TMI Blog1997 (11) TMI 514X X X X Extracts X X X X X X X X Extracts X X X X ..... r is ordinarily so carried carried on". Appeal allowed. - C.A. 3411 OF 1996 - 06/11/1997 - Dated:- 6-11-1997 - Mr. S.B. Majmudar and Mr. M.Jagannadha Rao, JJ. Vijay K.Mehta, Adv. for the appellant Wasim A. Qadri, Adv. (A.C.) for the Respondent JUDGEMENT S.B. Majmudar. J. Employees State Insurance Corporation has brought in challenge judgment and order rendered by a Division Bench of the High Court of Bombay. Nagpur Bench in Letters Patent appeal whereunder the Division Bench confirmed the order of the learned Single Judge holding that the Managing Director of the respondent-company is not an employee as defined in Section 2(9) of the Employees State Insurance Corporation Act, 1948 (hereinafter referred to as the Act ). The present appeal on grant of special leave to appeal under Article 136 of the Constitution of India reached final hearing before us. We have heard learned advocate for the appellant-Corporation as well as learned advocate Shri S. Wasim A. Qadri, who was requested by us to assist the Court as amicus curiae, as respondent-company being served has to thought if fit to appear through any counsel. Before considering the main question i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lause 15 thereof. The Division Bench of the High court by the impugned judgment dismissed the said appeal and concurred with the view of the learned Single Judge that the Managing Director Shri Dhanwate could not be held to be an employee within the meaning of Section 2 Subsection of the Act. Contentions of Learned Counsel In Support of the appeal the learned counsel for the appellant-Corporation vehemently contended that the decision rendered by the ESI Court and as confirmed by the learned Single Judge and the Division Bench of the High Court did not correctly interpret the relevant provisions of the Act especially Section 2 Sub-section (9) and Section 2 subsection (22) of the Act. That the Division Bench of the High Court had erred in laking the view that the Managing Director was principal employer as defined by Section 2 subsection (17) of the Act and as such could not simultaneously be treated as an employee as per Section 2, sub-section (9) of the Act. It was also submitted that the High Court had erred in relying upon decision of this Court in the case of Regional Director Employees State Insurance Corporation Trichur V. Ramanuja Match Industries [(1985) 2 SCR 119] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stablishment or which is preliminary to the work carried on in or incidental to the purposes of the factory or establishment; or (iii) whose services are temporarily lent or let on hire to the principal employer by the person with whom the person whose services are so lent or let on hire has entered into a contract of service; and includes any person employed for wages on any work connected with the administration of the factory or establishment or any part, purchase or branch thereof or with the purchase or branch or with the purchase of raw materials for, or the distribution or sale of the products of, the factory or establishment, or any person engaged, as an apprentice, not being an apprentice engaged under the Apprentices Act, 1961, or under the standing orders of the establishment; but does not include- (a) any member of the India naval, military or air forces; or (b) any person so employed whose wages (excluding remuneration for overtime work) exceed such wages as may be prescribed by the Central Government. Provided that an employee whose wages (excluding remuneration for overtime work) exceed such wages as may be prescribed by the Central Government at any ti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble on discharge; A conjoint reading of the aforesaid provisions of the Act clearly indicates that Shri Dhanwate who was one of the directors of the company was entrusted with the work of Managing Director on remuneration of ₹ 12,000/- per year, that is, ₹ 1000/- per month and in view of this remuneration he had to discharge his extra duties as Managing Director even apart from his function as an ordinary director. Thus it could not be gainsaid that he was receiving this remuneration under the contract of employment pursuant to the resolution of the Board of Directors and that remuneration was paid to him because he was carrying on his extra duties as Managing Director. So far as the first condition is concerned it must, therefore, he held that he was a person employed for wages and his employer was the company which is a legal entity by itself. It could not, therefore, be said that he was a self employed person or agent of the employer which would be the case of a managing partner in a partnership firm which by itself is not a legal entity. The first condition is, therefore, clearly satisfied in the present case. So far as the second condition is concerned it also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wages as prescribed by the Central Government at the relevant time for applicability of the definition of the term employee as per Section 2 subsection (9) of the Act. Thus all the requisite conditions for applicability of the term employee as defined by the Act stood satisfied in the case of Shri Dhanwate. However the Division Bench of the High Court in the impugned judgment has placed emphasis on the fact that because Shri-Dhanwate was appointed as a Managing Director with wide powers as aforesaid he could be said to be principal employer. Principal employer is defined by Section 2 sub-section (17) of the Act as under : 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, 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 ; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne of the directors, shall have the ultimate control over the affairs of the factor, it would only be a camouflage or an artful circumvention because the ultimate control cannot be transferred from that of the company, to of its employees or offices, except where there is a compete transfer, of the control of the affairs of the factory. It cannot, therefore, be said as assumed by the High Court in the impugned judgment that Shri Dhanwate being appointed as a Managing Director could be said to be principal employer within the meaning of Section 2 subsection (17) of the Act as he could be said to be occupier within the meaning of Section 2 (15) of the Act read with Section 2 (n) of the Factories Act. As per the Articles of Association the ultimate control over his working was with the Board of Directors as a whole as the High court has noted