The Salem Sri Ramaswami Bank Ltd v. The Additional Commissioner for Workmeri's Compensation & Ors.

The Salem Sri Ramaswami Bank Ltd. v. The Additional Commissioner for Workmeri's Compensation, Chepauk, Madras and another, .~1956) 2 M.L.J. 254, T. P. Chandra y. The Commissioner for Workmen's Com pensation, Madras and Another, A.I.R. 1957 Vol. 44 p. 668 ancl T. Prem Sagar v. The. Standard Vacuum Oil Company Mtiaras and Others, [1964] 5 S.C.R. I 030, discussed and distinguished . . CIVIL APPELLATE JURISDICTION : Civil Appeals Nos. 1421 and 1422 of 1968. Appeals by special leave from the order dated J~nuary 18, 1968 of the Additional Commissioner for workmen's compensation, Madras in M.S.E. Case No. 131of1966, and from the Order dated the 9th January, 1968 of the Commissioner of Labour, Madras in No. C2. 13897 of 1967 respectively.

#0. P. Malhotra, Sat Pal and Ashok Grqyer, for the appellant (in both the appeals) . M. Natesan and D. N. Gupta, for respondent No. 1 (in both the appeals) . The Judgment of the Collrt was delivered by for consideratiOI). P. Jagamnohan Reddy, J.-These appeals are by special leave in which the question which whether the appellant is a person employed :within the meaning of section 2 ( 12) (iii) of the Madras Shops & Establishments Act, 1947 (Madras Act No. XXXVI of 1947) (hereinafter called 'the Act'). The first respondent, a private limited company, (herein after termed as 'the holding company' or the 'Madras company'), having been empowered by the Memorandum of Association, promoted another company known as the Gordon Woodroffe Leather Manufacturing Company (hereinafter called the subsi diary company' or the "Pallavaram company') in which it held- 80% preference shares and 70% equity shares. The holding company was also the managing agent of the subsidiary company. In 1959 the managing agency of the holding company was termi nated but nevertheless in view of its shareholding it continued to control the subsidiary company. The appellant 'who was a Chartered Accountant qualified in London had applied. for and was offered employment as· an Assistant in the holding company on the terms and conditions contained in the letter dated 19-10- 1963. He accepted the employment and the terms and was accordingly appoin1ed by th~ holding company. On 28-10-1965 the holding company, in order to simplify the accounting proce dures, informed the appellant of its decision to o.ffer revision of the· terms of engagement with effect from !st July, 1965 relating tg ·the. basic salary, D.A. and bonus, all other terms of service remaining unaltered. The Appellant was asked to confirm his acceptance of these terms which it appears. he did. He was • A B c E F" H. A B c E F G H . T. DEVADASAN v. GORDON WOODROFFE (Jaganmohan 215. Reddy, J.) thereafter permitted to cross the efficiency bar. It may here be menuoned tnat after his appointment, the appellant was give11 training in the Madras companf for two months after which it is alleged that the Director had asked him to go to the Palla".aram company to work there. Even while working there his salary was being paid by the Madras company though it wa,s by an arrangement between the two companies being debited to the Pallavaram company. The appellant continued to work tn Pallavaram company till 15th October, 1966 on which date his services were terminated by the holding company: The appellant thereupon filed an appeal before the Additional Commissioner for Workman's Compensation under section 41 (2) of the Work men's Compensation Act. The 1st respondent, however, raised an objection bi:fore the ~dditional Commissioner that the appel lant was not a person employed within the meaning of the Act and, therefore, the provisions of the said Act would not be applicable to him. In view of this objection, was filed by the appellant under section 51 of the Act for declaring that he is a person employed and some time thereafter got his application under section 41 (2) stayed. The~ between the parties on th~ application tinder section 51 as well as under section 41 ( 2) was whether the appellant was an employee of the holding company or of the subsidiary company. The appellant claimed that . under the terms of the offer of appointment which was accepted by him he was required to work either in the Madras office or the Palla varam office or at any other office or place of business of the company and though he was working in the Pallavaram office, his . salary was being paid by the holding company, his bonus for the year ending 1964 was also paid by that company which alSO' terminated his services. The 1st respondent averred that though the· petitioner might ha¥e been appointed or dismissed by the Madras company he was actually a person employed in the Pallavaram company. It was also admitted that while appellant was paid initially by the Madras company it was recovered from the Pallavarani company as is evident front the registers of account maintained that such recoveries from Pallavaram company was effected, and that for the purposes · of !h~ Act what is relevant is not. 