1. The petitioners in each of these two cases are the proprietors of an industrial concern in Salem District engaged in the manufacture and sale of beedis. The manual labour of rolling beedis was done by persons to whom it should be convenient to refer as the beedi rollers. Between the proprietors and the beedi rollers intervened a set of persons; known to the industry as 'contractors', but whom I' shall refer to for the purposes of this judgment ad intermediaries, a less controversial nomenclature.
2. Theusand beedis rolled constituted the unit of work on the basis of which a beedi roller was paid for his work. Who paid that amount and who was legally bound to pay are questions to which I shall advert later. Till October 1956 the beedi roller was paid Rs. 1-6-0 for every unit of large becdis and Rs. 1-8-0 for every unit of beedis of small size rolled by him.
The rates were increased to Rs. 1-14-0 and Rs. 2-0-0 respectively in October 1956. In July-August 1957, the Government increased the excise duty on tobacco by 2 annas per pound. That was in due course reflected not in the price ultimately charged to the consumer, but in remuneration paid to the beedi rollers which was cut down by 2 annas per unit.
The claims of the beedi rollers sponsored by their Union, that that cut should not have been imposed, were referred as industrial disputes for adjudication by the Industrial Tribunal, Madras, under Section 10(1)(c) of the Industrial Disputes Act. The proprietors, the intermediaries and the Union, representing the beedi rollers were impleaded as parties to these disputes.
3. The main basis for the contention of the proprietors and that of the intermediaries, that what had been referred for adjudication were not industrial disputes as defined by the Act was the plea, that the beedi rollers were not 'workmen' within the meaning of Section 2(s) of the Act. That raised a jurisdictional issue, on the correct determination of which depended the further jurisdiction of the Tribunal to adjudicate upon the disputes referred to it as industrial disputes.
The contention of the proprietors and the inter-, mediaries was that there was no jural relationship of master and servant (1) between the proprietor and the beedi rollers, (2) between the proprietor and the intermediaries, or (3) between each of the intermediaries and the beedi rollers who worked for him. Thus the contention was that the beedi rollers were not 'employed' under any one within the meaning of Section 2(s) of the Act.
4. The Industrial Tribunal disposed of both the disputes referred to it by a common award. The Tribunal held that the intermediaries were themselves employees of the proprietors and that the beedi rollers were also the employees of the proprietor, and that the beedi rollers were therefore workmen within the scope of Section 2(s) of the Act 'employed' by the proprietors. By Its award the Tribunal restored the remuneration of the beedi rollers to the levels of Rs. 1-14-0 and Rs. 2-0-0 that had prevailed before the cut imposed in July-August 1957.
5. Each of the proprietors applied under Art. 226 of the Constitution for the issue of a writ of certiorari to set aside the award of the Industrial Tribunal. The petitioners in W. P. No. 234 of 1958 were the proprietors of the concern known as the Three Lotus Beedi Factory, and the petitioners irt W. P. No. 244 of 1958 were the proprietors of the concern, known as D. C. Dewan Mohideen Saheb and Sons (D.C.D. for short). It was the validity of the same award that was challenged in each of these petitions. The contentions were similar, and it should be convenient to dispose of both the writ petitions by a single order.
6. The apparent organisation of the business which was more or less on similar lines in the case of both the petitioners was as follows. The work done by the beedi rollers was not done in any of the premises that belonged to or was at the disposal of the proprietor. That work was carried out only in the premises that belonged to one or the other of the persons, to whom I shall continue to refer as intermediaries, with whom the proprietor entered into written contracts, The proprietor obviously wanted to keep out of the operation of the provisions of the Factories Act premises where more than ten or more manual labourers were employed would be a 'factory' within the scope of the Factories Act.
