Sanjana Arvind Kumar

20161015

Court: Supreme Court of India

Citation: (2004) 3 SCC 514
Bench: S.B. Sinha and Y.K. Sabharawal

Workmen of Nilgiri Cooperative Marketing Society v State of Tamil Nadu

Background:
 Mettupalayam is a small town situated in Nilgiris and is the centre for potatoes and vegetable trade. The
villagers for their livelihood, depend on growing vegetables and tea. To ensure that the small vegetable
growers are not exploited by merchants, a society known as Nilgiris Cooperative Marketing Society
Limited (“the Society” or “the Respondents”) was formed in 1935 with only 116 members, and has now
grown to 22000 members. The majority of members belong to the Badaga community which has been
declared a backward class by the Government of Tamil Nadu. The Society has two categories of members
–A-class members that are vegetable or food growers who have voting rights and B-class members that
are merchants, traders, commission agents who do not have voting rights. All members are entitled to take
part in auctions held in the marketing yards of the Society. Any disputes between sellers and purchasers of
goods are settled through arbitration as per Tamil Nadu Cooperative Societies Act 1961.
 The Society has two big marketing yards at Mettupalayam where the auctions of vegetables takes place.
The A-class members i.e. primary members bring their agricultural produce to the yards by hired lorries
and trucks. Infrastructure such as godowns, weighing machines and accommodation is provided by the
Society. For the purpose of bringing vegetables, gunny bags are supplied by the Society free of cost.
Further, workers are made available to pack, load, unload, grade and weigh the vegetables during the
auction.
 An industrial dispute was raised by 407 persons; of whom 73 are porters and 335 are graders (“concerned
workers”). The Appellant-Union (“the Petitioners”) served a charter of demands upon the Society to
regularize the concerned workers as employees of the society and be given the same benefits. A strike
notice was issued, and a conciliation proceeding was initiated. These workers are employed by third
parties and work at the yard on daily wage basis but indisputably, the society pays wages to them although
the same is reimbursed by the members of the society. Conciliation proceedings ended in failure and the
State of Tamil Nadu referred the dispute for adjudication to the Industrial Tribunal.

Issue:
Whether the concerned workers i.e. the graders and porters are workmen of the Society?

Procedural History:
a) Tribunal: The Tribunal passed an order stating that there did not exist any relationship of employer and
employee between the Society and the concerned workers. Viewed from any angle, either on facts or on
law, the Petitioners have not substantiated that the concerned workers are workmen and therefore their
non-employment is not justified. No convincing evidence placed on record to establish the master and
servant relationship.
b) High Court: The Petitioners aggrieved by the award, filed a writ petition in the High Court of Madras.
The High Court passed the award and held that the concerned workers are not “workmen” because there
was no ‘employment’ even though they operated from the Society’s compound. While the Society
exercised supervision and control over the concerned workers, such supervision and control were not on
its own behalf but on behalf of its members. Further, the Society maintained no attendance or wage
registers. Payment to these workers were by individual members and only in situations where the
members could not afford to pay the workers, the Society paid on their behalf and the same was
reimbursed by the members. Therefore, the payment by the Society could also not signify employment.

Submissions:
a) Petitioners: The Counsel argued that the principal question which was required to be asked was for whom
do the workers work and to whom they look up to for their wages. It was submitted that the relationship
should be looked at owing to these facts:
1. work is being carried out in the premises belonging to the society
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20161015

2. wages are paid by the society

3. the Society exercises control over the workers (Evidence placed on record was a circular issued to the
workers and the appointment of the material supervisor)
4. on festival occasions, the workmen look to the society for gifts
Hence, the Tribunal and the High Court committed a manifest error in holding that only because the
society takes commission from its members, it cannot be an employer. It was contended that what should
be considered is whether the concerned workers are a part and parcel of the organization. In several cases,
the Supreme Court has lifted the veil to come to the conclusion that the engagement of third parties or
contractors may be a camouflage and there existed a relationship of employer and employee. Hence, the
so-called workmen of the contractors are in effect and substance the workmen of the principal employer.
b) Respondents: The Society is a service society and having regard to the fact that the members are both
growers and merchants and as the concerned workers are appointed by both growers and merchants
independently, it cannot be said that the Society is the employer of these workers. Hence, the Supreme
Court should not interfere with the finding that there does not exist any relationship of employer and
employee.

