1. Dispute over wage reduction for bidi workers — determination of employer-employee relationship between proprietors and workers employed through intermediaries under the Industrial Disputes Act. (Para 1 , 2 )
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1964 Supreme(SC) 126
SUPREME COURT OF INDIA
P.B. GAJENDRAGADKAR, C.J.I., K.N. WANCHOO AND K.C. DAS GUPTA, JJ.
1. Management of D. C. Dewan Mohideen Sahib and Sons (In C. A. No. 721 of 63); and 2. Janab S. Ahmed Hussain and Sons (In C. A. No. 791 of 63), Appellants
Versus
Secretary, United Beedi Workers Union Salem and another (In both the Appeals), Respondents.
Civil Appeals Nos. 721 and 791 of 1963. 371
Advocates appeared
M/s. V. P. Raman and R. Ganapathy Iyer, Advocates, for Appellant (In C. A. No. 721 of 63); Mr. G. B. Pai, Advocate and M/s. J. B. Dadachanji, O. C. Mathur and Ravinder Narain, Advocates of M/s. J. B. Dadachanji and Co., for Appellant, (In C. A. No. 791 of 63): Mr. T. S. Venkataraman, Advocate, for Respondent No. 2. (in both the Appeals).
Advocates:
G.B.PAI, J.B.DADACHAN, O.C.MATHUR, R.Ganapathy Iyer, Ravindra Narayan, T.S.VENKATA RAMANA, V.P.Raman
G.B.PAI, J.B.DADACHAN, O.C.MATHUR, R.Ganapathy Iyer, Ravindra Narayan, T.S.VENKATA RAMANA, V.P.Raman
The employer-employee relationship is determined by the degree of control. Where intermediaries are impecunious agents used as a camouflage to evade statutory obligations, the workers employed by them are considered employees of the principal employer.
Headnote:(A) Industrial Disputes Act, 1947 - Section 2(k) - Factories Act - Employer-employee relationship - Test of control - Whether a person is a workman depends on whether the relationship of employer and employee or master and servant subsists between them - Prima facie test is 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 - Nature and extent of control varies by industry and is a question of fact. (Paras 7, 9)
(B) Independent Contractor vs. Employee - Where the system of using intermediaries is a camouflage to avoid statutory obligations under the Factories Act, and intermediaries are impecunious agents under the total control of the principal, the workers employed by such intermediaries are deemed to be employees of the principal. (Paras 12, 13)
Facts of the case:
Proprietors of bidi concerns supplied raw materials to intermediaries who employed workers to roll bidis. The intermediaries were restricted in the number of workers they could employ and had no independent financial standing. The proprietors fixed the prices of materials and finished products and decided on wage adjustments. The intermediaries functioned as agents rather than independent contractors.
Findings of Court:
The intermediaries were not independent contractors but were mere agents or branch managers of the proprietors. The system was devised to evade regulations under the Factories Act. The bidi rollers were employees of the proprietors.
Issues: Whether the bidi rollers employed through intermediaries were workmen of the proprietors under the Industrial Disputes Act, and whether the intermediaries were independent contractors or agents of the proprietors.
Ratio Decidendi: The court held that the relationship of master and servant is a question of fact. In this case, the lack of financial independence of the intermediaries, the proprietors' control over pricing and wages, and the restriction on the number of workers indicated that the intermediaries were agents. Even in simple tasks where constant supervision is absent, control exercised through quality standards is sufficient to establish an employer-employee relationship.
Result: Appeals dismissed.
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2. Whether bidi workers were employees of the proprietors or employees of independent contractors, and whether an industrial dispute existed between the proprietors and the workers. (Para 2 , 4 )
3. The intermediary system was a camouflage to avoid statutory obligations; proprietors exercised real control over wages and production, rendering intermediaries mere agents or branch managers. (Para 3 , 6 , 12 , 13 )
4. The master-servant relationship depends on the employer's right to control not only what work is done but also the manner in which it is performed. (Para 7 )
5. Appeals dismissed; the order restoring the wage reduction was upheld, confirming the workers as employees of the proprietors. (Para 13 )
6. How is the relationship of master and servant determined in an employment context?
The prima facie test is the existence of the employer's right to control not only what work is to be done but also the manner in which it is performed, though the nature and extent of such control vary across different industries. (Para 7 )
7. When does a system of intermediaries constitute a camouflage for a direct employer-employee relationship?
When intermediaries are impecunious, lack independent control, are subject to one-sided contracts, and the system is designed to avoid statutory regulations like the Factories Act, they are considered agents or employees rather than independent contractors. (Para 3 , 12 )
8. Can an employer-employee relationship be established if constant supervision is absent in simple tasks?
Yes. In simple operations, control can be exercised at the end of the day by rejecting products that do not meet the required standard, which is sufficient to establish the workers as employees rather than independent contractors. (Para 9 , 13 )
9. Does the power to determine wages indicate a master-servant relationship between a principal and workers employed via agents?
Yes. When the real decision regarding the increase or decrease of wages for workers employed through intermediaries is taken by the principal, such conduct is inconsistent with the plea that no privity exists between the principal and the workers. (Para 13 )
Judgment
WANCHOO, J. : 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 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 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
