1. The above numbered two civil miscellaneous appeals have been filed by the Regional Director, Employees' State Insurance Corporation, Jaipur, under S. 82 of the Employees' State Insurance Act, 1948 (hereinafter referred to as the Act), against the two judgments of the Employees' Insurance Court, Jaipur (in short Court), but as the point of law involved in both the appeals is common, they are being disposed of by a single judgment.
2. Vijay Metal Industries, Jaipur, is a partnership firm. One P.C Kasliwal is an active partner of the partnership firm and draws a monthly allowance of Rs. 400. The Employees' State Insurance Corporation, Jaipur, taking P.C Kasliwal as an employee within the meaning of Sub-sec. (9) of S. 2 of the Act required the firm, Vijay Metal Industries, to pay employees' contribution amounting to Rs. 211.25 and employers' special contribution amounting to Rs. 472 for the period from 28 Janurary 1968 to 30 January 1971, and when the firm did not make the said payment, the Regional Director, Employees' State Insurance Corporation (in short the Director), obtained a certificate from the Collector, Jaipur, under the Public Demands Recovery Act. An application under S. 7’5 of the Act was filed by P.C Kasliwal before the Court, and the main contention raised therein was that he was only a partner of the firm and was not an employee within the meaning of Sub-sec (2) of S. 9 of the Act. The Employees' State Insurance Corporation (hereinafter referred to as the Corporation) contested the application, and a preliminary issue was struck as under:
“Whether an employer/partner can be an employee of his own firm?”
The Court, holding that a partner, though he draws an allowance, is not an employee within the meaning of Sub-sec (9) of S. 7 of the Act allowed the application and declared that P.C Kasliwal is not an employee of the firm Vijay Metal Industries, and consequently the certificate issued by the Collector for the recovery of the aforesaid amounts was set aside.
3. The facts of Case No. 4 of 1971 out of which S.B Civil Miscellaneous First Appeal No. 28 of 1972, arises are these. There is a partnership firm, Jaipur Printers, and Gendilal and Chhitarmal are also two partners of the firm. Each of these partners was paid Rs. 4,800 per annum as partnership allowance besides the profit. Jaipur Printers is mainly engaged in printing business since 1948, and besides the two above named partners one Sohanlal Jain is also a partner. It is covered under the Act and is paying regular contribution, both employees' and employer's contribution, to the Corporation A certificate for recovery of Rs. 455 as employees' contribution from 28 January 1966 to 28 July 1970, and Rs. 34 as interest upto 15 December 1971, at the rate of Rs. 6 per cent per annum was issued. Another certificate amounting to Rs. 788 including interest was issued on 18 December 1970, for employer's special contribution. The Collector, Jaipur, issued demand notice under the Public Demands Recovery Act for the recovery of the aforesaid amounts. An application under S. 75 of the Act was filed by one Sohan Lal Jain, partner of Jaipur Printers, Jaipur, on the ground that the Corporation has wrongly covered the partners of the firm considering them as employees under S. 2(9) of the Act, when, as a matter of fact they were the partners and were getting allowance in that capacity, and were not employees within the meaning of S. 2(9) of the Act. Two partners were also not engaged in the manufacturing process of the factory. It was prayed in the application that the demand notice be quashed. The application was contested by the Corporation, and the learned Court formed a preliminary issue to the following effect:
“Whether Sarvasri Gendilal and Chhitarmal who are partners of the firm, Jaipur Printers, are employees of the firm, because they draw an allowance?”
The Court declared that they are not the employees of the firm, Jaipur Printers, and quashed the certificates issued by the Collector under the Public Demands Recovery Act for the recovery of Rs. 1,275 on account of employees' and employer's special contribution on account of the two abovenamed partners of the firm.
4. Having set out the facts of the two cases, it may be stated that the point which arises for determination in these appeals |8, as to whether a partner of a partnership concern, who draws monthly allowance for being actively engaged in the work of a factory is an employee within the meaning of S. 2(9) of the Act, and as such the principal employer has to pay the employees' contribution as well as the employer's special contributions for the purpose?
