Madras High Court
South India Surgical Company vs The Regional Director, Employees' ... on 4 February, 1997
Equivalent citations: (1997)IILLJ396MAD, (1997)IMLJ548
Author: A.R. Lakshmanan
Bench: A.R. Lakshmanan
JUDGMENT A.R. Lakshmanan, J.
1. This Letter patent Appeal is directed against the order of Raju, J., in A.A.O. No. 793 of 1983 dated February 8, 1991 filed against E.S.I. O.P. No. 32 of 1981 on the file of the First Addi. City Civil Judge, Madras dated December 22, 1982.
2. We heard Mr. P. S. Raman, learned counsel for the appellant and Mr. G. Desappan learned counsel for the respondent.
3. The appellant is a trading concern dealing in surgical instruments. They had erected some machines necessary for the manufacture of surgical instruments and lend them to some contractors for the manufacture of surgical instruments, at 156, Mount Road, Madras-15. According to the appellant, these contractors purchased raw materials from the appellant and manufacture the required instruments on order placed by the appellant as well as from other persons, and sell the same to the appellant. Finally the appellant will collect hire charges for the usage of machinery and power etc. The respondent issued a show-cause notice dated November 9, 1979 stating that the appellant had not complied with the provisions of E.S.I. Act (hereinafter referred to as 'the Act') and to show cause why action should not be taken under Section 85 of the Act. A reply was sent by the appellant on January 3, 1980 stating that they are not liable under the Act, as they were not having any contract employees, and since the appellants are purchasing the finished products from the contractors, the appellant has no supervisory control over the manufacturing process. Again, the respondent issued a notice on January 22, 1980 stating that the appellant had made payments directly to employees under the head "Establishment expenses and Staff amenities" which had not been included for the purpose of contribution during the period from April 1, 1977 to December 31, 1979 and fixing the contribution of Rs. 9,354-30 on Ad Hoc basis at 7% on these alleged omitted wages and payment. In respect of the contract employees (disputed), contribution of Rs. 5,575-57 was fixed on Ad Hoc basis at 7% for the period from April 1, 1976 to December 31, 1978. The appellant was requested by the above said notice, to pay the amount mentioned therein within 15 days from the date of the receipt of the said notice. Again, on May 5, 1980, another notice dated April 26, 1980 was issued by the respondent to the appellant to pay the contribution within 15 days from the date of receipt of the order as per the order under Section 45 of the Act. The appellant sent a detailed reply by its letter dated July 3, 1980 stating that the appellant is a trading concern in surgical goods and not a factory falling under the definition of the Factory Act, since it did not employ the requisite number of labour. According to the appellant, some instruments are produced on piece rate contract with certain number of contractors. These contractors are provided with requisite machinery, electricity, space and polishing facility etc., for producing the instruments as per orders. The instruments produced by these contractors are received at the Administrative Office at 850, Mount Road, Madras-2 against supply bills and paid therefor. Such instruments that are produced by these contractors are shown in the bought notes prepared in their name and this kind of supply bills or bought notes are credited to their account and advance payment, cost of raw-materials supplied and polishing charges are deducted from such credits and the balance is paid to the contractor. Therefore, it is contended by the appellant that the appellant does not have the power of supervision and control as exercised by the employer over the nature and quantum of work done by the contractor working within the premises, and that the contractors are only suppliers of finished goods to the appellant and there exists only a relationship of buyer and seller. There is no muster roll, no attendance register and there is also no payment of either wages or salary to the contractors. The contractors are employers themselves. The contractors do some work for other purchasers like the appellants in the appellant's premises for which hire charges for the machinery, electricity etc., collected by the appellant and if the appellant rejects the finished products supplied by the contractor, it will be sold by the contractors to the other purchasers outside.
