Judgment :- 1. The petitioner is a partnership firm dealing in beedies. According to the petitioner, it does not manufacture beedies. It buys beedies from several persons, who under contracts entered with petitioner make and supply beedies to the petitioner; and the petitioner sells them to his customers. The business is a fairly large one. The petitioner buys and stocks beedi tobacco and leaves in sufficient quantities for getting beedies manufactured for its business. It has adopted two methods for this purpose. There are a number of persons who have taken out licenses under the Central Excise Act, 1944 for manufacture of beedies. Beedi tobacco and leaves are got by such persons, who are hereinafter referred to as the licensees, from the petitioner. The licensees distribute the tobacco and leaves to different persons, who take the goods to their respective homes and make beedies according to specification. The beedies are then supplied to the licensees, who pay for the same at a fixed rate. The licensees supply the beedies to the petitioner at the agreed rate. This is the first method. The second method to that the petitioner supplies beedi tobacco and leaves to different persons, who take the goods to their respective houses; they make beedies according to specification and supply them to the petitioner at a fixed rate. These persons are supplied with pass books; and the tobacco and the leaves given to them and the beedies they supply to the petitioner are all regularly entered in these books. The petitioner takes a security deposit of Rs. 15/-from each of these persons who are hereinafter referred to as the pass-book holders. 2. Persons who make beedies under both the above methods claimed to be employees under the petitioner and demanded payment of bonus for the year 1965 under the Payment of Bonus Act, 1965. The petitioner rejected the claim on the ground that neither of them were its employees. The State Government referred the dispute for adjudication to the Industrial Tribunal, Calicut, who by its award, Ext. P-6 dated 27-12-1969, upheld their claim. This writ petition has been filed to quash the said award, on the ground that, on the facts found by the Tribunal, there is no employer-employee relationship between the petitioner and the aforesaid persons, and the award was, therefore, illegal and without jurisdiction. 3. P-6 dated 27-12-1969, upheld their claim. This writ petition has been filed to quash the said award, on the ground that, on the facts found by the Tribunal, there is no employer-employee relationship between the petitioner and the aforesaid persons, and the award was, therefore, illegal and without jurisdiction. 3. There is no serious dispute regarding the manner in which the petitioner gets beedies manufactured for its business. The controversy is regarding the real nature of the two methods adopted by the petitioner for the above purpose as well as the legal character of the relationship between the petitioner and the persons who make beedies for it. A few more facts have also to be mentioned. The petitioner has no factory or place of its own for getting the beedies manufactured. The beedies are made in the houses of the persons who make them; and there is no direct supervision by the petitioner or its agents regarding the process of making. There is also no specified time for work. They can make the beedies during any part of the day according to their convenience. It is also not necessary that the particular persons who take the tobacco and the leaf must themselves do the work. As a matter of fact, the work is done not only by the very same persons who take the tobacco and the leaves for making beedies, but also by the members of their family who can do it. There is no case for the petitioner that the supply of the tobacco and the leaves to the licensees or to the pass-book holders is by way of sale, nor that the petitioner buys the beedies from them. Admittedly, the beedies are made for the petitioner; and what it pays to the licensees and the pass-book holders are the charges at the agreed rate for making the beedies. The beedies have to be made according to the specification. The petitioner is entitled to sort out and reject the defective ones. 4. Admittedly, the beedies are made for the petitioner; and what it pays to the licensees and the pass-book holders are the charges at the agreed rate for making the beedies. The beedies have to be made according to the specification. The petitioner is entitled to sort out and reject the defective ones. 4. The beedi makers have a case that the two methods adopted by the petitioner are devices to escape the liabilities under the various labour laws, that the licensees are agents or employees of the petitioner, that the beedi-makers engaged by them are persons really employed by the licensees for the petitioner, and that the persons engaged in making beedies under both the methods are truly employees of the petitioner. There is no finding by the Industrial Tribunal that the licensees are agents of employees of the petitioner, nor have been told that there is any evidence to support such a plea. The beedi industry is peculiar in its character. The managements have adopted various devices to minimise the employment of labour, and to escape from the liabilities