SUSHILABEN INDRAVADAN GANDHI & ANR. versus THE NEW INDIA ASSURANCE COMPANY LIMITED & ORS.

[2020] 9 S.C.R.

ASUSHILABEN INDRAVADAN GANDHI & ANR.

THE NEW INDIA ASSURANCE COMPANY LIMITED & ORS.

(Civil Appeal No. 2235 of 2020)

APRIL 15, 2020

[R. F. NARIMAN AND S. RAVINDRA BHAT, JJ.]

Motor Vehicles Act, 1988: s.166 – Comprehensive Private Car‘B’ Policy – Fatal accident – surgeon working in respondent no.3Chospital was travelling in bus owned by the hospital which metwith an accident due to rash and negligent driving of the driver ofthe bus – The surgeon was seriously injured and ultimatelysuccumbed to his injuries – Claim for compensation by his wife –The policy contained clause that the insurance company wouldDnot be liable where death or injury arose out of and in the courseof employment of such person by the insured – Insurance companydenied the claim on the ground that the deceased surgeon was anemployee of the hospital, thereby excluding the liability of insurancecompany – Tribunal held that the contract was contract for serviceas result of which the deceased could not have been held to be inEthe employment of respondent no.3 and insurance company wasliable – However, High Court held that since the contract was acontract of service, the insurance company could not be held liable– Whether the surgeon could have been said to be the employee ofrespondent no.3 on the date of accident as result of which theFlimitation of liability provision in favour of insurance company wouldkick in – Held: The intention of the parties is to be gathered fromthe terms of the contract – The contract between the surgeon andthe hospital was for three years extendable only by mutual consentand his remuneration was described as honorarium – The terms ofthe contract was one for service, and that with effect from the dateGon which the contract begins, the surgeon would no longer remainas regular employee of the hospital, making it clear that his serviceswere no longer be as regular employee but as an independentprofessional – Also, there was endorsement IMT-5 which providedpersonal accidental cover to unnamed passengers other than theHinsured and his paid driver or cleaner – Additional premium was

paid for endorsement IMT which would, therefore, be applicable inthe facts of this case, the deceased being one such unnamedpassenger – High Court’s order is set aside and the order of tribunalis restored.

Allowing the appeal, the Court

HELD: 1. The intention of the parties is to be gatheredfrom the terms of the contract. The terms of the contract makesit clear that the contract is one for service, and that with effectfrom the date on which the contract begins, Dr. Gandhi shall nolonger remain as regular employee of the Institute, making itclear that his services are now no longer as regular employeebut as an independent professional. Secondly, the remunerationis described as honorarium, and consistent with the position thatDr. Gandhi is an independent professional working in the Institutein his own right, he gets share of the spoils. Thirdly, he entersinto the agreement on equal terms as the agreement is for threeyears, extendable only by mutual consent of both the parties.Fourthly, his services cannot be terminated in the usual mannerof the other regular employees of the Institute but are terminableon either side by notice. The fact that Dr. Gandhi must devotehis entire attention to the Institute would not necessarily lead tothe conclusion that de hors all other factors the contract is one ofservice. Equally important is the fact that it is necessary to stateDr. Gandhi will be governed by the Conduct Rules and by theLeave Rules of the Institute, but by no other Rules and eventhough the Leave Rules apply to Dr. Gandhi, since he is not aregular employee, he is not entitled to any financial benefit asmight be applicable to other regular employees. Equally,arbitration of disputes between Dr. Gandhi and the Institute beingreferred to the Managing Committee of the Institute would showthat they have entered into the contract not as master and servantbut as employer and independent professional. conspectus ofall the above would certainly lead to the conclusion, applying theeconomic reality test, that the contract entered into between theparties is one between an Institute and an independentprofessional. Even otherwise, it is well-settled that exemption ofliability clauses in insurance contracts are to be construed in thecase of ambiguity contra proferentum. [Paras 28, 29][65-C-H;66-A-B]

A2. The High Court held in the impugned judgment that asadditional premium had been paid so as to attract the applicabilityof IMT-5, in any case the Insurance Company would be liableunder the policy to pay compensation in the case of death tounnamed passengers other than the insured and his paid driveror cleaner, Dr. Alpesh Gandhi being one such unnamed passenger.BThis was done on the footing that the exception to IMT-5 wasthat person in the employ of the insured coming within the scopeof the Workmen’s Compensation Act, 1923 is excluded from thecover, but that as Dr. Alpesh Gandhi did not come within thescope of the Workmen’s Compensation Act, compensationCpayable due to his death in motor accident would be covered byIMT-5. There is no reason to disturb this finding. Section-II,entitled “liability to third parties” in the insurance policy exemptsthe insurance company from the death of person carried in amotor car where such death arises out of and in the course of theemploymentof such person by the insurer. [Para 34][70-G-H;D71-A-B]

General Assurance Society Ltd. v. Chandumull Jain[1966] 3 SCR 500; United India Insurance Co. Ltd. v.Pushpalaya Printers (2004) 3 SCC 694 : [2004] 2 SCR631; Export Credit Guarantee Corpn. of India Ltd. v.EGarg Sons International (2014) 1 SCC 686 : [2013] 1SCR 336; BHS Industries v. Export Credit GuaranteeCorpn. Ltd. (2015) 9 SCC 414 : [2015] 8 SCR 366;United India Insurance Co. Ltd. v. Orient Treasures (P)Ltd. (2016) 3 SCC 49 : [2016] 1 SCR 1; IndustrialFPromotion & Investment Corpn. of Orissa Ltd. v. NewIndia Assurance Co. Ltd. (2016) 15 SCC 315– relied on.

Sarla Verma v. DTC (2009) 6 SCC 121 : [2009] 5 SCR1098; Dharangadhara Chemical Works Ltd. v. State ofSaurashtra [1957] SCR 158; National InsuranceCompany Limited v. Balakrishnan (2013) 1 SCC 731 :[2012] 12 SCR 565; Chintaman Rao v. State of M.P.[1958] SCR 1340; Birdhichand Sharma v. First CivilJudge [1961] 3 SCR 24; Shankar Balaji Waje v. Stateof Maharashtra [1962] 1 Suppl. SCR 24; D.C. Dewan

SUSHILABEN INDRAVADAN GANDHI v. NEW INDIAASSURANCE COMPANY

Mohideen Sahib and Sons v. Secretary, United BeediWorkers’ Union [1964] 7 SCR 646; Silver JubileeTailoring House v. Chief Inspector of Shops &Establishments (1974) 3 SCC 498 : [1974] 1 SCR 747;Hussainbhai v. Alath Factory Thezhilali Union (1978)4 SCC 257 : [1978] 3 SCR 1073; Shining Tailors v.Industrial Tribunal II, U.P. (1983) 4 SCC 464; P.M.Patel & Sons v. Union of India (1986) 1 SCC 32 :[1985] 3 Suppl. SCR 55; Indian Banks Assn. v. Workmenof Syndicate Bank (2001) 3 SCC 36 : [2001]1 SCR1011; Indian Overseas Bank v. Workmen (2006) 3 SCC729 : [2006] 3 SCR 19 – referred to.

v. English Province of Our Lady of Charity and Anr.2012 EWCA Civ 938; Lee Ting Sang v. ChungChi-Keung [1990] 2 A.C. 374 – referred to.

Halsbury’s Laws of England 5th Edition, Vol. 60 –referred to.

BCIVIL APPELLATE JURISDICTION : Civil Appeal No. 2235of 2010.

From the Judgment and Order dated 26.07.2018 of the High Courtof Gujarat at Ahmedabad in R/First Appeal No. 1201 of 2012.

O. P. Bhadani and Vikas Kochar, Advs. for the Appellants.C

S. L. Gupta, Ms. Gunjan Sharma, Ashutosh Sharma, Ms. MataPrasad Singh, Ranjana R. Singh, Kudeep Singh Tomar, S. S. Gupta,Varinder Kumar Sharma and Deepak Anand, Advs. for the Respondents.

The Judgment of the Court was delivered byDR. F. NARIMAN, J.

1. Leave granted.

2. On 09.06.1997, the husband of the Appellant No.1, who was asurgeon, was travelling in mini-bus that was owned by the Rotary EyeEInstitute, Navsari (the Respondent No. 3 herein) along with other medicalstaff of the said Institute. The mini-bus had been driven with excessivespeed, as result of which at around 8.30 P.M. when the mini-bus waspassing through the Gandevi-Navsari Road, near Kabhar Patiya, thedriver of the mini-bus lost control and the vehicle turned turtle. Thehusband of Appellant No.1 was seriously injured and ultimatelyFsuccumbed to his injuries.