4. The respondent sent a reply dated March 19, 1980 to the appellant's explanation dated July 3, 1980 stating that the appellant is the principal employer and the contractors are immediate employers and therefore, requested the appellant to pay the contribution. The respondent also made an application under Section 5 of Revenue Recovery Act to the Collector of Madras to recover a sum of Rs. 14,929-87 as contribution as per the respondent order dated NIL and also interest. The appellant therefore filed ESIOP. No. 32/81 under Sections 75 & 77 of the Act, before the Employees' State Insurance Court, Madras praying to declare :
a) that the petitioner concern is not liable to pay contribution under ESI Act in respect of the contractors and their Employees as per Notice dated January 22, 1980.
b) Direct the respondent to refrain from demanding from the Petitioner further contribution for further future period.
c) For a declaration that, "Establishment expenses and staff amenities" should not be included for the purpose of contribution in respect of Direct Employees as per Notice Dated January 22, 1980.
d) directing the respondent not to recover interest as per the notice dated August 22, 1981.
e) directing the respondent to pay the cost of the application and grant such further or other reliefs as deemed and proper.
5. The respondent filed a counter affidavit denying all the allegations made by the appellant. On the side of the appellant, one Mr. K. Rajan was examined as P.W. 1 and on behalf of the respondent, one P. S. Krishnamachari, Manager of the Nandambakkam branch of the respondent as R.W. 1 and one Azeezur Rehman, Inspector of the respondent Corporation as R.W. 2. On the side of the management Exs. P1 to P4 were marked and on the side of the respondent, Exs. R1 to R6 were marked. The Employees' State Insurance Court (First Addl. City Civil Court, Madras) by its order dated December 22, 1982 accepted the case of the appellant and held that the appellant concern is not liable to ESI Act in respect of the contractors and other employees. Aggrieved by the said order, the respondent Corporation filed an appeal under Section 82 of the Act before this Court.
6. It was contended before the learned Single Judge that the lower Court erred in holding that the contractors who are entrusted with the work of manufacturing surgical instruments are not employees within the definition of Sec. 2(9) of the Act and that the contractors in any event will come under the purview of the Act as the appellant is the "Principal employer" and the contractors are "immediate employer" as defined under the Act. Therefore, it is contended that the employees engaged by the contractors will squarely come under the purview of the Act.
7. Raju, J., allowed the appeal on the following terms :
"After a careful consideration of the submissions of the learned counsel on either side, I am of the view that the employees found working at premises No. 156, Anna Salai satisfied the definition of "employee' within the meaning of S. 2(9) of the Act, in as much as they have to be treated as employed by the respondent themselves in connection with or incidental to the work of their establishment or factory. As referred to above, there is no dispute that the factory situated at Door No. 156, Anna Salai belongs to the respondent. The raw materials and all other necessary implements and ingredients are also provided by the respondent and merely because somebody else is under direct supervision and control of the manufacturing process as such, the respondent cannot be allowed to plead that they are not the principal employer of the employees in question. To allow such a claim would amount to encouraging the employer to defeat a beneficial legislation of the nature in question designed in furtherance of down trodden workers. The fact that the administrative office of the respondent is located in a different place is wholly irrelevant in considering the scope of the definition contained in S. 2(9) of the Act, likewise, the fact that the workers are not directly paid but though the contractor does not also militate against those persons being the employees within the provisions of S. 2(9) of the Act. A Compendious reading of Sections 2(9), (12) and (17) of the Act goes to show that on the very admitted materials the workers in question squarely satisfy the requirement of "employees" for purposes of the Act and the order of the Court below cannot be sustained. For all the reasons stated above, the appeal shall stand allowed; but in the circumstances, there will be no order as to costs."
8. Aggrieved by the order of the learned Single Judge, the appellant has preferred the above Letter Patent Appeal.
9. Mr. P. S. Raman, learned counsel for the appellant herein contended as follows :
a) So long as the appellant had arrogated to itself the right to reject the end product manufactured by the disputed workmen, the workmen could not be claimed to be falling within the meaning of Section 2(9) of the Act.
b) The appellant was not exercising any supervisory control over the disputed workmen and that they were operating as free agents under an independent contractor and that there were no fixed number of workmen but the workmen were rotated.
c) The disputed workmen could not be termed as the appellant employees under Section 2(9) because the concerned workmen were free agents operating as independent contractors over whose activities, the appellant has no control whatsoever which fact has been admitted by the respondent Corporation.