'employment by' but employment m . If so as he was employed m the Pallavar~m company he was not a person employed within the difinition of ithe Act by the Madras company. The Commissioner of Labour by his order of 9th January, 1968 accepted the !st respondent's contention and held that t~e petitione(cannot be declared to be a person employd under secuon 2(12) (m) of the Act and that even under section 2(12) (ii) of the Act, the petitioner cannot be treated as a person employed vis-a-vis the Pallavaram Company as admittedly avoellant was not a member of the clerical staff employed in the Pallavaram company. The petition was accordingly dismissed. the sruary of 216 SUPREME COURT REPORTS [1973] l S.C.R. After this appeal was dismissed the appeal filed under section 41 ( 2) of the Act was disposed of by the Additional Commis sioner for Workmen's Compensation who held that in view__of the . .findings given by the competent authority under Section 51 of the Act on the question of applicability of the provisions of that Act to the appellant, he had no jurisdiction to go into the merits of the appe; tl. He accordingly dismissed that appeal also. It ihay be stated that the appellant's Special Leave Petition ·Was filed against both the Orders but in view of the objection raised by the office, two S.L.Ps. were filed and this Court gave leave on them. These two appeals were subsequently conso\i ·dated. On behalf of the appellant the following two questions were llrged for determination : ( 1) whether on the facts and circum .stances of the case and on a true construction of clause (iii) sub :section ( 12) of section 2, the appellant being wholly and prin cipally employed in connection with the business of the Ma~as :establishment was a person employed, (2) whether the jurisdic tion of the authority under section 41 sub-section (2) is circum scribed by the provisions. of section 51. I.n our view !he second question is pu11~ly academic because if the jurisdiction of the authority under section 41 ( 2) is circumscribed by the provisions of section 51 the question whether the decision of the Commis sioner of Labour under section 51 that the appellant is a person employed will nevertheless arise for decision and if it is not even then that question wguld fall for determination. In any view we have to ascertain what under the provisions of the Act is meant If by a person employed and whether the appellant is one such. he is a person employed then the Additional Commissioner of Workmen's Compensation has to go into the allegation of the appellant that his services were not terminated in accordance with the provisions of section 41 ( 1). A person employed has been defined under the Act and in so far as it is releVa.nt for the purposes of the appeal, section 2(12) (ii) & (iii) alone need be considered. These are set out as under :-- • "2 ( 12) ''person employed" means- • • • (ii) in the case of a factory or an industrial under taking, a member of the clerical staff employed in such factory or undertaking; • * ' (iii) in the case of a commercial establishment other than a clerical department of a factory or an in ilustrial undertaking, a person wholly or principally A B c D E F G H A B c 1) F r.'oEVADASAN v. GORDON WOODROFFE (Jaganmohan 217 Reddy, 1.) employed in connection with the business of the estab lishment, and includes a peon;" · · It is not disputed that the Pallavaram company is a fact?IY and that the appellant is not a member of the clerical staff m factory. In view of this, adntission, ~e appellant canno~ be a person employed under clause 2(12)(n) not because he is em' ployed in the Pallavaram company which is itself a matter that · has to be deterntined, but because he is not a member of !he clerical staff employed in that factory. The appellant's case, therefore, has to be exantined under clause (iii) of sub-section (12) of section 2. It has to be noticed that an establishment for the purposes of the clause must be a Conlttletcial establishtnen~ and even if the clerical department of a factory or an industrial undertaking falls within the definition of commercial establish ment, he is not a person in the clerical department of a factory or ;an industrial undertaking, but is 'one who is wholly or principally ,CJilployed in connection with the business of the commercial 'establishment. Before we examine the meaning of these terms, it is also necessary to consider the definition given in the Act of the terms '.commercial establishment', 'employer' and 'establish-. ment' givon respectively under clauses ( 3), ( S) & ( 6) of section 2. These are as follows : - " ( 3) "commercial establishment" means an estab lishment which is not a shop but which carries on the business of advertising, ·commission, forwarding or com mercial agency, or which is a clerical department of a factory or industrial undertaking or which is an insur- , ance company, joint stock company, bank, brokers' office or exchange and includes such other establishment as the (State) Government may by notification declare ·to be a commercial