The proprietor entered into separate contracts with each of the intermediaries. All the contracts do not appear to have been made part of the record before the Industrial Tribunal, but apparently the contracts were referred to and the terms of the contract which appeared ex facie the contract were not in dispute. During the arguments, before me a printed skeleton contract form was shown to me. Theugh the terms in the contracts the Three Lotus entered into were not identical with these the D.C D. entered into, the main term were substantially similar. The contract provided among other things:
1. that the proprietor should supply the tobacco-and the beedi leaves;
2. that the intermediary should engage premises-of his own and obtain the requisite licences to carry on the work of having the beedis rolled there;
3. that at no time should more than nine beedi rollers work in the premises of that intermediary;
4. that the intermediary should meet all the incidental charges of rolling the beedis including the cost of thread and the remuneration paid to the beedi rollers; and
5. that for every unit of 1,000 beedis rolled and delivered by the intermediary to the proprietor, the latter should pay the stipulated amount, after deducting the cost of the tobacco and the beedi leaves supplied by the proprietor.
7. The contracts further provided that the intermediary should not enter into similar engage ments for any other industrial concern. Under the contract the price to be paid for every unit of 1,000 beedis rolled and delivered to the proprietors as well as the cost of the new materials, the tobacco and the beedi leaves, were left to be fixed at the discretion of the proprietor.
A further stipulation in the contract was that for breach of the conditions of the contract it was onpen to the proprietor to terminate the contract. There was also an express provision that the proprietors had no connection with and that they assumed no responsibility for the beedi workers, who had to look only to the intermediary for what was payable to them for rolling the beedis.
8. Some features not specifically covered by the written terms of the contract, about the existence of which there was no real dispute, have also to be set out. The Tribunal accepted the oral evidence given by Mustafa, who was examined as W.W. 2 :
'We will ask for tobacco and leaves from the proprietor; and if he likes he will give or ask us to come tomorrow. He will himself fix a price for the tobacco and leaves and supply them to us. I will take them to the branch and give them to the workers. Every morning I will take the manufactured beedis and give them to the proprietor who will take them at a fixed price such as Rs. 4-14-0, and then Rs. 5-2-0 and now Rs. 5 per 1,000. The proprietor will then calculate on that basis the amount due to me and deduct therefrom the cost of tobacco and leaves and pay me the balance. I will take that to the branch and disburse the wages to the workers and what remains would be mine.' In answer to a question by the Tribunal, Mustafa stated further : 'Whatever so remains will be my remuneration. If nothing remains I will represent to the proprietor and he will give me Rs. 5 or Rs. 10.' When he was cross-examined Mustafa stated 'If there is a large, stock our proprietor will not supply tobacco and leaves on some days. On these days workers of my branch will not come for work.' Mustafa, it should be remembered, had himself been at one time a 'contractor' or intermediary, but he gave evidence on behalf of the Union in the proceedings before the Tribunal.
Mustafa's evidence thus established (1) that it was left to the discretion of the proprietor to supply or not to supply further material for the manufacture of beedis, and that the other contracting party, the intermediary, could not compel the proprietor to ensure either that the intermediary or these that worked for him were provided with work, and (2) it was out of what was payable to the intermediary for the unit of 1,000 beedis rolled antl delivered to the proprietor that the intermediary had to meet all the charges, and only if anything was left could he keep that for himself. If nothing was left, anything he could get out of the proprietor was really a payment ex-gratia and not a payment which under the terms of any contract, express or implied, the proprietor was bound to pay.
9. There were no written contracts between the intermediary and the beedi rollers.
10. If what I have set out above as the apparent basis was also the real basis on which the business was organised,. I should have little difficulty in holding that the persons whom I have referred to as intermediaries were not 'employed' under the proprietors within the meaning of Section 2(s) of the Act, and that the relationship between the proprietor and the intermediary was not that of master and servant.
