The main legal point established in the judgment is the importance of considering all relevant factors, including control, supervision, and integration of work, in determining the employer-employee relationship under the Employee State Insurance Act.

Bhat,J.

1. Regional director, E.S.I. Corporation, Trichur being aggrieved by the judgment of the E. S. I. Court, Calicut in E.I.C. No.53/83 has filed this appeal.

2. The respondent is a firm engaged in the manufacture and sale of Handloom textile goods. Respondent has a factory of its own covered by E. S. I, scheme. Appellant by letter dated 18-11-1981 sent to the respondent required the latter to pay E. S. I, contribution for a sum of Rs.4,82,040.28. Bulk of this account represented wages paid on account of "outside weaving charges" and "outside winding charges". Admittedly these amounts have not been taken into account for payment of contribution. This was followed by letter dated 23-2-1983 to the same effect. Respondent sent a reply dated 20-4-1983 denying liability and followed it up by filing an application under S.75 of the Employees State Insurance Act before the E. S. I. Court seeking declaration that the direction of the appellant is illegal and unenforceable and to restrain the appellant from recovering the amount by way of. revenue recovery proceedings. The E.S.I, court accepted the contention of the respondent and allowed the application. Hence this appeal.

3. The stand taken in the application filed before the E.S.I, court can be summarised as follows: The factory manufactures Handloom cloth and workers are employed in the factory for that purpose. In Cannanore there was practice of giving the work of winding and weaving cloth to outsiders who undertake to do the work in their own places. Such persons collect yarn from the factory for winding on weightage basis and return "wound yarn" to the establishment and for that purpose charges are paid to them. Similarly yarn is given to outsiders for weaving. They are not employed in connection with the work carried on in the factory and there is no employer-employee relationship. Respondent has no right of supervision over these workers. It is a contract for service and they are not employees as defined in the Act. Yarn is supplied by the establishment to master weavers available in the locality and they manufacture and supply cloth to the establishment. These mater weavers carry yarn to their own work place, weave cloth either by themselves or by engaging other persons under them and sell manufactured cloth to the establishment. From the price payable for the cloth supplied, value of yarn supplied to the master weaver is deducted and the balance amount is paid to them. This is purely a commercial transaction. Learned counsel for the respondent further elaborated by stating that master weavers have their own looms and they engage workers to work in their looms and convert the yarn to cloth. Learned counsel also submitted that persons engaged by master weavers are not employees of the respondent's factory and they are not paid by respondent. Appellant contends that this is only a ruse to deny E. S. I, benefits to the employees and absolve respondent of liability to pay contribution. P.W.1 examined on behalf of the establishment deposed to its case. The E. S. I, court held that the actual workers are not employees within the definition of the Act.

4. It is not contended for the Corporation that the persons to whom winding work and weaving work are entrusted, are 'employees' as defined in the Act. The stand taken is that the workers who actually carry out the work and employed by the contractors or master weavers are employees as defined in the Act.

5. Learned counsel appearing on both sides have referred us to several decisions. In Shankar Balaji Waje v. State of Maharashtra (AIR 1966 S.C.517) it was held that persons engaged to roll bidis on job work and working without supervision of the employer are not persons employed directly for the purpose of the Factories Act. This decision is of no assistance since the definition of the expression "employee" in the E. S. I. Act is different from the definition of "worker" in the Factories Act. In Chintaman Rao v. State of M