establishment for the purposes of this Act; "(5) "employer" means a person owning, or hav ing charge of; the business of an establishment and includes the manager, agent or other person acting the general management or control of an establishment; ( 6) "establiehment" means a shop, commercial es tablishm1<1;1t, restaur_ant, eating-hou~, residential hotel, theatre or any place of public amusement or entertain ment and includes such establishment as the (State) Government may by notification declare to be an estab lishment for the purposes of this Act;" H It. is evident that the Madras company is a 'commercial establisk ment', in terms of the definition as it is a joint stock company, for warding agents and carries on other activities of a cDnJmerclal t5-l 208SupCI/72 A c E 218 SUPREME COURJJ REPORTS· [1973] 1 S.C.R~ nature. It may also be mentioned that under that definition the clerical department of tbe Pallavaram factory is also a commercial establishment. As we said earlier, the reason why in clause 2( 12) (iii) of the definition a person who is employed in a clerical department of a factory or an industrial undertaking has been excluded from the definition of a: person is because without those .words of ex ception he would have been included. As it was the intention of the Act to confine the definition of a person employed only to a commercial establishment other than clerical de;>artment of a factory or· ·an industrial undertaking the words of exception had to be introduced in the definition to reflec~ that intention. The crucial question for determining whether a person is a person employed is whether he is wholly or principally employed in connection with the business of the establishment. It would not be accurate to focus our attention as was done by the Labour Commissioner only on the question whether the appellant. was 'employed in' or 'employed by' because these words. 'employed further requirement that he should' be employed in connectiori with the business of the establishment would be misleading. in without The Respondent's Advocate has referred to the Preamble, the Statement of Objects & 'Reasons and laid emphasis on the inten tion of ithe Act which was to cover only cases of those persons who were· actually working in a commerd.tl undertaking and not those who were employed in a factory or industrial undertak- ing. What is sought to be impressed upon is that the test to be applied for ascertaining whether a person is a person employed is not who employs him but where he is .employed or works. On this assumption it is contended· on behalf of the respondent that it is possible for a person to be employed by one establishment and assigned to work in another establishment and what will determine whether the person so assigned is a person employed-is whether the place where he works is or.is not a commerciarunder taking and if it is not then he is not a person employed. Apply- ing this thesis to the facts of this case, it is submitted that though the Madras Company has empfoyed the Appellant, it has. employ· ed him for working in Pallavaram, the salary though paid by the Madras company was reimbursed fr0m the Pallavaram company and since the appellant on his own admission worked in the Pa:lla varam company ever since he was appointed he is not a person ,employed because he was wholly or principally employed ,connection with the business of the PaUavaram company which In support of is a factory registered under the Failfaries Act. this contention he has referred us to J'he Salem Sri Rama:YWami Bank Ltd. v. The Additional Commissioner for Workmen's Com- 1'". .11. A B c D E F . - T. DEVADASAN v. GORDON WOODROFFE (Jaganmohan Reddy, 1.) 219 pensation, Chepauk, Madras and another(1), T. P. Chandra v. The Commissioner fr:>r Workmen's Campensaaon, Madras and anofher( 2 )-and T. Prem Sagar v. The Standard Vacuum Oil Com pany Madras and Others('). ( 1) that under section 4 ( l ) (a) of What was considered in the first case is not whether the person is a person employed within the meaning of section 2 (12) of the Act but whether under section 4(1) (a) which provides that noth ing contained in the Act shall apply to persons employed in any establishment in a position of management, the 2nd respondent therein was a person in the position of management and if so whether his appeal under section 41 ( 2 y was incompetent. It is evident from this case that the two objections to the maintainability of the appeal preferred by the second respondent under section 41 (2) of the Act which were taken before the Additional Com missioner were : . Act the second respondent had been employed in the Bank in a position of management and (2) that the contention cf the second respondent that if he could not be re-instated as Secretary, be could be reinstated as Cashier was untainable because by a valid notification issued by the Government, Cashiers had been excluded from the purview of the Act The Additipnal Commissioner did not record any specific findings on the issue whether the second respondent had been erirployed as