Whether or not these intermedia lies could be called 'independent contractors', as that expression has been understood in contradistinction to servants, it will have to be held that the jural relationship of master and servant could not be spelled out under the terms of the contract to which I have adverted. The Tribunal, however, found that, despite the apparent tenor of the contracts, each of the intermediaries was an employee of the Proprietor, placed in charge of a branch of the industrial concern of that proprietor, to supervise the work of the beedi rollers who were 'employed' there by the proprietor, and that what was paid to the intermediary really represented his wages. Whether there was evidence on record to sustain that conclusion is what I have to examine.
11. The proprietors of the Three Lotus concern entered into contracts with fifty such intermediaries, and the proprietors of the D.C.D had contracts with 30 intermediaries. That meant that the services of 450 beedi rollers were Utilised for the manufacture of beedis marketed by the Three Lotus and 270 for rolling the beedis marketed by the D. C. D.
The Tribunal found that the same set of beedi rollers worked for each of the intermediaries, and that the factual existence of that feature was not disputed by the proprietors during the arguments before the Tribunal. The further finding of the Tribunal was, that in the premises of each of the Intermediaries, popularly referred to as factory OF branch, the beedi rollers worked under the direct-control and supervision of the intermediary. The Tribunal recorded :
'Having regard therefore to the fact that the workers undertake the manufacture of the beedis in the factories under the direct control and supervision of the contractors, it seems to me that they are regular employees of these factories and not independent contractors.'
The Tribunal was of the view, that the terms of the contract, which enabled the proprietor to fix the price of the raw material and the price of the rolled beedis, really furnished, only a basis for the calculation of the wages earned by the intermediary. The Tribunal recorded :
'.....the price of the raw materials and the finished product are rigidly fixed so as to furnish the basis for the calculation of the wages of the contractors. It is admitted that the profit which a contractor gets is only two annas per 1,000 and that is practically fixed and does not vary.'
It should be remembered that the cost of the raw materials, tobacco and the beedi leaves, was not the only item that the intermediary had to find out of what was ultimately paid to him for the unit of 1,000 beedis. The intermediary had to pay the rent and the licence fees for the premises in which the beedis were rolled; and that constituted one of the major items of his expenses. The Tribunal considered this aspect also. The Tribunal however did not find that these expenses were really met by the proprietor. What the Tribunal recorded was :
'......these expenses might be borne by thecontractors as items in the calculation of the remuneration which as I said remains constant and does not fluctuate whatever might be the market price for the manufactured beedis.'
It is a little difficult to reconcile this finding with the evidence of Mustafa, who in effect, admitted that the intermediary had to meet all the charges, and that some times there would be no margin left to the intermediary after meeting all these charges. The evidence of Mustafa, it should be remembered, was accepted by the Tribunal.
Thus the evidence on record was that the legal liability to meet all the charges for rolling the beedis in the premises of the intermediary was that of the intermediary, and his only legal right under the contract was to get from the proprietor payment at the stipulated rate less the cost of the raw materials for every unit of 1,000 beedis. There was no-real basis in the evidence on record for the conclusion, that one of the implied terms of the contract between the proprietor and the intermediary was that the latter should be paid a remuneration' of two annas for every unit of 1,000 beedis, or that the remuneration paid on that basis constituted: wages payable to the intermediary by the proprietor under any contract, express or implied.