10. Mr. G. Desappan, learned counsel appearing for the respondent Corporation contended that the contractors in any event will come under the purview of the Act as the appellant herein will be the principal employer and the contractors will be their immediate employers as defined under the Act and that the employees found working at premises No. 156, Anna Salai satisfied the definition of 'employee' within the meaning of S. 2(9) of the Act. Learned counsel for the respondent further contended that the claim of the appellant would defeat the very object of the beneficial legislation and if such a claim is allowed, it would amount to encouraging the employer to defeat the beneficial legislation of the Government in question, designed in furtherance of poor workers.
11. We have considered the rival contentions of the respective counsel. We shall consider first the provisions of the Act and then deal with the rival contentions.
"Section - 2(9) :
2. In this Act, unless there is anything repugnant in the subject or context, -
(1) ....
(2) ....
(3) ....
(4) ....
..
..
..
(9) "employee" means any person employed for wages in or in connection with the work of a factory or establishment to which this Act applies and -
(i) who is directly employed by the principal employer on any work of, or incidental or preliminary to or connected with the work of, the factory or establishment, whether such work is done by the employee in this factory or establishment or elsewhere; or
(ii) who is employed by or through an immediate employer on the premises of the factory or establishment or under the supervision of the principal employer or his agent on work which is ordinarily part of the work of the factory or establishment or which is preliminary to the work carried on in or incidental to the purpose of the factory or establishment; or
(iii) whose services are temporarily lent or let on hire to the principal employer by the person with whom the person whose services are so lent or let on hire has entered into a contract of service;
and includes any person employed for wages on any work connected with the administration of the factory or establishment or any part, department or branch thereof or with the purchase of raw materials for, or the distribution or sale of the products of, the factory or establishment; (or any person engaged as an apprentice, not being an apprentice engaged under the Apprentices Act, 1961, or under the Standing Orders of the establishment; but does not include)
(a) any member of the Indian Naval, Military or Air Forces; or
(b) any person so employed whose wages (excluding remuneration for overtime work) exceed (such wages as may be prescribed by the Central Government);
Provided that an employee whose wages (excluding remuneration for overtime work) exceed such wages as may be prescribed by the Central Government at any time after (and not before) the beginning of the contribution period, shall continue to be an employee until the end of that period;"
We are of the view that there must be a contractual relationship of master and servant before a person is held to be employed for wages. The relationship of master and servant arises out of contract of service. There is a distinction between contract of service and contract for services. In Short v. Henderson 1946 SC 24 HL Lord Thankerton in the House of Lords recapitulated with approval the four indicia of a contract of service by quoting Lord Justice Clark in the Court of Sessions in Park v. Wilsons 1936 SC 121 at 133 thus :
a) the master's power of selection of his servant;
b) the payment of wages or other remuneration;
c) the master's right to control the method of doing the work; and
d) the master's right of suspension or dismissal. Therefore, it is thus seen, 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 or superintendence and control has frequently been treated as critical and decisive of the legal quality of the relationship.
12. In Dharangadhra Chemical Works Ltd., v. State of Saurashtra (1957-I-LLL-477), the Supreme Court has held that the critical test of the relationship of master and servant is the master's right of superintendence and control of the method of doing the work, the nature or extent of the control must vary from business to business and is by its very nature incapable of precise definition. The said principle has been followed in Palaniappa Mudaliar v. Addl. 1st Class Magistrate, Kulitalai (1958-II-LLJ-744) (Mad); in State of Kerala v. V. M. Patel 1960 19 FJR 207, and in Shankar Balaji Waze v. State of Maharashtra (1962-I-LLJ-119) (SC). A close scrutiny of clause - 9 of Sec. 2 contemplates three categories of employees thus :
1) Those who are directly employed by the principal employer in any work of or incidental or preliminary to or connected with the work of the factory or establishment whether such work is done by the employees in the factory or establishment or elsewhere are in first category. By the Amending Act 44 of 1966 the employees working on any work connected with the administration of the factory or establishment or any part, department or branch thereof, or with the purchase of raw materials for the factory or establishment or for the distribution or sale of the products of the factory or establishment have been specifically included in this category.
