Shri Chintaman Rao and Another vs The State Of Madhya Pradesh

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: Supreme Court of India

Case Number: 1340

Decision Date: 18 February 1958

Coram: Bhuvneshwar P. Sinha, Syed Jaffer Imam, Subba Rao

In this case the Court recorded that the matter arose as Criminal Appeal No 93 of 1955, filed by special leave against the order dated 16 September 1954 of the former Nagpur High Court in Criminal Revision No 295 of 1954, which itself arose from the judgment dated 8 March 1954 of the Second Additional Sessions Judge at Sagar in Criminal Appeal No 368 of 1953, and that judgment had followed the order dated 5 August 1953 of the Magistrate, Sagar, in Criminal Case No 146 of 1953. The petitioners were Shri Chintaman Rao and another, who were identified as the managing-partner and the active manager of the bidi manufacturing concern, respectively. The respondent was the State of Madhya Pradesh. The judgment was rendered on 18 February 1958 by a bench comprising Justice Subbarao, Justice K. Subbarao, Justice Bhuvneshwar P. Sinha, Justice Syed Jaffer Imam, and Justice K. Subbarao, with the citation reported as 1958 AIR 388 and 1958 SCR 1340. The case concerned the interpretation of the Factories Act (LXIII of 1948), specifically sections 2(1), 62, 63 and 92, as applied to workers employed in a bidi factory that contracted with independent contractors known as Sattedars for the supply of bidis.

The headnote explained that the appellant, who managed the bidi factory, had entered into contracts with Sattedars who supplied bidis either by manufacturing them in their own workshops or by delegating the work to third parties for a price payable by the factory management after delivery and approval. During an inspection, the factory inspector observed certain Sattedars and their coolies present in the factory while delivering the bidis they had produced. Consequently, the appellant was prosecuted and convicted under section 92 of the Factories Act for violating sections 62 and 63 by failing to maintain a register of adult workers and by allowing work to be performed without recording attendance in the register beforehand.

The Court held that the Sattedars and their coolies did not fall within the definition of “worker” under section 2(1) of the Act; therefore, their omission from the register did not constitute an offence under section 92. The Court articulated the test for determining whether a person is a worker: it depends on whether the employer exercised control and supervision over the manner in which the work was performed. The Court found that the Sattedars were not subject to the factory management’s control, as they could manufacture bidis at any place of their choosing. Likewise, the coolies were neither directly employed by the management nor employed through the Sattedars. The Court applied the reasoning from Dharangadhara Chemical Works Ltd. v. State of Saurashtra, [1957] SCR 152, in reaching this conclusion.

In the judgment, counsel for the appellants appeared, and counsel for the respondent also appeared. The judgment was delivered by Justice Subbarao, and it set aside the conviction, holding that the provisions of the Factories Act did not apply to the independent contractors and their labourers in the circumstances of the case.

The appeal challenged the order of the High Court of Judicature at Nagpur and raised the question of how certain provisions of the Factories Act (LXIII of 1948) should be interpreted. Before addressing those questions, the Court found it useful to set out the factual background as determined by the High Court or admitted by the parties. Messrs. Brijlal Manilal and Company operated a bidi factory located in Sagar. The first appellant, Chintamanrao, served as the managing partner of the firm, while the second appellant, Kantilal, performed the duties of the active manager. The company was engaged in the manufacture of bidis, and the manufacturing process relevant to the present dispute was divided into two distinct stages. In the first stage, the management entered into contracts with independent contractors, known as Sattedars, to obtain locally supplied bidis. Although the contracts themselves were not produced before the Court, the parties did not dispute the essential terms of those agreements. Under those contracts, the management supplied tobacco and, in some instances, bidi leaves to the Sattedars. Certain Sattedars owned small factories where they employed coolies to produce bidis, while other Sattedars gave the raw materials to outsiders who prepared bidis in their homes. After the bidis were rolled, the Sattedars collected the finished items and delivered them to the factory either directly or through their coolies.

