Labour Law; Khadi Gramodyog Emporium Vs. Deputy Regional Director [Bombay High Court, 18-04-2016]

Employees State Insurance Act, 1948 – Section 2 (9) 45A – Honorarium – Whether liable to pay the amount of contribution – Merely because the ledger account indicate some amount paid under the head “majurikhata” and the statement of the witness made dehors the context that the charges were paid, would not be enough to hold that it is a contract of service or that there existed relationship of employer and employee between the appellant and 3 tailors.


IN THE HIGH COURT OF JUDICATURE AT BOMBAY NAGPUR BENCH, NAGPUR

CORAM: R. K. DESHPANDE, J.

DATE : 18 APRIL, 2016

FIRST APPEAL NO. 753 OF 2004

Khadi Gramodyog Emporium, Gandhi Sagar, Nagpur, by its Secretary and Manager …… APPELLANT …

VERSUS

Deputy Regional Director, Incharge, Employees State Insurance Corporation, ESIC Bhavan, Ganeshpeth, Nagpur …… RESPONDENT

Shri S.W.Ghate, counsel for appellant. Smt. B.P.Maldhure, counsel for Respondent

ORAL JUDGMENT

1] On 18.12.2004 the respondent Deputy Regional Director in the office of Employee State Insurance Corporation issued notice to the appellant calling upon it to pay contribution arrears of Rs.5624.45, alleging that the declaration forms in respect of 3 tailors working in the establishment of the appellant were not submitted. The appellant submitted reply on 19.01.1985 informing that those 3 tailors were only allowed to keep their sewing machines outside the shop and they used to provide service of stitching to the customers who purchase the clothes from the appellant. The relationship of employer and employee between the appellant and those 3 tailors was denied.

2] On 14.05.1985, the respondent Corporation passed an order under

# Section 45A of the Employees State Insurance Act, 1948

rejecting the plea taken by the appellant that 3 tailors were not the employees and asking the appellant to pay contribution arrears of Rs.5624.45 from 01.04.1982 to 31.05.1984 along with interest amounting to Rs.6075.20 upto 30.04.1985, failing which the interest at the rate of 6% per annum was made payable with effect from 01.05.1985 till realization.

3] The aforesaid order dated 14.05.1985 was the subject matter of challenge by the appellant before the Employees State Insurance Court at Nagpur, by filing an application under Section 75(1) of the said Act, registered as Application (ESI) No. 5 of 1985. The Court framed two issues; (i) whether 3 tailors working for the appellant are the employees within the meaning of Section 2(9) of the said Act, and (ii) whether the appellant is liable to pay the amount of contribution as was demanded. The Court recorded the finding that the relationship of employer and employee has been established between the appellant and 3 tailors and accordingly, dismissed the application by judgment and order dated 24.09.2004, which is the subject matter of challenge in this appeal.

4] On 11.04.2005 this Court admitted the matter on the following substantial question of law.

# Whether the Tailors are the employees within the meaning of Section 2(9) of the Employees’State Insurance Act, 1948?

5] Before the Employees State Insurance Court the appellant examined Gopal Vinayakrao Shahastrabuddhe, whereas no one entered the witness-box on behalf of the respondent Corporation. The Court recorded the finding that Exhs. 34 to 41 which are the documents placed on record have not been disputed by the appellant. It records the finding that the witness has admitted that Khadi Gramodhyog used to give cloth to the tailors for stitching and tailors used to take cloth to their homes for stitching and used to return the stitched clothes as per direction of Khadi Gramodhyog and the tailors were paid wages for this work as fixed between Khadi Gramodhyog and the tailors. If further admitted that if the tailors committed mistake in stitching then the clothes used to be returned to the tailors for correcting the mistake by stitching it again as directed by Khadi Gramodhyog. Exh. 34 has been relied upon to hold that it was ledger extract showing the amount paid under the head “Majurikhata”. The Employees State Insurance Court placed reliance upon the decision of the Apex Court in

# Silver Jubilee Tailoring House and ors v. Chief Inspector of Shops & Establishment and another , reported in AIR 1974 SC 37

and the another decision of the Apex Court in the case of

# M/s. P.M.Patel and sons & ors v. Union of India & others, reported in 1986(I) SCC 32

6] In the decision of the Apex Court in case of Workmen of

# Nilgiri Cooperative Marketing Society Ltd v. State of Tamil Nadu and others reported in (2004) 3 SCC 514

the decision of the Apex Court in Silver Jubilee Tailouring House’s case has been considered along with several other judgments. In paragraph No. 32, the Apex Court has held that the determination of the vexed questions as to whether a contract is a contract of service or contract for service and whether the employees concerned are employees of the contractors has never been an easy task. It is held that, no decisoin of this Court has laid down any hard-and-fast rule nor it is possible to do so. It holds that the question in each case has to be answered having regard to the fact involved therein and no single test – be it control test, be it organization or any other test – has been held to be the determinative factor for determining the jural relationship of employer and employee. In paragraph No. 47 of the said decision, it is held that the person who sets up a plea of existence of relationship of employer and employee, the burden would be upon him. The Apex Court has referred the judgment of Kerla High Court in paragraph No. 48, which holds that the burden of proof being on the workmen to establish the employer-employee relationship, an adverse inference cannot be drawn against the employer that if he were to produce books of accounts they would have proved employer-employee relationship.