3. On 17.04.1997, the Respondent No. 3 had entered into acomprehensive Private Car ‘B’ Policy from the New India AssuranceCompany Limited (the Respondent No. 1 herein). The aforesaidInsurance Policy was valid from 24.04.1997 till 20.04.1998. The limitationGof liability clause which has been relied upon by the impugned judgmentof the High Court is set out as follows:

“SECTION II LIABILITY TO THIRD PARTIES

1. Subject to the limits of liability as laid down in the Schedulehereto the Company will indemnify the insured in the event of

an accident caused by or arising out of the use Motor Caragainst all sums including claimant’s costs and expenses whichthe insured shall become legally liable to pay in respect of

(a) death of or bodily injury to any person including occupantscarried in the motor car (provided such occupants are notcarried for hire or reward) but except so far as it is necessaryto meet the requirements of Motor Vehicles Act, the Companyshall not be liable where such death or injury arises out of andin the course of the employment of such person by the insured.”

In addition, endorsement IMT-5 states:

“I.M.T.5. Personal Accidental cover to unnamed passengersother than the insured and his paid driver or cleaner.

In consideration of the payment of an additional premium it ishereby understood and agreed that the Company undertakesto pay compensation on the scale provided below for bodilyinjury as hereinafter defined sustained by any passenger otherthan the insured and/or his paid driver attendant or cleanerand/or person in the employ of the insured coming within thescope of the Workman Compensation Act, 1923 and subsequentamendments of the said Act and engaged in and upon theservice of the insured at the time such injury is sustained whilstmounting into dismounting from or travelling in but not drivingthe motor car and caused by violent accidental external andvisible means which independently of any other cause shallwithin three calendar months of the occurrence of such injuryresult in:

There is no dispute that additional premium was paid forendorsement IMT-5, which will therefore be applicable in the facts ofthis case. It is also undisputed that endorsement IMT-16, which dealswith general liability to employees of the insured who may be travellingEin the employer’s car, other than paid drivers, may also be covered onpayment of an additional premium. It is undisputed on the facts of thiscase that as far as endorsement IMT-16 is concerned, no such additionalpremium was paid.

4. The husband of the Appellant No.1, Dr. Alpesh I. Gandhi, hadFentered into contract for services, dated 04.05.1996, as an HonoraryOphthalmic Surgeon at the aforesaid Respondent No. 3 institute. Sincethe important question to be determined in this appeal is whether Dr.Alpesh I. Gandhi can be said to be employed by the Respondent No. 3or has only entered into contract for services with the Respondent No.3 as an independent professional, the terms of the contract being importantGare set out herein in full:

“SUB: CONTRACT FOR SERVICES AS HONORARYOPHTHALMIC SURGEON AT ROTARY EYE INSTITUTE,NAVSARI.

This contract on the captioned subject entered into between Dr.ALPESH I. GANDHI, hereinafter referred to as AIG and theRotary Eye Institute, Navsari, hereinafter referred to as REIN,has become effective from dated 01-04-1996 and the same isgoverned by the following terms and conditions.

I.DESIGNATION: Honorary Ophthalmiç Surgeon.

II.HONORARIUM: Rs. 4000/- P.M

III.OTHER COMPENSATIONS: That for the Honorary Servicesto REIN, AIG will be compensated as follows:

i. AIG will be paid 10% of the appropriate percentage of the totalmoney set aside every month out of the OPD collection at theREIN;

ii. AIG will also be paid 10% of the appropriate percentage of thetotal money set aside every month out of the Operation Feecomponent of the Hospitalization Bills collected by REIN fromthe Institute patients;

iii. AIG will also be entitled to 10% of the appropriate percentageof the total money set aside every month out of the Room VisitingFees component of the Hospitalization Bills collected by REINfrom the Institute patients;

NOTES:

a. That the above compensations are in addition to the Honorariumas stated at clause II above;

b. That the Patients Hospitalized under AIG’s care will have tobe visited by AIG for the post-operative care.

IV. TIME DEVOTION AND DUTIES:

That the AIG will be devoting full time to the REIN to cater to thefollowing:

i. The examination of OPD patients both in the morning and theafternoon sessions;

ii. The Operations of paying as well as non-paying Patients as perthe schedules fixed by the Institute Management;

iii. The emergency cases of all natures;

Aiv. Attending the routine as well as special Diagnostic and OperativeCamps as finalized by the competent authority of the Institute;

v. Participation in the R & activities programmed and plannedby the R & Department of the Institute;

vi. Presenting research papers at the National and InternationalBMedical Conferences on behalf of the R & Department of theInstitute upon authorization by the competent authority of theInstitute;

vii. Training of junior doctors and other paramedical staff of theInstitute to make them competent enough to handle the casesCindependently.

viii. Any other assignment that might get created in course of timebut not clearly visualized at present.

V. LEAVE RULES:

DThat AIG will be governed by the leave rules of the Institute as invogue from time to time. AIG will, however, not be entitled to anyfinancial benefit of any kind as that might be applicable to otherregular employees of the Institute as far as the leave rules areconcerned.

EVI. WEEKLY OFFS AND HOLIDAYS:

i. That AIG will be entitled to weekly offs as well as public holidaysas decided by the Institute for each accounting year.

That Hon. Hospital Superintendent, however, shall have therights to make alterations in the same depending upon the HospitalFcontingencies.

ii. That AIG will be entitled to 30 days of contingency leave duringeach accounting year.

VII. CONDUCT RULES:

GThat AIG will be governed by the conduct rules of the Institute asin vogue from time to time and as applicable to the regularemployees of the Institute.

VIII. ARBITRATION OF DISPUTES:

That the disputes, if any, arising in course of the tenure of thiscontract will be referred to the Managing Committee of the Instituteand the decision of the Managing Committee will be final.

IX. TENURE OF CONTRACT:

That this contract is operative for period of THREE YEARSeffective from 1-4-96.

This period can, however, be extended from time to time with themutual consent.

X. TERMINATION OF CONTRACT:

That notice of clear THREE MONTHS will have to be given.

i. By REIN to AIG, if the institute wishes to terminate this contractor in lieu of notice period the institute shall have to pay an amount(to AIG) equivalent to the Hon. Amount paid to AIG for last threemonths just preceding the month of termination of contract;

ii. By AIG to REIN, if AIG wishes to terminate this contract or inlieu of the notice period AIG shall have to pay an amount (toREIN) equivalent to the Hon. Amount paid to him by the Institutefor the last three months just preceding the month of terminationof the contract.

NOTE: That in the event of the proven case indiscipline or breachof Trust, the REIN reserves the right to terminate the contract atany time without giving any compensation whatsoever.

XI. EXPIRATION OF THE PRESENT EMPLOYMENT:

That with effect from 1st April 96, AIG shall no longer remain asthe regular employee of the Institute and that the earlierappointment order No. 10795 dtd. 03-04-1995 automaticallybecomes null and void.”

5. The Appellants filed petition under Section 166 of the MotorVehicles Act, 1988, being MACP No.1326 of 1997, against the driver,the Respondent No. 3 and the Respondent No.1, in which they claimedcompensation for the death of Dr. Alpesh I. Gandhi at INR 1 crore. Thepetition stated that Dr. Gandhi was 28 years old at the time of his deathand was earning monthly income of INR 13,000.

A6. Despite being served, the Respondent No. 2 and the RespondentNo. 3 chose to remain absent before the Tribunal. The Respondent No.1 filed its written statement where it denied the material averments madeby the Appellants and, in addition, submitted that the deceased being anemployee of the hospital was not covered for death or injury arising outof and in the course of his employment, thereby excluding the liability ofBthe insurance company altogether in the case. The Tribunal framed thefollowing issues and answered them as follows:

“1. Whether the applicants prove that the deceased died due tothe rash and negligent driving on the part of the driver, opponentNo.1 of the vehicle involved in the accident?C

2. Whether the applicants are entitled to get compensation? Ifyes, what amount and from whom?

2-A Whether the claimant prove that the risk of the deceased iscovered in the policy issued to the hospital?

2-B Whether the opponent No.3 proves that the risk of thedeceased is not covered in the policy, because of the deceasedbeing an employee of the hospital and the death is caused duringthe course of employment as the Sec-II of the terms and conditionsof the policy exclude such risk ?

E3. What award and order?

My findings to the above issues are as under for the reasons tofollow: -

1. In the affirmative.

F2. In the affirmative. As per finding.

2-A In the affirmative.

2-B In the negative

3. As per final order.”

G7. By way of findings of fact, it found that the driving license infavour of the driver was valid, and that the driver was rash and negligentin driving the vehicle, which led to the death of Dr. Alpesh Gandhi. TheTribunal then found that the said Doctor was earning an annual incomeof INR 1,47,000. Following Sarla Verma v. DTC(2009) 6 SCC 121, theTribunal, after considering deductions as well as future prospects,H

ultimately arrived at an income figure of INR 18,275 as the monthlyincome. The Tribunal then applied the multiplier of ‘17’ to the annualincome of INR 2,19,300, making total of INR 37,28,100/-. Consortiumexpenses were added as INR 25,000; Funeral expenses as INR 10,000,thereby arriving at total compensation figure of INR 37,63,100 whichhad to be paid together with interest at 8% per annum. Importantly, allthree Respondents were made jointly and severally liable to pay theaforesaid amount. This was on the basis that on an analysis of the contractentered into between the Respondent No. 3 and Dr. Alpesh Gandhi, thecontract was contract for service, as result of which the deceasedcould not have been held to have been in the employment of theRespondent No. 3.