5. The contention of the learned advocate for the appellants is that the employer in some cases can also be an employee within the meaning of S. 2(9) of the Act. He submits that any person employed for wages in connexion with the work of a factory or establishment to which the Act applies is an employee within the meaning of S. 2(9) of the Act. Therefore, even if a partner is engaged in connexion with the work of the factory for wages, employee's contribution as well as employer's special contribution relating to that partner has to be paid by the firm. The learned advocate for the respondents, on the other hand, contends that preamble of the Act will show that it has been framed to provide certain benefits to the employees in case of sickness, maternity and employment injury, and to make provisions for certain other matters in relation thereto. According to him, a partner is a principal employer within the meaning of S. 2(17) of the Act, and, therefore, a partner cannot be an employee within the meaning of S. 2(9) of the Act. It is also contended that P.C Kasliwal is the principal employer and he was called upon to pay employees' contribution as well as employer's special contribution, and, therefore, he cannot be an employee. According to him, if the contributions are not paid, the principal employer is liable to prosecution, and, therefore, a principal employer when he is partner of a firm cannot be an employee within the meaning of S. 2(9) of the Act. It is further contended by him that for the purpose of coverage under the Act, it may be taken that if twenty or more persons including a partner are employed, the premises may be a factory within the meaning of S. 2(12) of the Act. According to him, the use of the word “person” In S. 2(12) of the Act is not without significance and the Legislature has not used the word “employee” In support of his contention the learned advocate has referred to an unreported decision of this Court in Bharat industries, Jodhpur v. Regional Director, Employees' State Insurance Corporation, Jaipur, [D.B Civil Reference No. 3 of 1967], under S. 81 of the Employees' State Insurance Act, 1948, decided on 29 August, 1969. It was a case where the question arose as to whether the partners of the firm, who supervise the work in a factory or do other jobs, come within the purview of “persons” working or were working in the definition of “factory” given in S. 2(12) of the Act. Placing reliance on a few reported decisions, the view taken wherein that the sole test which must be applied for determining whether an establishment is factory or not is, whether twenty or more “persons” are working in the factory, and whether a manufacturing process is being carried on with the aid of power in any part of the establishment, and if these two tests are satisfied, the establishment must answer the description of a factory under the Act and it is immaterial that some of the persons who work in the factory are either proprietors of the establishment or are partners in the firm which owns the establishment, was approved. It is contended by Sri Kala, the learned advocate for the respondents, that in that case their Lordships were considering S. 2(12) of the Act as to whether for the purpose of coverage under the Act an establishment having twenty or more persons including partners, who were actively engaged in the business of the factory, is a factory. They were not called upon to consider as to whether for the purpose of contribution also such a partner was an employee within the meaning of S. 2(9) of the Act. It is further contended by him that in the aforesaid case their Lordships were considering the definition of “factory” as given in S. 2(12) of the Act, as it stood prior to the amendment, which was brought into force with effect from 28 January 1968, by which for the words are working or were working “the words are employed or were employed for wages” were substituted. Because there is no dispute in both the cases that the establishments are factories within the meaning of S. 2(12) of the Act and are covered under the Employees' State Insurance Act. It is not necessary for the present to deal with as to whether the decision of this Court in Bharat Industries, Jodhpur (vide supra), in view of change in the definition of S. 2(12) of the Act, needs any reconsideration. In support of his contention that a partner, even though he draws some allowance or emoluments and is actively engaged in the work of the factory (as in the case of P.C Kasliwal), he cannot be an employee within the meaning of S. 2(9) of the Act, for the purpose of contribution, Sri Kala has placed reliance on Ellis v. Joseph Ellis & Co. [(1905) 1 K.B 324]. It was a case under the Workmen's Compensation Act, 1897. A member of the partnership firm for the purpose of working a mine by arrangement with his co-partners worked in the mine as a foreman and received weekly wages out of the profits of the business. 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, 1897, from the surviving partners. It was held that a case contemplated by the Workmen's Compensation Act was that of a workman employed by some other person or persons. The deceased having been himself one of the partners in the firm for which he was working he could not be said to have been an employee of them; and, therefore, the case was not within the Act and the widow was not entitled to compensation. It was observed:
“It seems to me that, when one comes to analyze 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 employees, but in truth is mode of adjusting the amount that must be taken to have been contributed to the partnership's assets by a partner, who has made what is really a contribution in kind, and does not affect his relations to the other partners, which is that of co-adventurer and not an 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.” This ruling was followed in Sehgal Industrial Works, Delhi v. Employees' State Insurance Corporation, New Delhi [(1975) 30 F.L.R 217], It was a case where the question arose as to whether a particular establishment was a “factory” within the meaning of S. 2(12) of the Act, as it stood after the amendment of 1968. I have already said above that whether the view of this Court in Bharat Industries, Jodhpur case (vide supra), needs reconsideration. In view of the definition of “factory” in S. 2(12) of the Act is not for consideration for the present, because, in both the cases in hand, it is not disputed that the establishment was a “factory” within the meaning of S. 2(12) of the Act.
6. In Ellis case [(1905) I K.B 324] (vide supra), the provisions of the Workmen's Compensation Act, 1897, were under consideration, and a view was taken that the same person cannot be both employer and employee. In Employees' State Insurance Corporation, Jaipur v. Good Luck Engineering Company, Ajmer, [S.B Civil Miscellaneeus Appeal No. 183 of 1971, decided by me on 21 December 1979], placing reliance on Bharat Industries case (vide supra), and other cases it was held that a partner employed for wages was to be included in the figure twenty to make an establishment a “factory” within the meaning of S. 2(12) of the Act for the coverage under the Act.
