A contract of service is different from a contract for service.

In a contract of service the employer

normally enjoys the power of control over the work of the servant and the servant is bound to obey the
orders/instructions of the master. An independent contractor, on the other hand, undertakes to
produce the required result, but in the actual execution of the job to produce the result, he is not under
the order or control of the person for whom he executes that work. He is free to use his discretion. The
line of demarcation between an independent contractor and an employee is very thin and the two
concepts sometimes overlap. In such a situation, the question about the relationship of employer and
employee needs to be determined with reference to the facts and circumstances of each case as to who
are the parties to the contract, who pays the wages, who has the power to dismiss, what is the nature of
the job, and the place of executing the job, all have to be kept in mind. Out of so many tests, the vastly
important test which till now held ground was the element of control and supervision of work.

For distinguishing between an independent contractor and a servant, the test would be whether or not
the employer retains the power not only of directing what work is to be done but also of controlling the
manner of doing the work. If a person can be overlooked, beholden and directed in regard to the
manner of doing his work, that person is not a contractor and it makes no difference that his work is
piece work.

SHIVNANDAN SHARMA V. PUNJAB NATIONAL BANK LTD AIR 1955 SC 404

This was the first case in which certain observations were made on the issue of contract of service and
contract for service. The appellant was appointed head cashier in one of the branches of the respondent
Bank by the Treasurers who were in charge of the Cash Department of the Bank by virtue of an
agreement between them. The question arose as to whether the appellant was an employee of the
Bank.
Held.
(i) that the terms of the agreement clearly showed that the Treasurers were servants of the Bank
and not independent contractors; and
(ii) as the direction and control of the appellant and of the ministerial staff in charge of the Cash
Department of the Bank was entirely vested in the Bank, the appellant was an employee of
the Bank.

The terms of the agreement of the treasurer included inter alia –

1. Obeying the order of the bank
2. To remain faithful to the bank
3. To nominate cashiers and determine their remuneration which is subject to the approval of the
bank.
4. Nominees by the treasurer would be entitled to such other benefits as the bank may decide from
time to time.
5. Board of directors do have the right to increase or decrease the number of nominees in any
establishment as appointed by the treasurer.
6. Nominees entitled to bonus as a servant of the bank.

The court while holding the services as contract of service and not a contract for service examined the
concept and held,

Pollock's Law of Torts, the distinction has thus been brought out as:

"A master is one who not only prescribes to the workman the end of his work, but directs or at any
moment may direct the means also, or, as it has been put, 'retains the power of controlling the
 work', a servant is a person subject to the command of his master as to the manner in which he
shall do his work........ An independent contractor is one who undertakes to produce a given result
but so that in the actual execution of the work he is not under the order or, control of the person
for whom be does it, and may use his own discretion in things not specified before-
hand......................."

11th Edn. of Salmond's Treatise on the Law of Torts,

"what then, is the test of this distinction between a servant and an independent contractor? The
test is the existence of a right of control over the agent in respect of the manner in which his work
is to be done. A servant is an agent who works under the supervision and direction of his employer;
an in- dependent contractor is one who is his own master. A servant is a person engaged to obey
his em- ployer's orders from time to time; an independent contractor is a person engaged to do
certain work, but to exercise his own discretion as to the mode and time of doing it-he is bound by
his contract, but not by his employer's orders".

The court considers two aspects –

Firstly, the Bank makes itself answerable to the employees thus appointed by the Treasurers with the
concurrence of the Bank for their bonus, provident fund and travelling allowance. For those purposes
these assistants are to be on the same footing as the other employees of the Bank.

Secondly, the Bank had the fullest responsibility for the appointment and dismissal and payment of
salary of the employees in charge of the, Cash Department of the Bank and that therefore the
Treasurers could not but be independent contractors.

 It has already been noticed that the appointment of such assistants as are entrusted with the
work of the Cash Department is not under the absolute power of the Treasurers.

 The appointment-has to be approved by the Bank and the Treasurers cannot continue to employ
those workmen in whose fidelity and efficiency the Bank has no confidence.

 Hence both in the matter of appointment and dismissal of the employees the Bank reserves to
itself the power to' give direction to the Treasurers.

 Similarly, in the matter of the payment of salary the money comes out of the coffers of the Bank,
though it may be paid by the hand of the Treasurers.
Holding the nominees as employee of the Bank the Court observed,
As indicated above, in the present case the direction and control of the appellant and of the ministerial
staff in charge of the Cash Department of the Bank was entirely vested in the Bank through its manager
or other superior officer.

