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J. Sarabhai and Company Vs. New Swadeshi Mills of Ahmedabad - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtGujarat High Court
Decided On
Judge
Reported in[1967]37CompCas753(Guj); (1967)0GLR345
AppellantJ. Sarabhai and Company
RespondentNew Swadeshi Mills of Ahmedabad
Appellant Advocate V.S. Parikh, Adv.
Respondent Advocate I.M. Nanavati, Adv.
Cases ReferredMersey Docks and Harbour Board v. Coggins and Griffith
Excerpt:
company - payment - applicants are partnership firm acting as brokers for company - on account of service provided to company certain sum became due and payable to applicants - applicants unsecured creditors of company - claim of applicants to extent of 40% paid - applicants filed present summons to recover balance amount on ground that applicants were employees of respondent - relationship between respondent and applicant of employer and employee not established - applicants status that of selling agent (broker) - applicant not entitled to recover balance amount. - - the use of the words 'other selling agencies' clearly suggests that the applicants are selling agents of the company......the agreement in its opening part declared that the company has appointed the applicants as its cloth dalals for the whole of india and the applicants have agreed to their appointment as such for the purpose of selling cloth manufactured by the company for the period commencing from 21st january, 1961, and ending on 20th january, 1966, on the terms and conditions contained in the agreement. clause 1 and 2 of the agreement then proceeded to state as follows: '(1) that the dalals shall have the sole and exclusive right of selling the cloth manufactured by the company, provided that nothing herein contained shall be deemed to prevent the company from supplying or selling the cloth direct to persons or firms or concerns or creating other selling agencies for any defined territories.....
Judgment:

1. This summons has been taken out by the applicants for a direction that the respondent company should pay to the applicants a sum of Rs. 39,619.87 under clause 6 of the scheme of arrangement or compromise sanctioned by this an over dated 6th December, 1962. Clause 6 of the scheme requires the respondent to pay to the employees (including workmen, clerks, technicians, officers, watch and ward staff) of the Bharathkhand Textile Manufacturing Company Limited, arrears of wages and claim of the applicants is that they were employees of the Bharathkhand Textile Manufacturing Company Limited for the period 21st January, 1961 to 31st March, 1962, and they are, therefore, entitled to recover from the respondent the sum of Rs. 39,619.87 representing the arrears of wages due to them from the Bharathkhand Textile Manufacturing Company Limited (hereinafter referred to as to company) for work done during the said period. The applicants are a partnership firm and hey were appointed as dalals by the company for sale of cloth manufactured by the company throughout the whole of India on the terms and conditions recorded in an agreement dated 10th April, 1961. Pursuant to their employment as dalals under the said agreement, the applicants acted as dalals for sale of cloth manufactured by the company from 21st January, 1961, upto 31st March, 1962, and after giving credit to the company for various payments made to the applicants from time to time, a sum of Rs. 66,066.11 became due and payable by the company to the applicants as on 31st March, 1962. The applicants were, therefore, unsecured creditors of the company in the sum of Rs. 66,066.11 at the date when the scheme was put forward for the sanction of the court. Clause 6 of the scheme made provision for payment of arrears of wages, unpaid bonus, wages in lieu of leave and gratuity to the employees of the company and so far as unsecured creditors of the company other than its employees were concerned, clauses 7, 7-A and 7-B of the scheme provided that unsecured creditors should lodge their claims before the official liquidator of this court on or before 20th November, 1963, and such claims should be verified by Messrs. C. C. Chokshi and Company, auditors, and in case any unsecured creditors disputed the verification, the claim should be taken to the learned judge taking company matters and his decision would be final and the unsecured creditors should be entitled to receive payment of 40 percent. of the verified claims from the respondent. A machinery was devised by clauses 7, 7-A and 7-B of the Scheme for making payment of 40 per cent. of the verified claims and it was provided that the amount representing 40 per cent. of the verified claim should be paid by the purchaser to Shri C. C. Gandhi and Shri M. M. Thakore, learned advocates appearing on behalf of some of the creditors and they should distribute the said amount on behalf of some of the creditors and they should distribute the said amount amongst the unsecured creditors according to 40 per cent. of the verified claims. The Scheme also provided that unsecured creditors whose claims were admitted in the books of the company and shown in the statements annexed to the affidavit filed by Shri Ravindra Gunvantlal in court on 3rd December, 1963, should also be entitled to receive 40 per cent. of their admitted claims from out of the amount to be handed over by the respondent to Shri C. C. Gandhi and Shri M.M. Thakore. The claim of the applicants for Rs. 66,033.11 was admitted in the books of the company and was shown in the statements annexed to the affidavit of Shri Ravindra Gunvantlal dated 3rd December, 1963, and a sum of Rs. 26, 413.24 representing 40 per cent. of the said claim was, therefore, paid by Shri C. C. Gandhi and Shri M.M. Thakore to the applicants. the applicants thereupon took out the present summons claiming to recover the balance of Rs. 39, 619.87 from the respondent on the ground that they were employees of the company and the amount due to them from the company represented arrears of wages within the meaning of clause 6 of the Scheme. Now there is no doubt that if the applicants were employees of the company, the sum of Rs. 39,617.87 representing the balance of the amount of dalali due to them would be arrears of wages and the applicants would be entitled to recover the same from the respondent under clause 6 of the scheme. But, for reasons which I shall presently state, it is clear that the applicants could not possibly be regarded as employees of the company and the claim made by them in this summons on the basis that they were such employees and the amount due to them represented arrears of wages under clause 6 of the scheme must, therefore, be rejected.