of the various labour laws that are being made from time to time for the benefit of the labourers. It is a notorious fact that while there is a constant effort on the part of the capital to exploit the labour, the workers also create industrial unrest by raising unreasonable claims and unjustified disputes. This is a social evil which retards the growth of our industries; and laws are being made from time to time to deal with new situations arising in the industrial field. All the same, it has to be conceded that an employer is entitled to carry on his industry in such a way as to escape entanglement with such laws to the extent possible. The law is concerned only with a person or object which falls within its ambit-Therefore the contention that the two methods adopted by the petitioner are devices to escape legal liabilities is not relevant. I am only concerned whether on the facts found the beedi makers are employees as defined in the Payment of Bonus Act. 5. I think that there can be no dispute for the proposition that a person cannot be an employee of another person unless there is employer-employee or master and servant relationship between the two. I am only concerned whether on the facts found the beedi makers are employees as defined in the Payment of Bonus Act. 5. I think that there can be no dispute for the proposition that a person cannot be an employee of another person unless there is employer-employee or master and servant relationship between the two. The difference between contracts of service and contracts for services, though real, is very fine in many cases; and judicial efforts have not succeeded in laying down any hard and fast rule or any positive tests to distinguish between the two. There is a large volume of case law on this subject; and though the question is one to be decided on the facts and circumstances of each case, it is hazardous to proceed to deal with it without noticing the salient principles laid down in important judicial pronouncements. It is said that the main test, if not the only one, to ascertain whether a contract is one of service creating a master and servant relationship or one for the service of an independent contractor is to enquire whether the employer has got the right of control in respect of the manner in which the work is to be done; and in that case it is a contract of service. 6. The earliest decision of the Supreme Court in which the above question has been considered at some length is Dhrangadhra Chemical Works Ltd. v. State of Saurashtra 19571 L.L.J. 477 wherein the court laid down the following proposition "The principle which emerges from these authorities is that the prima facie test for determination of the relationship between master and servant is the existence of the right in the master to supervise and control the work done by the servant not only in the matter of directing what work the servant is to do but also the manner in which he shall do his work or to borrow the words of Lord Uthwatt at p. 23 in Mersey Docks and Harbour Board v. Coggins & Griffith (Liverpool), Ltd. (1947) IAC.1, 23). "The proper test is whether or not the hirer had authority to control the manner of execution of the act in question" " In the above case, the question was whether persons employed in certain salt works were workmen as defined under S.2(s) of the Industrial Disputes Act, 1947 or independent contractors. "The proper test is whether or not the hirer had authority to control the manner of execution of the act in question" " In the above case, the question was whether persons employed in certain salt works were workmen as defined under S.2(s) of the Industrial Disputes Act, 1947 or independent contractors. The court, by applying the above test, held that they were workmen. 7. This question again arose before the Supreme Court in Chintaman Rao v. State of Madhya Pradesh 195811 LLJ.1252 where the question was whether the persons employed by independent contractors for working biris were workmen of the management as defined in S.2(1) of the Factories Act, 1948. The Court held that the same test would apply and that the persons employed by the contractors were not workmen of the management as defined in that Act. The next decision of the Supreme Court to be noticed is Birdhi¬chand Sharma v. First Civil Judge, Nagpur 196111 LLJ. 86. Here also the question was whether the persons employed in a bidi factory were workers as defined in the Factories Act; and the Court held that on the facts of the case they were workers. 8. Reference may now be made to the decision of the Supreme Court in Shakar Balaji Waja v. State of Maharashtra 19621 LLJ. 119. In this case, the question arose whether a bidi maker was a worker as defined in the Factories Act. The Court held that on the particular facts of the case, be was not so. The petitioner contends that the facts of this case are exactly similar to the facts of the instant case, and that on the authority of this decision, it should be held that the beedi workers are not its employees. I shall examine this contention later, after referring to some more decisions of the Supreme Court. 