12. After discussing the evidence, the Tribunal summed up the position thus :
'On these circumstances, the proper conclusion to be reached must be this : The so-called contractors are men of straw earning not more than I 1/2 or 2 annas per theusand beedis. Some of them are or were beedi rollers themselves. They are a mere pantomino (phantom) of the proprietors, being themselves their poorly waged employees. The system of manufacture of beedis through the so-called contractors is a mere camouflage devised by the proprietors for their own sinister purposes. It enables the proprietor, firstly, to split up his workers into small groups with a view to escape the statutory requirements as to factory and other conditions and amenities to workers. That is to say, the workers can be made to work under any conditions of labour 'without giving them a legal ground for any protest'. (I have underlined (here into ' ') the passage). Secondly, by this device of intermediaries, the proprietor escapes the demands of labour, such as, increase of wages, dearness allowance, bonus etc., and the contractors, as poor as the workers, would remain completely unaffected by the demands. It is obvious that the proprietors, for the said reasons, have put up these employees as independent contractors, as if engaged under solemn contracts for the manufacture of beedis. This demise on the part of the proprietors is, to say the least, most unfair to the workmen and the sooner the proprietors abandon it and deal with the workers themselves and in the proper way, the better would this industry prosper. It is otherwise difficult to understand why these indigent contractors should have been thought of for the manufacture of beedis, they serve no particular purpose and discharge no special function. The raw materials are supplied by the proprietor, to be manufactured into finished product by the workers. These contractors have no other function except to distribute the raw materials and gather the manufactured products. It seems to me clear that these so-called contractorsare not independent contractors, hut are mere employees of the proprietors, functioning as branch managers of the various factories, their remuneration being determined on the prices fixed for the raw materials and the finished product. It follows that the beedi workers are employees within the meaning of the Act, and they are employees of the proprietors and not of the so-called contractors, and the contractors themselves are mere employees or branch-managers of the proprietors.'
13. The Tribunal nowhere found either in express terms or even impliedly that the contracts between the proprietor and the intermediary were sham, in the sense that they were not acted upon and were never intended to be acted upon. The evidence on record was all one way, and it showed that the contracts were given effect to. That such contracts enabled the proprietor to defeat the provisions of statutes, for example, the Factories Act, did not make the contracts themselves any the less real and binding as between the contracting parties.
Whatever the commercial morality of the transaction might be, the proprietor could claim a legal right to organise his business within the limits of law, and if within these limits he avoided the necessity to employ the intermediary or the beedi roller as his servant, the proprietor was entitled to do so. It should be remembered that the Tribunal itself recorded that the effect of the arrangement made by the proprietor was the beedi rollers could be 'made to work under any conditions of labour witheut giving them a legal ground for any protest.'
I also find it difficult to reconcile the observation of the Tribunal that 'the intermediaries serve no particular purpose and discharge no special functions' with the final conclusion, that these intermediaries were employed as branch managers of the factories of the proprietor, and that they were the employees of the proprietor. The Tribunal stated :
'The device On the part of the proprietors is, to say the least, most unfair to the workmen and the sooner the proprietors abandon it and deal withthe workers themselves and in the proper way, the better would this industry prosper.'
Possibly that observation was justified. That, however, should not obscure the real question for determination, was the legal relation between the petitioner and the intermediary that of master and servant. That question had to be determined solely with reference to the statutory definition of 'workmen' in Section 2(s) of the Industrial Disputes Act. It is for the Legislature to prevent such devices by appropriate statutory provisions. Tribunals and Courts cannot ignore the legally enforceable contracts between the proprietor and the intermediary.
14. Though in discussing the position of the beedi rollers the Tribunal was fully alive to the need to apply the well recognised tests to decide whether the relationship of master and servant existed, the Tribunal does not appear to have really considered whether under the contracts between the intermediary and the proprietor, the time of the intermediary was really at the disposal of the other contracting party, the proprietor, to constitute him a master.
Mustafa's evidence, to which I have already adverted, should suffice to negative the existence of such a control either under the contracts or even as a reality. Further, the proprietor was under no obligation to provide work, and unless work was provided and done, the intermediary had no legal right to get any payment.
15. It is true that the Tribunal relied upon Exs. W. 1, W. 2, W. 6, W. 6(a) and W. 8 to hold that what was paid to the beedi rollers was really regulated and controlled by the proprietor. The Tribunal recorded:
'......the proprietors were the real mastersand employers, and not the contractors who only act on the instructions of the proprietors.'