2) Those who are employed by or through an immediate employer are employees of second category. In order to come within the purview of the Act those persons must work in the premises of the factory or establishment or under the supervision of the principal employer or his agent on work which is ordinarily part of the work of the factory or establishment or which is preliminary to the work carried on in or incidental to the purpose of the factory or establishment.
3) Those whose services are temporarily lent or let out on hire to the principal employer by the person with whom the persons whose services are so lent or let has entered into a contract of service are in third category.
In the light of the above decisions, and of the evidence let in both oral and documentary in this case, we have to see whether the appellant was exercising any supervisory control over the disputed workmen or they were operating as free agents under an independent contractor. Before doing so, we shall refer to Sec. 82 of the Act which provides for an appeal to the High Court from an order of Employees' Insurance Court, if it involves substantial questions of law. The period of limitation for an appeal under this Section shall be 60 days and the provisions of Secs. 5 and 12 of the Limitation Act, 1963 shall also apply to the appeal under this section. There is a very old decision of the Calcutta High Court to the effect that in a case where a substantial question of law arises, the High Court is entitled to consider the case as a whole on point of fact as well as on point of law, AIR 1933 Calcutta 220. But, in later judgment under the Act, the Calcutta High Court however, laid down that where in the statute in question, it has been clearly stated that the appeal itself is confined only to substantial question of law, it is, therefore, not possible in appeal under the said Act to traverse beyond the substantial question of law, if any, involved in the appeal and apart from such question, the appeal is incompetent, and that the findings of fact arrived at by the Insurance Court, accordingly are outside the scope of this appeal and mere admission of the appeal under Or. 41 R. 11 of the C.P.C. cannot enlarge, the scope of appeal as admitted. It is not always easy to disentangle the question of law from the question of fact. A finding based on some legal principles or interpretation of some law is a question of law. The question of fact are those which are based on facts only. The question whether certain labourers can come within the definition of 'Employee' within the meaning of S. 2(9), on the basis of the evidence adduced by the parties, raises a pure question of fact and not being a question of law, such question cannot be agitated before the High Court in appeal. However, since in this case the appeal has been admitted by this Court and a decision was rendered by a learned single Judge of this Court and further this LPA also was entertained by a Division Bench of this Court on April 24, 1992, we are inclined to consider the question of law and the question of fact.
13. We shall now consider the oral evidence let in on behalf of the appellant through P.W. 1. P.W. 1 is the Accountant of the appellant company. He deposed that the appellant company is carrying on business only at D. No. 850, Mount Road, Madras and not carrying on business in any other places and that in D. No. 156, Mount Road, some contractors are manufacturing surgical instruments for the appellant and for using the furnace belonging to the appellant some charges are being collected from the contractors and that raw materials are also supplied to the contractors for the manufacturing purpose. He further deposed that the appellant has the right to reject the goods if the goods are not manufactured according to their prescription and satisfaction and that an entry is made when the raw materials are supplied to the contractors and while settling the bills, the amount the balance alone is paid to the manufacturers. In cross examination, P.W. 1 has stated that the appellant has got the right to reject the goods if it is not manufactured properly and in such circumstances, the appellant would take proceedings to recover the monies paid already to the contractors, or otherwise, the amount already paid would be adjusted towards future payment. He also denied the suggestion that the contractors are their employees and that the appellant was not aware as to how many persons are working with the different contractors and for what period since it is not their concern. He has specifically deposed in his cross-examination that the appellant company are not manufacturing any product through their employees and that the bills of raw materials purchased and the bill of goods supplied to the contractors for manufacture could be seen from ledger No. 4.