7. A look at the definition of “principal employer” in S. 2(17) of the Act is necessary. It reads as follows:
“2. (17) ‘principal employer’ means—
(i) in a factory, the owner or occupier of the factory and includes the managing agent of such owner or occupier, the legal representative of a deceased owner or occupier, and where a person has been named as the manager of the factory under the Factories Act, 1948(63 of 1948), the person so named;
(ii) in any establishment under the control of any department of any Government in India, the authority appointed by such Government in this behalf or where no authority is so appointed, the head of the department:
(iii) in any other establishment, any person responsible for the supervision and control of the establishment.”
Even a person named as the manager of the factory under the Factories Act, 1948, is included in the definition of the “principal employer.” But, still such a person is employee within the meaning of S. 2(9) of the Act, if his employment is within the prescribed limit of wages which has been raised from time to time, and now includes an employee drawing a salary of Rs. 1,000. So, the same person can be “principal employer” within the meaning of S. 2(17) of the Act as well as an “employee” within the meaning of S. 2(9) of the Act. The two positions cannot be said to be contrary to each other. If he fails to pay the contribution payable under the Act, then he la liable to be prosecuted as a “principal employer,” but if he meets with some accident or is sick during the course of employment, he is entitled to some benefits under the Act for which employees' contribution as well as employer's contribution is payable. According to Sri Kala a look at the definition of “wages” as given in S. 2(22) of the Act will show that there must be a contract of employment, express or implied, which if fulfilled, remuneration would be payable, he, therefore, submits that there are to be two parties for the contract of employment, i.e, “employer” and “employee,” and the partner cannot employ himself, and, therefore, any remuneration paid in the case of P.C Kasliwal being Rs. 375, according to Sri Kala, will not fall within the definition of “wages,” as given in S. 2(22) of the Act. I have already referred to the definition of “principal employer” as contained in S. 2(17) of the Act, and it has been said that in some cases the “principal employer” can also be the employee. It can, therefore, be said that the same person can be “employer” as well as “employee” for the purpose of the Act and the two capacities cannot be said to be contrary to each other. In Non-Ferrous Rolling Mills (Private), Ltd. v. Regional Direetor. Employees' State Insurance Corporation, Madras [1977 — II L.L.N 165], it was held that the “principal employer” can also be an employee, and under the Act it cannot be said that a “principal employer” cannot also be an “employee.” It was held as follows in Para. 22, at page 173:
“I must accept the position taken by the Corporation as correct, both on the authorities abovecited and on the terms of the definition of “employee” occurring in S. 2(9) of the Employees' State Insurance Act. The fact that he is a principal employer, within the meaning of S. 2(17) for certain purposes under this Act does not altogether exclude his being also an employee under the Act. In my opinion, the definition of an “employee” under S. 2(9) is sufficiently clear and is also apt to apply to this person. The section in terms, refers to
‘any person employed for wages on any work connected with the administration of the factory’.
It cannot be denied that as manager of the factory, Vimal Chand Galada, is employed in a work connected with the administration of this factory. Nor could it be controverted that he was paid remuneration in consideration of such work. This remuneration, In my view, also tits in with the definition of ‘wages’ under S. 2(22) of the Act which refers to
‘all remuneration to an employee if the terms of the contract of employment express or implied were fulfilled.”
8. In the aforesaid case, reliance was placed on Boulting v. Association of Cinematograph Television and Allied Technicians ((1963) 1 All E.R 716]. In that case, the facts were that the two plaintiffs, brothers, were managing directors of a film production company called Charter Film Production, Ltd. Each was bound by his agreement with the company to give the whole of his time and attention to the business of the company and at all times to diligently serve the company. They represented their company on the Federation of British Film Makers, which was a trade union of employees. There was another registered trade union, the Association of Cinematograph Television and Allied Technicians, which consisted of all employees engaged on the technical side of film production. Both the plaintiffs applied to be elected a member of the aforesaid employees' union, and their applications were accepted. They attended meetings of the committees and one of them, namely, Roy Boulting, actually served on the executive council for one year. But, after the Second World War, both the plaintiffs found themselves in difficulty in being members of the trade union of the employees and also directors of the company. The dispute arose as to whether while being directors of the company they could be members of the union of employees. Lord Denning, M.R, in a majority judgment held that they could not be compelled to be the members of the union of the employees, but it was observed by Lord Denning that if the plaintiffs were partners, they could contract with one another to give their services for the stated remuneration. The majority view was that the contract of membership of the employees' union was not void. They could be directors of the company as well as members of the employees' trade union.