CHINTAMAN RAO AND ANR. VS. THE STATE OF MADHYA PRADESH AIR 1958 SC 388

Facts of the case

Relevant rules - Factories Act, 1948 - Sections 2(1) (definition of workman), 62 (entry of adult workers),
63 (work hours) and 92 (3 months imprisonment or 500 rs fine or both)
The management entered into a contract with independent contractors, known as Sattedars, for the
supply of bidis locally. The Management supplies tobacco to the Sattedars and in some cases bidi
leaves. Some Sattedars use the tobacco for manufacturing of Beedis by engaging coolies in their small
factories and some sattedars get it manufactured outside. Thereafter Sattedars collect the bidis so
manufactured and take them to the factory directly or through coolies where they are sorted and
checked by the workers in the factory. Selected or approved bidis are separately packed in bundles of 10
and 25 and taken by the Sattedars or the coolies in gauze trays to tandoor and left there. The rejected
bidis, commonly known as 'chhant' are again rebundled by the Sattedars and delivered to the factory.
The management pays the Sattedars the cost of the manufacture of bidis after deducting therefrom the
cost of tobacco supplied to them. Thereafter the second stage of the process of the manufacture begins
in the factory. It is carried out exclusively by the labourers employed in factory. It consists of warming
of bidis to give taste, wrapping them in tissue papers, labelling and finally bundling them in the 'Pudas'.
The finished product is then marketed.

One day chief factory inspector found three sattedars and 6 coolies in the premises working without
there being an entry in the register accordingly proceedings were held and concluded against the
factory. In appeal it was contended by the state that they are employees of the factory whereas the
appellants contended that they are independent contractors and hence they are not bound by the terms
of the factory and related legislations. They are not liable to comply with the provisions of maintaining
entry as per rule 62 relating to register of adult workers and other rules relating to the same.

Factories Act, 1948,

Section 2(1) 'worker' means a person employed, directly or through any agency whether for wages or
not, in any manufacturing process, or in cleaning any part of the machinery or premises used for a
manufacturing process, or in any other kind of work incidental to, or connected with, the
manufacturing process, or the subject of the manufacturing process.

Section 2(n) 'occupier' of a factory means the persons who has ultimate control over the affairs of the
factory,.............

The Court held,

It is and it cannot be disputed that the making of bidis is a manufacturing process. But is a Sattedar a
person 'employed', directly a or though agency within the meaning of definition 'employed'. The
concept of employment involves three ingredients:
(1) employer
(2) employee and
(3) the contract of employment.

The employer is one who employs i.e., one who engages the services of other persons. The employee is
one who works for another for hire. The employment is the contract of service between the employer
and the employee whereunder the employee agrees to serve the employer subject to his control and
supervision. Can it be said that a Sattedar is employed by the management of the factory to serve under
it There is a well understood distinction between a contractor and a workman and between contract for
service and contract of service.

In Stroud's Judicial Dictionary (3rd edn. Vol. 1, Page 616) the distinction between a contractor and a
workman is brought out in bold relief in the following manner:
'Of course, every person who makes an agreement with another for the doing of work is a
contractor, in a general sense; but as used in Workmen's Compensation Act, 1897 (60 & 61 Vict., c.
 37), s. 4 'contractor' and 'WORKMAN' 'have come to have a more restricted and distinctive
meaning,' and 'contractor' means 'one who makes an agreement to carry out certain work
specified, but not on a contract of service'.'

This Court in Dharangadhra Chemical Works Ltd. v. State of Saurashtra (1957) I LLJ 477 SC in the
context of the definition of 'workman' under the Industrial Disputes Act (XIV of 1947) made the
following observations at page 157 :
'The essential condition of a person being a workman within the terms of this definition is that he
should be employed to do the work in that industry, that there should be, in other words, an
employment of his by the employer and that there should be the relationship between the employer
and him as between employer and employee or master and servant. Unless a person is thus
employed there can be no question of his being a workman within the definition of the term as
contained in the Act.'

Elaborating the point further, Bhagwati, J., who delivered the judgment on behalf of the Court,
proceeded to state:

'The test which is uniformly applied in order to determine the relationship is the existence of a
right of control in respect of the manner in which the work is to be done………….'The principle which
emerges from these authorities is that the prima facie test for the 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 page 23 in
Mersey Docks and Harbour Board v. Coggins & Griffith (Liverpool) Ltd., and another [1947] 1 A.C.
1, 'The proper test is whether or not the hirer had authority to control the manner of execution of
the act in question.'
Held,
We, therefore, hold that he Sattedars in this case were not employed by the management as workers
but were only independent contractors who performed their part of the contract by making bidis and
delivering them at the factory. Further the court held that the words 'directly or through any agency'
indicate that the employment is by the management directly or through some kind of employment
agency and in either case there is a contract of employment between the management and the persons
employed. Admittedly the coolies were not employed by the management; there was no privity of
contract between them and the management. It is no disputed that the coolies were not employed by
the Sattedars for or on behalf of the management of the factory. They were employed by the Sattedars
on their own account and they paid them for the work extracted from them. On the aforesaid facts it is
obvious that the coolies were not employed by management directly nor were they employed by the
management through the agency of Sattedars. If so, it follows that coolies employed by the Sattedars
are not workers within the meaning of the definition in the Act.
Appeal was allowed and the conviction was set aside.