8. The impugned judgment of the High Court dated 26.07.2018,after analyzing the provisions of the contract for services dated 04.05.1996between the Respondent No. 3 and Dr. Gandhi came to the oppositeconclusion, stating that since the contract was contract of service, theInsurance Company could not be held liable except to the extent of INR50,000, which was arrived at after setting out Regulation 27 of the GeneralRegulations of the Indian Motor Tariffs dated 01.08.1989, by which themaximum cover for policies of the kind involved in this case to thirdpersons where the premium paid is INR 25 per person, in addition to thepremium paid for the policy, the capital sum insured per person wouldonly be INR 50,000. Thus, the liability of the Insurance Company waspegged to INR 50,000, the liability of the Respondent No. 2 and theRespondent No. 3 being for the balance amount.9. The vexed question that arises for consideration is as to whetherDr. Alpesh Gandhi could have been said to have been in the employ ofthe Respondent No. 3 on the date of the accident, as result of whichthe limitation of liability provision in favour of the Respondent No. 1 asset out hereinabove would kick in.

10. Shri Vikas Kochar, learned counsel appearing on behalf of theAppellants, has taken us through the contract between Dr. Gandhi andthe Respondent No. 3 and has emphasised that the contract is one forservices, and that an honorarium of INR 4000 per month is paid. Further,Dr. Gandhi will not be entitled to any financial benefits as might beapplicable to other regular employees so far as the leave rules areconcerned, making it clear that Dr. Gandhi is not, therefore, regularemployee of the Respondent No.3. He also emphasised the fact that Dr.

AGandhi no longer remains as regular employee of the institute with thecoming into force of this new arrangement between the parties. He thenplaced reliance on Dharangadhara Chemical Works Ltd. v. State ofSaurashtra 1957 SCR 158 and National Insurance Company Limitedv. Balakrishnan (2013) 1 SCC 731.

B11. Learned counsel appearing on behalf of Respondent No. 1has supported the judgment of the High Court, stating that on holisticreading of the agreement between the Respondent No. 3 and Dr. AlpeshGandhi, dated 04.05.1996, the contract is one of service and not forservice. Even otherwise, the learned counsel argued that the High Courtwas wrong in stating that the insured was covered by endorsement IMT-C5, by which personal accident cover to unnamed passengers other thanthe insured and his paid driver or cleaner will be extended to the extentof 100% where death is caused, on payment of an additional premium.The learned counsel states that IMT-5 would not be applicable in thefacts of this case, but that IMT-16 would be applicable. Since additionalDpremium has not been paid to apply IMT-16, the Insurance Company isnot liable to indemnify the insured in respect of any liability arising fordeath sustained by an employee in respect of the accident in connectionwith the motor vehicle in question.

12. This Court has in series of judgment indicated the tests to beEfollowed in order to determine, in the context of the Industrial DisputesAct and the Factories Act, as to whether different kinds of persons whosupply goods or services could be said to be “in the employ” of theemployer. Thus, in Dharangadhara (supra), the question posed beforethe Court was whether the salt manufactured by class of professionallaborers, known as agarias, from rain water that got mixed with salineFmatter in the soil, could be said to be in pursuance of contracts of servicewith the appellant, as result of which they would then be entitled to betreated as workmen under the Industrial Disputes Act. After setting outthe definition of “workman” under Section 2(s) of the said Act, thisCourt referred to the earliest test laid down to distinguish between aGcontract of service and contract for service, namely, that whereas inthe latter case, the master can order or require what is to be done, in theformer case, he can not only order or require what is to be done, but alsohow it shall be done. After referring to number of English judgments,the Court then held, giving the example of ship’s master, chauffeur,and reporter on the staff of newspaper as against ship’s pilot, taxiHman and newspaper contributor, that the test would be whether workis done as an integral part of the business of the employer, in which caseit would be contract of service, or whether it was done as an accessoryto such business, in which case it would be contract for service. Othertests that were laid down were as to whether the master had the powerto select the servant, whether he paid wages or other remuneration,whether the master had the right to control the method of doing thework, and whether the master had the right to suspend or dismiss theemployee. Ultimately, the true test, according to the judgment, was heldto be as follows:

“The principle which emerges from these authorities is that theprima facie test for the determination of the relationship betweenmaster and servant is the existence of the right in the master tosupervise and control the work done by the servant not only in thematter of directing what work the servant is to do but also themanner in which he shall do his work, or to borrow the words ofLord Uthwatt at p. 23 in Mersey Docks and Harbour Board v.Coggins & Griffith (Liverpool) Ltd. [(1952) SCR 696, 702] “Theproper test is whether or not the hirer had authority to control themanner of execution of the act in question.

The nature or extent of control which is requisite to establish therelationship of employer and employee must necessarily vary frombusiness to business and is by its very nature incapable of precisedefinition. As has been noted above, recent pronouncements ofthe Court of Appeal in England have even expressed the viewthat it is not necessary for holding that person is an employee,that the employer should be proved to have exercised control overhis work, that the test of control was not one of universal applicationand that there were many contracts in which the master could notcontrol the manner in which the work was done (Vide observationsof Somervelle, L.J. in Cassidy v. Ministry of Health, (supra),and Denning, L.J. in Stevenson, Jordan and Harrison Ltd. v.Macdonald and Evans, (supra).”

Ultimately, the Court held that it would be question of fact to bedecided by all the circumstances of the case. It was further held that themere fact that the agarias did piece-rated labour, the work being seasonal,and the fact that they can engage others to do the work for them, wouldnot detract from the fact that they are professional labourers who have

Abeen hired by the employer. Finally, the Court refused to exercise itsdiscretion to interfere with the Industrial Tribunal’s finding that on thefacts of the case these agarias would have to be considered as workmenunder the Industrial Disputes Act.

13. In Chintaman Rao v. State of M.P. 1958 SCR 1340, thisBCourt held that Sattedars and their coolies were not workers within themeaning of Section 2(1) of the Factories Act. In so holding, the Courtreferred to the judgment of Dharangadhara (supra) and held that thefact that bidi rolling was done outside the factory premises, and thatsuch rolling can be done at any time that the Sattedar chooses clinchedthe issue in favour of the fact that Sattedars and their coolies wereCindependent contractors. The court then hedged its decision by statingthat it was not intended to lay down that under no circumstances can aSattedar be considered to be worker within the meaning of the FactoriesAct. Ultimately, everything depends on the terms of the contract enteredinto between such person and the employer.D14. In Birdhichand Sharma v. First Civil Judge (1961) 3 SCR24, this Court found on facts that the persons employed in bidi factory,who could work at the time they chose, on piece-rated basis, the caveatbeing that if they came after mid-day they were not allowed to work,even though the factory closed at 7 PM, that such persons were workersEunder the Factories Act. The earlier two judgments of this court werediscussed and emphasis was laid on the fact that the persons who wereemployed had to work within the factory premises and had to report towork before mid-day. Further, the “right of control” was extended tomean that so long as there is some amount of supervision by themanagement, inasmuch as the management has the right to reject theFbidis prepared if they do not come up to the proper standard, wouldindicate that such persons would be workers.

15. In Shankar Balaji Waje v. State of Maharashtra 1962 Supp(1) SCR 24, this Court set out the established facts between onePandurang, who was employed by the owner of factory manufacturingGbidis, and the employer, as follows:

“The first contention is based on the established facts of the casewhich, it is submitted, do not make out the relationship of masterand servant between the appellant and Pandurang, inasmuch asthey indicate that the appellant had no supervision and control

over the details of the work Pandurang did in the factory. Thefollowing are the established facts:

(1) There was no agreement or contract of service between theappellant and Pandurang.

(2) Pandurang was not bound to attend the factory for the workof rolling bidis for any fixed hours of work or for any fixed period.He was free to go to the factory at any time he liked and wasequally free to leave the factory whenever he liked. Of course,he could be in the factory during the hours of working of thefactory.

(3) Pandurang could be absent from work on any day he liked.He could be absent up to ten days without even informing theappellant. If he was to be absent for more than ten days he had toinform the appellant, not for the purpose of taking his permissionor leave, but for the purpose of assuring the appellant that he hadno intention to give up work at the factory.

(4) There was no actual supervision of the work Pandurang did inthe factory.

(5) Pandurang was paid at fixed rates on the quantity of bidisturned out. There was however no stipulation that he had to turnout any minimum quantity of bidis in day.

(6) Leaves used to be supplied to Pandurang for being taken homeand cut there. Tobacco to fill the bidis used to be supplied at theFactory. Pandurang was not bound to roll the bidis at the factory.He could do so at his place, on taking permission from the appellantfor taking tobacco home. The permission was necessary in viewof Excise Rules and not on account of any condition of allegedservice.

