06 April 1964
Supreme Court


Case number: Appeal (civil) 721 of 1963






DATE OF JUDGMENT: 06/04/1964


CITATION:  1966 AIR  370            1964 SCR  (7) 646  CITATOR INFO :  RF         1970 SC  66  (10)  E&D        1974 SC  37  (14)  RF         1974 SC1832  (36,87)  RF         1978 SC 481  (3)  E&D        1987 SC 447  (9)  RF         1992 SC 573  (37)

ACT: Industrial   Dispute--Employer  and   Employee--Relationship Depends upon circumstances of each case.

HEADNOTE: On  a  reference of industrial disputes between  the  appel- lants, the proprietors of bidi concerns, and their  workmen, the appellants contended before the Industrial Tribunal that the workers in question were not their workmen, but were the workmen  of independent contractors.  The Tribunal found  on the basis of evidence led, that the modus operandi was  that contractors took leaves and tobacco from the appellant  and’ employed workmen for manufacturing bidis.  After bidis  were manufactured, the contractors took them back from the  work- men and delivered them to the appellants.  The workmen  took the  leaves home and cut them there; however the process  of actual rolling by filling the leaves with tobacco took place in what was called contractors’ factories.  The  contractors kept  no attendance register for the workmen, there  was  no condition  for their coming and going at fixed:  hours,  nor were  they bound to come for work every day; sometimes  they informed  the  contractors if they wanted to be  absent  and some  times  they did not.  The contractors said  that  they could take no action if the workmen absented themselves even without leave.  The payment was made to the workmen at piece rates after the bidis were delivered to the appellants.  The system  was  that the appellant paid a certain sum  for  the manufactured  bidis, after deduct-ing therefrom the cost  of tobacco and the leaves already fixed, to the contractors who in  their turn paid to the workmen, who rolled bidis,  their wages.  Whatever remained after paying the workmen would  be contractors’ commission for the work done, The Tribunal held that there was no sale either of the raw materials or of the finished  products, for, according to the agreement, if  the



bidis were not rolled, raw materials had to, he returned  to the  appellants  and  the contractors  were  forbidden  from selling  the  raw  materials to anyone  else.   Further  the manufactured bidis could only be delivered to the appellants who  supplied  the  raw materials.   Further  price  of  raw materials  and  finished products fixed  by  the  appellants always  remained the same and never fluctuated according  to market  rate.  The Tribunal concluded that the bidi  workers were  the  employees of the appellants and not  of  the  so- called  contractors  who were themselves nothing  more  then employees or branch managers of the appellants.   Thereupon, the appellants filed writ petitions in the High Court, which held  that neither the bidi roller nor the intermediary  was an   employee  of  the  appellants  and  allowed  the   writ petitions.   On  appeal  by the  workmen  the  appeal  court allowed the appeal and restored the order and conclusion  of the Tribunal.  On appeal by certi-ficate: Held:     On the facts found the appeal court ’was right  in holding that the conclusion reached by the Tribunal that the intermediaries were merely branch managers appointed’ by the 647 management  and the relationship of employers and  employees subsisted  between the appellants and the bidi  rollers  was correct. Dharangadhara  Chemical Works Ltd., v. State of  Saurashtra, [1957]  S.C.R.  152, Shri Chintsman Rao v. State  of  Madhya Pradesh,  [1958]  S.C.R. 1340, Shri  Birdhichand  Sharma  v. First  Civil  Judge  Nagpur, [1961] 3  S.C.R.  161,  Shankar Balaji  Waje v. State of Maharashtra, [1962] Supp. 1  S.C.R. 249 and Bikusu Yamasa Kashtriya (P) Ltd. v. Union of  India, [1964] 1 S.C.R. 860, discussed.