Rules/Tests:
 Determination of the vexed questions as to whether a contract is a contract of service or contract for
service and whether the concerned workers are employees of the contractors has never been an easy task.
The question in each case has to be answered having regarding to the facts involved therein. No single test
(control test or organisation test) has been held to be the determinative factor for determining the jural
relationship of employer and employee.
 Historically to determine such peculiar situations, the solution lay in applying the ‘control test’ i.e. could
the employer control not just what the person was to do but also the manner of doing it – if so, the person
was his employee. In the case of the Dharangadhara Chemical Works v. Management AIR 1957 SC 264,
the Court observed that supervision and control test is the prima facie test for determining the relationship
of employment. The nature or extent of control required to establish such relationship would vary from
business to business and thus, cannot be given a precise definition. Hence, the nature of business is also a
relevant factor.
 With the increase of the sophistication of the industrial processes, it became obvious that the test was
insufficient as a sole test (still remains a decisive factor). The ‘integration test’ soon became a substitute
i.e. whether the person was fully integrated into the employer’s concern or remained apart from and
independent of it. Once again, this is not viewed as a sufficient test in itself but a potential factor.
 The modern approach has been to abandon the search for a single test, and instead to take a multiple or
‘pragmatic’ approach, weighing upon all factors for and against a contract of employment and
determining on which side the scales eventually settle. The Court laid down several factors (“Multiple
Tests”) that would have a bearing on the result such as:
a) who is appointing authority;
b) who is the pay master;
c) who can dismiss;
d) how long alternative service lasts;
e) the extent of control and supervision;
f) the nature of the job, e.g. whether, it is professional or skilled work;
g) nature of establishment;
h) the right to reject.
 Burden of Proof: The Court held that “it is a well-settled principle of law that the person who sets up a
plea of existence of relationship of employer and employee, the burden would be upon him.”

Analysis:
 The SC held that this case presents a peculiar situation. The society is a service society which has been
formed with the object of protecting the growers from being exploited at the hands of the traders. Having
regard to this, there is no need to employ labourers far less provide continuous employment to them. With
respect to the contention of the Petitioner, the circular issued to the concerned workers was a direction
issued in response of complaints by the members that the concerned workers were not showing proper
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20161015

care while grading and weighing stacks of good, a result of which was losses to the Society. Further, the
role of the marketing supervisor was to ensure that the work is carried out smoothly so that neither the
purchaser members nor the merchant members are put to any disadvantage. Hence, in line with the object
of protecting its members and for smooth functioning for its own benefit, the Society issued the said
directions and appointed the marketing supervisor. This cannot be construed as control over the concerned
workers since the nature of the business was one that required continuous supervision.
 The concerned workers were engaged at the instance of the producer or the merchants on an ad hoc basis.
The producers or the merchants were free to engage their own porters and graders or could do the work
themselves. Hence, there was no obligation to engage the workers present at the godowns. Further, the
porters and graders could opt for other work and there was no obligation on their part to work only in the
yards.
 Payment was normally made to the workers by the members and no direct payment was made by the
Society. The Society made payments only on the authorization and on behalf of that Member. The Society
was not concerned with how much was to be distributed between the concerned workers.
 No attendance registers or wage registers are maintained and the Society has no control over who should
do the work, number of workers to be engaged and the work to be turned out. Further, there were no fixed
working hours and the concerned workers had no obligation to report to work every day. There was no
appointment order issued by the Society. Further, no disciplinary control over the concerned workers was
exercised by the Society.
 Whether there arises a question on non-employment: The concept around employment revolves around
three ingredients which are Employer, Employee and Contract of Employment. The question of non-
employment would only arise when the employer refuses to give work to a person who pleads and proves
to the satisfaction of the management that he was entitled thereto. However, a dispute regarding the
refusal to employ the concerned workers is not connected with the employment or non-employment
within the meaning of Section 2(k) of the Act. Therefore, the very fact that the State Government of Tamil
Nadu proceeded on these grounds shows that there is not an established relationship.
 The Supreme Court held that the said contract is not a sham or a camouflage. Firstly, such a question in
not a question of law but rather a question based on the evidence available on record and the as provided
above, the evidence suggests otherwise. Secondly, the standard and nature of tests to be applied for
finding out the existence of master and servant relationship cannot be confined into a fixed formula for
universal application in all class of cases. Though some common standards can be devised, the mere
availability of any one or more or their absence in a given case cannot by itself be held to be decisive of
the whole issue, since it may depend upon each cases to case and the peculiar device adopted by the
employer to get his needs fulfilled without rendering him liable. The veil may be pierced in such
situations to get to the reality. In this case, it is clear that there were no necessity for the society to employ
the concerned workers in the first place and therefore, the veil need not be lifted.

Conclusion:
 Therefore, the Supreme Court held that in this case, particularly having regard to the fact that the
respondent is a cooperative society which only renders services to its own members, the totality of the
above circumstances clearly goes to show that the concerned workers have not been able to prove that
they are workmen of the Society. Therefore, the decision of the Tribunal as affirmed by the High Court
cannot be said to be perverse warranting the Supreme Court’s interference. The Supreme Court
accordingly dismissed the appeals.