(7) At the close of the day, the bidis used to be delivered to theappellant and bidis not up to the standard, used to be rejected.”

On these facts, the judgment in Birdhichand(supra) wasdistinguished and that of Chintaman Rao (supra) applied. The Courtheld:

“Further, the facts of the case indicate that the appellant had nocontrol and supervision over the details of Pandurang’s work. He

could not control his hours of work. He could not control his daysof work. Pandurang was free to absent himself and was free togo to the factory at any time and to leave it at any time accordingto his will. The appellant could not insist on any particular minimumquantity of bidis to be turned out per day. He could not control thetime spent by Pandurang on the rolling of bidi or number ofbidis. The work of rolling bidis may be simple work and mayrequire no particular supervision and direction during the processof manufacture. But there is nothing on record to show that anysuch direction could be given.

xxx xxxxxx

It is true, as contended for the State, that persons engaged to rollbidis on job work basis could be workers, but only such personswould be workers who work regularly at the factory and are paidfor the work turned out during their regular employment on thebasis of the work done. Piece-rate workers can be workers withinDthe definition of ‘worker’ in the Act, but they must be regularworkers and not workers who come and work according to theirsweet will. It is also true, as urged for the State, that worker,within the definition of that expression in the Act, need not be awhole-time worker. But, even then, the worker must have, underEhis contract of service, an obligation to work either for fixedperiod or between fixed hours. The whole conception of servicedoes not fit in well with servant who has full liberty to attend tohis work according to his pleasure and not according to the ordersof his master.

FWe may say that this opinion further finds support from what wehold on the second contention. If Pandurang was worker, theprovisions about; leave and leave wages should apply to him. Weare of opinion that they do not and what we say in that connectionreinforces our view that Pandurang was not worker as the threecriteria and conditions laid down in Shri Chintaman Rao caseG[1958 SCR 1340] for constituting him as such are not fulfilled inthe present case.”

16. In D.C. Dewan Mohideen Sahib and Sons v. Secretary,United Beedi Workers’ Union (1964) 7 SCR 646, the Court set out asample agreement which disclosed the facts of the case before it, asHfollows:

“It seems that sample agreement was produced before the HighCourt, which provided inter alia for the following terms:

(1) That the proprietor should supply the tobacco and thebidi leaves;

(2) that the intermediary should engage premises of his ownand obtain the requisite licence to carry on the work of having thebidis rolled there;

(3) that at no time should more than nine bidi rollers workin the premises of that intermediary;

(4) that the intermediary should meet all the incidentalcharges for rolling the bidis including the cost of thread and theremuneration paid to the bidi rollers;

(5) that for every unit of 1000 bidis rolled and delivered bythe intermediary to the proprietor, the latter should pay the stipulatedamount, after deducting the cost of the tobacco and the bidi leavessupplied by the proprietor;

(6) that the intermediary should not enter into similarengagement with any other industrial concern;

(7) that the price of the raw materials and price to be paidfor every unit of 1000 bidis rolled and delivered were to be fixedat the discretion of the proprietor.

Besides these conditions, the contract also provided that it wasliable to termination on breach of any of the conditions, and thatthe proprietors had no connection with and that they assumed noresponsibility for the bidi workers who had to look to theintermediary for what was payable to them for rolling the bidis.”

The earlier judgments of this Court were referred to. After applyingthe tests laid down in the said judgments, this Court found:

“There is in our opinion little doubt that this system has beenevolved to avoid regulations under the Factories Act. Further thereis also no doubt from whatever terms of agreement are availableon the record that the so-called independent contractors have reallyno independence at all. As the appeal court has pointed out theyare impecunious persons who could hardly afford to have factoriesof their own. Some of them are even ex-employees of the

Aappellants. The contract is practically one-sided in that theproprietor can at his choice supply the raw materials or refuse todo so, the so-called contractor having no right to insist upon thesupply of raw materials to him. The so-called independentcontractor is even bound not to employ more than nine persons inhis so-called factory. The sale of raw materials to the so-calledBindependent contractor and resale by him of the manufacturedbidis is also mere camouflage, the nature of which is apparentfrom the fact that the so-called contractor never paid for thematerials. All that happens is that when the manufactured bidisare delivered by him to the appellants, amounts due for the so-Ccalled sale of raw materials is deducted from the so-called pricefixed for the bidis. In effect all that happened is that the so-calledindependent contractor is supplied with tobacco and leaves and ispaid certain amounts for the wages of the workers employed andfor his own trouble. We can therefore see no difficulty in holdingthat the so-called contractor is merely an employee or an agent ofDthe appellants as held by the appeal court and as such employeeor agent he employs workers to roll bidis on behalf of the appellants.The work is distributed between number of so-called independentcontractors who are told not to employ more than nine persons atone place to avoid regulations under the Factories Act. We areEnot however concerned with that aspect of the matter in the presentappeals. But there can be no doubt that the workers employed bythe so-called contractors are really the workmen of the appellantswho are employed through their agents or servants whom theychoose to call independent contractors.”

F17. The next case in chronological order is of seminal importancein deciding which side of the line particular set of facts would lead to aconclusion that contract is one for service or of service. Thus, in SilverJubilee Tailoring House v. Chief Inspector of Shops &Establishments (1974) 3 SCC 498, this Court had to determine whether

there is relationship of employer and an employee between tailoringGshop and persons employed by the owner of the shop for stitching purposesunder Section 2(14) of the Andhra Pradesh (Telangana Area) Shopsand Establishments Act, 1951. Section 2(14) of the said Act defined a‘person employed’ as meaning, in the case of shop, person wholly orprincipally employed therein in connection with the business of the shop.HThe facts were set out in paragraph 7 of the said judgment as follows:

“7. The following facts appear from the finding of the learnedSingle Judge. All the workers are paid on piece-rate basis. TheWorkers generally attend the shops every day if there is work.The rate of wages paid to the workers is not uniform. The ratedepends upon the skill of the worker and the nature of the work.When cloth is given for stitching to worker after it has been cut,the worker is told how he should stitch it. If he does not stitch itaccording to the instruction, the employer rejects the work and hegenerally asks the worker to restitch the same. When the work isnot done by worker according to the instructions, generally nofurther work would be given to him. If worker does not want togo for work to the shop on day, he does not make any applicationfor leave, nor is there any obligation on his part to inform theemployer that he will not attend for work on that day. If there isno work, the employee is free to leave the shop before the shopcloses. Almost all the workers work in the shop. Some workersare allowed to take cloth for stitching to their homes on certaindays. But this is done always with the permission of the proprietorof the shop. The machines installed in the shop belong to theproprietor of the shop and the premises and the shop in which thework is carried on also belong to him.”

After referring to several judgments of this Court, the Court thenreferred to judgments of the English and American Courts as follows:

“19. In Cassidy v. Ministry of Health [(1951) 1 All ER 574, 579]Lord Justice Sommerwell pointed out that the test of control ofthe manner of work is not universally correct, that there are manycontracts of service where the master cannot control the mannerin which the work is to be done as in the case of Captain of aship.

20. In many skilled employments, to apply the test of control overthe manner of work for deciding the question whether therelationship of master and servant exists would be unrealistic.

21. In Montreal v. Montreal Locomotive Works Ltd. etc. [(1947)1 DLR 161 at p. 1969] Lord Wright said that single test, such asthe presence or absence of control, was often relied on to determinewhether the case was one of master and servant, mostly in orderto decide issues of tortious liability on the part of the master orsuperior and that in the more complex conditions of modern

ABC

industry, more complicated tests have often to be applied. He saidthat it would be more appropriate to apply complex test involving:(i) control; (ii) ownership of the tools; (iii) chance of profit; (iv)risk of loss, and that control in itself is not always conclusive. Hefurther said that in many cases the question can only be settled byexamining the whole of the various elements which constitute therelationship between the parties.

22. In Bank Voor Handel en Scheepvaart N.V. v. Slatford [(1952)2 All ER 956 at 971] Denning, L.J., said:

“... the test of being servant does not rest nowadays onsubmission to orders. It depends on whether the person is partand parcel of the organisation....”

23. In U.S. v. Silk [331 US 704] the question was whether menworking for the plaintiffs, Silk and Greyvan, were ‘employees’within the meaning of that word in the Social Security Act, 1935.The Judges of the Supreme Court of U.S.A., agreed upon thetest to be applied, though not in every instance upon its applicationto the facts. They said that the test was not “the common lawtest,” viz “power of control, whether exercised or not, over themanner of performing service to the undertaking”, but whetherthe men were employees “as matter of economic reality”.Important factors were said to be “the degrees of control,opportunities of profit or loss, investment in facilities, permanencyof relations and skill required in the claimed independent operation”.

xxx xxx xxx

25. In Market Investigations Ltd. v. Minister of Social Security[(1968) 3 All ER 732] the Court said:

“I think it is fair to say that there was at one time schoolof thought according to which the extent and degree of the controlwhich B. was entitled to exercise over A. in the performance ofthe work would be decisive factor. However, it has for longbeen apparent that an analysis of the extent and degree of suchcontrol is not in itself decisive.”