7] In the decision of the Apex Court in

# Union Public Service Commission v. Girish Jayantilal Vaghela and othres, reported in (2006) 2 SCC 482,

the distinction between the “contract of service” and “contract for service” has been considered in paragraph no. 6 of the judgment, which is reproduced below.

The problem of defining what is an employer and employee relationship and what is an independent entrepreneurial dealing frequently arises before the courts. Difficulty arises in defining what is a “contract of service” and what is “contract for service”. In

# Cassidy v. Ministry of Health (1951) 1 All ER 574

after referring to some earlier decisions, it was held that in a “contract for services” the master can order or require what is to be done, while in the other case (a contract of service) he can not only order or require what is to be done but direct how it shall be done.

The House of Lords in

# Short v. J. & W. Henderson, Limited (1946) 174 Law Times 417

laid down the attributes of employer-employee relationship which have been followed in later decisions. In this case the appellant, who was a dock labourer, sustained injuries by accident and claimed compensation against the respondents under the Workmen’s Compensation Act, 1925. The respondents contended that the appellant was not a workman within the meaning of Section 3(1)of the said Act but was a member of a joint stevedoring adventure. The House laid down the following four indicia of contract of service, namely, (a) the master’s power of selection of his servant; (b) the master’s responsibility of payment of wages or other remuneration; (c) the master’s right of suspension or dismissal; and (d) the master’s right to control the method of doing the work. It was also observed that a contract of service may still exist if some of these elements are absent altogether, or, present only in an unusual form and that the principal requirement of a contract of service is the right of the master in some reasonable sense to control the method of doing the work, and that this factor of superintendence and control has always been treated as critical and decisive of the legal quality of the relationship.

8] Exh. 34, the ledger extract, relied upon merely shows some amount under the head “majurikhata” account. The witness examined by the appellant has stated that 3 tailors mentioned in the report are not in appellant’s service but they used to do the work of customers after the customers purchase the clothes from Khadi Gramodhyog. He has also stated that these 3 tailors used to take their wages of their tailoring from the customers and they were never paid any remuneration for their tailoring work by the appellant, nor the appellant has given any work to the tailors. In the reply filed by the appellant before the respondent in the proceedings under Section 45A of the said Act, the stand was taken that 3 tailors were allowed only to keep their sewing machines outside the shop, though within the premises and they used to bring the stitched clothes from their residences. It was also the stand taken that the appellant used to add the stitching charges in the bill without taking any extra amount as profit.

9] In the decision of the Apex Court in the case of Silver Jubilee Tailoring House, cited supra, the relationship of employer and employee was established and the dominating factor taken into consideration by the Court was that the stitching machines were supplied by the owner and the tailors used to attend the shop to do the work on such machines regularly, which was indicative of the fact that it was a contract of service.

Here in the present case, it is not the fact proved and brought on record that the respondent Corporation either by way of inspection note or by examining the witnesses that the sewing machines were owned by the appellant and the tailors were employed for performing the job on such machines. It is not the case proved by the respondent Corporation that the appellant exercised supervision and control over the functioning of these tailors. Merely because the ledger account indicate some amount paid under the head “majurikhata” and the statement of the witness made dehors the context that the charges were paid, would not be enough to hold that it is a contract of service or that there existed relationship of employer and employee between the appellant and 3 tailors.

10] Smt. Maldhure, the learned counsel for the respondent has urged relying upon the decision in Silver Jubilee Tailoring House’s case that the Apex Court has diluted the test and it is held that the test of supervision and control would not always be a dominating test. The proposition cannot be disputed, but as has been held by the Apex Court, it will have to be seen in the facts and circumstances of each case, what would be the dominating test. In case of such tailors, the Court has applied the test of ownership of sewing machines, which has not been established in the present case. The Employees’ State Insurance Court has committed an error of law in ignoring the vital test of burden of proof and in the absence of any evidence brought on record by the respondent Corporation, it has committed an error in holding that it was a contract of service and therefore, the appellant was liable to pay the contribution in respect of those 3 tailors. It is not in dispute that in respect of other employee working on the establishment of the appellant the contribution as required under the Employees’ State Insurance Act was being regularly paid.

11] Smt. Maldhure, the learned counsel for the respondent has relied upon the following decisions;

# (I) Silver Jubilee Tailoring House v. Chief Inspector Shops and Establishment, reported in AIR 1974 SC 37;

# (II) Prakash Match Industries v. Employees’ State Insurance Corporation, reported in 2000 II LLJ 49;

# (III) Employees’ State Insurance Corporation v. Oswal Wollen Mills Ltd., reported in 1980 (47) FLR 232; and

# (IV) M/s P.M.Patel v. Union of India and others, reported in 1986 (SC) 1 LLJ 88

I have gone through the said decisions and once it is held that it depends upon the facts and circumstances of each case, in the present case, this Court has taken a view that the respondent has failed to establish that it was a contract of service and there existed relationship of employer and employee. The judgments, therefore, would be of no assistance.

12] In view of above, the impugned judgment and order cannot be sustained. The same will have to be quashed and set aside along with the order dated 14.05.1985 passed under Section 45A of the said act by the respondent Corporation.

13] In the result, the appeal is allowed. The order dated 24.09.2004 passed by the Employees’ State Insurance Court along with the order dated 14.05.1985 passed by the Deputy Regional Director of Employees’ State Insurance Corporation are hereby quashed and set aside. The proceedings under Section 45A of the said Act are dismissed. No order as to costs.

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