9. The next decision to be noticed is Dewan Mohideen Sahib v. United Bidi workers Union 196611 LLJ. 633. This was also a case of bidi makers; and the question was whether the bidi makers concerned in that case were workmen as defined in the Industrial Disputes Act, 1947. The Supreme Court approved the principles laid down in the above said decisions in deciding this question, and held that on the facts of that case, the bidi makers were workmen. The Supreme Court approved the principles laid down in the above said decisions in deciding this question, and held that on the facts of that case, the bidi makers were workmen. It stated "It was well settled that a prima facie test of such relationship was the existence of the right in the employer not merely to direct what work was to be done but also to control the manner in which it was to be done, the nature and extent of such control varying in different industries and being by its very nature incapable of being precisely defined. The correct approach was, therefore, was to consider whether, having regard to the nature of the work, there was due control and supervision by the employer". 10. I shall refer to one more decision of the Supreme Court; and this is State of Kerala v. R. B. D'Souza 1971 (I) LLJ. 307. That was a case of persons engaged for peeling and washing prawns in the premises of the employer, and the question was whether such persons were workers as defined in the Factories Act. The court referred to the first three of its decisions cited above; and held that the High Court was right in applying the principles laid down in the said decisions and finding that the said persons were not workers. An argument was advanced by the appellant's counsel that the decision in Dharangadhra Chemical Works' case was concerned with the definition of "Workmen" in the Industrial Disputes Act, and that the principles laid down therein were wrongly applied in Chintaman Rao's case and Birdhichand Sharma's case in deciding whether a person was "worker" as defined in the Factories Act. The argument was summarily rejected by the Supreme Court. 11. The argument was summarily rejected by the Supreme Court. 11. Counsel for the petitioner contends in this case relying on the principles laid down in the aforesaid decisions that in the nature of the work done by the beedi-makers, the petitioner has no manner of control regarding the manner in which the beedies were being made, and that they are not, therefore, employees as defined in the Payment of Bonus Act The Industrial Tribunal held that the petitioner had the right of sorting out and rejecting the beedies, if they were not according to the specification; that this was the only control possible in the nature of the business, and that it was sufficient to constitute an employer-employee relationship. The Tribunal has also referred toother circumstances in support of its conclusion that such a relationship exists between the petitioner and the beedi-makers. I am unable to agree with its view that the right of inspection and rejection of the beedies made by these persons before the beedies are accepted and their making charges are paid would constitute any manner of control in the manner of making the beedies. The petitioner or his agent does not see how the beedies are made, in which premises they are made, or who actually makes them. Their obligation is to make the beedies according to the specification with the materials supplied by the petitioner, and they would get the stipulated charges for their services. 12. The facts of the case in Shankar Balaji Waje v. State of Maharashtra 19621 LLJ. 119 are apparently similar to the instant case, as submitted by the petitioner's counsel. The Tribunal, therefore, found difficulty to get over this decision. It stated that the said decision has no application to the instant case, since the question here was whether a person was an employee as defined in the Payment of Bonus Act, while the question in the above case before the Supreme Court was whether a person was a worker as defined in the Factories Act, and the two definitions were different. The reason stated by the Tribunal is hardly sustainable. It is true that the definitions of the terms "workman" in the Industrial Disputes Act, "worker" in the Factories Act and "employee" in the Payment of Bonus Act are differently worded. The reason stated by the Tribunal is hardly sustainable. It is true that the definitions of the terms "workman" in the Industrial Disputes Act, "worker" in the Factories Act and "employee" in the Payment of Bonus Act are differently worded. But it is essential in all these three cases that there should be the employer and employee or the master and servant relationship. In the absence of such a relationship, a person would not be an "employee" as defined in the latter Act. The Tribunal also has accepted this proposition. 