Shri Birdhichand Sharma vs First Civil Judge Nagpur And Others

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

Court: supreme-court

Case Number: Civil Appeal No. 370 of 1959

Decision Date: 9 December 1960

Coram: K.N. Wanchoo, P.B. Gajendragadkar

In this case, the Supreme Court of India considered an appeal titled Shri Birdhichand Sharma versus First Civil Judge Nagpur and Others, decided on 9 December 1960. The opinion was authored by Justice K.N. Wanchoo, with Justice P.B. Gajendragadkar sitting on the bench. The petitioner was Shri Birdhichand Sharma and the respondents were the First Civil Judge Nagpur together with several other parties. The judgment was rendered on 09/12/1960 and the bench composition was recorded as Wanchoo, K.N. and Gajendragadkar, P.B. The case is reported in 1961 AIR 644 and 1961 SCR (3) 161, with citator references including R 1962 SC 517 (11,31), RF 1963 SC 1591 (16), R 1966 SC 370 (9,10,11,13), RF 1970 SC 66 (10,11), F 1971 SC 832 (2,6), R 1974 SC 37 (12,14,16,19), RF 1974 SC 1832 (62,64,65,67), R 1987 SC 447 (9) and RF 1992 SC 573 (37). The dispute arose under the Industrial Dispute context concerning workers employed in a bidi factory, specifically addressing their liberty to leave the premises, payment on a piece‑rate basis, and the employer’s control exercised by rejecting sub‑standard output, all examined under the Factories Act, 1948 (LXIII of 1948), sections 2(1) and 79. The headnote recorded that the appellant required the workmen to be present at the factory during working hours, noted their attendance, and did not permit them to work from their homes; however, the workers could depart after midday but would then be denied tobacco supplies and consequently could not work even though the factory remained open until 7 p.m. The employer also reserved the right to terminate employment after eight days of absence. Wages were calculated on a piece‑rate system proportional to work performed, and any bidis failing to meet quality standards could be rejected. The respondents applied for a fifteen‑day leave, failed to report for work, and consequently were not paid wages for that period, prompting them to approach the Payment of Wages Authority for remuneration. The appellant argued that the respondents were not “workmen” within the meaning of the Factories Act; the Court rejected this contention and allowed the wage claim. The principal question before the Court was whether the respondents qualified as workmen under the Act. The Court held that the extent of control varies across industries and cannot be precisely defined; when an operation is simple and supervision is limited to end‑of‑day quality checks, the right to supervise, rather than the method of supervision, determines whether a person is a workman or an independent contractor. Moreover, the Court observed that being a piece‑rate worker does not automatically exclude a person from the definition of “workman” in section 2(1) of the Factories Act. In the instant

In the present appeal, the Court affirmed that the individuals who were employed at the factory could not be characterized as independent contractors; instead, they fell within the definition of “workmen” laid down in section 2(1) of the Factories Act. The judgment further held that the leave entitlement prescribed in section 79 of the Act arose as a matter of right once a workman had completed the requisite minimum number of working days, and that the right to such leave did not depend on the length of any subsequent period of absence. In other words, even if a workman remained away from the establishment for a longer duration than the statutory leave, that fact did not affect his entitlement to the leave that he had earned. The Court supported this view by approving the earlier decision in State v. Shankar Balaji Waje, AIR 1960 Bombay 296, and by referring to the authorities Dharangadhara Chemical Works Ltd. v. State of Saurashtra, [1957] SCR 152, and Shri Chintaman Rao v. State of Madhya Pradesh, [1958] SCR 1340. The judgment concerned Civil Appeal No. 370 of 1959, which was entertained by special leave from the order dated 6 August 1957 of the Bombay High Court at Nagpur in Miscellaneous Petition No. 512 of 1956. Counsel for the appellant were M. N. Phadke and Naunit Lal, while Shankar Anand and A. G. Ratnaparkhi appeared for respondents 2‑4, and N. P. Nathvahi, K. L. Hathi and R. H. Dhebar represented the intervenor, the State of Bombay. The judgment was delivered on 9 December 1960 by Justice Wanchoo, who noted that the matter involved an industrial dispute and was being appealed by special leave to the Supreme Court.