BHARAT HEAVY ELECTRICALS LTD. VS MAHENDRA PRASAD JAKHMOLA

Date of Judgment 20 FEBRUARY, 2019

Whether termination of services of workman Shri Mahendra Prasad Jakhmola, s/o Late Shri Vachaspati
Jakhmola, Helper by the employer, w.e.f. 13.11.2001, is justified and/or as per law? If not, what
benefit/relief the concerned workman is entitled for and with what other details?” Similar Reference
Orders were made in 63 other cases.
The Court held,
 There is no master employer and servant relationship of the workers with BHEL and BHEL was
also not making any payment of salary to them as the workers were in the service of the
contractor. Thus, there does not arise any question of giving them employment.
 The workers were being issued gate passes at the request of the contractor, from administrative
point of view, it was specifically bearing the mention that they are the workers of the
contractors. Any worker cannot enter in the workplace if such gate passes are not issued. CISF
takes care of the safety in our organisation.
 Workmen were only engaged by the contractor and were not their employees. Workmen
admitted that payments of their wages were made by four contractors including Shri Madan Lal.
Also, the fact that Madan Lal was paid under the agreement with BHEL was never disputed.

The Court referred to the test laid down in the case of GENERAL MANAGER, (OSD), BENGAL
NAGPUR COTTON MILLS, RAJNANDGAON V. BHARAT LALA AND ANOTHER’ 2011 (1) SCC 635
In this case it was held,

“10. It is now well settled that if the industrial adjudicator finds that the contract between the principal
employer and the contractor to be a sham, nominal or merely a camouflage to deny employment
benefits to the employee and that there was in fact a direct employment, it can grant relief to the
employee by holding that the workman is the direct employee of the principal employer.
Two of the well-recognized tests to find out whether the contract labourers are the direct employees of
the principal employer are:
(i) whether the principal employer pays the salary instead of the contractor; and
(ii) Whether the principal employer controls and supervises the work of the employee. In
this case, the Industrial Court answered both questions in the affirmative and as a
consequence held that the first respondent is a direct employee of the appellant”

The expression ‘control and supervision’ were further explained with reference to an earlier judgment
of this Court as follows:

“12. The expression “control and supervision” in the context of contract labour was explained by this
Court in International Airport Authority of India v. International Air Cargo Workers’ Union
(DOJ 13 April, 2009)
….if the contract is for supply of labour, necessarily, the labour supplied by the contractor will work
under the directions, supervision and control of the principal employer but that would not make the
worker a direct employee of the principal employer, if the salary is paid by a contractor, if the right to
regulate the employment is with the contractor, and the ultimate supervision and control lies with the
contractor. The principal employer only controls and directs the work to be done by a contract labour,
when such labour is assigned/allotted/sent to him. But it is the contractor as employer, who chooses
whether the worker is to be assigned/allotted to the principal employer or used otherwise. In short,
worker being the employee of the contractor, the ultimate supervision and control lies with the
contractor as he decides where the employee will work and how long he will work and subject to what
conditions. Only when the contractor assigns/sends the worker to work under the principal employer,
the worker works under the supervision and control of the principal employer.

We may hasten to add that this view of the law has been reiterated in ‘Balwant Rai Saluja and
Another v. Air India Limited and Others’ [2014(9) SCC 407], as follows:
“65. Thus, it can be concluded that the relevant factors to be taken into consideration to establish an
employer-employee relationship would include, inter alia:
(i) who appoints the workers;
(ii) who pays the salary/remuneration;
(iii) who has the authority to dismiss;
(iv) who can take disciplinary action;
(v) whether there is continuity of service; and
(vi) extent of control and supervision i.e. whether there exists complete control and supervision.
As regards extent of control and supervision, we have already taken note of the observations in Bengal
Nagpur Cotton Mills case [(2011) 1 SCC 635], International Airport Authority of India case [2009 13 SCC
374] and Nalco case [(2014) 6 SCC 756].”

Relying on the above the court held that there is no employer employee relationship between the
respondent and appellant and hence cannot claim the benefit of workmen.