13. The right of supervision or the right to control the manner in which a work is being done is not the only test to be applied for deciding whether an employer-employee relationship exists, though this is a test which can be safely applied in many cases. This is not an exclusive test; and the absence of such a right would not be indicative or decisive of the non-existence of such relationship. The legal position seems to be the same both in India and in England, though, if I may say so with respect, some amounts of over-emphasis has been made on this test in some of the decisions of the Supreme Court. I shall again refer to the decision of the Supreme Court in Dharangadhra Chemical Works' case, wherein the court cited with approval the following passage from the judgment of Denning L. J. in Stevenson, Jordan and Harrison Ltd. v. Macdonald and Evans (1952) 1 T.L.R. 101. "But in Cassidy v. Ministry of Health (1951) TLR. 539 P. C. (1951) 2 K.B. 343,352 3) Lord Justice Somervell pointed out that that test is not universally correct. There are many contracts of service where the master cannot control the manner in which the work is to be done as in the case of a captain of a ship. Lord Justice Somervell went on to say: One perhaps cannot get much beyond this; 'Was the contract as contract of service within the meaning which an ordinary man would give under the words'? I respectfully agree. As my lord has said, it is almost impossible to give precise definition of the distinction. It is often easy to recognize a contract of service when you see it, but difficult to say wherein the difference lies. I respectfully agree. As my lord has said, it is almost impossible to give precise definition of the distinction. It is often easy to recognize a contract of service when you see it, but difficult to say wherein the difference lies. A ship's mister, a chuffeur and a reporter on the staff of a newspaper are all employed under a contract of service; but a ship's pilot, a taxi-man, and a newspaper contributor are employed under a contract for services. One feature which seems to run through the instances is that, under a contract of service, a man is employed as part of the business, and his work is done as an integral part of the business; whereas, under a contract for services, his work, although done for the business, is not integrated into it but is only accessory to it". 14. Later decisions of the English Courts have clarified the correct legal position. I shall first refer to a decision of the Queen's Bench Decision is Argent v. Minister of Social Security (1968) I W.L.R. 1749. The question in that case was whether a part time employee in a school was an "employed person" or "self-employed person" within the meaning of S.1(2) of the National Insurance (Industrial Injuries) Act, 1965; in other words whether he was a workman or independent contractor. It is not necessary to notice the facts of the case, as we are concerned only with the statement of the law. The court quoted with approval the following passage from Atija on Vicarious Liability in the Law of Torts (1967 pp. 37 and 38), which the learned judge describes as a recent valuable book on the subject "It is now only too plain that past attempts to formulate principles and tests of universal validity applicable to cases of vicarious liability give rise to many difficulties." "This is perhaps not surprising. The cases cited in this book are a sufficient demonstration of the extraordinary variety of relationships which have come before the courts at one time or another, and it is now clear that it is impossible to define a contract of service in the sense of stating a number of conditions which are both necessary to, and sufficient for existence of such a contract. The most that can profitably be done is to examine all the possible factors which have been referred to in these cases as bearing on the nature of the relationship between the parties concerned. Clearly not all of these factors will be relevant in ail cases, or have the same weight in all cases. Equally clearly no magic formula can be propounded for determining which factors should, in any given case, be treated as the determining ones. The plain fact is that in a large number of cases the court can only perform a balancing operation, weighing up the factors which point in one direction and balancing them against those pointing in the opposite direction. In the nature of things it is not to be expected that this operation can be performed with scientific accuracy". The learned judge stated "Finally it has been more recently suggested that the matter can be determined by reference to what in modern parlance is called economic reality. All these are matters which have to be borne in mind. To my mind, no single one is decisive. One has to look at the totality of the evidence, at the totality of the facts found and then apply them to the language of the statute". I shall also refer to another decision of the Queen's Bench Division in Market Investigations Ltd. v. Minister of Social Security (1969) 2 WLR.1. There is a detailed review of the English authorities on this question at pages 8 to 10; and it would show the law has developed with the complex conditions of modern industry. It will be profitable to read the relevant passage "I think it is fair to say that there was at one time a school of thought according to which the extent and degree of the control which B was called to exercise over A in the performance of the work would be a decisive factor. However, it has for long been apparent that an analysis of the extent and degree of such control is not in itself decisive. Thus in Collins v. Hertfordshire County Council (1947) K. B. 598, it had been suggested that the distinguishing feature of a contract of service is that the master cannot only order or require what is to be