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 721 and 791 of 1963.  Appeals by certificate and special leave from  the judgment  and  order dated February 16, 1962 of  the  Madras High  Court  in  Writ  Appeals  Nos.  16  and  15  ,of  1959 respectively. V.   P.  Ran an and R. Ganapathy Iyer, for the appellant  in C.A. No. 721 of 1963). G.   B.  Pai,  J. B. Dadachanji, 0. C. Mathur  and  Ravinder Narain, for the appellant (in C.A. No. 791/63). T.   S. Venkataraman, for the respondent No. 2 (in both  the appeals). April 6, 1964.  The Judgment of the Court was delivered by WANCHOO,  J.-These  two  appeals by special  leave  raise  a common  question and will be decided together.   The  appel- lants are proprietors of two bidi concerns.  A reference was made  by  the Government of Madras of  dispute  between  the appellants and their workmen with respect to three  matters. In  the present appeals however we are concerned  with  only one  matter, namely, whether reduction of annas two  in  the wages of workers employed under the agents of the appellants was justified and to what relief the workers were entitled. The  contention  of the appellants before the  tribunal  was that  the  workers in question were not  their  workmen  and therefore there being no relation of employers and employees between  them and the workmen, the reference itself was  in- competent  and there could be no industrial dispute  between them  and the workmen concerned, their case being  that  the workmen  concerned  were  the workmen  of  independent  con- tractors.  It was found by the tribunal on the basis of evi- dence led before it by both parties that the modus  operandi



with respect to manufacture of bidis in the appellants’ con- cerns was that contractors took leaves and tobacco from  the appellants  and  employed workmen for  manufacturing  bidis. After  bidis  were manufactured, the contractors  took  them back from the workmen and delivered them to the appellants. 648 The workmen took the leaves home and cut them there; however the  process  of actual rolling by filling the  leaves  with tobacco   took  place  in  what  were  called   contractors’ factories.  The contractors kept no attendance register  for the  workmen.  There was also no condition that they  should come  and go at fixed hours.  Nor were the workmen bound  to come for work every day; sometimes the workmen informed  the contractors  if they wanted to be absent and sometimes  they did not.  The contractors however said that they could  take no action if the workmen absented them,-selves even  without leave.  The payment was made to the workmen at piece  rates. After the bidis were delivered to the appellants payment was made therefor.  The system was that the appellants fixed the price of tobacco and leaves supplied to the contractors  who took  them to the places where work of rolling was done  and gave them to the workmen.  Next day, the manufactured  bidis were  taken by the contractors to the appellants who paid  a certain  price  for the manufactured bidis  after  deducting therefrom  the  cost of the tobacco and the  leaves  already fixed.  The balance was paid to the contractors who in their turn  paid  to the workmen, who rolled bidis,  their  wages. Whatever  remained  after paying the workmen  would  be  the contractors’  commission for the work done.  It may also  be mentioned  that  there were written agreements on  the  same pattern  between the appellants and the contractors in  that behalf,  though no ,such agreement has been printed  in  the paper books. as  if  there  was  a sale of  leaves  and  tobacco  by  the appellants  to contractors and after the bidis  were  rolled there  was  a resale of the bidis to the appellants  by  the contractors.   The; tribunal however held that it was  clear that there was no sale either of the raw materials or of the finished products, for, according to the agreement, if bidis were  not  rolled, raw materials had to be returned  to  the appellants  and the contractors were forbidden from  selling the raw materials to any one else.  Further after the  bidis were  manufactured  they  could only  be  delivered  to  the appellants  who  supplied raw materials and not to  any  one else.    Further  price  of  raw  materials  fixed  by   the appellant,  as  well as the price of the  finished  products always  remained the same and never fluctuated according  to market  rates.  The tribunal therefore concluded that  there was  no  sale  of raw materials followed by  resale  of  the finished  products and this system was evolved in  order  to avoid  regulations  under the Factories Act.   The  tribunal also found that the contractors generally got only annas two per thousand bidis for their trouble.  The tribunal 649 also  referred  to  a  clause  in  the  agreement  that  the appellants would have no concern with the workers who rolled bidis  for whom only the contractors would  be  responsible. But   it  was  of  the  view  that  these  provisiors   were deliberately  put  into the agreement by the  appellants  to escape such statutory duties and obligations, as may lie  on them  under the Factories Act or under the Madras Shops  and Establishments  Act.   Finally  on a review  of  the  entire evidence, the tribunal found that this system of manufacture of  bidis  through  the so-called  contractors  was  a  mere camouflage  devised  by the appellants.  The  tribunal  also



