S C.R. 152.


such supp-vision 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 Maharashtrai'). That was also a bidi manufacturing case. On the facts of that case the majority held that decision in Shri Birdhichand Shanna's case(') was distinguishable and the appellant was not a worker within the meaning of the Factories Act. It may be noted however that that case also followed the line of decisions of this Court since the decision in the case Dharangadlwra Chemical Works Limited(") 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 Y amasa Kash-· tril'a (Pl Limited v. Union of India('). 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(') as to how leave could be calculated in the circumstances was explairied with reference to the decision in Shl'i Birdhic/wnd Shanna's case(').

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 appellants. 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 arid 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

(') [1957] S.C.R. 152.


D.O. Dewan Moliirleen Saltib

and Sons ...

The lndustrial Tribunal, Madraw

JJ'ani::hoo, J,

JfJGJ

D.O. I>•uwa .11/rJlii•lrtn S1t/1il,

und ,<.,'on~

The J, idu; ir'ritil Tri1>un•il, Jln•l1·1M

654 BUPRE)IE COURT REPpRTS [1964]

so-calld independent contractors were indigent pemons who were in all respects under;. the cont'rol of the appellants. There is in our opinion little doubt that this system has been evolved to avoid regulations ur, der the Factories Act. Further there is also no doubt from whatever terms of agreement are available on the )ecord that the so-called independent contractors have really no independence at all.

As the appeal court hm; pointd !lpt they are impecunious persons who could harcjly 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 J1is'choice supply the raw niaterials or refuse lo do so. the so-ll<; d contract.or IHt\ing no right to insist upori the :rnpply of raw _!.l]aJerials to him.

The socalled independent contract6r--iif even bound not LO employ more than nine persons in his so-called factory.

The sale of raw materials to the so-called independent contractor and resale bv him of the manufactured biois is also a mere camouftage, the nature of which is apparent from the fuct that the so-called contractor never paid for the materials.

All that happens is that when the manufactured bidis are <lclivcred 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 amountE for the wages of the workers employed and for his own trouble. We can therefore

ee no difjiculty 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 r, o-called independent contractors who ate told not to employ more than nine persons at one place to avoid re&ulations µnder 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 b..y the so-called con1ractors are really the workmen of the appellants who are em

0ployed through their agents or serv?nts whom they choo:; e io 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 bidir,) can only be doh.e in Jhe so-called factory of the , so-called independent contracior. No tobacco is ever given to the workers to be take11 home to be rolled into bidis as and when they liked. They have to

7 S.C.R.

SUPREl\IE COURT REPORTS 655

attend the so-called factory of the so-called independent contractor to do the real work of rolling bidis. As was pointed out hv this Court in Shri Birdhichand Shanna's case(') the work is of such a simple nature that GUpervision all the time is net required. In Birdhichand Sharma's case(') supervision was made through a system of rejecting the defective bidis, at the end of day. Jn 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 prevailr, ip 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. Jn the circumstances we are of opinion that the relationship of master and servant between the appellant; and the workmen employed by the so-called indepen- _dent 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 appellants for redress.

In one of the cases the manager of one of the appellants ent 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 increar; c 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 inconsisterlt with their plea that the workers are not their employees and there is no privily between them and the said workers.

We are therefore of opinion that on the facts found in the 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.

Appeals dismissed.

(') [1961) 3 S.C.R. 161.

]J.C. Dncr:rn Mohidee.n :Safdb

an!! Sun.s

Tle I ndi1rBfrial Trilninrd, .JJia.draB

Tranrfwo, J.