done but also how it shall be done The inadequacy of this test was pointed out by Soraervell LJ. Thus in Collins v. Hertfordshire County Council (1947) K. B. 598, it had been suggested that the distinguishing feature of a contract of service is that the master cannot only order or require what is to be done but also how it shall be done The inadequacy of this test was pointed out by Soraervell LJ. in Cassidy v. Ministry of Health (1951) 2 K B. 345, 352, when he referred to the case of a certified master of a ship. The matter may be employed by the owners under what is clearly a contract of service, and yet the owners' have no power to tell him how to navigate his ship. As Lord Parker C. J. pointed out in Morren v. Swinton and Pondlebury Borough Council (1965) 1 W. L. R.576,582, when one is dealing with a professional man, or a man of some particular skill and experience, there can be no question of an employer telling him how to do work; therefore the absence of control and direction in that sense can be of little, if any, use as a test. Cases such as Morren's case (1965) 1 W. L. R.576 illustrate how a contract of service may exist even though the control does not extend to prescribing how to work shall be done. On the other hand, there may be cases when one who engages another to do work may reserve to himself full control over how the work is to be done, but nevertheless the contract is not a contract of service. A good example is Queensland Stations Proprietary Ltd. v. federal Commissioner of Taxation (1945) 70 C. L. R.539, the "drover" case, when Dixon J. said, at p. 552: "In considering the facts it is a mistake to treat as decisive a reservation of control over the manner in which the droving is performed and the cattle are bandied. For instance, in the present case the circumstance that the drover agrees to obey and carry out all lawful instructions cannot outweigh the countervailing considerations which are found in the employment by him of servants of his own, the provision of horses, equipment, plant, rations, and a remuneration at a rate per head delivered". If control is not a decisive test, what then are the other considerations which are relevant? If control is not a decisive test, what then are the other considerations which are relevant? No comprehensive answer has been given to this question, but assistance is to be found in a number of cases. In Montreal v. Montreat Locomotive Works Ltd. (1947) 1 DLR 161. P. C., Lord Wright said, at P. 169: "In earlier cases a single test, such as the presence or absence of control, was often relied on to determine whether the case was one of master and servant, mostly in order to decide issues of tortious liability on the part of the master or superior. In the more complex conditions of modern industry, more complicated tests have to be applied. It has been suggested that a fourfold test would in some cases be more appropriate, a complex involving (1) control; (2) ownership of the tools; (3) chance of profit; (4) risk of loss. Control in itself is not always conclusive. Thus the master of a chartered vessel is generally the employee of the shipowner though the charterer can direct the employment of the vessel. Again the law often limits the employer's right to interfere with the employee's conduct, as also do trade union regulations. In many cases the question can only be settled by examining the whole of the various elements which constitute the relationship between the parties. In this way it is in some cases possible to decide the issue by raising as the crucial question whose business is it, or in other words by asking whether the party is carrying on the business, in the sense of carrying it on for himself or on his own behalf and not merely for a superior". In Bank voor Handed on Scheepvart N. V. v. Slatford (1963) 1 Q. B. 248 Denning L. J. said at P. 295: "The test of being a servant does not rest nowadays on submission to orders. It depends on whether the person is part and parcel of the organisation"' In United States v. Silk (1946) 331 U. S.704, the question was whether certain men were "employees" within the meaning of that word in the Social Security Act, 1935. It depends on whether the person is part and parcel of the organisation"' In United States v. Silk (1946) 331 U. S.704, the question was whether certain men were "employees" within the meaning of that word in the Social Security Act, 1935. The judges of the Supreme Court decided that the test to be applied was not "power of control" whether exercised or not, over the manner of performing service to the undertaking, "but whether the men were employees "as a matter of economic reality". The observations of Lord Wright, of Denning L. J. and of the judges of the Supreme Court suggest that the fundamental test to be applied is this: "Is the person who has engaged himself to perform these services performing them as a person in business on his own account?" If the answer to that question is "yes", then the contract is a contract for services. If the answer is "no", then the contract is a contract of service. No exhaustive list has been compiled and perhaps no exhaustive list can be compiled of the considerations which are relevant in determining that question, nor can strict rules be laid down as to the relative weight which the various considerations should carry in particular cases. The most that can be said is that control will no doubt always have to be considered, although it can no longer be regarded as the sole determining factor; and that factors which may be of importance are such matters as whether the man performing the services provides his own equipment, whether he hires his own helpers, what degree of financial risk he takes, what degree of responsibility for investment and management he has, and whether and how far he has an opportunity of profiling from sound management in the performance of bis task-'. 