9. I am, therefore, of the opinion that a person can be an employer as well as employee under the provisions and the scheme of the Act and the two capacities do not conflict with each other. It is by virtue of contract of employment in between the other partners and one of the partners who is engaged in connexion with the work of a factory that he draws monthly remuneration. Remuneration so paid to a partner is “wages” within the meaning of S. 2(22) of the Act. Therefore, a partner who draws monthly allowance within the prescribed limits under the Act and is engaged in the work of the factory or an establishment is an “employee” within the meaning of S. 2(9) of the Act. A partner so employed by the other partner is only entitled to the remuneration if the terms of his employment are complied with. The remuneration so paid to the partner, to my mind, fits in with the definition of “wages” as under Sub-sec. (22) of S. 2 of the Act, which refers to all remunerations of an employee if the terms of the contract of employment express or implied were fulfilled. Sri Kala has placed reliance on Employees' State Insurance Corporation, Trichur v. Ayurvedic I.C.P [1980-I L.L.N 172], Braithwaite and Company (India), Ltd. v. Employees' State Insurance Corporation [1968 — I L.L.J 550] and Andhra Pradesh State Electricity Board v. Employees' State Insurance Corporation, Hyderabad [1977 — II L.L.N 356]. In Employees' State Insurance Corporation, Trichur case (vide supra), which was a case of casual labour, dealing with the question of coverage it was held that there may be engagements which may not amount to service and so long as it is not service by one under another, there is no question of relationship with coverage under the Act. I have already said above that a partner can be employed by other partners, and if he draws emoluments within the prescribed limits for the work of the factory, then he is an employee within the meaning of S. 2(9) of the Act. The same person can be a “principal employer” as well as an “employee” for the purpose of the Act. Braithwaite and Company case (vide supra), was a case of payment under a scheme of incentive payment and it was held that by the acceptance the scheme does not become a term of the contract for employment of the employees. The case of Andhra Pradesh State Electricity Board case (vide supra), was also a case of coverage of an establishment under S. 2(12) of the Act. It was held in Para. 4, at page 358 of 1977—II L.L.N:
“… The expression ‘wages’ under S. 2(12) must be understood in a wider sense as meaning any remuneration paid to any person, who is employed in a factory and cannot be restricted only to the remuneration paid to the employees who come within the definition of S. 2(9) of the Act…”
It was thus held that the “person employed for wages” occurring in S. 2(12) of the Act has not the same meaning as “employee” in S. 2(9) of the Act. This ruling has no bearing on the instant case.
10. Sri Kala has also placed reliance on Ambassador v. Employees' State insurance Corporation, Bangalore [1974 — II L.L.N 151], wherein placing reliance on Bank Silver Company, Bombay v. Employees' State Insurance Corporation, Bombay [A.I.R 1965 Bom. 111], it was held that the proprietors or partners of a factory who actually work therein cannot be regarded as employees for the purpose of ascertaining benefits provided under the Act. It is not clear from that authority as to whether the proprietors or partners in that case were drawing any emoluments or not. In Bank Silver Company, Bombay case (vide supra), which has been relied upon in the Karnataka case while dealing as to whether a partner working in a factory has to be included in the figure twenty to make an establishment a factory under S. 2(12) of the Act, some observations have no doubt been made, which support the contention of Sri Kala, but after having gone through the various provisions of the Act, more particularly the definition of “employee” in S. 2(9) of the Act, “principal employer” in S. 2(17) of the Act, and “wages” in S. 2(22) of the Act, and looking to the objects of the Act, I am of the opinion that a partner who draws emoluments and actively works in the factory is an “employee” within the meaning of S. 2(9) of the Act, and he can have different capacities as “principal employer” and “employee” and both capacities are not contradictory to each other. Employees' contribution as well as “employer's special contribution” is payable in respect of such partner.
11. In P.C Kasliwal's case, it is not disputed that he was actively working in the factory and was drawing an allowance of Rs. 375 per month. As such, for the purpose of “employee's contribution” as well as “employer's special contribution,” he is an employee within the meaning of S. 2(9) of the Act. But, so far as the other case, is concerned, namely, Sohanlal's case the Tribunal has held that the two partners, namely, Gendilal and Chhitarmal, are merely sleeping partners of the firm. They do not do any work whatsoever and simply draw allowance because they are partners. Therefore, in respect of them, no “employees' and employer's special contribution” is payable.
12. In the result, S.B Civil Miscellaneous Appeal No. 27 of 1972 — Employees' State Insurance Corporation, Jaipur v. P.C Kasliwgal — is allowed. The order of Employees' Insurance Court is set aside, and the application of P.C Kasliwal under S. 75 of the Act is dismissed.
13. S.B Civil Miscellaneous Appeal No. 28 of 1972 — Employees' State Insurance Corporation, Jaipur v. Sohanlal Jain is dismissed.
14. Both the parties shall bear their respective costs of both the appeals.