2. In order to determine the legal relationship between the applicants and the company, it is necessary to look at the agreement dated 10th April, 1961, which recorded the terms and conditions on which the applicants were appointed as dalals by the company. The agreement in its opening part declared that the company has appointed the applicants as its cloth dalals for the whole of India and the applicants have agreed to their appointment as such for the purpose of selling cloth manufactured by the company for the period commencing from 21st January, 1961, and ending on 20th January, 1966, on the terms and conditions contained in the agreement. Clause 1 and 2 of the agreement then proceeded to state as follows:

'(1) That the dalals shall have the sole and exclusive right of selling the cloth manufactured by the company, provided that nothing herein contained shall be deemed to prevent the company from supplying or selling the cloth direct to persons or firms or concerns or creating other selling agencies for any defined territories provided the dalals are paid their dalali on such sales effected directly by the company or through others.

(2) That the dalals guarantee the bona fides of the offers brought by them and further guarantee that if the company accept such offers the offerers will fulfil his part of the contract for the sale resulting from such offer and its acceptance.'

3. Clause 3 provided that the offers brought by the applicants shall be deemed to have been accepted by the company if and only if accepted by the company in writing and clause 4 stipulated that the applicants shall not effect any sale under the agreement except with the express consent of the company as to the terms or otherwise. The applicants agreed under clause 5 of the agreement to be responsible to the company to a limited extent for non-payment of any amount by the merchants to whom the cloth of the company was sold by the applicants as dalals of the company. Clause 9 of the agreement made a provision in regard to sales of cloth effected by the company to parties outside India and the provision it made was :

'That notwithstanding anything contained therein the dalals shall not be considered as agents for any purpose whatever with respect to sales of cloth effected by the company to parties outside India directly. However the dalals will act as cloth dalals for all sales for export to customers in India. The company, however, reserves the right to appoint or sell through other selling agents in any specific territory, for the purpose of their sales to exporters, and pay any additional commission to such commission agencies.'

5. Clause 10 provided for payment of dalali to the applicant at the rate of half per cent. on met sale proceeds received by the company on all sales of clothe effected either through the dalals or otherwise. And lastly clause 17 laid an obligation on the applicants to carry out and abide by and faithfully follow any instructions which might be given to them from time to time by the company relating to the matters arising under the agreement. these were the relevant provisions of the agreement and the question is whether the agreement constituted the applicants employees of the company.