that Shri Dhanwate was allowed to exercise all the powers exercisable by a director under the supervision and control of the Board of Directors. But even assuming that the High Court was right that Shri Dhanwate could be said to be principal employer there is nothing in that Act to indicate that a Managing Director being the principal em ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to manage the business of the company in terms of the articles of association and within the powers prescribed therein and under the terms of the agreement he can be removed for not discharging the work diligently or if is found not be acting in the interests of the Company as Managing Director, then it can hardly be said that he is an agent of the company and not a servant. The Control which the company exercise over the assessee need not necessarily be one which tells him what to do from day to day. Nor does supervision imply that it should be a continuous exercise of the power to oversee or superintend the work to be done. The control and supervision is exercised and is exercisable in terms of the articles of association by the Board of Directors and the company in its general meeting. The fact that power which is given to the Managing Director emanates from the articles, of association which prescribes the limits of the exercise of that power and that the powers of the assessee have to be exercised within the terms and limitations prescribed thereunder of the Directors in indicative of his being employed as a servant of the company. Hence remuneration payable to the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts directors to act as Managing Director on payment of remuneration for the extra work to be done by him as such. He has to discharge his function as Managing Director under the supervision of the entire Board of Directors. Thus there is employer employee relationship between two separate entities. On the one hand is the Managing Director employed as such and on the other the respondent-company being a separate legal entity which employs him. In this connection we may also usefully refer to a decision of this Court in the case of Bacha f. Guzdar v. Commissioner of Income-Tax, Bombay [(1955) 1 SCR 876]. A Constitution Bench of this Court speaking through Ghulam Hasan, J., brought out the clear legal distinction between a firm and a company by observing that the position of a shareholder of a company is altogether different from that of a partner of a firm. A company is a juristic entity distinct from the shareholders but a firm is a collective name or an alias for all the partners. Of course the decision was rendered in the light of Income-tax Act wherein the question was whether agriculture income would include the divided paid to a shareholder of a company. It must, therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the meaning of section 2(9) of the Act as he satisfied all the relevant conditions of the said definition. For coming to that conclusion reliance was placed on a decision of the Privy Council in the case of Lee v. Lee s Air Farming Ltd. [1961 A.C. 12] and also on a majority decision of the Court of Appeal in England in the case of Boulting v. Cinematograph Association etc. [(1963) 1 A11 ER 716]. In the Privy Counsel case one Lee who was the governing director of a private limited company which was formed for the purpose of carrying on the business of serial tophttp:// dressing, was also a qualified pilot manning the company s aircraft. While piloting one of the company s aeroplanes, Lee killed. His widow claimed compensation for his death under the New Zealand Workers compensation Act, 1922 against the company. The Privy Council had to examine the question whether Lee even though being a governing director of the company could still be treated as a worker of the company when he was flying the company s aircraft as pilot on remuneration. The judicial committee of the Privy Council observed that company was different entity from Lee. Although Lee was the governing director of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses properly be regarded as an employee. The decision of the Madras High Court following the aforesaid decision lays down the correct legal position. Thus even assuming that Shri Dhanwate was a principal employer even the in the light of the aforesaid discussion it has to be held that he could have a dual capacity both a Managing Director on the one hand and as an employee of the company on the other. We may at this stage refer to two decisions to which our attention was invited by learned amicus curiae counsel. A Division Bench of the High Court of Kerala in the case of Employees State Insurance Corporation, Ernakulam v. Victory Tile Works [44 Indian Factories Journal 304] had to consider whether a person who satisfies the definition of principal employer under Section 2 (17) of the Act could simultaneously satisfy the requirements of the definition of the term employee under Section 2(9) of the Act. Subramonian Poti, J. (as the then was), speaking for the court observed that Employees State Insurance Act, 1946 is intended to cover all wage-earners whether they are manager, supervisors, clerks, workmen or any other class of employees provided they fall within the defi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation paid or payable to an employee. If a person satisfies the definition of the term employee as found in Section 2 sub-section (9) of the Act and is paid remuneration for discharging the extra work assigned to him for earning such remuneration it cannot be said that it would not be wages as wrongly assumed by the High Court in the aforesaid decision in paragraph 24 of the Report. As a result of the aforesaid discussion it must be held that the Division Bench of the High Court in the impugned judgment had erred in taking the view, on the facts of the present case, that Shri Dhanwate as Managing Director of the company was not an employee within the meaning of Section 2 sub-section (9) of the Act. On the other hand it must be held that he was an employee of the company and as such could be added to the list of remaining 19 employees so as to make a total of 20 for covering the establishment under Section 2 sub-section (12) of the Act which defines factory) to mean, any premises including the precincts thereof (a) ........; or (b) whereon twenty or more persons are employed or were employed for wages on any day of the proceeding twelve months, and in any part of which a manuf ..... X X X X Extracts X X X X X X X X Extracts X X X X
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