found that the contractors were indigent persons and  served no  particular duties and discharged no  special  functions. Raw  materials  were  supplied  by  the  appellants  to   be manufactured  into finished products by the workmen and  the contractors  had  no other function except to take  the  raw materials  to  the  workmen  and  gather  the   manufactured material.  It therefore held that the so-called  contractors were not independent contractors and were mere employees  or were  functioning as branch managers of  various  factories, their remuneration being dependent upon the work turned out. It  therefore came to the conclusion that the  bidi  workers were  the  employees of the appellants and not  of  the  so- called  contractors  who were themselves nothing  more  than employees or branch managers of the appellants.  It  finally held  that reduction in the wages by two annas per  thousand bidis was not justified and the workmen were entitled to the old  rates.  It therefore ordered the reduction in wages  to be restored. Thereupon  the  appellants filed two writ petitions  in  the High  Court,  their contention being that the  tribunal  was wrong  in holding that the contractors and the  workmen  em- ployed  by  the contractors were the workmen of  the  appel- lants.  It seems that a sample agreement was produced before the High Court, which provided inter alia for the  following terms: -               (1)   That  the proprietor should  supply  the               tobacco and the bidi leaves;               (2)   that  the  intermediary  should   engage               premises  of his own and obtain the  requisite               license  to  carry on the work of  having  the               bidis rolled there;               (3)   that  at no time should more  than  nine               bidi  rollers  work in the  premises  of  that               intermediary;               (4)   that  the intermediary should  meet  all               the  incidental charges for rolling the  bidis               including   the   cost  of  thread   and   the               remuneration paid to the bidi rollers;               650               (5)   that  for  every  unit  of  1,000  bidis               rolled  and delivered by the  intermediary  to               the  proprietor,  the latter  should  pay  the               stipulated amount, after deducting the cost of               the  tobacco and the bidi leaves  supplied  by               the proprietor;               (6)   that  the intermediary should not  enter               into   similar  engagement  with   any   other               industrial concern;,               (7)   that the price of the raw materials  and               price to be paid for every unit of 1,000 bidis               rolled  and delivered were to be fixed at  the               discretion of the proprietor. Besides these conditions, the contract also provided that it was   liable  to  termination  on  breach  of  any  of   the conditions, and that the proprietors had no connection  with and that they assumed no responsibility for the bidi workers who had to look to the intermediary for what was payable  to them for rolling the bidis. The  learned  Single Judge on a review of the terms  of  the contract  and the evidence on record held that  neither  the bidi  roller  nor the intermediary was an  employee  of  the appellants.   In  consequence there could be  no  industrial dispute  within  the meaning of s. 2 (k) of  the  Industrial Disputes  Act between the appellants and the  bidi  rollers. The  petitions were therefore allowed and the award  of  the