26. It is in its application to skilled and particularly professionalwork that control test in its traditional form has really broken down.It has been said that in interpreting “Control” as meaning the power

to direct how the servant should do his work, the Court has beenapplying concept suited to past age.

“This distinction (viz., between telling servant what to doand telling him how to do it) was based upon the social conditionsof an earlier age; it assumed that the employer of labour was ableto direct and instruct the labourer as to the technical methods heshould use in performing his work. In mainly agricultural societyand even in the earlier stages of the Industrial Revolution themaster could be expected to be superior to the servant in theknowledge, skill and experience which had to be brought to bearupon the choice and handling of the tools. The control test waswell suited to govern relationships like those between farmerand an agricultural labourer (prior to agricultural mechanization)a craftsman and journeyman, householder and domesticservant, and even factory owner and an unskilled ‘hand’. Itreflects state of society in which the ownership of the means ofproduction coincided with the profession of technical knowledgeand skill in which that knowledge and skill was largely acquiredby being handed down from one generation to the next by oraltradition and not by being systematically imparted in institutions oflearning from universities down to technical schools. The controltest postulates combination of managerial and technical functionsin the person of the employer i.e. what to modern eyes appearsas an imperfect division of labour. [See Prof. Kahn-Freund in(1951), 14 Modern Law Review, at p. 505] ’’

27. It is, therefore, not surprising that in recent years the controltest as traditionally formulated has not been treated as an exclusivetest.

28. It is exceedingly doubtful today whether the search for aformula in the nature of single test to tell contract of servicefrom contract for service will serve any useful purpose. Themost that profitably can be done is to examine all the factors thathave been referred to in the cases on the topic. Clearly, not all ofthese factors would be relevant in all these cases or have thesame weight in all cases. It is equally clear that no magic formulacan be propounded, which factors should in any case be treatedas determining ones. The plain fact is that in large number ofcases, the Court can only perform balancing operation weighing

up the factors which point in one direction and balancing themagainst those pointing in the opposite direction [ See Atiyah, PS.“Vicarious Liability in the Law of Torts”, pp. 37-38] .

29. During the last two decades the emphasis in the field hasshifted and no longer rests so strongly upon the question of control.BControl is obviously an important factor and in many cases it maystill be the decisive factor. But it is wrong to say that in everycase it is decisive. It is now no more than factor, although animportant one [See Argent v. Minister of Social Security andAnother, (1968) 1 WLR 1749 at 1759].”

CUltimately, the Court found that two important considerationsclinched the issue in favour of deciding that the persons employed wereemployed wholly or principally in connection with the business of theshop. First and foremost, machines on which sewing took place weresupplied by the proprietor of the shop. And, secondly, supervision andcontrol in tailoring business terms would include the right to reject sub-Dstandard work. These factors were held to outweigh the fact that suchpersons did not have to work exclusively for the owner of the shop asalso that they are not obliged to work for the full day.

18. In Hussainbhai v. Alath Factory Thezhilali Union (1978)4 SCC 257, this Court was confronted with persons who are engaged toEmake ropes from within factory which manufactured ropes. Whatwas argued before the Court was that the workmen were not theemployer’s workmen but only the contractor’s workmen. The questionthat came up for consideration was whether they are “workmen” withinthe meaning of Section 2(s) of the Industrial Disputes Act. The testFapplied by this judgment to find out whether such persons are “workmen”was as follows:

“5. The true test may, with brevity, be indicated once again. Wherea worker or group of workers labours to produce goods or servicesand these goods or services are for the business of another, thatGother is, in fact, the employer. He has economic control over theworkers’ subsistence, skill, and continued employment. If he, forany reason, chokes off, the worker is, virtually, laid off. Thepresence of intermediate contractors with whom alone the workershave immediate or direct relationship ex contractu is of noconsequence when, on lifting the veil or looking at the conspectusHof factors governing employment, we discern the naked truth,

though draped in different perfect paper arrangement, that thereal employer is the Management, not the immediate contractor.Myriad devices, half-hidden in fold after fold of legal formdepending on the degree of concealment needed, the type ofindustry, the local conditions and the like may be resorted to whenlabour legislation casts welfare obligations on the real employer,based on Articles 38, 39, 42, 43 and 43-A of the Constitution. Thecourt must be astute to avoid the mischief and achieve the purposeof the law and not be misled by the maya of legal appearances.”

Applying this test, the economic reality of control of the employerover the workman’s subsistence, skill and continued employment pointedto such persons being direct employees of the owner.

19. In Shining Tailors v. Industrial Tribunal II, U.P.(1983) 4SCC 464, 3-Judge Bench of this Court followed Silver Jubilee (supra)to arrive at the conclusion that the persons employed were”workmen”within the meaning of the U.P. Industrial Disputes Act, 1947.

20. In P.M. Patel & Sons v. Union of India (1986) 1 SCC 32,this Court was faced with the important question as to whether theworkers employed at their homes in the manufacture of bidis are entitledto the benefit of Employees’ Provident Funds and MiscellaneousProvisions Act, 1952. After referring to the earlier judgments of thisCourt, this Court held that the Silver Jubilee case (supra) made thelaw take major shift from the earlier judgments on criteria to be appliedto determine relationship of master and servant, and pointed out that theright of rejection of sub-standard bidis can constitute, in itself, an effectivedegree of supervision and control, so as to render finding that suchpersons are “employees” within the meaning of Section 2 of the saidAct.

21. In Indian Banks Assn. v. Workmen of Syndicate Bank(2001) 3 SCC 36, this Court after referring to Silver Jubilee (supra)found that Deposit Collectors employed by specified banks were entitledtobe treated as workmen. The court held:

“26. We also cannot accept the submission that the banks haveno control over the Deposit Collectors. Undoubtedly, the DepositCollectors are free to regulate their own hours of work, but that isbecause of the nature of the work itself. It would be impossible tofix working hours for such Deposit Collectors because they have

[2020] 9 S.C.R.

Ato go to various depositors. This would have to be done at theconvenience of the depositors and at such times as required bythe depositors. If this is so, then no time can be fixed for suchwork. However, there is control inasmuch as the Deposit Collectorshave to bring the collections and deposit the same in the banks bythe very next day. They have then to fill in various forms, accounts,Bregisters and passbooks. They also have to do such other clericalwork as the Bank may direct. They are, therefore, accountable tothe Bank and under the control of the Bank.”

22. In Indian Overseas Bank v. Workmen (2006) 3 SCC 729,the question was whether the banks who employed jewel appraisers forCloans were “workmen” within the meaning of Section 2(s) of the IndustrialDisputes Act. After distinguishing the Indian Banks case (supra), thisCourt referred to Dharangadhara(supra),Silver Jubilee (supra),Shining Tailors (supra) and Chintaman Rao (supra) and then held:

“17. The inferences culled out from the reading of those judgmentsDcan be summed up as follows:

(a) Where the contractors were substantially responsible for themain and sole business, they would be treated as workers.

(b) One exception is that where in such cases flexibility of thecontract was at variance with the normal worker’s contract, theEcontractors would not be treated as workers.(c) Where the contractor is in the nature of supplier of goods andservices, they are to be treated as supplier contractors and notworkmen.

18. At this juncture the distinction between jewel appraisers andFthe regular employees of the Bank can be noted.

6. Control/supervision is exercised not only with regard to the allocation of work, but also the way in which the work is to be carried out.

7. Wages are paid by the Bank.

8. Retirement age.

6. No control/supervision over the nature of work to be performed.

7. Charges are paid by Bthe borrowers.

8. No retirement age.

9. Subject to transfer.

9. No transfer.

10. While in employment cannot carry on any other occupation.

10. No bar to carry on Cany avocation or occupation.

[Therefore, the jewel appraisers are not employees of the Bank."]

23. At this stage, it is important to advert to fairly recent judgmentof the English Court of Appeal in v. English Province of Our Ladyof Charity and Anr. 2012 EWCA Civ 938. In the aforesaid case, aquestion arose as to whether the Roman Catholic Church would bevicariously liable in claim brought for damages alleging that lady,when she had been resident in children’s home operated by RomanCatholic order of nuns, had been sexually abused by priest appointedby the diocesan bishop. Under the sub-heading “The hallmarks of therelationship of employer and employee” the court referred to variousearlier English judgments and the tests laid down as follows:

“64. I indicated early on at para 21, vicarious liability tended todepend on the difference between employee and independentcontractor. If, as I believe, it is necessary to attempt to capturethe essence of what it is that makes man an employee, I mustexamine those differences in more detail. Generally speaking, anemployee works under the supervision and direction of hisemployer: an independent contractor is his own master bound byhis contract but not by his employers orders. An employee worksfor his employer: an independent contractor is in business on hisown account. In Ready Mixed Concrete (South East) Ltd vMinister of Pensions and National Insurance [1968] 2 QB497 (a case which I observe with envy occupied the court for sixdays whilst we were allowed one only), MacKenna J said, at p515, that contract of service exists if these three conditions arefulfilled:

“(i) The servant agrees that, in consideration of wage or otherremuneration, he will provide his own work and skill in theperformance of some service for his master. (ii) He agrees,expressly or impliedly, that in the performance of that service hewill be subject to the others control in sufficient degree to makethat other master. (iii) The other provisions of the contract areconsistent with its being contract of service.”