But the economic control exercised by the proprietor, both in relation to the amount that the beedi roller got and the amount the intermediary could get or hope to get, may not be enough to satisfy the real test; had the proprietor lawful autherity to command the services of the intermediary. I had occasion to discuss this aspect and to refer to Zulis v. Writh Bros. Pty. Ltd 93 C. L R 561, in my judgment in T. M. Abdul Rahim and Co. v. Secy. North Arcot. Dt. Beedi Workers' Union, W. P. No. 998 of 1957: : AIR1959Mad212 which I have just delivered. In my opinion that test was not satisfied.
16. Once the position is reached, that the contracts between the intermediaries and the proprietors were real, that they were legally enforceable, and that they were in fact given effect to, I find it difficult to escape from the conclusion, that the jural relationship between the intermediary and the proprietor was not that of master and servant and that the intermediary himself was not a workman employed by the proprietor in his industry within the meaning of Section 2(s) of the Act.
That the contracts were designed to and did result in the avoidance of the obligations imposed On proprietors of industrial concerns by beneficial labour legislation could not alter the legal relationship between the contracting parlies, to whom. I have referred as the proprietor and the intermediary.
17. The position of the intermediary in the industry as organised by the petitioners was quite different from that of the agaria, whose position was considered by the Supreme Court in Dharanga-dhara Chemical Works v. State of Saurashtra, : (1957)ILLJ477SC , The terms of the contract between the proprietor and the inte-mediary did not bind the intermediary to render any personal services of his to the proprietor, either manual, or even supervisory.
The position of the intermediary in these cases was really analogous to that of the Sattedar, considered by the Supreme Court in Chintaman Rao v. Sate of Madhya Pradesh, : 1958CriLJ803 , and to that of it contractor, whose legal position was analysed by Rajagopala Aiyangai1 J. in Abdul Kader Saheb v- State of Madras, 1956 1 Mad LJ 574.
18. The learned Advocate General urged that in the circumstances established in this case the intermediary could not really be classed as an 'independent contractor.' There was really nothing entreprenaurial in his activities. The learned Advocate General pointed out that even under the contracts the intermediary could only look to the proprietor with whom ho had entered into the contract for work and for remuneration for that work. That may not be a conclusive test.
If, for example, a person took up the sole selling agency of a manufacturer and undertook by his contract not to market the products of any other manufacturing concern, that by itself would not make the relationship between the contracting parties that of master and servant. That financially an intermediary was possibly worse off than the beedi roller again may not help to decide the question were that the question at issue, was the intermediary an independent contractor in contradistinction to a servant.
Whether the intermediary could really be classed as an independent contractor may not be the real question. The real question is, was the intermediary 'employed' within the meaning of Section 2(s) of the Act. To satisfy the statutory requirements of of Section 2(s) of the Act, there must be proof that the intermediary was employed by tile proprietor. That test has not been satisfied.
19. In the view I have taken of the legal position of the intermeditary vis-a-vis the proprietor, it may not be necessary to discuss at any length the question, whether there was the relationship of master and servant between the beedi roller and the intermediary. Nor is it necessary to point out anything more at this stage than that there was no privity of contract, express or implied, between the petitioners and the beedi rollers.
I have already referred to one of the express terms in the contracts between the proprietors and the intermediaries, that the proprietors had no connection with and that they assumed no responsibility for the beedi rollers. If the Tribunal was in error in holding that tile intermediary was an employee of the proprietor entrusted with the task supervising the work of the beedi rollers, there is no basis at all for holding that the beedi roller was an employee of the proprietor, and that the jural relationship between the beedi roller and the proprietor was that of master and servant.
20. In my opinion neither the beedi roller nor the intermediary was an employee of the petitioners, the proprietors of the beedi manufacturing concerns.. The disputes between the petitioners and the beedi rollers were therefore not industrial disputes within the scope of Section 2(k) of the Act. The Tribunal had therefore no jurisdiction to direct the petitioners, as proprietors of the manufacturing concerns, to pay the beedi rollers at the rates Specified in the award. That vitiates the award.
21. These petitions are allowed. The rule nisi granted in each case will be made absolute. The award will stand set aside.
22. There will be no order as to costs.