tribunal was set aside. Thereupon there were two appeals by the workmen.  The appeal court  on a consideration of the terms of the  contract  and the findings of the tribunal came to the conclusion that the so-called  contractors were really the agents of the  appel- lants  and  that there was no utter lack of control  by  the appellants on the bidi workers who actually rolled the bidi. The appeal court also found that the intermediaries were im- pecunious and according to the evidence could hardly  afford to have factories of their own.  It also found that the evi- dence  revealed  that the appellants took the real  hand  in settling  all  matters  relating to  the  workers,  and  the intermediary was a mere cipher and the real control over the workers  was  that  of the  appellants.   The  appeal  court therefore  held that the appellants were the real  employers of the workmen and the so-called intermediaries or so-called independent contractors who were in some cases ex-employees, were no more than agents of the appellants.  In this view of the matter the appeal court held that the conclusion reached by  the tribunal that the intermediaries were merely  branch managers 651 appointed by the management and the relationship of employer and  employees  subsisted between the  appellants  and  bidi rollers  was correct.  The appeals were  therefore  allowed, and the order of the tribunal was restored.  The  appellants have  come  before us on certificates granted  by  the  High Court. The  question  whether relationship of  master  and  servant subsists  between  an  employer and employee  has  been  the subject of consideration by this Court in a number of cases. In   Dharangadhara  Chemical  Works  Limited  v.  State   of Saurashtra(1) it was held that the question whether a person was  a workman depended on whether he had been  employed  by the  employer and the relationship of employer and  employee or  master and servant subsisted between them.  It was  well settled that a prima facie test of such relationship was the existence of the right in the employer not merely to  direct what  work was to be done but also to control the manner  in which  it was to be done, the nature or extent of such  con- trol  varying in different industries and being by its  very nature  incapable of being precisely defined.   The  correct approach therefore was to consider whether, having regard to the nature of the work there was due control and supervision by  the  employer.  It was further held  that  the  question whether the relation between the parties was one as  between an  employer and employee or master and servant was  a  pure question  of fact, depending upon the circumstances of  each case.  In that case, the dispute was whether certain agarias who were a class of professional labourers, were workmen  or independent contractors.  The facts found in that case  were that  the  agarias worked themselves with members  of  their families  and were free to engage extra labour on their  own account.  No hours of work were prescribed.  No muster rolls were  maintained; nor were working hours controlled  by  the master.   There were no rules as regards leave  or  holidays and  the  agarias were free to go out of the  factory  after making  arrangements for the manufacture of salt.  Even  so, though certain features which were usually to be found in  a contract  of service were absent, the tribunal held that  on the whole the status of agarias was that of workmen and  not that of independent contractors, particularly as supervision and  control  was exercised by the master extending  to  all stages  ,of manufacture from beginning to end.   This  Court upheld  the  view of the tribunal on a review of  the  facts



found in that case. The  next  case  to which reference has been  made  is  Shri Chintaman Rao v. The State of Madhya Pradesh(2). (1) [1957] S.C.R. 152. (2) [1958] S.C.R. 1340. 652 That  was a case of bidi manufacture, and the question  that arose for determination was whether certain persons known as sattedars  and  those who worked under  the  sattedars  were workmen  or not.  It was found that the sattedars  undertook to supply bidis by manufacturing them in their own factories or by entrusting the work to third parties at a price to  be paid by the management after delivery and approval.   Refer- ence  was made to the principles laid down in  Dharangadhara Chemical  Works Limited’s case(1) to determine  whether  the persons employed were workmen or not, and it was found  that the  sattedars  were not under the control  of  the  factory management  and  could manufacture the bidis  wherever  they pleased.   It  was  therefore held  that  the  coolies  were neither  employed  by  the management directly  nor  by  the management through the sattedars. A special feature of  that case was that none of the workmen under the sattedars worked in factories.  The bidis could be manufactured anywhere  and there was no obligation on the sattedars to work in the fac- tory of the management.  The sattedars were even entitled to distribute  tobacco to the workers for making bidis  in  the workers’  respective homes.  It was in  these  circumstances that  this  Court held that the sattedars  were  independent contractors  and the workers employed by them were  not  the workers of the management. Then we come to the case of Shri Birdhichand Sharma v. First Civil  Judge  Nagpur(2).   That  was also  a  case  of  bidi manufacture.   The  facts found were that  the  workmen  who rolled the bidis had to work at the factory and were not  at liberty to work at their houses; their attendance was  noted in  the  factory  and they had to work  within  the  factory hours,  though  they were not bound to work for  the  entire period  and could come and go away when they liked;  but  if they  came after midday they were not supplied with  tobacco and thus not allowed to work even though the factory  closed at  7  p.m. Further they could be removed  from  service  if absent  for  eight days.  Payment- was made on  piece  rates according  to the amount of work done, and the  bidis  which did not come upto the proper standard could be rejected.  On these facts it was held that the workers were workmen  under the  Factories  Act and were  not  independent  contractors. This Court pointed out that the nature and extent of control varied  in  different industries and could not by  its  very nature  be precisely defined.  When the operation was  of  a simple nature and did not require supervision all the  time, control  could be exercised at the end of day by the  method of rejecting bidis which did not come upto proper standard, (1)[1957] S.C.R. 152. (2)[1961] 3 S.C.R. 161. 653 such supervision by the employer was sufficient to make  the workers,  employees  of  the employer  and  not  independent contractors.   The nature of the control required to make  a person  a servant of the master would depend upon the  facts of each case. The  next  case  is Shankar Balaji Waje v.  State  of  Maha- rashtra(1).   That was also a bidi manufacturing  case.   On the  facts of that case the majority held that  decision  in Shri Birdhichand Shama’s case(2) was distinguishable and the appellant  was not a worker within the meaning of  the  Fac-