14. R.W. 1 who is the Manager of the Nandambakkam branch of the respondent Corporation has deposed that he inspected the premises of the appellant on January 13, 1977 and January 22, 1977 in his capacity as the Inspector and at that time he met one Mr. Murthi Accountant. He visited the Mount Road branch of the appellant on January 22, 1977 to inspect the registers. The electricity connection was in the name of the appellant company and the appellant has taken the said premises on rent and as per the wage roll, the company has employed five persons on monthly wages and on a scrutiny of personal ledger No. 4, it was seen that the payments made to the contractors and the bills regarding the manufacture of the goods by the contractors from and out of the raw materials supplied by the management and entries relating to the payment or adjustment regarding the same. On January 22, 1977 when he visited the premises of the appellant, he found 7 contractors and 9 persons were working under them. On a scrutiny of the ledgers from the year 1976 onwards, which was given by the appellant R.W. 1 found 18 contractors as on April 1, 1976 and 5 employees of the company working as their own employees in the company. He also identified Ex. R1 as the survey Report prepared by him at the time of his visit. In cross examination, he only stated that on January 22, 1977 he visited the factory, and enquired the persons who were working in the company and came to the conclusion that they were working under the contractors. However, he has not recorded any statements from them. R.W. 2 is the Inspector of the respondent Corporation. It is his evidence that he met Murthi, the Accountant of the appellant company and at his request, the Company submitted the attendance register, salary register, ledger, day-book and the connected vouchers. It is his further evidence that the management has paid contributions for the direct employees from April 1, 1977. In cross examination, he stated that he scrutinised the general ledgers and the personal ledgers also which are kept in respect of the contractors and it was seen by him from the said ledgers that the raw materials are supplied to the contractors and the contractors account have been debited for the raw materials supplied and later adjusted towards the amount due and payable to the said contractors for the work done for the manufacture of goods. It is also his evidence that the management has not maintained any personal register for the direct employees.
15. We shall now consider the documentary evidence. Ex. P1 is the show-cause notice dated November 9, 1979 issued by the respondent Corporation. Ex. P2 is the notice dated January 22, 1980 requesting the appellant to pay the arrears of contribution. Ex. P3 is the communication dated August 19, 1980 by the respondent Corporation directing the appellant management to pay the arrears within 15 days from the date of that letter failing which it was informed that revenue recovery action will be initiated for recovery of the arrears. Ex. P4 is a notice dated April 26, 1980 enclosing draft copy of order under Section 45-A. EX. R1 is the survey report. The premises belonging to the appellant company was inspected by one P. S. Krishnamachari, Inspector on January 13, 1977 and January 22, 1977. It is seen from the enclosure to the survey report dated January 22, 1977 it is found that the Inspector visited the establishment and contacted one Mr. Murthy, Chief Accountant, that the premises where the factory is functioning is owned by the wife of one of the partners and rent is paid by the company, that the Corporation of Madras has issued licence to use power and power is used to manufacture surgical instruments. EX. R1 report further reads as follows :
"There are one or two paid employees in the factory. One of them is also given a contract and one person works under him. The employees on the wage rolls of the factory who are working in the factory are given below :
1) K. Kumar
2) V. S. Mani
3) Umanath-Gurkha
4) Natesan
5) P. T. Sweeper"
The report further stated that the Chief Accountant informed him that the company supplies raw materials to the contractors and debits their account with the cost, and for this purpose, a ledger viz. Personal Ledger IV is maintained. Work is entrusted to out-side contractors also. According to the Accountant cost is fixed in respect of each item manufactured and as and when the goods are supplied, the cost is credited by means of a "purchase voucher". The cost fixed in respect of the same item supplied by an outside contractor is more than that supplied by a contractor working in the factory, as per the Accountant the difference represents the reduction towards rent for the premises and charges for consumption of energy. Apparently, the stand purported to be taken by the employer is that the premises where manufacturing process is carried on, is not theirs as rent is purported to be recovered and that the contractors use their own power. ..................... Even if the employer engages his own