15. It is, therefore, clear that no decision can be authority for deter-mining the question whether in a given case an employer-employee relationship exists. It is one to be decided on its own facts bearing in mind the various principles and the tests to be applied for deciding such a question. There is no universal principle or test. 15. It is, therefore, clear that no decision can be authority for deter-mining the question whether in a given case an employer-employee relationship exists. It is one to be decided on its own facts bearing in mind the various principles and the tests to be applied for deciding such a question. There is no universal principle or test. The essence of the enquiry should be as the Supreme Court of America stated in United States v. Silk 331 U. S.704, whether the men were employees as a matter of economic reality, or as Denning L. J. slated in Stevenson Jardan and Harrison Ltd. v. Macdonald and Evans (1952) 1 TLR 101 whether the person who has been engaged to do a work is doing it as a person in business on bis own account. 16. Applying the above tests, I am clear in my mind that the pass-book holders are employees of the petitioner. They are not making the beedies as persons in business on their own account. They make the beedies for the petitioner. Their work is an integral part of the business of the petitioner. In the nature of the manner in which the work is arranged, there is no scope for any supervision, nor is there any supervision needed. This class of beedi-makers were called out door workers; and the fact that they raised demands against the petitioner, which used to be settled by conciliation proceedings under the Industrial Disputes Act shows that the petitioner accepted them as his workmen. 17. The position of the beedi makers engaged by licensees stands on a different footing. An attempt was made before the Industrial Tribunal to make out that the licensees are employees of the petitioner and that they engage the beedi-makers on behalf of the petitioner. The Tribunal has not even considered the evidence in that respect. It may be because that the point was not pressed before it, or it thought that the evidence was not worth consideration. The point has been, however, canvassed before me, and I have been taken through the whole evidence. 18. The trade union examined one witness, Ww. 2, who claimed to be a worker under the petitioner engaged by one of the licensees. He deposed that the licensee was a paid employee of the petitioner, and that his wages were being paid by the petitioner. 18. The trade union examined one witness, Ww. 2, who claimed to be a worker under the petitioner engaged by one of the licensees. He deposed that the licensee was a paid employee of the petitioner, and that his wages were being paid by the petitioner. There is no material to support his oral assertion. The manager of the petitioner who was examined as Mw. 1, deposed that the licensees were independent contractors, that Ww.2 was not a worker in the petitioner's establishment and that he did not even know him. Reliance was placed by the respondents' counsel mainly on three conciliation agreements, which were marked as Exts. W1, W2 and W3 before the Industrial Tribunal. These documents were also made available for my scrutiny. Ext. W3 is a settlement dated 5-5-1961 between three beedi dealers including the petitioner on the one part and eight trade unions representing the beedi-makers. Dealing with beedi¬makers employed by the licensees this agreement provides that the managements agree to increase their buying price of the beedies with a view to seeing "that the workers under the contractors get an increase in wages". Ext. W2 is a similar agreement dated 27-1-1964, which provides that the managements agree to increase the price paid to the contractors, in order to enable them to pay higher wages to their workers. Ext. W1 is also a similar agreement dated 30-11-1965. It states that "the managements agree to see that the workers under the contractors as well as the outdoor workers get the interim relief and the revised minimum wages as per terms numbered 1 and 2". These provisions in the above agreements firmly establish, contrary to the contention of the respondents that the licensees are not employees of the petitioner and that the beedi-makers engaged by them are not workers of the petitioner. The impugned award cannot, therefore, be sustained in respect of this class of workers. 19. In the result, I quash the impugned award, Ext. P6, in so far as it relates to beedi-makers employed by or under the licensees who get beedies made for the petitioner. The parties are directed to bear their own costs.