Cashier and whether he is en titled to prefer the appeal under s. 41(2). That Court did not in view of the facts of that case consider it nec.essary to pursue the matter further. It was only on the question whether the second respondent was occupying a position of management, as such his appeal could not be entertained under section 4 (1 ) (a) that was considered llild decided. The observations of Rajagopalan, J. at page 257 that he \Vas using the expression employed only to mean assign the work of is b!1ing sought to support the contention that these words would furnish a test in determining whether a person is a person employed -under section 2 (12 )(iii). These observa tions have been tom out of the context, because what the learned Judge says immediately thereafter would negative any such con tention. What is said is this : - ' G ''In my opinion it is an assignment of work, a yalid assignment of the work, by the employer, that should furnish the real test in deciding whether a given em ployee is a person employed in a position of manage ment within the meaning of section 4(1)1(a1." We find that throughout the judgment the . question whether a person was a perspn employ~ within the meaning of section 2 In the second Calie of Chandra (12)(iii) has not been mooted. H (1) 1956 Vol. 2 M.L.J. p. 254. (~) (1964](5) S.C.R. 10\IO. ·,(2) 1957 A.I.It. Vol. 44 p.668. SUPREME COURT REPORTS (1973] l S.C.R. also this question was not considered a;; is clearly apparent from the observations of the learned Chief Justice delivering the Jud<:· ment of the Bench at page 669 that it was not contended before them that the Appellant was not a person employed within meaning of section 2 (12) of the Act. In the third case similarly the decision of this Court turned on the question whether the appellant therein was employed in It was held on the facts of that case a position of management. that he was not a person employed in a wsition of management and as such did not fall within the exemption of section 4 (1) (a) . On the other hand what has been stated by reference to section 2(12)(iii) are useful. Gajendragadkar, J. as he then was observed at page 1036 : "The test which has to be applied in determining the question as to whether a person is employed in a commercial establishment is whether he is wholly or principally employed in connection with the business of the said establishment. As soon as 1t is shown the emlpoyment 9f the person is either wholly or principally connected with the business of the establish ment, he falls within the definition." In our view there is no validity in The key to section 2(12) (iii) is whether a J)erson is wholly or principally employed in connection with the business of the threshold. what we commercial establishment. On the very have to determine is by whom the respondent is employed. Is he employed by the Madras company or by the Pallavaram com pany which is a factory and if he is by the former which it not disputed he is, is he wholly or principally employed by it ? It is contended that the Appellant is employed wholly or princi pally by the Pallavaram Company because it is the place where he has been working. submission. On the facts of this case the Pallavaram company is not the employer of the appellant. All relevant facts have been established and are not disputed point to the irrestible conclusion that the employer is the Madras company. It was company that appointed the appellant: The appointment Order of 19th October, 1963 shows that he was appointed as an Assist ant in that company. The terms of the Order further show that apart from the salary set out therein on which he was appointed, he was to receive dearness allowance at the rate of 35 per cent of the basic salary or such other rate as the Board of that com pany may decide fr0n1 time to time. He has to become a mem the Madras ber of the Provident Fund to which both he and company have to subscribe. The annual bonus· was to be calcu lated in the same manner as the annual bonus payable to other A B c D E F G H ,. A B c D E F G H T. DEVADASAN v. GORDON WOODROFFE (Jaganmohan· 221 Reddy, 1.) ·His services can only be terminated Assistants of the company. by the Madras company in terms of paragraph 6 of the Order and under paragraph 5 he was required to work either in Mad ras Office (Office hours 9.15 a.m. to 5.30 p.m.) or Pallavaram (office hours 8 a.m. to 4.30 p.m.) or at any other office or place of business of the company. It is dear from this letter of a;>pOint ment that he has to work wherever the company directs him to work as si.ch lie would be a person wholly or principally em ployed in connection with the business of the Madras comPany. Inasmuch as it is apparent that the obligation to work at Palla varam is under the directions of the company it will be consi dered to be a part of the business of the company aS- indeed the words. ''business of the CO!Jlpany" in p;;iragraph 5 govern not only the ooligation to., work at Pallavarani but at any other place or places where the company directs him to work. The revised terms