The factual backdrop of the dispute involved a manager of a biri (tobacco‑leaf) factory located in Nagpur and three workers identified as respondents 2, 3 and 4. These workers applied for a period of fifteen days’ leave covering the span from 18 December 1955 to 1 January 1956 and did not attend work during that interval. The manager withheld the wages for those days, prompting the workers to approach the Payment of Wages Authority, hereinafter referred to as “the Authority,” seeking the wages that had been withheld. The workers argued that they were entitled to the fifteen days of leave under sections 79 and 80 of the Factories Act, 1948, and consequently to the wages for that period. The Authority examined the claim, found it to be valid, and ordered that a total sum of Rs 90 16 paise be paid to the workers as the wages for the leave period. Dissatisfied with this outcome, the manager instituted an application under article 226 of the Constitution before the High Court at Nagpur, asserting that the three respondents were not “workers” within the meaning of the Factories Act and therefore could not invoke the provisions of section 79. The respondents, on the other hand, maintained that they were indeed workers as defined by the Act and were entitled to the sum awarded by the Authority. After reviewing the evidence and circumstances, the High Court concluded that the respondents satisfied the criteria of section 2(1) of the Factories Act and consequently upheld the Authority’s order, dismissing the manager’s petition. The manager subsequently applied for a certificate to appeal to this Court; the request was denied, but he later obtained special leave from the Supreme Court, bringing the matter before this Court. Section 2(1) of the Factories Act defines a “worker” as any 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 a manufacturing process, or in any other kind of work incidental to or connected with the manufacturing process or its subject matter.

The definition of “worker” in section 2(1) of the Factories Act states that a worker is a person who is employed, either directly or through an agency, whether for wages or not, in any manufacturing process; or who cleans any part of the machinery or premises used for a manufacturing process; or who performs any other kind of work that is incidental to or connected with the manufacturing process or the subject matter of the manufacturing process.

The appellant’s principal argument was that respondents numbered two to four did not fall within the meaning of “employed” as used in section 2(1) of the Act. To support this position, the appellant relied upon two earlier decisions of this Court: Dharangadhara Chemical Works Ltd. v. State of Saurashtra and Shri Chintaman Rao v. State of Madhya Pradesh.

In the Dharangadhara Chemical Works case, this Court examined section 2(s) of the Industrial Disputes Act, which defines “workman.” The Court held that the term “employed” in that provision implies a master‑servant or employer‑employee relationship; merely being present on another person’s premises and performing work there is insufficient to qualify a person as a workman. The Court further drew a distinction between a workman and an independent contractor. It laid down a prima facie test for determining the existence of a master‑servant relationship: the employer must possess not only the right to direct what work is to be done but also the right to control the manner in which the work is performed. The extent of such control varies across industries and, by its nature, cannot be precisely defined. Consequently, the appropriate approach is to consider, in light of the nature of the work, whether the employer exercises sufficient control and supervision over the individual.

The same issue arose in the case of Shri Chintaman Rao, which also involved biri workers and required an interpretation of section 2(1) of the Factories Act. The Court held that the test articulated in Dharangadhara Chemical Works for section 2(s) of the Industrial Disputes Act is equally applicable to section 2(1) of the Factories Act. The Court emphasized that determining whether a person working in a factory is an independent contractor or a worker depends on the specific terms of the contract between that person and the employer. No universal rule can be laid down that will govern all situations; each case must be decided on its own factual matrix.

Applying the foregoing principles, the Court turned to the facts of the present dispute to decide whether respondents two to four are workers within the meaning of the Act or independent contractors. The factual record shows that the respondents are engaged to work inside the factory premises and are not at liberty to perform their labour at home. They are required to adhere to the factory’s prescribed working hours, which correspond to the regular operating hours of the establishment. These facts, together with the earlier legal principles, form the basis for determining the proper classification of the respondents in this matter.

It was recorded that the workers were not required to remain on the premises for the whole working day and that they could leave whenever they wished. Their presence was nevertheless entered in the factory’s attendance register. They were allowed to come and go at any time, but if a worker arrived after midday he was not supplied with tobacco and therefore was not permitted to work, even though the factory’s official closing time was seven p.m. in accordance with the provisions of the Factories Act. The statement that they could return at any time was qualified by the condition that they could not remain later than seven p.m. The factory operated under standing orders, which provided that a worker who was absent for eight days, presumed to be without leave, could be dismissed. Wages were paid on a piece‑rate basis according to the amount of work completed, but the management retained the right to reject any biris that did not meet the required standard. On the basis of these facts the question arose as to whether respondents numbered two to four were employed by the appellant. It was observed that the factual circumstances of the present case differed substantially from those in the earlier decision known as Shri Chintaman Rao’s case. In that earlier case the factory had entered into contracts with independent contractors, referred to as the Sattedars, for the supply of biris. The Sattedars received tobacco, and at times tobacco leaves, from the factory. They were not obligated to work within the factory premises nor required to manufacture the biris themselves, as they could have the biris prepared by others. The Sattedars also employed coolies, and the payments to those coolies were made by the Sattedars and not by the factory. The Sattedars collected the biris prepared by the coolies, brought them to the factory for sorting and inspection by the factory’s own workers, and any biris that were rejected were returned to the Sattedars for remaking. The factory’s payments were made to the Sattedars and not to the coolies. Under those circumstances the court had held that the Sattedars were independent contractors and that the coolies working for them were not workers of the factory.