He elaborated:

“Control includes the power of deciding the thing to be done, theway in which it shall be done, the means to be employed in doingit, the time when and the place where it shall be done. All theseaspects of control must be considered in deciding whether theright exists in sufficient degree to make one party the masterand the other his servant.”

Later, at p 524, he commented on Lord Thankerton’s “four indicia”of contract of service, said in Short v J & W Henderson Ltd(1946) 62 TLR 427, 429 to be: “(a) The master’s power of selectionof his servant; (b) the payment of wages or other remuneration;(c) the master’s right to control the method of doing the work;and (d) the master’s right of suspension or dismissal.” MacKennaJ said:

“It seems to me that (a) and (d) are chiefly relevant in determiningwhether there is contract of any kind between the supposedmaster and servant, and that they are of little use in determiningwhether the contract is one of service. The same is true of (b),unless one distinguishes between different methods of payment,payment by results tending to prove independence and paymentby time the relation of master and servant.”

65. That leaves control as an important distinguishing factor. Theexample is often given of the difference between the chauffeurand the taxi driver but it is not always as easy as that. As timeshave changed so control has become an unrealistic guide. It mayhave been more meaningful when work was done by labourersunder the direction of employers who had the same or greatertechnical skills than their workmen. Now that one is frequentlydealing with professional person or person of some particularskill and experience, for example brain surgeon, there can be no

question of the employer telling him how to do his work for intruth the skilled person is engaged for the very reason that hepossesses skills which the employer lacks. The emphasis placedon control has thus been reduced. As Roskill J said in Argent vMinister of Social Security [1968] 1 WLR 1749, 1758—1759:

“in the earlier cases it seems to have been suggested that themost important test, if not the all-important test, was the extent ofthe control exercised by the employer over the servant. If onegoes back to some of the cases in the first decade of this century,one sees that that was regarded almost as the conclusive test.But it is also clear that as one watches the development of thelaw in the first 60 years of this century and particularly thedevelopment of the law in the last 15 or 20 years in this field, theemphasis has shifted and no longer rests so strongly upon thequestion of control. Control is obviously an important factor. Insome cases it may still be the decisive factor, but it wrong to saythat in every case it is the decisive factor. It is now, as I venture tothink, no more than factor albeit very important one.”

Roskill J’s test was, at p 1760:

“Finally it has been more recently suggested that the matter canbe determined by reference to what in modern parlance was calledeconomic reality. All these are matters which have to be borne inmind. To my mind, no single one is decisive. One has to look atthe totality of the evidence, at the totality of the facts found andthen apply them to the language of the statute. One cannot dobetter than echo the words of Somervell LJ in Cassidy v Ministryof Health [1951] 2 KB 343 , 352: ‘one perhaps cannot get muchbeyond this: “was his contract contract of service within themeaning which an ordinary person would give to the words?”’”

Roskill J also referred to Denning LJ’s views expressedin Stevenson Jordan & Harrison Ltd v Macdonald &Evans [1952] 1 TLR 101 , 111 and Bank voor HandelenScheepvaart NV v Slatford (No 2) [1953] 1 QB 248 , 295. Inthe former Denning LJ said:

“One feature which seems to run through the instances is that,under contract of service, man is employed as part of thebusiness, and his work is done as an integral part of the business;

whereas, under contract for services, his work, although donefor the business, is not integrated into it but is only accessory toit.”

67. The Privy Council in the Lee Ting Sang case did, however,give this help [1990] 2 AC 374, 382:

“What then is the standard to apply? This has proved to be mostelusive question and despite plethora of authorities the courtshave not been able to devise single test that will conclusivelypoint to the distinction in all cases. Their Lordships agree with theCourt of Appeal when they said that the matter had never beenCbetter put than by Cooke J in Market Investigations Ltd vMinister of Social Security [1969] 2 QB 173 , 184–185: ‘Thefundamental test to be applied is this: “is the person who hasengaged himself to perform these services performing them as aperson in business on his own account?” If the answer to thatquestion is “yes”, then the contract is contract for services. IfDthe answer is “no”, then the contract is contract of service. Noexhaustive list has been compiled and perhaps no exhaustive listcan be compiled of the considerations which are relevant indetermining that question, nor can strict rules be laid down as tothe relative weight which the various considerations should carryEin particular cases. The most that can be said is that control willno doubt always have to be considered, although it can no longerbe regarded as the sole determining factor; and that factors whichmay be of importance are such matters as whether the manperforming the services provides his own equipment, whether hehires his own helpers, what degree of financial risk he takes, whatFdegree of responsibility for investment and management he has,and whether and how far he has an opportunity of profiting from’”sound management in the performance of his task.

68. To much the same effect is an earlier Privy Council case,Montreal v Montreal Locomotive Works Ltd [1947] 1 DLR 161, where Lord Wright said, at p 169:

“In earlier cases single test, such as the presence or absence ofcontrol, was often relied on to determine whether the case wasone of master and servant, mostly in order to decide issues oftortious liability on the part of the master or superior. In the morecomplex conditions of modern industry, more complicated tests

have to be applied. It has been suggested that fourfold testwould in some cases be more appropriate, complex involving(1) control; (2) ownership of the tools; (3) chance of profit; (4)risk of loss. Control in itself is not always conclusive.”

He went on to say that:

“it is in some cases possible to decide the issue by raising as thecrucial question whose business is it, or in other words by askingwhether the party is carrying on the business, in the sense ofcarrying it on for himself or on his own behalf and not merely fora superior.”

69. There being no single test, what one has to do is marshalvarious tests which should cumulatively point either towards anemployer/employee relationship or away from one. Adopting thatapproach confirms that which is accepted as the common ground,namely, that Father Baldwin is not true employee. The test mayyet be useful to see whether he can be said to be an independentcontractor, for if he is, the law is clear: the employer is notvicariously liable for the torts of his independent contractor. I amsatisfied that Father Baldwin is no more true independentcontractor than he is an employee. For start, he has no contractualrelationship with his bishop. He is hardly person in business onhis own account with free hand to carry out the job, if it is job,as and when he wishes.”

In concluding that the Church would be vicariously liable, the Courtthen held:

“81. The result of each of the tests leads me to the conclusionthat Father Baldwin is more like an employee than an independentcontractor. He is in relationship with his bishop which is closeenough and so akin to employer/employee as to make it just andfair to impose vicarious liability. Justice and fairness is used hereas salutary check on the conclusion. It is not stand alone testfor conclusion. It is just because it strikes proper balancebetween the unfairness to the employer of imposing strict liabilityand the unfairness to the victim of leaving her without full remedyfor the harm caused by the employer’s managing his business in away which gave rise to that harm even when the risk of harm isnot reasonably foreseeable.”

A24. conspectus of all the aforesaid judgments would show thatin society which has moved away from being simple agrarian societyto complex modern society in the computer age, the earlier simple testof control, whether or not actually exercised, has now yielded morecomplex tests in order to decide complex matters which would havefactors both for and against the contract being contract of service asBagainst contract for service. The early ‘control of the employer’ test inthe sense of controlling not just the work that is given but the manner inwhich it is to be done obviously breaks down when it comes toprofessionals who may be employed. variety of cases come in betweencases which are crystal clear - for example, master in school who isCemployed like other employees of the school and who gives music lessonsas part of his employment, as against an independent professional pianoplayer who gives music lessons to persons who visit her premises. Equally,a variety of cases arise between ship’s master, chauffeur and staffreporter, as against ship’s pilot, taxi driver and contributor to anewspaper, in order to determine whether the person employed could beDsaid to be an employee or an independent professional. The control test,after moving away from actual control of when and how work is to beperformed to the right to exercise control, is one in series of factorswhich may lead to an answer on the facts of case slotting such caseeither as contract of service or contract for service. The test as toEwhether the person employed is integrated into the employer’s businessor is mere accessory thereof is another important test in order todetermine on which side of the line the contract falls. The three-tier testlaid down by some of the English judgments, namely, whether wage orother remuneration is paid by the employer; whether there is sufficientdegree of control by the employer and other factors would be testFelastic enough to apply to large variety of cases. The test of who ownsthe assets with which the work is to be done and/or who ultimatelymakes profit or loss so that one may determine whether business isbeing run for the employer or on one’s own account, is another importanttest when it comes to work to be performed by independent contractorsGas against piece-rated labourers. Also, the economic reality test laid downby the U.S decisions and the test of whether the employer has economiccontrol over the workers’ subsistence, skill and continued employmentcan also be applied when it comes to whether particular worker worksfor himself or for his employer. The test laid down by the Privy Councilin Lee Ting Sang v. Chung Chi-Keung [1990] 2 A.C. 374, namely, isH

the person who has engaged himself to perform services performingthem as person in business on his own account, is also an importanttest, this time from the point of view of the person employed, in order toarrive at the correct solution. No one test of universal application canever yield the correct result. It is conglomerate of all applicable teststaken on the totality of the fact situation in given case that wouldultimately yield, particularly in complex hybrid situation, whether thecontract to be construed is contract of service or contract for service.Depending on the fact situation of each case, all the aforesaid factorswould not necessarily be relevant, or, if relevant, be given the sameweight. Ultimately, the Court can only perform balancing act weighingall relevant factors which point in one direction as against those whichpoint in the opposite direction to arrive at the correct conclusion on thefacts of each case.

