Employees State Insu... v. The Pioneer Laundky,..., Madras High Court, Judgment, Law, casemine.com

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Case Number

A.A.O Nos. 205 and 206 of 1964.

Attorney(S)

Messrs. Rubi Pramila and M. Chinntppan for The Govt. Pleader for Appt.
Mr. C. S. Rajappa for Respt.

Judges

Venkatadri, J.

Acts

EMPLOYEES STATE INSURANCE ACT
Workmen's Compensation Act
Workman's Compensation Act,

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Smart Summary

Factual and Procedural Background

These two appeals arise from a common order passed by the First Assistant Judge, City Civil Court, Madras. The respondent company filed an application seeking a declaration that they were not liable to pay the employer's special contribution for every quarter from 1st December 1959 to 31st December 1961 under the provisions of the Employees State Insurance Act. The appellant, Employees State Insurance Corporation, filed an application directing the company to pay any amount found due on the ground that the company employed more than 20 persons. The key issue was whether the managing partner, designated as Manager in the company’s returns, could be counted as an employee for computing the number of employees under the Act. The City Civil Court held that the managing partner could not be deemed an employee and thus, excluding him, only 19 persons were working in the company, making it not liable to pay the contribution. The Corporation filed these appeals against that order.

Legal Issues Presented

Whether the managing partner of the respondent company could be deemed an employee under the provisions of the Employees State Insurance Act for the purpose of determining liability to pay employer’s contribution.
Whether the total number of persons working in the factory, including the managing partner, should be counted to determine if the premises qualifies as a "factory" under the Act.

Arguments of the Parties

Appellant's Arguments

Reliance on the definition of "factory" in Section 2(12) of the Act, which includes any premises where 20 or more persons are working and where manufacturing is carried out with the aid of power.
Argued that it is sufficient that 20 or more persons work in the factory, regardless of whether the managing partner qualifies as an employee.
Cited precedents emphasizing that the number of persons working on the premises determines whether it is a factory, irrespective of whether those persons are proprietors, partners, or employees.

Respondent's Arguments

Contended that the terms "employee" in Section 2(9) and "20 or more persons" in Section 2(12) must be read together to determine if the managing partner qualifies as a person working in the factory.
Argued that the managing partner was not working as an employee but only supervising employees, and thus should not be counted as an employee.
Relied on the principle that a partner cannot be both employer and employee simultaneously under the Act.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Ellis v. Joseph Ellis & Co.	Established that a partner working and receiving wages does not create an employer-employee relationship but is a mode of adjusting partnership contributions; a partner cannot be both employer and employee.	The court applied this principle to hold that the managing partner could not be deemed an employee under the Employees State Insurance Act.
In re Workmen's Compensation of Jaglipathan	Clarified that to be a workman under the Workmen's Compensation Act, a person must be under a contract of service with another person.	Supported the court’s view that the managing partner was not under a contract of service and thus not an employee.
Employees State Insurance Corporation v. M.A.H Siddique	Interpreted the definition of "factory" to include premises where 20 or more persons work, regardless of whether they receive wages.	Considered but distinguished on facts, as the court emphasized the nature of the managing partner’s role rather than mere headcount.
Bank Silver Co. v. Employees State Insurance Corporation	Held that the test for a factory is whether 20 or more persons work there and manufacturing occurs with power; it is immaterial if some persons are proprietors or partners.	The court acknowledged this but noted the managing partner’s lack of active participation, thus excluding him from the count.
Chanan Singh and Sons v. Employees State Insurance Corporation	Held that whether the employer is included in the 20 persons depends on facts; if the principal employer actively works on the premises, he should be included; if not, he should be excluded.	The court applied this fact-sensitive test, finding the managing partner did not actively run the business, so he was excluded from the employee count.