Inside the factory, workers sorted the received bidis and inspected them for quality before separating the approved pieces. The approved bidis were packed in bundles of ten or twenty-five and were taken by the Sattedars or their coolies in gauze trays to a place called tandul where they were left. The bidis that were rejected, commonly referred to as “I chhant”, were re-bundled by the Sattedars and returned to the factory for further handling. The management settled accounts with the Sattedars by paying the cost of manufacturing the bidis after deducting the value of the tobacco supplied to them. The second stage of production commenced only after the bidis entered the factory and was performed exclusively by labourers who were directly employed by the factory. This stage involved warming the bidis to impart flavour, wrapping them in tissue paper, labeling them, and finally bundling them into units called “Pudas”. The completed packages were then marketed as the finished product of the factory. From this description of the dual manufacturing process, it was clear that a Sattedar functioned solely as an independent contractor engaged to supply bidis, either directly or through his coolies, for a price payable by the management upon delivery and acceptance. Neither the Sattedar nor his coolies performed work inside the appellants’ factory, nor were they subject to the appellants’ supervision or control. The coolies and any third parties employed by the Sattedars were paid by the Sattedars and did not work in the factory itself.

The narrative continued to explain that although the workers did not actually labor inside the factory premises, they nevertheless brought the finished bidis to the factory for delivery in accordance with the contractual terms. The factory, on the other hand, employed a separate set of labourers who were directly under the control and supervision of the factory management and who performed the second stage of the manufacturing process, namely the warming, sorting and packing of the bidis. On 9 December 1952, the Inspector of Factories for Madhya Pradesh, stationed at Nagpur, identified himself as Sri B. V. Desai and conducted an inspection of the factory at approximately five-thirty in the afternoon. During his visit he observed nine individuals present in the factory premises. He listed them as follows: Pirbaksha, son of Amir; Abdul Sagir, son of Sk. Alam; Deviprasad, son of Uddam; Ramshankar, son of Mulchand; Gopal, son of Mulchand; Nirpat, son of Bhagirath; Rameband, son of Gyan; Gotiram, son of Lila; and Basodi, son of Gulu. The Inspector categorized Deviprasad, Nirpat and Gotiram as Sattedars, meaning they were independent contractors, while the remaining six individuals were described as coolies employed by the Sattedars. The inspection report further recorded that the first seven persons were engaged in sorting the bidis and packing them into bundles of ten and twenty-five within the factory premises, whereas the last two individuals were observed bringing the bidis to the warming chamber that featured a perforated roof.

The facts recorded by the Inspector were subsequently admitted, at least in part, by several of the persons named, who testified that they had come to the factory on that particular day solely to deliver the bidis they had manufactured. Following the inspection, the Chief Inspector of Factories lodged a criminal complaint before the Court of the Judge-Magistrate at Sagar, charging the appellants with violations of sections 62 and 63 of the Factories Act. The allegation under section 62 concerned the failure to maintain a register of adult workers containing all required entries, while the allegation under section 63 related to allowing workers to be present in the factory without first recording their attendance in the same register. The Judge-Magistrate found that the appellants had indeed contravened the provisions of the two sections, convicted them under section 92 of the Act, and imposed fines of fifty rupees for the breach of section 62 and twenty-five rupees for the breach of section 63. Upon appeal, the Second Additional Sessions Judge at Sagar affirmed the conviction of the second appellant with respect to both sections, but set aside the conviction of the first appellant under section 62 while sustaining the conviction under section 63. The appellants then sought revision in the High Court of Judicature at Nagpur, which dismissed the petition. With special leave granted, the present appeal was filed against the order of the High Court. The counsel for the appellants argued that a Sattedar, being an independent contractor who performs a specific task without submitting to the control of the factory, does not fall within the definition of “worker” under section 2(1) of the Act and therefore is not bound by sections 62 or 63. In contrast, the counsel for the State contended that the definition of “worker” is sufficiently broad to encompass all persons who work in the factory, irrespective of whether they are employed directly by the factory.