workers and manufactures, the cost might work still less though not equal to the rate fixed in respect of Maistries allowed to work inside the factory. The Maistries are therefore immediate employers under Sec. 2(13) of the Act, especially in view of the fact that the employer controls their work by stationing one of his representatives there and items not conforming to the specifications are rejected by the employer. Thus, it is one of contract of service only and hence the contractors and the workers engaged by him are 'employees' within the meaning of Section 2(9) of the Act. Having come to the point that the premises at 47-B, Mount Road, Madras-15 is the factory owned by the company and the various maistries working inside are the employees, he ascertained whether the same attracts Section 2(12) of the Act and if so, from what date. The Accountant informed that no attendance are maintained in respect of maistries and the company does not know as to how many persons worked under each maistry. Records were produced to him from April 1, 1976 and he could see that there are some paid employees, only on seeing the ledger. Having been left with no source to ascertain the date on which 20 or mores persons were employed in the factory, he checked in detail the various individual accounts in Personal Ledger IV maintained in respect of all maistries both working in the factory and outside and from the various transactions recorded thereon, he could gather that on April 1, 1976, the following contractors would have definitely worked in the factory :
1. M. K. Ayyappan - since 1.4.1976
2. K. V. Arumugam - 1.4 to 5.4.1976
3. K. N. Bhaskaran - 1.4 to 16.10.1976
4. K. P. Chami - 1.4 to 29.10.1976
5. E. K. Krishnankutty - 1.4 to 8.1.1977
6. N. S. Khalil - 1.4 to 23.8.1976
7. K. V. Kunju - 1.4 to 10.5.1976
8. K. Kuttum - 1.4 to 26.5.1976
9. Munusamy - 1.4 onwards
10. C. Mani - 1.4 to 27.9.1976
11. J. Nallappan - 1.4 onwards
12. K. Raghavan - 1.4 onwards
13. C. N. Ramakrishan - 1.4.1976 to 1.1.1977
14. P. P. Ramankutty
15. U. R. Ramalingam - 1.4.1976 onwards
16. K. Sankaran - 1.4.1976 to 19.5.1976
17. V. Sahadevan - 1.4.1976 to 7.8.1976
18. A. Velu - 1.4.1976 to 20.4.1976 Employees working inside the factory's premises and paid in factory's account :
1. V. S. Mani
2. K. Kumar
3. Umanath
4. A. P. T. Sweeper
5. Natesan - paid in company's a/c.
A review of the various accounts in company's Personal Ledger IV revealed that while some contractors working inside the factory continue even now, some have left/worked intermittently as perceived from the entries in their account. It is also seen that some have left with debit balance even prior to April 1, 1976. From the above it can be observed that on April 1, 1976 there could have been 18 maistries working inside the factory's premises plus the above 5 persons besides some more employees brought by the so called inaistries details of whom are not known. Even assuming (which is quite improbable) that the 'Maistries' alone worked and no employees were engaged by them, the factory stands covered with effect from, April 1, 1976 as 23 persons appear to have been in position in the factory premises on that date. With a view to ascertain whether the contractor brought any employees under him, he paid a visit to the factory on January 22, 1977 and found the following :
"Inside a single compound many rooms exist is (residential type of accommodation) and in all rooms maistries function with their employees. The Corporation licence is displayed in one small room where Mr. Natesan sits and from the way he demands respect from the contractors it was quite clear that he is the sole representative of the employer and is charged with responsibility of controlling, verifymg and acting as liason between the employer and maistries. He can be termed as Time Keeper/Personal Officer. The following maistrieslemployees were present :
1) M. K. Ayyappan - 3, Thulasinga Chetty Street, Madras- 15. 2) K. Raghavan - - 77, Velacheri Road, Madras-15. 3) K. R. Ramalingam - 7, Habibuila Sa -hib Street, Madras-5. 4) K. Kumar - Paid on factory's ale. 5) Umanath - Gurkha - do - 6) V. S. Mani - Paid on Factory's ale. 7) Munuswamy - Polisher. Employees under Maistries 1. M. K. Ayyappan : 1. Kunjumani 2. Subramani 3. Baskaran 4. Prabhakaran II. K. Raghavan : 1. K. V. Gopunni III. U. R. Ramakrishnan 1. K. P. Velayudham 2. Velayudham IV. K. Kumar 1. M. Murugesan V. Munusamy 1. Mari"
R.W. 1 who is the Insurance Inspector of the respondent in his EX. R1 Survey Report dated January 24, 1977 has further stated as follows :
"On enquiry, all the maistries agreed that the above employees were invariably working alongwith them throughout. It is also learnt that other maistries who have come and gone, were having one or two employees under them throughout. It is thus evident that the factory comes under the coverage u/S 2(12) with effect from April 1, 1976 provisionally. The factory may, therefore, be intimated accordingly and advised to :
1) comply in respect of factory, H.O. and B.O. with effect from that date.