Court's Reasoning and Analysis

The court examined the statutory definitions in the Employees State Insurance Act, particularly the definitions of "employee" and "factory." It emphasized the need to consider the managing partner’s actual role rather than merely his designation or presence. The court relied on established legal principles from the Workmen's Compensation Act jurisprudence, which clarify that a partner cannot simultaneously be an employer and an employee. The court found no evidence that the managing partner performed work as an employee; rather, he supervised employees and did not take active part in running the business. The court also noted that the burden of proof lay with the Corporation to demonstrate the managing partner’s active involvement as an employee. Given the absence of such proof, the court concluded that the managing partner could not be counted among the 20 persons necessary to classify the premises as a factory under the Act. Consequently, the respondent company was not liable to pay the employer’s contribution.

Holding and Implications

The appeals are dismissed.

The court upheld the City Civil Court’s decision that the managing partner cannot be deemed an employee for the purpose of determining the number of employees under the Employees State Insurance Act. As a result, the respondent company was not liable to pay the employer’s contribution since only 19 persons were counted as working in the factory. No costs were awarded. This decision directly affects the parties by denying the Corporation’s claim but does not establish new precedent beyond the application of existing principles to the facts of this case.

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Employees State Insurance Corporation Through The Regional Director v. The Pioneer Laundky, By Its Partner C. Anandam And Others

These two appeals arises out of a common order passed by the First Assistant Judge, City Civil Court, Madras. The respondent company filed an application for a declaration that they were not liable to pay the employeri' special contribution for every quarter comment ring from 1st December, 1959 and ending with 31st December, 1959 and subsequent quarters ending with 31st December, 1961 in accordance with the provisions of the Employees State Insurance Act. The appellant—Emplos yees State Insurance Corporation filed an application for directing the company to pay the amount which might be found due to the Corporation on the ground that the company had employed more than 20 persons. The main contention of the company was whether the managing partner who was designated at Manager in the returns of the company could be included as an employee, when computing the number of employees in the company under the provisions of the Act. The learned Judge of the City Civil Court, has come to the conclusion that the managing partner who styled himself as the Manager cannot be deemed to be an employee, and if he was excluded there would be only 19 persons working in the come pany and that therefore they would not be liable to pay the contribution. It is against this order the Employees State Insurance Corporation has filed the present appeals.

The question, therefore, that looms large in the appeals is whether the Managing partner of the respondent company could be deemed to be an employee under the provisions of the Act.

Learned Counsel appearing for the Employees State Insurance Corporation laid stress oa the definition of the word “factory” in S. 2 (12) of the Act which means any premises inoluding the precincts thereof whereon 20 or more person are working and in any part of which manufacturing-process is being carried on with the aid of power. The Pioneer Laundry is no doubt a factory in the broad sense of the term. Therefore according to the Corporation, if 20 persons or more are working in that factory, it would come under the definition of the word “factory”. According to the learned Counsel for the appellant, irrespective of the fact whether the managing partner would come under the definition of “employee or not, the fact that the total number of persons working in the factory including the managing partner comes to twenty would be enough to constitute it a “factory “under the Act. On the other hand, learned Counsel for the respondent contends that the word “employee” in S. 2(9) and the words” 20 or more persons “in S. 2 (12) of the Act, should be taken together, and it should then be decided whether the managing partner could be deemed to be a person working in the factory. He contends that the managing partner of the laundry is not working as an employee, but is only supervising the work of the employees under him.

Admittedly, there are two partners in this concern of which one is styling himself as the managing partner. There is no evidence on the record to show the actual work he renders in the concern. In such circumstances, how is if possible to term him an employee in the firm?