The appellants contended that they were not bound by the requirements of sections sixty-two or sixty-three of the Act because, according to them, they did not fall within the definition of “worker”. In contrast, counsel for the State maintained that the definition of “worker” is broad enough to encompass every person who performs work in a factory, irrespective of whether the person is employed by the factory. The resolution of the dispute therefore depended upon the proper construction of the relevant statutory provisions. Section sixty-two provides that the manager of every factory shall maintain a register of adult workers, which must be made available to the Inspector at all times during working hours or whenever work is being carried out in the factory. The register must show: (a) the name of each adult worker in the factory; (b) the nature of his work; (c) the group, if any, in which he is included; (d) where his group works on shifts, the relay to which he is allotted; and (e) such other particulars as may be prescribed. A proviso adds that if the Inspector is of the opinion that any muster roll or register kept as part of the routine of the factory contains the particulars required by this section, the Inspector may, by written order, direct that such muster roll or register shall, to the corresponding extent, be treated as the register of adult workers. Section sixty-three states that no adult worker shall be required or allowed to work in any factory except in accordance with the notice of periods of work for adults displayed in the factory and the entries made beforehand against his name in the register of adult workers. Section ninety-two prescribes the general penalty for offences, providing that, unless otherwise expressly provided in the Act and subject to section ninety-three, any contravention of any provision of the Act, any rule made thereunder, or any written order issued thereunder, renders the occupier and the manager of the factory each guilty of an offence punishable with imprisonment for a term which may extend to three months or with a fine which may extend to five hundred rupees, or with both; and if the contravention continues after conviction, a further fine of up to seventy-five rupees may be imposed for each day of continuation. Section two, clause (1), defines “worker” as a person employed, directly or through any agency, whether for wages or not, in any manufacturing process, or in cleaning any part of the machinery or premises used for the manufacturing process, or in any other kind of work incidental to, or connected with, the manufacturing process, or the subject of the manufacturing process. Section two, clause (m), defines “factory” as any premises, including the precincts thereof, where ten or more workers are working, or were working on any day of the preceding twelve months, and in any part of which a manufacturing process is being carried on with the aid of power, or is ordinarily so carried on, or where twenty or more workers are working, or were working on any day of the preceding twelve months, and in any part of which a manufacturing process is being carried on without the aid of power, or is ordinarily so carried on.

The Act defined a factory as any premises meeting one of two conditions. The first condition required that on any day during the previous twelve months ten or more workers had been employed and that in some part of the premises a manufacturing process was being carried on with the aid of power, or was ordinarily carried on in that manner. The second condition applied where twenty or more workers had been employed on any day during the previous twelve months and where a manufacturing process was being carried on without the aid of power, or was ordinarily carried on without power. Section 2(n) described the “occupier” of a factory as the person who possessed ultimate control over the affairs of the factory. Consequently, the manager of a factory, as defined by the Act, was required to keep a register of all adult workers employed in the factory and to include the particulars specified in section 62. Moreover, no adult worker could be compelled or permitted to work in the factory unless a notice describing the periods of work for adults was displayed publicly in the factory and an entry for that worker was made in the register before the work commenced. If either of these statutory duties was breached, both the occupier, who exercised ultimate control, and the manager were deemed guilty of an offence punishable under the Act.

In the present case, the names of nine individuals were omitted from the register of adult workers that the factory was required to maintain. In addition, no notice specifying the periods of work allotted to those individuals had been displayed in the factory, and no prior entries bearing their names existed in the register. Accordingly, the appellants would have necessarily contravened the provisions of the Act, provided that those nine individuals qualified as “workers” within the meaning of the statute. The Act defined a “worker” as a person employed, either directly or through an agency, whether for wages or not, in any manufacturing process. The Court acknowledged that the preparation of bidis constituted a manufacturing process, but raised the question of whether a “Sattedar” fell within the definition of a person who is “employed.” The concept of employment, as explained by the Court, comprised three essential elements: an employer who engages the services of another person, an employee who performs work for hire, and a contract of employment whereby the employee agrees to render service to the employer subject to the employer’s control and supervision. Determining whether a Sattedar satisfied these three ingredients became the focal point for deciding whether the statutory obligations of registration and notice applied to the individuals in question.