6. Now it is difficult to see how any relationship of employer and employee can be spelt out from these provisions of the agreement. It is clear beyond doubt that by the agreement the applicants were appointed sole selling agents for the whole India for the sale of clothe manufactured by the company and the legal relationship between the company and the applicants was that of principal and agent and not that of employer and employee. Mr. V. S. Parikh, learned advocate appearing on behalf of the applicant contended that the proper test for the purpose of determining the relationship of master and servant is the existence of the right in the master to supervise and control the work done by the servant not only in the matter of directing what work the servant is to do but also the manner in which he shall do his work and submitted that the application of this test showed that the company was the master and the applicants were the servants. He relied particularly on clauses 3, 4 and 17 of the agreement and urged that these clauses conferred right on the company to supervise and control the manner of execution of the work to be done by the applicants and the relationship between them was, therefore, that of master and servant and not that of principal and agent. Now is undoubtely true and it is so laid down by several decisions of the Supreme Court of which only one need be mentioned, namely, Dharangadhara Chemical Works Ltd. v. State of Saurashtra1 (1) [1957] S.C.R. 152 ; A.I.R. 1957 S.C. 264; 11 F.J.R. 439. that the relationship of master and servant imports the existence of the right in the employer not only to supervise and control the work but also the manner in which the work is to be done. The proper test, to use the words of Lord Uthwat in Mersey Docks and Harbour Board v. Coggins and Griffith (Liverpool) Ltd. 2 92) [1946] 2 AII E.R. 345 ; [1947] A.C. 1, 23. 'is whether or not the hirer had authority to control the manner of execution of the act in question.' But the application of this test to the facts of the present case does not yield the result contended for by Mr. V. S. Parikh. clauses 3, 4 and 17 on which reliance has been placed merely set out what is implicit in the relationship of principal and agent and lay down certain restrictions on the right of the agent and certain safeguards for the principal. clause 3 of the agreement states that offers brought by the applicants shall be deemed to be accepted by the company only if the company only if the company signifies the acceptance in writing. This provision appears to have been made for the purpose of avoiding any confusion or misunderstand which may perhaps arise between the applicants and the company. Clause 4 then says that the applicants shall not effect any sales under the agreement except with the express consent of the company as regards the terms or otherwise. This provision merely recognises the right of the principal to lay down the terms and conditions of the sales which the agent is authorised to effect on his behalf. Clause 17 requires the applicants to carry out and follow any instructions which might be given to them from time to time by the company in matters arising under the agreement and this provision is also in no way inconsistent with the relationship of principal and agent. The agent must necessarily act in the matter of the agency according to the instructions of the principal. None of these clauses relied upon by Mr. V. S. Parikh provides that the company shall be entitled to dictate to applicants the manner or method of doing the work of the sole selling agency. The word 'dalal' in Gujarati means a broker or agent and when the agreement in terms says that the applicants are appointed dalals for sale of cloth manufactured by the company, it is impossible to hold that the applicants are not brokers or agents appointed by the company but are employees of the company. Clause 1 of the agreement confers sole and exclusive right on the applicants to sell the cloth manufactured by the company with a reservation that the company may, if it thinks fit, sell cloth direct to persons or firms or create 'other selling agencies' for any defined territories. But in that case the company would still have to pay dalali to the applicants on sales effected directly or though other selling agencies. the use of the words 'other selling agencies' clearly suggests that the applicants are selling agents of the company. The provision in clause 2 of the agreement that the applicants guaranteed the fulfilment of the contracts by merchants and the provision in clause 5 that the applicants shall be responsible to a limited extent for non-payment of any amount by the merchants are the usual provisions in a sole selling agency agreement and negative the relationship of master and servant. The agreement, read as a whole, leads to one and only one conclusion, namely, that this is an agreement between a principal and agent and not an agreement between a master and servant. I am, therefore, of the view that the legal relationship between the company and the applicants under the agreement was not that of master and servant and the applicants were not employees of the company within the meaning of clause 6 of the scheme. The claim made by the applicants in the summons must, therefore, be rejected.

7. The summons, therefore, fails and is dismissed with costs.


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