Learned Counsel for the respondent drew my attention to the decision of the Court of appeal in Ellis v. Joseph Ellis & Co.(1). In that ease, a partnership was formed for the purpose of working a mine. By arrangement with his co-partners, a member of the partnership worked in the mine as a foreman and recieved wages. While working in the mine, he met with an accident which caused his death, and his widow thereupon claimed compensation under the Workmen's Compensation Act from the surviving partners. The question arose whether he was a workman or not. In that connection Collins M.R observed at page 328:

It seems to me that, whea one, comes to analyse an arrangement of this kind, namely, one by which a partner himself works, and receives sums which are called wages, it really does not create the relation of employers and employed, but is, in truth, a mode of adjusting the amount that must be taken to have been contributed to the partnership assets by a partner who has made what is really a contribution in kind, and does not affect his relation to the other partners, which is that of co-adventurer and not employee. Such a partner cannot put himself in the position of not being a partner when he is one, or of being a workman employed, when that position would involve that he would be both employer and employee……

It seems to me obvious, when the true position of the deceased is analysed, that he was not such a workman as is contemplated by the Act, and that a person cannot for the purposes of the Act occupy the position of being both employer and employee “.

This case has been followed in In re Workmen's Compensation of Jaglipathan(2) where it has been observed that in order to be a workman within the meaning of the Workman's Compensation Act, the person claiming to be a workman must be under a contract of service with some other person.

Learned Counsel for the appellant cited a number of eases to support his proposition that it is enough if 20 or more persons are working in the premises, irrespective of the fact whether they earn wages or not. He cited the decision in Employees State Insurance Corporation v. M.A.H Siddique(3) where it is observed that it is clear from the definition contained in S. 2 (12) that it does not speak of persons working for wages as such and that so long as the number of persons working on the premises is 20 or more, the premises is a “factory” falling within the definition, it being immaterial whether those persons so working are paid wages or not. Learned Counsel also cited the decision in Bank Silver Co. v. Employees State Insurance Corporation(4) a case on similar facts, where it has been observed at page 113, that the language used in S. 2 Cl. (12) of the Act shows that the sole test which must be applied for determining whether an establishment is a factory or not, is whether 20 or more “persons” are working in the factory andwhether a manufacturing process is being carried on with the aid of power in any part of the establishment, that if these two tests are satisfied the establishment must answer the description of a factory under the Employees State Insurance Act and it is immaterial that some of the persons who work in the factory are either the proprietors of the establishment or are partners in the firm which owns the establishment and that it is also immaterial that if such proprietors or partners are excluded, the number of the remaining workers would fall below twenty.

While interpreting the word “factory”, a Divisional Bench of the Punjab High Court in Chanan Singh and Sons y. Employees S.I Corporation observed at page 425 thus:

In my opinion whether the employer is to be included in the 20 persons necessary to make premises a faetory or not must depend on the facts of each particular case, and where, as must be the case in many small businesses which are on the border line of being factories within the meaning of the Act, the principal employer is a person who actively works on the premises in connection with the business, he must be included in the figure of twenty, but if he is the principal employer merely by being the owner or occupier of the factory and does not take any personal active part in running the business on the spot, leaving this to a manager he should be excluded “.

The facts in this case reveal that there was a manager separately employed. R.W 1 has stated that there was a manager but while he inspected he saw only P.W 1, the managing partner of the firm. R.W i has not taken any statement from him as to the part he was playing in the premises. At best, as the managing partner he might have been in the factory, not taking any active part in the running of the business. In such circumstances, he cannot be termed an employee and cannot also be included in the 20 persons necessary to make the premises a factory. The burden of proof is upon the Corporation. They should prove, before including the managing partner among the 20 persons the actual part and nature of work he was rendering within the factory premises in connection with the work of the factory. The managing partner might have come to the office room, just to acquaint himself with the day to day work and affairs of the business. He cannot then be included among the 20 persons working in the factory. Under the circumstances, I am of the opinion that the learned Judge of the City Civil Court has come to the correct conclusion that the Corporation is not entitled to call upon the respondents to pay the necessary contribution.

In the result, the appeals are dismissed. There will be no order as to costs.

V.C.S

Employees State Insu... v. The Pioneer Laundky,...