2) Produce accounts from 1969 when the factory started functioning."
16. Ex. R2 is the Inspection Report by R.W. 2 for the inspection held on January 1, 1979, January 4, 1979, January 16, 1979, May 19, 1979 and June 21, 1979. In this report R.W. 2 Azeezur Rahman has made a general remark that compliance in respect of contractors' employees has not been started and therefore, as the employer is advised to do so immediately. A calculation has also been made in that report in accordance with the contribution to be made by the employer. EX. R3 is the letter by the management enclosing Form - D1 under Regulation 10-B of the Act. The letter dated August 5, 1976 addressed to the respondent's Regional Director was sent by way of reply to the respondent's letter dated July 31, 1976. Para-3 of the said letter is important to be noticed, which is as follows :
"catering the needs of the leading hospitals in the State, the articles are made out in our factory by different people on a rate contract that means we hire machinery and electricity and fix the price for each item being manufactured there. Such supplies from them are treated as outright purchase."
In the annexure to the said letter in Form D1, it has been specifically stated that the business of the company is carried on through contractors. Ex. R4 is the letter dated January 3, 1980 by way of reply to the notice dated January 9, 1979. It is stated therein that they have allowed few contractors to make their products and supply to them and that they used their machinery, raw materials and power before supplying the finished product to them. Ex. R5 is another letter by the appellant dated July 6, 1980 addressed to the respondent. It is specifically mentioned that the appellant has another place at 156, Mount Road, Madras-15 where some of the instruments are produced on piece rate Contract with certain number of contractors and those contractors are provided with requisite machinery, electricity, space and polishing facility etc., for producing the instruments as per orders and the instruments produced by these contractors are received at the administrative office at 850, Mount Road, Madras-2 against supply bills and paid therefor. It is also seen from the said letter that the contractors are only suppliers of finished goods to the appellant and 45 there exists only the relationship of buyer and seller and there is no muster roll, no attendance register and there is also no payment of either wages or salary to the contractors. In fact, the contractors are employees themselves and engage many assistants to manufacture the products which they in turn sell to the appellant. The appellant therefore, submitted that they are not liable to pay any contribution and therefore, requested the respondent Corporation to drop the action. Ex. R6 is the registered notice dated April 2, 1980 sent by the respondent to the appellant to show cause as to why assessment should not be made by order as provided under Section 45-A of the Act, as the appellant has failed to comply as indicated in para-2 of the said proceedings. The respondent, in exercise of the powers vested in them under sub-section (1) of Section 45-A of the Employees' State Insurance Act, on the basis of the information available, determined the amount of contributions payable in respect of the employees of the factory in question at Rs. 14,929.87 and directed the appellant to pay the said contribution immediately.
17. Thus, a careful perusal of the entire evidence both oral and documentary, would clearly go to show that the appellant company was not exercising any supervisory control over the disputed workmen and they were working as employees of the independent contractors. The Insurance Court, after appreciation of the evidence placed before it, held that the disputed workmen were not the employees of the appellant establishment within the meaning of Section 2(9) of the Act and therefore, came to the conclusion that the appellant is not covered by the provisions of the Act. Unfortunately, the entire materials by way of both oral and documentary evidence were not brought to the notice of the learned single Judge of this Court.