tories  Act.   It may be noted however that that  case  also followed  the  line  of decisions of this  Court  since  the decision in the case Dharangadhara Chemical Works Limited(3) as  to the criteria for coming to the conclusion  whether  a person was an employee or an independent contractor. The  last case to which reference has been made is  again  a bidi  manufacturing case, namely, Bhikusa  Yamasa  Kashtriya (P)  Limited  v. Union of India(4).  In that case  the  main question raised was about the constitutionality of s. 85  of the  Factories Act and the notification issued by the  State of  Maharashtra thereunder.  The Constitutionality of s.  85 and  the  notification  made  thereunder  was  upheld.   The question  there involved was about the application of s.  79 of  the,  Factories  Act with reference  to  leave  and  the difficulty  felt in Shankar Balaji Waje’s case(1) as to  how leave could be calculated in the circumstances was explained with reference% to the decision in Shri Birdhichand Sharma’s case(2). It is in the light of these decisions that we have to decide whether the workmen who work under the so-called independent contractors  in  these cases are the workmen of  the  appel- lants.  It has been found by the tribunal and this view  has been   confirmed   by  the  appeal  court   that   so-called independent contractors were mere agents or branch  managers of  the appellants.  We see no reason to disagree with  this view taken by the tribunal and confirmed by the appeal court on  the facts of these cases.  We are not unmindful in  this connection  of  the view taken by the learned  Single  Judge when he held that on the agreements and the facts found  the so-called  intermediaries were independent contractors.   We are  however  of opinion that the view taken by  the  appeal court  in this connection is the right one.  As  the  appeal court has rightly pointed out the (1)[1957] S.C.R. 152. (2)  [1961] 3 S.C.R. 161. (3)  (1962) Supp 1.  I S.C.R. 249. (4) [1964] 1 S.C.R. 860. 654 so-called independent contractors were indigent persons  who were  in all respects under the control of  the  appellants. There  is in our opinion little doubt that this  system  has been  evolved to avoid regulations under the Factories  Act. Further  there  is  also no doubt  from  whatever  terms  of agreement  are  available on the record that  the  so-called independent contractors have really no independence at  all. As  the  appeal court has pointed out they  are  impecunious persons  who could hardly afford to have factories of  their own.  Some of them are even ex-employees of the  appellants. The contract is practically one sided in that the proprietor can  at his choice supply the raw materials or refuse to  do so, the so-called contractor having no right to insist  upon the   supply  of  raw  materials  to  him.   The   so-called independent contractor is even bound not to employ more than nine  persons  in his so-called factory.  The  sale  of  raw materials to the so-called independent contractor and resale by him of the manufactured bidis is also a mere  camouflage, the  nature of which is apparent from the fact that the  so- called  contractor never paid for the materials.   All  that happens is that when the manufactured bidis are delivered by him to the appellants, amounts due for the socalled sale  of raw materials is deducted from the so-called price fixed for the  bidis.   In effect all that happened is  that  the  so- called  independent contractor is supplied with tobacco  and leaves  and  is paid certain amount-, for the wages  of  the workers employed and for his own trouble.  We can  therefore



