A shareholder of a Co-operative Society can be its employee if a contract of employment is established, and such employees are entitled to coverage under the Employees' State Insurance Act.

Ramanujam, J.

This appeal is directed against the order of the Employees' State Insurance Court at Pondicherry in E.S.I. O.P. No. 2 of 1978.

2. The appellant filed an application under S. 75(1)(g) of the Employees' State Insurance Act of 1948 for a declaration, that the said Act is not applicable to it. Its contention was that if was a registered co-operative society of weavers, that though weavers come and work in the factory owned by the Society, the payment made to them for the work done cannot be taken to be "wages" and that they cannot be taken as "employees", whatever is paid to them should be taken to be dividend and not wages. Thus, the contention of the appellant-society on the basis of which the relief set out above was claimed, was that all the alleged employees are the members of the Society and whatever was paid to them towards the work done by them has to be taken as dividend and not as wages.

3. The application was opposed by the Employees' State Insurance Corporation on the ground that the Act is intended to cover all persons who receive wages for the work done by them, that merely because the workers happen to be shareholders of the Society they do not cease to be workers and that the wages paid to them cannot be taken to be dividends.

4. The Employees' State Insurance Court, after considering the rival contentions, found that the Act is applicable to all the persons working under the Society and that the fact that the workers happen to be the shareholders of the Society will not take them out of the coverage of the Act. The said finding is challenged by the Co-operative Society in this appeal.

5. It is contended by the learned counsel for the appellant-Society that the weaving who undertaken the job of weaving for the society cannot be taken to be employees under the Society. Nor can the amounts received by them for that work be taken as wages, as defined in the Act, and whatever they do for the Society should be taken as having been done in their capacity as shareholders and whatever was received by them as such shareholders can only be taken as dividends are not as wages. According to the learned counsel for the appellant, unless a person is an employee of the Society, and receives wages from the Society, he is not entitled to be covered by the Act. The question is, how far the above submission of the learned counsel could legally be sustained.

6. The Employees' State Insurance Court has adopted three tests to find out whether the Act is applicable to the appellant-Society or not. The first test is to see whatever the persons sought to be covered by the Act are not employees in receipt of wages, as defined under the Act. It was found, after consideration of the evidence, that the appellant Society maintain a 'Register of Wages', and an 'Attendance Register' in which the names of the persons employed are entered. The report of the Inspector of Employees' State Insurance Corporation, Exhibit R-1, has been referred to. In a letter, Ext. R-2, written by the appellant-Society to the respondent, it has been stated that if the Society were compelled to pay all of a sudden a huge sum by way of contribution, more than 100 persons would be thrown-out of employment. This shows that the appellant-Society, in fact, employs more than 20 persons. The lower Court also found that it is not a case of the appellant-Society working without any employees and that the entire work of the society is done by the shareholders engaging themselves in different occupations under the Society.

7. The second test applied by the Court below was as to see whether any manufacturing processes carried on by the Society. In this connection, it found that the Society is actually engaged in the process of manufacturing clothes and, therefore, it is clear that the appellant-Society is engaged in the process of manufacturing. The third test adopted by the Court below was to see whether power was used in the manufacturing process. It was held,