In considering whether a Sattedar is employed by the factory management to serve under its direction, the Court observed that there is a well-recognised distinction between a contractor and a workman, and between a contract for service and a contract of service. The Court referred to Stroud’s Judicial Dictionary (Third Edition, Volume 1, page 616), which explains that while every person who agrees with another to perform work is, in a general sense, a contractor, the terms “contractor” and “workman” acquire more restricted meanings under the Workmen’s Compensation Act, 1897 (60 & 61 Vict., c. 37), section 4. The dictionary defines a contractor as “one who makes an agreement to carry out certain work specified, but not on a contract of service.” The same concept is expressed in another formulation, describing a contractor as a person who, in pursuing an independent business, undertakes specific jobs for others without subjecting himself to their control over the details of the work. From these definitions, the Court concluded that a clear distinction exists between a contractor and a workman. The hallmark of a workman, the Court noted, is that he must be under the employer’s control and supervision regarding the details of the work. The Court then cited the decision in Dharangadhara Chemical Works Ltd. v. State of Saurashtra, wherein, dealing with the definition of “workman” under the Industrial Disputes Act, 1947, the Court held that the essential condition for a person to be a workman is that he must be employed to do work in the industry, creating an employer-employee relationship akin to master and servant. The Court further explained, with reference to Bhagwati J.’s judgment, that the test uniformly applied to determine this relationship is the existence of a right of control over the manner in which the work is performed. After reviewing case law, the judge reiterated that the primary test for establishing a master-servant relationship is the master’s right to supervise and control not only the nature of the work assigned but also the manner in which the servant carries out that work.

In this passage the Court referred to the wording of Lord Uthwatt in the decision of Mersey Docks and Harbour Board v Coggins & Griffith (Liverpool) Ltd., reported in the first volume of the Appeal Cases for 1947 at page 23, where Lord Uthwatt observed that “the proper test is whether or not the hirer had authority to control the manner of execution of the act in question.” The Court then noted a later trend in judicial decisions that highlighted the fact that the control test does not apply universally. Accordingly, the learned judge expressed his view that the appropriate method of approach was to examine, with due regard to the nature of the work, whether the employer actually exercised control and supervision over the performance of that work. The Court further observed that there is no reason why the test it had previously formulated for the purpose of defining “workman” under the Industrial Disputes Act of 1947 could not be used to determine whether a person qualifies as a “worker” under the same Act. Applying that test to the facts of the present case, the Court concluded that it could not be said that the Sattedars, considering the character of the tasks they performed and the terms under which their services were engaged, fell within the statutory definition of “workers.” The evidence established that each Sattedar was in fact an independent contractor. The contractual relationship between the factory management and each Sattedar required only that the Sattedar receive a supply of tobacco from the management and, in return, provide rolled bidis for consideration. The Sattedars were not subject to the control of the factory management; they were free to manufacture the bidis at any location of their choosing. It was immaterial to the management whether the bidis were produced in the Sattedar’s own plant or whether the Sattedar distributed tobacco to other individuals who, under separate agreements, manufactured the bidis. The management had no power to dictate how the Sattedar performed the work. The Sattedar’s contractual liability was satisfied merely by supplying the finished bidis and delivering them to the factory. The terms of the contract, as disclosed by the evidence, imposed no obligation on the Sattedar to work inside the factory premises; his sole duty was to deliver the bidis to the factory. This obligation is comparable to that of any contractor who undertakes to supply and deliver goods to a purchaser. Consequently, the Court held that the Sattedars were not workers employed by the management but were independent contractors who fulfilled their contractual obligations by making and delivering bidis to the factory. The Court then considered whether, if the three Sattedars out of the nine persons found at the factory were not workers within the meaning of the Act, the other individuals—specifically the coolies hired by the Sattedars to assist them in meeting their contractual obligations to the factory—could be regarded as workers under the Act. The statutory definition of “worker” states that a worker is a person employed, directly or through any agency. The wording of this definition was noted, and the Court proceeded to examine its application to the coolies in the subsequent discussion.