18. In our opinion, so long as the appellant had arrogated to itself the right to reject the end product manufactured by the disputed workmen, those workmen could not be claimed to be falling within the meaning of Section 2(9) of the Act. It was also not brought to the notice of the learned single Judge that the disputed workmen were at liberty to sell the product manufactured by them to the appellant or to any other third party. In this context, it has not been disputed by the respondent before the trial Court that in many instances, the disputed workmen have sold the goods manufactured by them in the appellant's premises to third parties after paying the appellant the value for raw materials and charges for the use of furnace and machinery. In the instant case itself, for the period in dispute, no single workman can be claimed to be continuously employed, but the principal contractor would be different work force to do the job. It was also not brought to the notice of the learned single Judge that the appellant has itself got another manufacturing unit and there were permanent employees who were covered under the various labour legislations such as ESI, PF etc., and that in the instant case, the disputed workmen could not be termed as the appellant's employees under Section 2(9) of the Act and as rightly observed by the trial Court, the concerned workmen were free agents operating as independent contractors over whose activities the appellant had no control whatsoever. Had it been brought to the notice of the learned single Judge, the learned single Judge would not have arrived at this conclusion. In fact, the right of rejection of the goods by the appellant has not been adverted to at all by the learned single Judge in the order under appeal. In fact, the Supreme Court, in its judgment reported in Calcutta Electric Supply Corporation Ltd. v. Subhash Chandra Bose (1992-I-LLJ-475), has gone to the extent of holding that even in cases, where supervisory controls were exercised by the manufacturer over the contractors for quality reasons, that by itself would not lead to a conclusion that the workmen of those contractors to become employees of the manufacturer within Section 2(9) of the Act. In this context, the appellant's case is an afortiorari one in the sense that the appellant does not exercise supervisory control and simply rejects the materials manufactured by the disputed workmen.
18A. The relationship between the employers and the employee and between master and servant is limited question of fact, and the limited question is a pure question of fact and that the High Court is not competent to set aside the finding of fact recorded by the E.S.I. Court.
19. The Supreme Court in Shankar Balaji Waze v. State of Maharastra (supra), has held that the concept of employment involves three ingredients (1) employer (2) employee and (3) the contract of employment. The employer is one who employs, i.e., one who engages the services of other persons. The employee is one who works for another for hire. The employment is the contract of service between the employer and the employee whereunder the employee agrees to serve the employer subject to his control and supervision. Employment brings in the contract of service between the employer and the employee.
20. The Supreme Court in the decision reported in Calcutta Electric Supply Corporation Ltd. v. Subhash Chandra Bose (supra) while considering the question as to the right of a principal employer to reject or accept the work on completion, on scrutinizing compliance with job requirements, as accomplished by a contractor, the immediate employer, through his employees, is in itself an effective and meaningful "supervision" as envisaged under Section 2(9) of the Employees' State Insurance Act, held that the electrical contractors cannot in one breath be termed as agents of the C.E.S.C., undertaking supervision of the work of their employees and innately under the licence to have beforehand delegated that function to the holder of the certificate of competency. Thus, the Supreme Court held that on the terms of the licence, no such agency, factually or legally, stood created on behalf of the C.E.S.C. in favour of the electrical contractors, and none could be, as that would violate the statutory scheme of distinction well marked under Section 2(a) of the Act. The supervision taken was to fulfill a contractual obligation simpliciter and thus, the Apex Court has answered the principal question as well as the subsidiary question against the ESI Corporation holding that the employees of the electrical contractors, on the facts and circumstances, established before the Division Bench of the High Court, do not come in the grip of the Act and thus, all demands made towards ESI contribution made against the C.E.S.C. and the electrical contractors were invalid and dismissed the appeals accordingly. The Supreme Court in categorical terms held that the supervision by principal employer or his agent, of work of employees appointed by immediate employer, is an essential factor. In this case, the Ho'nable Judges of the Supreme Court differ in their views. The majority view is taken by Ranganath Misra C.J., and Punchhi, J., and the minority view by K. Ramaswamy, J.
21. The facts of the case on hand, as already noticed, would only show that the appellant has no control or right of supervision over the employees of the contractors and that the concerned workmen were free agents operating as independent contractors over whose activities, the appellant had no control whatsoever. Therefore, with great respect, we are unable to subscribe our views to the views expressed by the learned single Judge. Therefore, we set aside the order dated February 8, 1991 made in A.A.O. No. 793 of 1983 in view of the foregoing discussions of ours and allow this appeal in favour of the appellant. However, there will be no order as to costs.