25. Given the fact that this balancing process may often not yielda clear result in hybrid situations, the context in which finding is to bemade assumes great importance. Thus, if the context is one of beneficiallegislation being applied to weaker sections of society, the balance tilts infavour of declaring the contract to be one of service, as was done inDharangadhara (supra), Birdhichand (supra), D.C.Dewan (supra),Silver Jubilee (supra), Hussainbhai (supra), Shining Tailors (supra),P.M. Patel (supra), and Indian Banks (supra). On the other hand,where the context is that of legislation other than beneficial legislation oronly in the realm of contract, and the context of that legislation or contractwould point in the direction of the relationship being contract for servicethen, other things being equal, the context may then tilt the balance infavour of the contract being construed to be one which is for service.

26. Looked at in this light, let us now examine the agreementbetween Dr. Alpesh Gandhi and the Respondent No. 3. The factorswhich would lead to the contract being one for service may be enumeratedas follows:

(i)The heading of the contract itself states that it is contractfor service.

(ii)The designation of Dr. Gandhi is an HonoraryOphthalmicSurgeon.

(iii)INR 4000 per month is declared to be honorarium as opposedto salary.

64SUPREME COURT REPORTS

A(iv)In addition to INR 4000 per month, Dr. Gandhi is paid apercentage of the earnings of the Respondent No. 3 fromout of the OPD, Operation Fee component of HospitalizationBills, and Room Visiting Fees.

(v)The arbitration clause which speaks of disputes arising inBthe course of the tenure of this contract will be referred tothe Managing Committee of the Institute, the decision ofthe Managing Committee being final, is also clause whichis unusual in pure master-servant relationship.

(vi)The fact that the appointment is contractual – for 3 years –Cand extendable only by mutual consent, is another pointerto the fact that the contract is for service, which is tenurebased.

(vii)The fact that termination of the contract can be by noticeon either side would again show that the parties are dealingDwith each other more as equals than as master-servant.

(viii) Clause XI of the agreement also makes it clear that theearlier appointment that was made of Dr. Gandhi wouldcease the moment this contract comes into existence, Dr.Gandhi no longer remaining as regular employeeof theInstitute.E27. As against the aforesaid factors which would point to thecontract the contract being contract for service, the following factorswould point in the opposite direction:

(i)The employment is full-time. Dr. Gandhi can do no otherFwork, and apart from the seven types of work that Dr.Gandhi is to perform under Clause IV, any other assignmentthat may get created in the course of time may also beassigned to him at the employer’s discretion.

(ii)Dr. Gandhi is to work on all days except weekly offs andGholidays that are given to him by the employer. However,what is important is that though governed by the leave rulesof the Institute as in vogue from time to time, Dr. Gandhiwill not be entitled to any financial benefit of any kind asmay be applicable to other regular employees of the Instituteunder Clause V.H

(iii)Dr. Gandhi will be governed by the Conduct Rules of theInstitute as invoked from time to time and as applicable toregular employees of the Institute.

(iv)That in the event of proven case of indiscipline or breachof trust, the Institute reserves right to terminate the contractat any time without giving any compensation whatsoever.

28. If the aforesaid factors are weighed in the scales, it is clearthat the factors which make the contract one for service outweigh thefactors which would point in the opposite direction. First and foremost,the intention of the parties is to be gathered from the terms of the contract.The terms of the contract make it clear that the contract is one forservice, and that with effect from the date on which the contract begins,Dr. Gandhi shall no longer remain as regular employee of the Institute,making it clear that his services are now no longer as regular employeebut as an independent professional. Secondly, the remuneration isdescribed as honorarium, and consistent with the position that Dr. Gandhiis an independent professional working in the Institute in his own right,he gets share of the spoils as has been pointed out hereinabove. Thirdly,he enters into the agreement on equal terms as the agreement is forthree years, extendable only by mutual consent of both the parties.Fourthly, his services cannot be terminated in the usual manner of theother regular employees of the Institute but are terminable on either sideby notice. The fact that Dr. Gandhi will devote full-time attention to theInstitute is the obverse side of piece-rated work which, as has been heldin some of the judgments hereinabove, can yet amount to contracts ofservice, being neutral factor. Likewise, the fact that Dr. Gandhi mustdevote his entire attention to the Institute would not necessarily lead tothe conclusion that de hors all other factors the contract is one of service.Equally important is the fact that it is necessary to state Dr. Gandhi willbe governed by the Conduct Rules and by the Leave Rules of the Institute,but by no other Rules. And even though the Leave Rules apply to Dr.Gandhi, since he is not regular employee, he is not entitled to anyfinancial benefit as might be applicable to other regular employees.Equally, arbitration of disputes between Dr. Gandhi and the Institutebeing referred to the Managing Committee of the Institute would showthat they have entered into the contract not as master and servant but asemployer and independent professional. conspectus of all the abovewould certainly lead to the conclusion, applying the economic reality

Atest, that the contract entered into between the parties is one betweenan Institute and an independent professional.

29. Even otherwise, it is well-settled that exemption of liabilityclauses in insurance contracts are to be construed in the case of ambiguitycontra proferentum.Thus, in General Assurance Society Ltd. v.BChandumull Jain(1966) 3 SCR 500, this Court held:

“A contract of insurance is species of commercial transactionsand there is well-established commercial practice to send covernotes even prior to the completion of proper proposal or whilethe proposal is being considered or policy is in preparation forCdelivery…In other respects there is no difference between acontract of insurance and any other contract except that in acontract of insurance there is requirement of uberrima fidesi.e. good faith on the part of the assured and the contract is likelyto be construed contra proferentem that is against the companyin case of ambiguity or doubt.”D

30. This judgment has been cited with approval in United IndiaInsurance Co. Ltd. v. Pushpalaya Printers(2004) 3 SCC 694 asfollows:

“6. The only point that arises for consideration is whether theEword “impact” contained in clause 5 of the insurance policy coversthe damage caused to the building and machinery due to drivingof the bulldozer on the road close to the building. It is evident fromthe terms of the insurance policy that the property was insured asagainst destruction or damage to whole or part. The appellantCompany agreed to pay towards destruction or damage to theFproperty insured to the extent of its liability on account of varioushappenings. In the present case both the parties relied on clause 5of the insurance policy. Clause 5 is also subject to exclusionscontained in the insurance policy. That damage caused to thebuilding or machinery on account of driving of vehicle on the roadGclose to the building is not excluded. Clause 5 speaks of “impact”by any rail/road vehicle or animal. If the appellant Companywanted to exclude any damage or destruction caused on accountof driving of vehicle on the road close to the building, it could haveexpressly excluded it. The insured possibly did not understandand expect that the destruction and damage to the building andHmachinery is confined only to direct collision by vehicle moving

on the road with the building or machinery. In the ordinary course,the question of vehicle directly dashing into the building or themachinery inside the building does not arise. Further, “impact” byroad vehicle found in the company of other words in the sameclause 5 normally indicates that damage caused to the building onaccount of vibration by driving of vehicle close to the road is alsoincluded. In order to interpret this clause, it is also necessary togather the intention of the parties from the words used in thepolicy. If the word “impact” is interpreted narrowly, the questionof impact by any rail would not arise as the question of railforcibly coming to the contact of building or machinery wouldnot arise. In the absence of specific exclusion and the word“impact” having more meanings in the context, it cannot be confinedto forcible contact alone when it includes the meanings “to driveclose”, “effective action of one thing upon another” and “the effectof such action”, it is reasonable and fair to hold in the context thatthe word “impact” contained in clause 5 of the insurance policycovers the case of the respondent to say that damage caused tothe building and machinery on account of the bulldozer movingclosely on the road was on account of its “impact”. It is alsosettled position in law that if there is any ambiguity or term iscapable of two possible interpretations, one beneficial to the insuredshould be accepted consistent with the purpose for which thepolicy is taken, namely, to cover the risk on the happening of certainevent. Although there is no ambiguity in the expression “impact”,even otherwise applying the rule of contra proferentem, the useof the word “impact” in clause 5 in the instant policy must beconstrued against the appellant. Where the words of documentare ambiguous, they shall be construed against the party whoprepared the document. This rule applies to contracts of insuranceand clause 5 of the insurance policy even after reading the entirepolicy in the present case should be construed against the insurer.A Constitution Bench of this Court in General Assurance SocietyLtd. v. Chandmull Jain [AIR 1966 SC 1644 : (1966) 3 SCR 500]has expressed that (AIR p. 1649, para 11)

“in contract of insurance there is requirement of uberrima fidesi.e. good faith on the part of the assured and the contract is likelyto be construed contra proferentem, that is, against the companyin case of ambiguity or doubt””.