In contrast, the present facts showed that respondents two to four were required to work inside the factory, a condition that implied a certain degree of supervision by the management. Their attendance was recorded, and they were not permitted to have the work performed by others; they had to carry out the work personally. Although they were not bound to remain for the entire period that the factory was open, it was undisputed that any worker who arrived after midday was denied any work and consequently lost the wages for that day, because remuneration was based on piece‑rate rates. Furthermore, while they could be absent without formally requesting leave, the management retained the authority to dismiss them if they were absent continuously for eight days. Additionally, the management possessed the right to reject any biris that failed to meet the proper standards. These factual distinctions led to the conclusion that the situation in the present case could not be equated with the earlier case involving independent contractors, and the question of whether the respondents were employees of the appellant required analysis based on the specific facts outlined above.

If a worker stayed away for a continuous period of eight days, the management was authorized to remove him from employment. Finally, the management exercised a degree of supervision by reserving the right to reject any biris that failed to meet the required standard. The cited authority (1) (1958) S.C.R. 1340 was referred to in support of this observation regarding the employer’s power to reject substandard products. The principal issue that then arose was whether, under these facts, the appellant merely directed the work to be performed without controlling the manner of its execution. It was recognized that the extent and nature of control differ among industries and cannot be precisely defined in every circumstance. Considering the specific work involved in the present case, it could not be said that constant supervision was required while biris were being prepared. Without such ongoing supervision, there could be no direction concerning the manner in which the work should be carried out. In this case, the operation was simple, and control over the work’s manner was exercised at the end of each day by rejecting biris that did not meet the proper standard. Thus, the significance lay in the right to supervise rather than in the particular method by which supervision was carried out. Accordingly, the Court was of the opinion that respondents numbered two to four, who worked in the factory, could not be characterized as independent contractors. Although those respondents enjoyed limited freedom to come and go at will, this liberty stemmed from their status as piece‑rate workers, not from any contractual independence. Nevertheless, being a piece‑rate worker did not automatically exclude a person from falling within the definition of ‘worker’ under section two one of the Factories Act. The court examined the entire situation, noting that a worker who arrived after midday received no work and was required to work only at the factory. It also considered that such a worker could be dismissed after eight consecutive days of absence, had his attendance recorded, and faced rejection of his biris if they did not meet the required standard. Consequently, there was no doubt that respondents two to four qualified as workers within the meaning of section two one of the Factories Act. The Bombay High Court reached the same conclusion in State v. Shankar Balaji Waje (1) when faced with similar facts, and the present Court considered that view to be correct. It was then submitted that even if the respondents were workers under section two one, section seventy‑nine should not apply because they could absent themselves whenever they wished. In this case, it was argued that the respondents had been absent for a longer period than permitted by the Act, and therefore they should not be entitled to the leave provided under section seventy‑nine.

In this case the Court rejected the contention that the respondents did not need any leave. The Court stated that the argument advanced by the respondents carried no persuasive force. The Court explained that leave under section 79 of the Factories Act is a statutory right that vests in a worker who has completed the prescribed minimum number of working days, and therefore the worker is entitled to such leave. The Court further observed that the respondents’ period of absence, which exceeded the duration contemplated in section 79, does not affect their entitlement to leave; the consequence of their extended absence was merely the loss of wages that they would otherwise have earned, not a forfeiture of the leave earned under the provision. Consequently, the Court held that the respondents could not be deprived of the leave they had accrued under section 79. The Court noted that, under the provisions of section 79, a worker who has worked for at least two hundred and forty days in a factory during a calendar year is eligible for proportionate leave in the following calendar year. The record contained no evidence to show that the respondents failed to satisfy this attendance requirement. Accordingly, the Court concluded that the appeal was without merit and ordered its dismissal. The Court further directed that the appellant pay the costs of the hearing, specifying that one set of hearing costs be awarded, and affirmed that the appeal was dismissed. The dismissal therefore concluded the proceedings in this matter.