of employment of the appellant dated the 28th October, 1965 also .show that those terms 3.l'e applicable to the contracts of all Assistants of the company. It is also to be noticed that the IJQnus was paid by the Madras company nor is it disputed his salary and bonus was being paid by that company. The the Madras cornpany income-tax deductions were made by which also furnished a certificate to the tax authority as per Ex. P.9. That company further certified to the Madras Housing Board on January 8, 1966 what the appellant's salary per month and the total shlary and allowances which are paid to him by It may also be mentioned that the appel that company were. lant's leave had to be granted by the Madras company and not by the Pallavaram company. Ext.M-II would show application for leave was made by the i!Ppellant to the Manag fact which ing Director of the Madras company. One other appears from the evidence of R.W.l., Director of the Madras company who was a1w the Secretary of the Pallavaram com pany is that the appellant was signing bills ~or Tullies Woodroffee factory at Pallavaram which is another subsidiary of the Madras company. He was a!So signing the bills of. sale of all such manufacture purely for administrative convenience. All these facts support the conclusion that the appellant was employed on the business of the Madras company because he was working under the;r directions wherever they wanted him to work and whatever •vork was entrusted to him in tern1s of the appointment order. The mere fact that he was wqrking in Pallavaram d~ not make him an employee of that company nor doos the Palla varm company become his employer because neither that com pany pays his salary nor does it grant leave, nor 'Ila' it any obli gatioa towards the appellant in respect of Provident Fund, bonus or any other emoluments, nor for that matter can it suspend or Indeed .:he very order of termination of his ser dismiss him. vices was made by he Madras compa'.ly and not by the Palla- 222 SUPREME COURT REPORTS (1973] 1 S.C.R. vann company. On the 15th O\:to~r, 1966 this is what Director of the Madras compaµy wrote to the appellant:- A "I refer to our letter of appointment of 19th Octo- ber, 1963. I I have given ve1y serious consideration to the Q\l!=S· tion of renewing your Agreement but have COll\e to the conclusion that in the period during which you have been employed by this company your work has not reached the standard which was expected and therefore it is not possible to renew your appointment. Will you kindly therefore take this letter as being the requisite one mon!h's notice of termination of your services in iwcor\lance with paragra.ph 6 of the Jetter under reference. If you wish to discuss this matt~ wiWr m~ I will be available at 3.30 p.m. on ~aY !he lith ()c;t~r, but I must advise you th~t i have taken an irr.evoc;i\lle decision in the maner." This letter .clearly shows tha.t Uie emp.lo~r is the Madras company because it is only the employer who c<i.11 termilutt<: the services of an employee. the Pallavaram company was tlie employer merefy \lec<1use t~ Madras company had asked him to work in that COJ11P<\IlY· It i&, t\l,erefore, iQ!e to sµggest It is further submit!¢ by the resvondent the Ma\lras incorpo, rated ~mpany and the Pa!lavaraw company being two <:O!npanies they were separate and independent legal entities and that merely because the Madras company has a controlling interest in the Pallavaram company does not vest th.e administration ot is so Pallavaram company in the Madras company. Whether it or not we have no evi\lence, nor js there anything to show under what arrangements between the two companies, the Madras com If pany was managing the affairs of the PaUavaram company. we have to accept the contention of the learned Advocate for ihe respondent that because th.e appellant was pen; nitted by the Mad ras company to work in the Pallavaram c9mpany he was employ ed wholly or principa.1\Y in c9nnection wi\h the business of the Pallavllram company, lie will be an employer-Iess-e1i1Ployee be cause even though Pallavaram company has no ~ontrol over him or his work nor has it !he power to sQspend or c\ischa~ge him, he would nQlletheless \le an employee of that comp; my for the pur poses of section 2 ( 12 )(iii) . This would result in an iµcongruity and would have . the effect of arming the employer with a device to circumvent the provisions of tl1e Act inasmuch as all that an employer has to do is to make the employee· work art places which B c D E F G H '.,. I T •. DEVADASAN v . . GOROON WOODROFFE ([aganmohan 223 Reddy,/.) lire factories or industrial .undertakings and plead, when he dis misses him without reasonable cause, that he is not a person em ployed. We do not think that such a result w:is intended, nor is a conclusion so baneful deducible from the pl'OVisions of the Act. We accordingly allow the appeals with <;os1$, one set and remand the case to the Additional Commi5$ioncr, of Workmen's. Coml1Cl1sation tQ hear and dispose at f?le. appeal appellant. filed by . A, 8 S.N. A.pl"al:i al/qwed.