In this case, the Court explained that the expression “directly or through any agency” means employment must be either by the factory management itself or through an agency, and in case a contract of employment exists between the management and individuals employed. The record acknowledges that the coolies were not hired by the management, and there was no privity of contract between the coolies and the management. It is uncontested that the coolies were not employed by the Sattedars on behalf of, or for the benefit of, the factory management. Instead, the coolies were engaged by the Sattedars on their own account, and the Sattedars compensated the coolies for the labour extracted from them. Based on these facts, it is clear that the coolies were neither employed directly by the management nor employed through the Sattedars as an agency of the management. Consequently, the coolies who worked for the Sattedars cannot be classified as “workers” within the definition provided in the Act. The evidence also identifies a third class of persons who participated in the bidi-manufacturing process by receiving tobacco from the Sattedars for preparation of bidis in their own homes. The material does not show that any of the nine individuals discovered in the factory belonged to this third class. Even assuming their existence, those persons cannot be described, in any sense, as individuals employed by the management either directly or through an agency. This interpretation of section 2(1) of the Act is supported by other relevant provisions contained in the statute. Chapter 6 of the Act, titled “Working Hours of Adults,” contains several sections that regulate the conditions of employment for workers. Section 51 prescribes the maximum number of hours that an adult worker may be required to work in a week. Section 52 provides that no adult worker shall be permitted to work on the first day of the week, and if work is assigned on that day it must be in substitution for a holiday. Section 53 mandates a compensatory holiday for any adult worker who is made to work on a regular holiday. Section 54 fixes the daily hours of work, while section 55 prescribes the intervals for rest between periods of work. Section 56 limits the total spread of a workday for an adult worker to ten and one-half hours, including the rest intervals. Sections 57, 58 and 59 address night shifts, prohibit overlapping shifts, and prescribe extra wages for overtime work. Section 60 prohibits double employment, meaning that the same adult worker may not be employed in a factory on any day on which he is already employed in another factory. Section 61 requires the factory management to display and maintain a notice indicating the periods during which adult workers may be required to work, ensuring that the schedule complies with sections 51, 52 and 54.

Section 62 of the Factories Act required the manager of every factory to keep a register of adult workers. The register had to contain, for each adult worker, his name, the nature of his work, the group, if any, to which he belonged, the shift in which his group worked, the relay allotted to him and any other particulars prescribed by the Act. Section 63 mandated that the hours of work of an adult worker must correspond with the details given in the notice required under section 61 and with the entries made in the register under section 62. Section 92 made a violation of any provision of the Act or of any rule made thereunder an offence punishable by imprisonment, by fine or by both. The Court observed that the combined effect of these provisions showed that the workmen in the factory were placed under the direct supervision and control of the management. Because the conditions of service were statutorily regulated, the management was obliged to comply with the rules and faced penal consequences for any dereliction of its statutory duties. Consequently, the management could not realistically fix working hours, prescribe weekly holidays, organise night shifts or satisfy other mandatory requirements of the Act if persons such as the “Sattedars”, who performed work through others or through coolies, were considered “workers” within the meaning of the Act. The Court held that it was practically impossible for the factory management to regulate the work of such persons or to meet the mandatory provisions of the Act. Accordingly, the provisions indicated that a “worker” under the Act was a person who entered into a contract of service with the management and did not include an independent contractor, his coolies or servants who were not subject to the employer’s control and supervision.