see  no difficulty in holding that the so-called  contractor is merely an employee or an agent of the appellants as  held by the appeal court and as such employee or agent he employs workers to roll bidis on behalf of the appellants.  The work is  distributed between a number of :-so-called  independent contractors  who  are  told not to  employ  more  than  nine persons  at  one  place  to  avoid  regulations  under   the Factories  Act.   We  are not however  concerned  with  that aspect of the matter in the present appeals.  But there  can be  no  doubt  that the workers employed  by  the  so-called contractors are really the workmen of the appellants who are employed  through their agents or servants whom they  choose to call independent contractors. It  is  however urged that there is no control by  even  the agent  over the bidi workers.  Now the evidence  shows  that the  bidi workers are permitted to take the leaves homes  in order to cut them so that they might be in proper shape  and size  for next day’s work; but the real work of filling  the leaves  with  tobacco (i.e. rolling the bidis) can  only  be done  in the so-called factory of the so-called  independent contractor.   No tobacco is ever given to the workers to  be taken  home to be rolled into bidis as and when they  liked. They have to 655 attend  the so-called factory of the  so-called  independent contractor  to  do the real work of rolling bidis.   As  was pointed  out  by  this Court in  Shri  Birdhichand  Sharma’s case(1) the work is of such a simple nature that supervision all  the  time  is not required.   In  Birdhichand  Sharma’s case(1)  supervision was made through a system of  rejecting the  defective  bidis, at the end of day.   In  the  present cases we have not got the full terms of the agreement and it is  therefore not possible to say that there was no kind  of supervision  or  control over the workers and that  the  so- called  independent contractors had to accept all  kinds  of bidis  whether  made upto standard ’or not.   It  is  hardly likely that the so-called independent contractor will accept bidis  which are not upto the standard; for that is  usually the system which prevails; in this trade as wilt be apparent from the facts of the many bidi manufacturing cases to which we have referred.  We are therefore not prepared to hold  in the absence of any evidence one way or the other that  there is  no  supervision  whatsoever  of the  work  done  by  the workers.   In the circumstances we are of opinion  that  the relationship  of master and servant between  the  appellants and  the  workmen  employed by  the  ;so-called  independent contractors  is  established.   As  the  appeal  court  has’ pointed out whenever there was a dispute in connection  with the  manufacture of bidis the workers looked to  the  appel- lants  for redress.  In one of the cases the manager of  one of  the appellants sent a letter to the labour officer  that the  factory  was  agreeable to increase the  wages  of  the workers from, Rs. 1/14/ - to Rs. 2/- per thousand bidis.  In the  other case also a similar letter was addressed  showing that whenever there was increase or decrease in wages of the workers   who,   work  under   the   so-called   independent contractors  the real decision was taken by the  appellants. This  conduct  on  the part of  the  appellants  is  clearly inconsistent with their plea that the workers are not  their employees and there is no privity between them and the  said workers.   We  are therefore of opinion that  on  the  facts found  in these cases the appeal court was right in  holding that  the  conclusion  reached  by  the  tribunal  that  the intermediaries were merely branch managers appointed by  the management  and the relationship of employers and  employees



subsisted  between  the appellants and the bidi  rollers  is correct.   In  this  view the appeals fail  and  are  hereby dismissed with costs-one set of hearing costs. Appeal dismissed (1)[1961] 3 S.C.R. 161. 656