ABC

DEFG

A31. Likewise, in Export Credit Guarantee Corpn. of IndiaLtd. v. Garg Sons International (2014) 1 SCC 686, this Court held:

“11. The insured cannot claim anything more than what is coveredby the insurance policy. “The terms of the contract have to beconstrued strictly, without altering the nature of the contract asBthe same may affect the interests of the parties adversely.” Theclauses of an insurance policy have to be read as they are.Consequently, the terms of the insurance policy, that fix theresponsibility of the insurance company must also be read strictly.The contract must be read as whole and every attempt shouldbe made to harmonise the terms thereof, keeping in mind that theCrule of contra proferentem does not apply in case of commercialcontract, for the reason that clause in commercial contract isbilateral and has mutually been agreed upon. (Vide OrientalInsurance Co. Ltd. v. Sony Cheriyan [(1999) 6 SCC 451] ,Polymat India (P) Ltd. v. National Insurance Co. Ltd. [(2005)D9 SCC 174 : AIR 2005 SC 286] , Sumitomo Heavy IndustriesLtd. v. ONGC Ltd. [(2010) 11 SCC 296 : (2010) 4 SCC (Civ) 459: AIR 2010 SC 3400] and Rashtriya Ispat Nigam Ltd. v. DewanChand Ram Saran [(2012) 5 SCC 306 : AIR 2012 SC 2829] .)”

Likewise, in BHS Industries v. Export Credit GuaranteeECorpn. Ltd.(2015) 9 SCC 414, this Court held:

“31. As has been held in Chandumull Jain [AIR 1966 SC 1644: (1966) 3 SCR 500] by the Constitution Bench that in contractof insurance, there is requirement of good faith on the part ofthe insured and in case of ambiguity, it has to be construed againstFthe company. As per other authorities, the insurance policy has tobe strictly construed and it has to be read as whole and nothingshould be added or subtracted. That apart, as has been held inPolymat India (P) Ltd. [(2005) 9 SCC 174] , it is the duty of theCourt to interpret the document as is understood between theparties and regard being had to the reference to the stipulationsGcontained in it.

xxx xxxxxx

35. The terms of the policy are to be strictly construed. Therecan be no cavil about the proposition of law that in case ofambiguity, the construction has to be made in favour of the insured”

32. In United India Insurance Co. Ltd. v. Orient Treasures(P) Ltd.(2016) 3 SCC 49, this Court quoted Halsbury’s Laws of Englandas follows:

“37. In Halsbury’s Laws of England (5th Edn., Vol. 60, Para105) principle of contra proferentem rule is stated thus:

“Contra proferentem rule.—Where there is ambiguity in the policythe court will apply the contra proferentem rule. Where policyis produced by the insurers, it is their business to see that precisionand clarity are attained and, if they fail to do so, the ambiguity willbe resolved by adopting the construction favourable to the insured.Similarly, as regards language which emanates from the insured,such as the language used in answer to questions in the proposalor in slip, construction favourable to the insurers will prevail ifthe insured has created any ambiguity. This rule, however, onlybecomes operative where the words are truly ambiguous; it is arule for resolving ambiguity and it cannot be invoked with viewto creating doubt. Therefore, where the words used are freefrom ambiguity in the sense that, fairly and reasonably construed,they admit of only one meaning, the rule has no application.””

33. In Industrial Promotion & Investment Corpn. of OrissaLtd. v. New India Assurance Co. Ltd. (2016) 15 SCC 315, this Courtreferred to the contra proferentum rule as follows:

“10. We proceed to deal with the submission made by the counselfor the appellant regarding the rule of contra proferentem. TheCommon Law rule of construction “verba chartarum fortiusaccipiuntur contra proferentem” means that ambiguity in thewording of the policy is to be resolved against the party whoprepared it. MacGillivray on Insurance Law [Legh-Jones,Longmore et al (Eds.), MacGillivray on Insurance Law (9thEdn., Sweet and Maxwell, London 1997) at p. 280.] deals withthe rule of contra proferentem as follows:

“The contra proferentem rule of construction arises only wherethere is wording employed by those drafting the clause whichleaves the court unable to decide by ordinary principles ofinterpretation which of two meanings is the right one. ‘One mustnot use the rule to create the ambiguity — one must find theambiguity first.’ The words should receive their ordinary and

natural meaning unless that is displaced by real ambiguityeitherappearing on the face of the policy or, possibly, by extrinsicevidence of surrounding circumstances.”

(footnotes omitted)

11.Colinvaux’s Law of Insurance [ Robert and Merkin (Eds.),Colinvaux’s Law of Insurance (6th Edn., 1990) at p. 42.]propounds the contra proferentem rule as under:

“Quite apart from contradictory clauses in policies, ambiguitiesare common in them and it is often very uncertain what the partiesto them mean. In such cases the rule is that the policy, beingCdrafted in language chosen by the insurers, must be taken moststrongly against them. It is construed contra proferentem, againstthose who offer it. In doubtful case the turn of the scale oughtto be given against the speaker, because he has not clearly andfully expressed himself. Nothing is easier than for the insurers toDexpress themselves in plain terms. The assured cannot put hisown meaning upon policy, but, where it is ambiguous, it is to beconstrued in the sense in which he might reasonably haveunderstood it. If the insurers wish to escape liability under givencircumstances, they must use words admitting of no possible doubt.

EBut clause is only to be contra proferentem in cases of realambiguity. One must not use the rule to create an ambiguity. Onemust find the ambiguity first. Even where clause by itself isambiguous if, by looking at the whole policy, its meaning becomesclear, there is no room for the application of the doctrine. So alsowhere if one meaning is given to clause, the rest of the policyFbecomes clear, the policy should be construed accordingly.”

(footnotes omitted)”

34. The High Court held in the impugned judgment that as additionalpremium had been paid so as to attract the applicability of IMT-5, in anycase the Insurance Company would be liable under the policy to payGcompensation in the case of death to unnamed passengers other thanthe insured and his paid driver or cleaner, Dr. Alpesh Gandhi being onesuch unnamed passenger. This was done on the footing that the exceptionto IMT-5 was that person in the employ of the insured coming withinthe scope of the Workmen’s Compensation Act, 1923 is excluded fromHthe cover, but that as Dr. Alpesh Gandhi did not come within the scope

of the Workmen’s Compensation Act, compensation payable due to hisdeath in motor accident would be covered by IMT-5. We see no reasonto disturb this finding. The inapplicability of endorsement IMT-16, asadditional premium had not been paid would, therefore, make nodifference on the facts of this case. Section-II, entitled “liability to thirdparties” in the insurance policy dated 17.04.1997 set out hereinaboveexempts the insurance company from the death of person carried in amotor car where such death arises out of and in the course of theemploymentof such person by the insurer. The question that arises beforeus is as to whether the expression “employment” is to be construedwidely or narrowly – if widely construed, person may be said to“employed” by an employer even if he is not regular employee of theemployer. However, the wider meaning that has been canvassed for bythe insurance company cannot possibly be given, given the languageimmediately before, namely, “in the course of”, thereby indicating thatthe “employment” can only be that of person regularly employed bythe employer. Even otherwise, assuming that there is an ambiguity ordoubt, the contra proferentum rule referred to hereinabove, must beapplied, thus making it clear that such “employment” refers only to regularemployees of the Institute, which, as we have seen hereinabove, Dr.Alpesh Gandhi was certainly not.

35. The Appellants placed reliance on an Order of this Court dated05.03.2019 in C.A. 2488 of 2019 which reads as follows:

“1. Leave granted.

2. The limited question to be examined arising from the impugnedorder is the effect of the direction that the insurance company isliable to pay only sum of Rs.25,000/- and the balance amountmay be recovered from the respondent No.2.

3. The appellant(s)/claimant(s) seeks to contend that it is impossiblefor the appellants to enforce their remedy specially giving theireconomic status.

4. On the conspectus of the matter and on hearing learned counselfor the parties, we consider it appropriate to direct that full amountshould be paid by respondent No.1-Insurance Company and theamount beyond the liability to be paid by respondent No.1 may berecovered by the Insurance company from respondent No.2.

ABC

A5. The appeal accordingly stands disposed of. Parties to bear theirown costs.”

This Order seems to have been passed under Article 142 of theConstitution on the facts of that case, without reference to any caselaw. In the view that we have taken, it is unnecessary for us to placeBreliance on such Order.

36. In this view of the matter, we allow the appeal, set aside thejudgment of the Gujarat High Court and restore that of the Motor AccidentClaims Tribunal.

Devika Gujral

Appeal allowed.