The Court noted a conflict of decisions between the Allahabad High Court and the Nagpur High Court on the interpretation of section 2(1) of the Act. It referred to a Division Bench of the Nagpur High Court in the case Provincial Government, Central Provinces and Berar v. Robinson, which examined the scope of the definition of “worker” in the Factories Act. In that case, the facts were that on 10 November 1943 a new battery of boilers was being erected on the premises of the Jubbulpore Electric Supply Company to supply power to the New Ordnance Factory at Khamaria. The erection work had been entrusted to Messrs Babcock and Wilcox of Calcutta. Persons employed by Messrs Babcock and Wilcox were found working on the premises of the Electric Supply Company, thereby contravening the provisions of the Factories Act. The pivotal question was whether the employees of an independent contractor fell within the definition of “worker” under section 2(1) of the Act. The judgment delivered by Justice Pollock, recorded at page 44, addressed this issue, setting out the Court’s position on whether such employees should be regarded as workers for the purposes of the statutory scheme.

In its view, the definition of “worker” is extremely broad and, according to the Court, it is sufficiently expansive to cover persons who are employed to repair machinery or to install new machinery, even when that machinery has not yet been placed in operational use. The Court observed that, in the earlier case, no party contested that the individuals discovered in the factory were not employees of Jubbulpore Electric Supply Co. The only issue that had been raised and decided concerned whether those individuals who were engaged in repairing or installing machinery were performing work that formed part of a manufacturing process or any work incidental to or connected with such a process. The matter presently before the Court was not the same issue, and consequently the learned judge of the earlier case had no occasion to comment on it. The Court emphasized that the mere possibility that a different conclusion might have been reached had the earlier judges been asked to decide the present question does not transform the earlier decision into authority on a point that was never raised or decided by them.

Another Bench of the Nagpur High Court, in The State v. Jiwabhai, interpreted the word “employed” under section 66(1)(b) of the Factories Act in a very wide manner. The judges in that decision explained that “employed” need not signify only employment for wages; rather, it may also denote being occupied or engaged in any form of activity. The Court expressed respectful dissent to the broader proposition that any person found engaged in some activity inside a factory, regardless of whether a contract of employment exists with the employer, should automatically be classified as a worker. However, the Court clarified that if the Nagpur judges merely intended to underline the obvious provision of section 2(1) that employment need not be for wages, then their observation is acceptable.

The Court noted that the decision in State v. Shri Krishna Prasad Dar requires no detailed discussion because the judges in that case adopted the same interpretation of section 2(1) that the Court has applied, and they consequently held, based on the facts, that the persons concerned were workers of the factory. Applying the same reasoning, the Court held that neither the Sattedars nor the coolies identified by the Inspector as working in the factory qualified as workers, because they were not employed by the factory. Since they were not workers, their omission from the register of adult workers, and the absence of any entry concerning them in that register, could not constitute an offence under section 92 of the Act. Finally, the Court cautioned that its decision is not intended to create a sweeping rule that a Sattedar can never be regarded as a worker within the meaning of the definition in the Act; the determination depends on the specific terms of the contract between the individual and the employer.

The Court explained that the applicability of the definition of “worker” under the Act is not determined by the title or designation by which a person is known, but rather by the substance of the contract that exists between that person and the employer. In the matter presently before the Court, the prosecution did not produce any evidence showing that the individuals described as Sattedars had been hired by the management of the factory to perform work inside the factory premises. The record, which was not contested, demonstrated that the Sattedars operated as independent contractors; they either entered the factory themselves to deliver bidis or dispatched their own labourers, known as coolies, to carry out the delivery. Consequently, the Court limited its decision to the specific facts established in this case. Based on that factual matrix, the Court allowed the appeal, set aside the convictions of the appellants under section 92 of the Act, and vacated the sentences that had been imposed on them. The Court further ordered that any fines that had already been paid be refunded to the appellants. The appeal was therefore allowed.